Good day, ladies and gentlemen, and welcome to The Clorox Company Fourth Quarter and Fiscal Year 2021 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today’s call, Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin.

Thanks, Christy. Welcome, everyone, and thank you for joining us. We hope you and your families are continuing to stay safe and well. Before we get started, I want to let you know that we are making some changes to how we present our result. Today, Linda will start by providing some overall key takeaways for the year. Next, I’ll follow-up with some highlights from each of our segment. Kevin will then address our financial results as well as our outlook for fiscal year 2022. And, finally, Linda will return to offer her perspective and we’ll close with Q&A. Now, a few reminders before we go into results. We’re broadcasting this call over the Internet and a replay of the call will be available for 7 days at our website, thecloroxcompany.com. Today’s discussion contains forward-looking statements, including statements related to the expected or potential impact of COVID-19. These statements are based on management’s current expectations but may differ from actual results or outcome. In addition, we may refer to certain non-GAAP financial measures. Please refer to the forward-looking statement section, which identifies various factors that could affect such forward-looking statements and the non-GAAP financial information section, including the tables that reconcile non-GAAP financial measures to the most directly comparable GAAP measures, both of which are located at the end of today’s earnings release, which is also been posted on our website and filed with the SEC. Now, I’ll turn it over to Linda.

Thank you, Lisa. Hello, everyone. Thank you for joining us. Fiscal 2021 was an extraordinary year for Clorox, with the pandemic putting us through the ultimate test of volatility, including rapid changes in consumer demand and significant cost inflation, which was reflected in our Q4 results. Despite the complexities we faced, we delivered 9% sales growth for the fiscal year on a reported and organic basis, reflecting growth in all 4 reportable segments. This was on top of the reported 8% increase we delivered in fiscal 2020. On a 2-year stack basis, we delivered 17% sales growth. With rising cost pressures, we experienced declines in gross margin, particularly in Q4, resulting in a decrease of 200 basis points for the fiscal year, which we will discuss in more detail. Fiscal year 2021 adjusted EPS decreased 2% to $7.25. Recognizing the immediate priorities before us, I’d like to reinforce what matters most, long-term profitable growth. With a business that’s significantly larger than before the pandemic and a portfolio of trusted brands exposed to more tailwinds, we have clarity in our strategic imperatives, and I have every confidence in our ability to continue delivering long-term value creation for our shareholders. When I look at fiscal 2021, our performance has shown the strength of our people, brands and products, as well as the resilience of our categories, as we work tirelessly to supply consumers with products across our portfolio. As a result, we experienced significant growth in demand and strengthened our position amongst global consumers, with strong household penetration supported by higher repeat rates across new and existing users. The last 12 months have also demonstrated the need to accelerate our IGNITE strategy, to address near-term headwinds and capitalize on long-term opportunities. The industry environment remains dynamic, with significant inflationary pressure and continuing…

Thank you, Linda. Now turning to our segment results. In Health and Wellness, Q4 sales decreased 17% for the quarter, while full year sales were up 8% with growth across all businesses. On a two-year stack basis, Q4 sales grew 16% and full year sales grew 22%. In cleaning, sales were down by double-digits compared to double-digit growth in the year ago quarter, primarily due to the deceleration of demand across various cleaning and disinfecting products. On a full year basis, cleaning sales grew behind a strong front half performance. While demand fell faster than anticipated, it remains higher than it was pre-pandemic with strong repeat rates among new buyers. Importantly, our supply and product assortment are almost fully restored, which is reflected in our market share improvements, especially in wipes and sprays. As consumer demand migrated to more preferred forms and value packs. We also saw a negative impact to price mix, which we expect to continue over the next few quarters. Going forward, we’ll be focused on strengthening our merchandising activities, especially for the back-to-school period. Sales in professional products were down by double-digits versus year ago period when we experienced double-digit growth. For the full year, professional product sales were up by double-digits, fueled by an exceptional front half performance. Demand started moderating in Q3, and continued into Q4 as customers work through high inventory levels, especially of Clorox T-360 electrostatic sprayers. In the short-term, we expect results will continue to be volatile as we lap periods with unprecedented demand. Longer-term, this business continues to be a strategic growth area for the company. As part of our initiative to expand into new channels, we continue to add to our roster of out-of-home partnerships, including Live Nation, the world’s leading live events company. Lastly, within the Health and…

Thank you, Lisah, and thank you everyone for joining us today. As Linda mentioned, for fiscal year 2021, we delivered 9% sales growth on top of 8% sales growth in fiscal year 2020. Well, this is lower than we anticipated in our outlook. We feel good about delivering another strong sales year. Of course, we continue to manage to an extremely challenging cost environment, which impacted our fiscal year margins and earnings. Importantly, we delivered another year of strong cash flow, which came in at $1.3 billion, compared to a record $1.5 billion for fiscal year 2020. I’m pleased our strong cash flow allowed us to return almost $1.5 billion to our shareholders through our dividend and share repurchase program, representing an increase of about 90% in cash return to shareholders versus fiscal year 2020. Before review our Q4 results, I wanted to highlight a $28 million non-cash charge we booked in Q4 related to a third-party supplier for our professional products business. As we have shared previously, during the height of the pandemic, we worked with a number of third-party suppliers to support us in addressing unprecedented demand in the consumer and professional spaces. We’re reducing our reliance on one of these suppliers. And as a result, we took a charge in the fourth quarter. Important to note, this non-cash charge is included in our reported EPS and excluded from our Q4 adjusted EPS, as it represents a non-reoccurring item. Turning to our fourth quarter results, fourth quarter sales decreased 9% in comparison to a 22% increase in the year-ago quarter, delivering a two-year stack of 13% sales growth. Our sales results reflected 8% decline organic volume and two-points of unfavorable price mix primarily in our Health and Wellness segment, as supply improvements result in a broader product assortment,…

