Good day, ladies and gentlemen. And welcome to The Clorox Company Quarterly and Fiscal Year 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 conference call, Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference.

Thank you, Jen. Good afternoon, and thank you for joining us. On the call with me today are Linda Rendle, our Chair and CEO; and Kevin Jacobsen, our CFO. I hope everyone has had a chance to review our earnings release and prepared remarks, both of which are available on our website. In just a moment, Linda will share a few opening comments and then we’ll take your questions. During this call, we may make forward-looking statements, including about our fiscal 2025 outlook. These statements are based on management’s current expectations, but may differ from actual results or outcomes. 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 any such forward-looking statements, which have been filed with the SEC. In addition, please refer to the non-GAAP financial information section of our earnings release and the Supplemental Financial Schedule in the Investor Relations section of our website for reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. Now I’ll turn it over to Linda.

Hello, everyone. Thank you for joining us today. Our first quarter results were strong. Taking a step back, we entered fiscal 2025 in a position of operational strength, having fully restored supply, distribution and the vast majority of market share from the August 2023 cyberattack. This quarter, we drove further progress as we fully restored overall market share, grew share in most of our categories and delivered results above our expectations, while continuing to make progress against our strategy for long-term value creation. Importantly, we continued to deliver on our commitment to rebuild margin, achieving our eighth consecutive quarter of gross margin expansion. Our holistic margin management capabilities continue to enhance our ability to fuel growth and we remain on track to return to pre-pandemic gross margins this fiscal year while investing in our business. We also completed the development of our VMS business during the quarter. This follows the previous sale of our Argentina business and marks another important milestone in the evolution of our portfolio, which supports our goal to reduce volatility and drive more consistent and profitable growth over time. Looking ahead, we continue to see an uncertain macro environment where consumers remain under pressure and continue to seek value. Within this context, and in the complexity of the recent years, our portfolio of trusted brands in everyday essential categories