Thank you, Kevin. Before we open the line for questions, I wanted to take a moment to reiterate our commitment to and confidence in Clorox’ long-term growth and value-creation potential, which is fueled by our IGNITE strategy. We’re focused on strong execution in the face of dynamic conditions, including addressing significant cost headwinds and improving market share. In addition, we have clarity on the strategic imperative and executional mandate to differentiate Clorox and build a stronger, more resilient, and more profitable company. And as we accelerate and execute our IGNITE strategy, we’re confident that we’ll drive improved performance. Christy, you may now open the line for questions.

Thank you, Ms. Rendle. [Operator Instructions] And your first question is from Dara Mohsenian of Morgan Stanley.

Hey, guys. So 2 questions, just first on the $500 million investment program on digital and productivity, could you just give us a better sense for why the program is necessary now? We’ve heard the IGNITE strategy has been working the last couple of years. We’ve heard historically that you’re ahead of the curve in competition on the e-commerce side from you guys, and happy with innovation progress. So sounds like there was a review when you took over Linda, and obviously, Chau Bank’s appointment. But I’m sure you were focused on these areas before also. So, was this a surprise? How did it develop, particularly given it’s such a large amount? And then, as we think about the payback, is this what’s necessary to get back to long-term goals that at some point, in theory, sometimes a big spending program can yield payback above and beyond prior goals? I’m assuming at this point, it’s more to help return to prior long-term goals. And then, I also have a second question on gross margins if I can come back. Thanks.

Sure, Dara. Thank you. So why don’t we start with your first question, why necessary now? And what’s clear is the pandemic has absolutely accelerated consumer digital behaviors in a way that we never contemplated during our IGNITE strategy. And certainly, we saw that as a key consumer tailwind for us as we penned that strategy. But we’ve seen such a rapid movement online by consumers, both in the e-commerce space, and then certainly in the marketing consumption space, that we really knew we need to take a step back and look at the program that we had in place, and ensure that it was sufficient for us to deliver as we move forward, and what we look towards across the entire operation. And I think the other thing that I would note is, our challenges in fiscal year 2021, managing the type of volatility that we haven’t been exposed to in the past, underscored the urgency to upgrade that digital infrastructure and capabilities. And what I want to make clear is, this is really not about today, this is about maintaining momentum as we come out of our IGNITE strategy period. And you’ll see the bulk of the value of this comes after our IGNITE strategy period, so 2025 and beyond. This will allow us to have really real-time access to data and information that will help our entire operation move more efficiently and better serve consumer and customer needs. So we’ll make first investment in our ERP, which is the foundation and infrastructure of all of these changes. And that’s needed and accelerated to build these digital capabilities. We’ll have better supply chain visibility across all parts of the supply chain with real time data, which will improve things like procurement and supply planning. It will further enhance the work that you already referenced, that we’ve done on digital and e-commerce and further enhance our ability to do personalization, and get more out of that goal, and will help us on innovation. So really, what this was about was the change in circumstances and the environment, a rapid change in consumer behavior that couldn’t have been predicted before the pandemic, and we’re leaning in. And this is really about building a stronger company with more momentum coming out of the strategy period.

Okay. And then, could you just talk a little bit about the yield from this, how we should think about that in terms of timing and magnitude over time? And then second, Kevin, on gross margins, when you include the guidance for fiscal 2022, you’re obviously experiencing a lot of gross margin depression over a 2-year period, probably record amount of compression. So I’m just trying to understand your focus on pricing. It seems like the magnitude and timing of the pricing is less than what we’ve seen in the past versus these unprecedented cost pressure. So I just want to understand why we’re not seeing a greater offset through pricing. Is pricing more difficult in this environment from a retailer or competitive perspective? Is it more – some of the pressure was unexpected? Are there other pressure points of gross margin? How do you sort of think about and help us understand why we’re not seeing more of an offset to those outsized cost pressures like we’re seeing with some of your peers?

Yeah, Dara, thanks for the question. And let me share our perspective on gross margin. If I think about where we were before the pandemic, our gross margin was just below 44%, about 43.9%. As we moved through the pandemic over the last couple of years, we ended this year about 43.6%, so just a little below where we were before the pandemic began. As we go forward, as both Linda and I talked about in our prepared remarks, we are facing what we’re describing as unprecedented cost environment in terms of inflation. Just, Dara, for perspective, as I mentioned before, we’re going to experience, we think about $300 million of cost increases this year between both commodities and transportation. That’s about a 400 basis point hit to gross margin this year. Now, from the pricing actions we’re taking, we think we can offset about 2/3rds of those this year, with the pricing actions we’ve announced plus the more we’ll announce at a later date. And then, we expect to fully offset the cost increase going forward. But that’ll extend beyond fiscal year 2022, just based on the phasing of these actions we’re taking. And so, I feel confident we’ll recover these. But they’ll take a little longer beyond 2022. And then the other items, Dara, I’d point out to be aware of, as you think about our margin in fiscal year 2022. There are 2 other items. We had a temporary benefit during the pandemic as it relates to mix, as well as trade spending. As I think you know, for many of our categories, there is very limited promotional activity, because of lack of supply. We expect that is temporary and expect that to reverse out as we get back to a more normalized promotional environment. So we…

Yeah, just on the timing of pricing, it does seem like it’s taking longer than it has previously. Obviously, a lot of compression year-over-year in Q4, almost 1,000 basis points. And we’re not expecting positive gross margins until you get to Q4 of next year. So I’d be curious for your thoughts, specifically around the pricing offset. I understand there are issues like mix and some of the other issues you mentioned. But it does seem like it’s taking a long period of time to get pricing in, relative to history. So just trying to understand that.

Yeah, timing is related to the commitment that we made at the beginning of the pandemic. And we continue to hold fast to, which is our absolute number one priority was to supply as much of the demand as we possibly could. And that continue to be our priority as we headed through Q4. We made the immediate call to price on Glad, given what we were seeing in resin. And that will go in market shortly. And we were doing the work behind the scenes to ready pricing across the rest of the portfolio as needed. Clearly, we’re going to need to pull that lever and we are with about 50% announced to date and plans to take additional pricing that will communicate more details around coming up in the future. But it really was about that continued priority of meeting as much demand as we possibly could.

Great. Thanks, guys.

Thank you. Next question is from Peter Grom of UBS.

Hey, hey, good afternoon, everyone. So my question is just more on the conservatism and the guidance at this point. I know there are a lot of moving parts here. But I think a lot of investors are kind of asking, is the company being prudent, conservative, lowering the bar, whatever term you really want to use or you’ve embedded in the flex that even if trends deteriorate from here, is this guidance range still achievable? I think I know the operating environment is very different. And I’m not sure I would necessarily call this a rebase versus what we’ve seen in the past. But it will be helpful to get your view on how much flex there is in this guidance, should inflation rise or consumer demand fall more from here? Thanks.

Hey, Peter, this is Kevin. Thank you for the question. On our outlook, what I’d say is I don’t view this as conservative. I view this as balanced. I think you folks all know, we are operating in an environment of unprecedented volatility, as you think about the changing consumer demand, the macroeconomy as well as, how the virus is going to play out. And so we recognize, we’ve been operating this environment for the better part of the last 18 months and we expect that to continue. I would say that’s certainly true in the front half of 2022. And then, our hope is we’ll start to see it level out a bit in the back half and get to more normalized environment. And so, you should expect ongoing volatility in the front half. The way, Peter, we try to account for that is, we provide a bit of a wider range in our outlook than what we would normally provide at this time of the year. And we just think that’s prudent to recognize the level of variability we have. But I would describe this as a balanced forecast based on everything we’re seeing today.

Okay, super helpful. And then, just quickly, just maybe a point of clarification on Dara’s a question or your response to Dara’s question. Returning to 40% in Q4, does that mean that you don’t expect to be about 40% gross margins until Q4? I just want to make sure I’m thinking about that in the model correctly?

Sure. So, Peter, the way we’re envisioning this playing out over the course of the years, as I mentioned in my prepared remarks, we expect Q1 to be down about 1,100 to 1,300 basis points, primarily driven by the cost environment. I’ll talk more about that in a moment. And then, we expect sequential improvements as we move through the year. And by the fourth quarter, we’ll turn to margin growth. And then, what we expect is, by the fourth quarter, we’ve got margins back in the low 40%s. With our expectation going forward into 2023 and while I’m not providing an outlook today, I would say on margin, we fully expect to continue expand margins as we move into fiscal year 2023.

Okay, great. Thank you. Super helpful. Best of luck.

Thank you.

Thank you. Next question is from Wendy Nicholson of Citi.

Hi, a couple of questions. First of all, with the amount of money you’re spending on the new digital ERP investments, what’s your expectation for kind of capital allocation, potentially, to step in and support the stock and buy back stock here, because I know your leverage is still really low compared to your peers? But then, Linda, kind of stepping back aside from near-term, the guidance for 2022 gross margin, I mean, I’ve covered this stuff for 20 years and I have to go back literally 20 years to find a 40% gross margin for the company. And I totally get that we’re in a weird period with COVID. And you made a commitment to not raise prices. And I think that’s great. But I think it begs the question, is there something structural in the business, when you mentioned higher promotional spending. I mean, this does not seem like the time to be investing in promotional spending when you’re also raising prices, and you’ve got so much commodity inflation. So sort of a year into your job as the new CEO, do you think a mid-40%s gross margin is the right number and this really is a temporary blip? Or is this a sort of, “Hey, we may be over-earning on the gross margin line. And, low-40%s or even high-30%s is really where we’re sort of more normally positioned?” Sorry for the long question, but the guidance for 40% gross margin just seems crazy to me.

Sure, Wendy. I’ll start with the second part of the question, then I’ll hand it over to Kevin to talk a bit more about capital allocation on your first question. So what we’re seeing and you said it, it’s absolutely an extraordinary environment. And if you look at all the factors combined, and what’s contributing to our gross margin, I hate this term a little bit, but it’s really the perfect storm, where we’re lapping incredible sales growth, and things like operating leverage. We are lapping promotional levels being down. And I would argue promotional levels for us are our strategic. We’ve always viewed that investment, just like we do our marketing dollars, it helps us build trial, it helps us expose consumers to things like innovation. And that’s going to continue to be important in the future. And it’s why we want to put that money back in the system to ensure as we have record-setting innovation coming into the marketplace, from a top-line perspective, that we’re able to support it with those dollars. And then, of course, the cost environment at which, I think, we’re seeing broadly and it’s not just a Clorox issue, but certainly an industry problem. So all of that is happening at once. What that leads me to is, this is natural issue. This is a temporary issue, albeit an extraordinary one. And we’re managing with discipline. And I think the good news for us is we’ve managed albeit not this deep, but certainly environments that have happened like this over time. And what we do is go to work and execute, and we’re going to do it just like that in the past. We’re going to take pricing, and you’re going to see much more pricing come from us now as it starts to pick up and we’ve improved supply as we’ve spoken about. We’re going to put our cost savings machine to work with the mandate to our team to remove any costs that are possible in the system. And that’s what they are focused on every single day right now. And we’re going to take it one day at a time and execute it. But I feel confident in our ability to get back to what Kevin spoke about, and get back to those margins. It’s just not going to happen this year. Again, we’ll see improvement in Q4 and continued improvement as we move through fiscal 2023. But we do view this as a temporary issue.

And, Wendy, on capital allocation, I’d tell you, there is no change in our priorities in terms of how we’re going to allocate our capital. And as you know, our first priority will continue to invest in our base business. And that includes our digital investments. Both Linda and I spoke about that today. And so, if you think about where we were last year, we ramped up investments in our base business, both investing in innovation, investing in brand building, as well as investing in increasing production capacity within our supply network, primarily focused on increasing our wipes capacity. And so, as we move into fiscal year 2022, as we’ve gotten through some of those investments in our facilities, you should see our capital spending return down more in our normalized range of 3% to 4% of sales we typically operate, and you should expect that this year. And then we will deploy a certain amount of capital towards this technology investment. The way I see this $500 million playing out is about 60% of it will flow through our P&L, and about 40% of that will flow through our balance sheet. And if you think specifically about fiscal year 2022, we’re going to invest about $90 million, with about $35 million flowing through our balance sheet, will deploy cash. And then, after we invest in the base business, we’ll continue to look for ways to return excess cash to shareholders. Last year, we generated tremendous amount of cash through the pandemic, and we returned almost $1.5 billion. I suspect this year, because of the challenging cost environment, and the reduced profitability we’ll return closer somewhere between $700 million and $900 million between our dividend and our share buyback program. But I’d also highlight, if you look at our dividend program, with our recent increase we announced back in June, we now have an average annual increase of a little over 7% over the last 5 years. And that puts us in the top third of our peer group. So I think we have committed to continually returning excess cash to our shareholders. And we’ve operated fairly high level than our peer set and you should expect us to do that going forward.

Okay, that’s great. And just on the digital investment, what’s the sort of payback timing for that? I mean, when should we start to see whether this investment was worth it, if you will, bottom line?

Yeah, Wendy, thanks for that question. So this is really an investment in setting our future. You’ll start to see some of that payback late in our IGNITE strategy towards the tail-end of it. But this is really about setting up the company to be prepared to succeed over the long term. And so we’ll invest the $500 million over the next 5 years. You should see an investment starting or return starting late in our IGNITE period, late 2024, 2025. And then, really accelerating as we get beyond IGNITE. And then, Wendy, our commitment is we’ll continue to update folks exactly on our progress and both our investments and the returns we’re generating on that investment.

Great. Thank you so much for the color.

Thank you, Wendy.

Thank you. Your next question is from Chris Carey, of Wells Fargo Securities.

Hi, everyone.

Hi, Chris.

I want to understand, you made some comments of your quarter about the Health and Wellness business normalizing to something like $700 million or below run-rate, which could have played out this quarter. But that business could grow from that over time. And I’m curious, your thoughts on timeline of that trajectory from where we are today. What you think is going to be developing over that time period, whether that’s professional, getting back in stock in some of your businesses, the promotional spending or the pricing? And, I guess, underlying that question as well, as I’m conscious, of course, that the Health and Wellness business has really tough comps in the first half. But the Household business also has pretty difficult comps, and the Grilling business is normalizing. And, just trying to get a sense of, if this trajectory is playing out in Health and Wellness? What you kind of see in your Household business for the first half of the year? I guess, back of the envelope math would just suggest that you kind of need to see some improvement on a stack basis there. And whether I’m thinking about that correctly? And then, I just have a quick follow-up.

Sure, Chris, I’ll start with Cleaning. I think this is absolutely a dynamic time for cleaning, given all of the volatility. But there were 2 things that we said at the beginning. We believe that this was a change in consumer behavior that would be long-term. And the evidence continues to support that that is absolutely the case. So if you just look at some of the consumption numbers, even though it did decelerate faster than we expected, as vaccination rates picked up, at least until we got to the point we are today, you still see a very strong 2-year stack of growth. So in Q4, that was over 20% for our cleaning business. But also, if you look at consumption, that’s been up in the range from 25% to 30% versus pre-pandemic level. So we really are seeing that behavior be sticky with consumers. Of course, we’re lapping incredible growth in those businesses, and frankly, demand that we couldn’t supply early in the pandemic. So what you’re seeing is a normalization, but as we said, a significantly higher run rate moving forward. And we expect that to continue, exactly, where that will net out is still unknown. And, I think, there’s a lot of unknowns moving forward. Delta certainly is an unknown, cold and flu season, et cetera. But we have continued confidence that this will be a long-term trend that we can grow off and will provide us the opportunity to accelerate profitable growth. And as we talked about raising ourselves target to 3 to 5, this is a portion of that. So continue confidence there. Again, I would say, though, as we look to the first half, and as we lap 27% sales growth overall for the company, for cleaning and disinfecting, and for our household business. We won’t expect to deliver accelerated results versus that period. But as we start to lap in the back half is when we get to the low end of our sales algorithm, and seeing both cleaning and disinfecting, and our household business contributing positively to that.

Okay. Yeah, thank you for that. Kevin, did you have something – I just have a quick follow-up. Just on the Health and Wellness margin in the quarter, I appreciate, there was a mix dynamics and volume deleveraging, but obviously, it was quite low, well below our model. And any perspective on, can you expand just on what exactly is occurring in that business? And how we should be thinking about the margin trajectory, they’re going into fiscal 2022 and, perhaps, why that’s going to be improved? Thanks so much.

Yeah, Chris, as it relates to margin on our Health and Wellness segment, I would highlight a few items. The one is, as I mentioned, we took a charge as it relates to a PPD supplier that impacted our Health and Wellness segment, and that was about 11 points in terms of margin. That was non-cash that won’t continue going forward. And then also keep in mind, we are lapping 85% growth in the Q4 prior year, so we’re lapping a big year-over-year number, as well as we’re dealing with increased costs. So, I think, it goes back to what we’re talking about. We’re dealing with a very challenging cost environment in a very near-term, and that’s going to pressure margins. But we do think this is short-term, we continue to have tremendous confidence that we’re going to be able to expand margins as we get into the back half of fiscal year 2022, and then on into 2023. But we have to recognize it in the very near-term is going to challenge margins. You saw that in the fourth quarter, and you’ll see that in the first half of fiscal year 2022.

Okay. Thanks so much.

Thank you. Your next question is from Jason English of Goldman Sachs.

Hey, good morning, folks, or good afternoon, I guess, depending where you are. A couple of quick questions. First, real quick on cash flow, have you given free cash flow guidance? If not, can you? And you’ve got this target out there free cash flow conversion as a percentage of sales 11% to 13%. As you migrate away from gap and start excluding things, should we expect that that ratio to move lower or for you to lower end of that ratio?

Yeah. Jason, on cash flow, as you rightfully said, our target is 11% to 13%. We’ve done very well against that target. If you look at fiscal year 2020, the height of the pandemic, we’ve delivered a little bit over 19% in terms of cash flow, as a percent of sales. We had a good strong year in fiscal year 2021, we ended up at 12.9%. I would say this year, given the challenges on the cost environment, I expect, we’re going to be at the low end of that range. So I think closer to 11%, if not slightly below that. But that’s really a reflection of the more challenging cost environment. Long-term, we have tremendous confidence that we continue to deliver that 11% to 13% going forward.

That’s helpful. Thank you. And, Linda, I know you’re pleased with the market share progress, but if we look at it versus pre-COVID levels, particularly for your cleaning segment. You’re still well below where you are pre-COVID, even here in July and, in fact, if I look at like multipurpose cleaning – multipurpose clean spray or cleaning wipes, it’s only gotten worse versus 2019 for the last couple of months. Is this the reason that your progress on pricing is so slow? Is it to try to sort of reset some price gaps and become more competitive to current market share? Or is it in fact due to like the service levels you mentioned and really the need to restore them first before we were able to start to push through pricing with retailers?

Thanks, Jason. I would say, I’m very pleased with our share results, given the environment that we have. We’re seeing significant increased competition and we had supply challenges given the unprecedented demand and we’re making, in my view, great progress. So share up in 7 of 9 businesses. If you look at the latest 13 weeks, we widened our share gap in wipes back to double digits and growing, and that’s with significantly new competitive entries in the category, we grew [bread at] [ph] 8 share points. And we have a very strong start to back to school, and that programs working well continued strong Kingsford share growth, after many quarters in a row of share growth in Kingsford. And you’ve heard my commitment, and I continue to stand by it, we remain committed to growing share. And we’re focused on that fiscal 2022, and headed in absolutely the right direction. And I’ve also called up places where I’m not as happy, I’m still not happy on where we are in Glad, we have work to do there, we’re focused on the fundamentals and executing. And this really is completely unrelated to pricing, Jason. Pricing really has to do from a timing perspective with ensuring that we had the supply and then going back and working with our retail partners to ensure that we could implement the new plans in place. That really is the only reason why we’ve delayed that. We will, of course, do the very important work you call out on price gaps as we move forward and that will be important. But given the incredible cost environment we see across the industry, we would expect to see categories moves, and we’ll move along with them. And then we’ll do the work to go back and ensure that we’re in those right gaps. And then the other piece I would add Jason is our brands have never been stronger. And that was our goal exiting fiscal year 2021 was to be in a stronger position to grow off of this new significantly higher base. If you look at our household penetration, repeat rates, our consumer value. And as you know, we measured the percentage of our portfolio that is deemed superior by consumers that set a record high at 70%. So we feel fully confident in our ability to take pricing with the consumer. And then, of course, it’ll be met with great marketing spend and innovation to continue to support that demand.

Thank you. I’ll pass it on.

Thanks, Jason.

Thank you. Your next question is from Kevin Grundy of Jefferies.

Great, thanks. Good morning. A couple of questions on your outlook. So first, just from an organic sales perspective, you’re expecting down 2% to 6%. My question is perhaps for Kevin, what is embedded in that for category growth building on some of the prior questions, you sound pleased for the most part with some of the market share improvement? So is that reflective, generally of what you expect for the categories that you participate in? I’ll be it against some difficult year-over-year comps in the first half of the year. And then a little bit longer term, I don’t want to belabor this, but maybe I’ll just kind of play it back. And you tell me if I’m hearing this sort of correctly, the longer-term margin restoration now for this company. Linda, I think to an earlier question, you said you don’t see this as a structurally lower margin business. Kevin, I think, you kind of alluded to this is probably a multi-year journey, though, to get back. So down materially this year, some improvement in fiscal 2023, but probably not getting back to what would be quote unquote, normal sort of margins for this business until fiscal 2024, 2025, maybe you can just confirm that, and I have a quick follow-up on pricing? Thank you.

Hey, Kevin, thanks for the question. So on the 2, on organic sales growth, our assumption in the minus 6 to minus 2, is it we’ll see modest category decline, as we see demand moderate, and the other pandemic, and then that’ll be partially offset by share growth broadly across our portfolio. And so that’s embedded in our assumptions for organic sales growth. And then on margin restoration, what I’ll tell you is we are committed to recovering the cost inflation we’re experiencing this year. And as I said, between our cost savings program and the pricing actions we’re taking and the phasing of those pricing actions, we think that’ll extend beyond this fiscal year. And so I see this more as a short-term issue, but medium- to long-term, I have confidence in our ability to get back to that mid-gross margin number. I’m going to resist providing a gross margin outlook for fiscal year 2023. It’s just too early to do that and there’s a lot of moving parts. But embed in our assumptions right now is, we’ll see a moderation in the commodity environment as we get through the end of this calendar year. And if that commodity environment moderates as we anticipate plus the pricing actions we’re taking, you’ll see a start to rebuild margin, and then continue into fiscal year 2023. And, Kevin, I’m sure you’ve seen this before. But if you go back and you look at some of our previous pricing actions over the last decade, we’ve done this 3 other times. And in all cases, what you saw was a margin decline in the year when the commodity costs spike. And then we went on to rebuild margins in subsequent years. And most recently, in fiscal 2018, if you recall, we had 9 straight quarters of gross margin expansion following our pricing actions. And so my expectation is, you’ll see something similar where we’ll start Q4, and then I’ll continue on into the fiscal year 2023.

Okay. That’s helpful. And then the quick follow-up is just, I think, the comment was you price on 50% of the portfolio. I suppose maybe some questions on why the delay in doing that. But setting that aside, I guess, understanding some of the past competitive dynamics, what’s the probability of pricing on the remaining 50%? Understanding there has to be a cost justification, but difficult to envision many categories where there’s not talk about the decision there? What’s going on price gaps versus private label game theory versus the competition? Why not moving on the other 50%? Or maybe sort of some further color on expectations there? And then, I’ll pass it on. Thank you.

Sure, yeah, on the 50%, as we said, I think in an earlier answer, and in our prepared remarks. It means, we’ve announced pricing of about 50% to date, and we are planning additional pricing that will speak a little bit more once the details are in market. And really, there were considerations across how we would do that at what credit categories and what time, and we really took the category by category, it started with that first principle that I spoke about, which is we had to ensure we were in the right supply position as a starting place, before we did that. And as we’ve brought supply back online, we’ve opened more and more of our categories to looking at that. And then, of course, we’re doing the really important work to look at each category, look at the dynamics, our position in that, what our innovation and marketing plans look like and balancing that across every one of the categories, because what we’re really here to do is maximize the long-term on this. And what we want to ensure is that pricing as a part of that way that we restore margins, but also that we don’t give up the opportunities we see in front of us to accelerate overall long-term profitable growth, and that’s the balance we’ve gone through on every category. But, I think, what you’re going to see from us as this all nets out, is that we’re taking a very prudent stance on pricing. It will be a meaningful contributor to gross margin expansion as we move through the year. And as Kevin said, we have all confidence that as we move beyond that, we’ll be able to restore margins with pricing as an important part of that.

Okay. Very good. Thank you both. Good luck.

Thanks, Kevin.

Thanks, Kevin.

Thank you. Your next question is from Lauren Lieberman of Barclays.

Great, thanks. Good morning. I was hoping if you could just give us a little bit of color do you have it on where you think retailer inventories currently stand and same for PPD and any research you’ve done on consumer pantries that you’ve built in the category correction in the first half. But I’m just curious, where you stood on retail inventory levels in particular in PPD? Thanks.

Sure, Lauren, broadly as we look across retail inventory is given the good supply progress that we made in Q4, we have largely restored inventories across the bulk of our portfolio. We do have some additional work to do on the broader assortment, a few packs and cleaning and disinfecting here and there, and still have some work to do on Kingsford and Food. But largely, I would say on the retail side inventories are restored, we’ll see how that plays out, of course, as delta takes on et cetera, how those inventories continue to progress as we go through the first half of the year, but largely in a good spot now. In the professional business, it is different. So if you look at the front half of fiscal year 2021, we had a 70% increase in sales for our professional products business. And then we had a big drop off of that in our back half, as we’ve talked about in both sets of results. And what we’ve uncovered is there just looks like there’s a lot of inventory in the professional channel. Given that, that front half that we experienced and it’s not just our inventory, it’s actually inventory across all manufacturers. And that network is primarily supplied by distributors. And so having visibility into each point of that supply, we do now when we realized there is more inventory there. So that means, as we left that 70% growth in the front half of fiscal 2022. And we start to read down that inventory, it is going to be bumpy in the short-term, continue to have strong confidence in our ability to grow PPD, you look at the two-year stack growth, its 35% sales growth. But I think it is going to be bumpy here as we left this front half, having the inventory on the system and then lapping an incredibly strong first half of last year.

Okay. Thanks. That’s super helpful. And then, I have a question about variety, you’ve talked about how obviously during the height of the pandemic to increase throughput SKU rationalization and the smaller packs in particular now bringing some of those value packs back in and then larger sizes. Did you consider using this as sort of an opportunity to intentionally kind of streamline mix? Is everyone in the industry of revenue growth management, right, but ways to actually improve the profitability of what you do choose to merchandise, because I would have thought that that could also give you a bit more flexibility and particularly as you’re going through this cost environment?

Yeah, absolutely. We’ve spoken about adding net revenue management more aggressively to our toolbox to deal with margin moving forward and that is absolutely the plan. So 2 things. One, as we brought SKUs back into assortment we did just that, Lauren, we did not bring back the full assortment, we took the opportunity to simplify which helps us in many areas in the cost lines and P&L. But also from a retailer perspective, optimizing their mix and leveraging their store shelf space, as well as online mix in the right way. So you will see a smaller assortment, our goal is to ensure that we had share of assortment, right? But in full knowing that distribution points might come down, and we’re certainly seeing that play out. But your point moving forward is exactly right. We intend to use more net revenue management tools, which would include things like assortments and getting the mix right to drive margin over time, and all of our business units are developing plans to use that as a bigger lever moving forward.

Okay. Great. And then, Kevin, if I just can sneak in one more, I did have a question for you on the charge this quarter related to the PPD supplier, either just be helpful to better understand what was underlined next, because if it was you discussed, paying up for supply, which obviously given the commitment that the company made to supply these critical products during a very tough time is important. But I’m just not sure – I’m curious if the charge piece of this like why that choice would effectively be excluded from results. And I know this is backward looking. But I think it’s just helpful to get that perspective.

Yeah. Sure, Lauren, happy to talk about the charge we took. So as we mentioned, we took a $28 million charge in the fourth quarter. And this was related to a PPD supplier. And what this related to it very early in the pandemic, when we saw the unprecedented increase in demand, we invested to help scale this supplier up to help increase their ability to supply products. And so what we’ve done now is as they’ve done that they’ve had some challenges more recently, and we made a decision, we’re going to move away from them. And so what we’re doing here is we wrote off the investments we made in that supplier, which was really done to help scale them back when the pandemic first began. And at this point, we’ve moved our business away to other suppliers. So we think, we’re in good shape going forward from a production perspective. And then, we excluded this as a non-reoccurring non-cash item in terms of the charge we took in Q4.

Okay. Thanks so much.

Yeah. Thanks, Lauren.

Thanks Lauren.

Thank you. Your next question is from Stephen Powers of Deutsche Bank.

Hey, thanks very much. Hey, Linda and maybe Kevin as well, I listened to the discussion on the strategic investments that we started with, and it makes good sense to me logically, I’m not today in the – the business case at all. But, I guess, I’m not clear on why we’re adjusting out those investments from recurring EPS. And, I know, we talked about this move to adjust their earnings last quarter, and I get the rationale to provide investors clarity. But the other one time gain or a charge for impairment, I think, that’s different than what I’m hearing, which is backing out strategic investments for a pretty long time, 5 years after years of not doing so. So just why are these investments different from what I perceive you guys, who have been doing proactively for the last several – any number of years to get you in a position where you are now? It seems almost normal course in evergreen for Clorox. So, I guess, there’s more clarity on why these particular investments are unique and different enough for you to consider them non-recurring worthy of adjustment that would just help philosophically on this idea of adjusted earnings.

Yeah, Steve, this is Kevin. Thanks for the question. I say about these investments, a couple of thoughts. The one is just in terms of the size and investment. So as we mentioned, $500 million over 5 years is a big investment for us. The vast majority of that investment will go towards are replacing our ERP system. So I think this is pretty typical for large ERP investments that you typically do only once every 20 years or so to isolate that. So people can understand the investments we’re making there, versus underlying performance of the business. And then the other aspect on this investment, and Linda mentioned it, this investment really is about the future of the company, much more sales and what’s going to do to benefit our IGNITE strategy through 2025. And so we’re making some pretty significant investments here, both in replacing our ERP as well as up-scaling our digital capabilities that really will start to benefit us as we move beyond 2025 our IGNITE strategy. So we thought it’s appropriate to be able to isolate these and help folks understand your underlying operating performance, which has been pretty volatile as well as the investments we’re making really set the company up for the long-term.

Okay. Okay, fair enough. You talked a little bit about this already, but the building blocks, Kevin from the double-digit declines in the first quarter to achieving the low-end of the long-term algorithm in the back half. Can you just talk a little bit more about just, for my own benefit, that the bridge from 1Q the back half and really, where your confidence comes from that 3% plus will be kind of achievable in the back half and extrapolating forward?

Yeah, thanks, Steve. So if you think about the top-line, the front half of the year, we said it’s going to be much more challenged a big portion that is we’re lapping 27% growth. So we had record growth in the back half – or, excuse me, the front half of fiscal 2021, we’ve got a lap. As a result of that, we expect our business to be down high-single, low-double digits. I think, we’re getting to the back half the year. And we get back to more normalized comps. And we think we’ve gotten through the bulk of the demand moderation that we expect in the front half of the year that gives us more confidence that we’re going to be in a more normalized operating environment with more normalized comparison periods, that we should be back in that 3% range or so. Linda and I continue to have tremendous confidence in the opportunity for the extra point of growth, I think a little bit out of getting hidden by the comps we’re going through in the normalization. And so that’s really a short-term issue for us that we think plays out over the next 6 months. But as we look to the back half of the year, and we think we get to a more normalized environment, then I think you’ll start to see the benefits we’ve been talking about that we can to see going forward, that we think is really a medium- to long-term opportunity.

Okay, great. And if I could squeeze one more clarifying in your release, Kevin, there was a line about unfavorable price mix driven by supply improvements that led to the reintroduction of value packs. I’m assuming that’s all mix. But it does a price mix, if there was a price component to that, could you just talk about that? Or is it – am I right that it was essentially mix?

It was essentially mixed in terms of the headwind, the less favorable pricing, because we continue to price in international. So we had about a point benefit in price within that price mix, as it relate to the international pricing that we’re doing, the rest of those about 3 points of negative mix. And that mix was, I’d say two-fold, certainly as we talked about reintroducing additional SKUs. But the other item that we’re seeing is, as we now have wipes’ back end supply, consumers are changing to more convenient forms. So during the height of the pandemic, when we couldn’t supply wipes, it increased our bleach sales in less convenient form. And now that we can produce wipes, consumers are moving back into more convenient form of wipes versus using bleach. Ultimately, that’s good for consumers. It gives them a more preferred solution. But that comes at a slightly lower mix for us. So a combination of the conversion within the product families, as well as introducing additional SKUs, we get to more normalized environment.

Okay, understood. Thank you very much.

Yeah.

Thank you. Your next question is from Andrea Teixeira of JPMorgan.

Thank you. So, Linda, I wanted to follow-up on your comments on Glad bag. I was hoping, if you can comment on why it’s taking so long to recover even after your main competitor has been narrowing these price gaps and leading in prices increasing, I believe, twice already. Is that because you always laid on innovation and competitors and private-label caught up to it, especially during COVID? And following up on an earlier question, you had committed to keep prices intact during the pandemic, but what do you need to see now that your capacity is back on track and vaccinations are up? Are you still thinking you need to narrow those price gaps in particular for the value proposition in that category, and in particular, in large count bags for Glad trash? And then I have a follow-up question on commodities for Kevin, please.

Sure. So on Glad, if you look at Q4, just to set the backdrop, sales were down double-digits, but we lapped very strong double-digit growth in Q4 of last year. And we had a 2-year stack of Glad on 9% sales growth, in the fiscal year results, low-single-digits. So overall from a sales perspective, we were happy with where we landed. Really, it’s a sheer disappointment that I continue to have. We want to grow market share and particularly in a category like trash. We are seeing the share trends improving. So we were down about 0.9 points in the latest 52 weeks, down 0.5 points in the latest 13, and down 0.4 in the latest 4 or 5. So definitely trending in the right direction behind improving distribution, getting the fundamentals right, et cetera. When it came to pricing, again, we announced pricing back in the fourth quarter, it’s being implemented now. So – and we took a larger first round than what we saw in the marketplace to take into account what we saw from the category. And we’re evaluating that again if an additional price increase is warranted. But we feel like we’ve made the right move on Glad. And again, we’ll continue to watch that. Innovation continues to work incredibly well in Glad. And we’re committed to that program moving forward to differentiate our bags. But what we’re really focused on right now is in-market execution, ensuring we have the right distribution at every retailer, implementing pricing flawlessly, and then, getting back to merchandising, which will be important in this category. So, again, this is less of a comment overall in terms of sales, but more around winning in the market, ensuring that we have plans that grow share in the future.

That’s fair, thank you. And the question for Kevin is really like what are your guidance in bags for gross margin? In terms of – is that fair to say that guidance in bags, while you’re announcing pricing, which is the 50% of the portfolio? And then, in terms of pricing, are you baking in resin to stay as spot or you’re actually using forward curves to basically swap and adapt? Or in other words, if it gets better from here and you take more pricing, there is upside to your guidance.

Yeah, thanks, Andrea, for the question as it relates to how we thought about commodity forecasts. We have projected out what we believe is a commodity environment over the course of the year. So we’re not using a spot rate. And our fundamental assumption is we will see commodity costs continue to increase. In fact, we think this quarter, we’ll see them peak and then begin to moderate in the fall, late calendar year, commodity costs will start to moderate and continue in the back half of the year. And so, this is I think I mentioned on one of the earlier questions, we anticipate about 75% of the commodity cost increases, we’re projecting for the year, we’re going to see in the front half of the year. This is going to be the most extreme comparison period. And just to give you maybe a little bit of additional information to help dimensionalize it, when you think about resin, we’re projecting over 100% increase in the cost of resin in the front half of the year. So that’s the type of environment we’re dealing with. And so that’s a difficult environment to recover that type of margin compression in the time that it’s rising. But we do think we’re positioned well to recover that over time. But right now, we’re projecting for the full year what we think where commodities will land. So any change in that we’ll certainly update you as we learn more.

And if I can squeeze just one question on inventory, the pantry, is there any anecdotal evidence that you’ve heard from your – basically, your customers saying that – consumers or even your market studies that consumers have built a lot of inventory on bleach, in particular. To your point already that they’re using bleach to disinfect. And that is super dynamic, or just consumption still remains elevated from your commentary before. It’s just a question of having them switch back to branded as you supply more.

Yeah, we don’t have any evidence from consumer studies or from retailers that there is excess pantry inventory across any of our categories, where there was pantry loading that happened early in the pandemic, for example, on Glad, those things have already reversed themselves out. And what we’re just seeing is continued elevation of consumption in the cleaning categories as you articulate, but lower than levels at height of the pandemic. But really, we don’t see this as a pantry-loading issue.

Thank you so much, Linda. It’s excellent.

Great. Thank you. I believe that’s the end of Q&A. Thanks again, everyone, for joining us. We look forward to speaking with you again on our next call in November. And until then, please take good care.

Thank you. This does conclude today’s conference call. You may now disconnect.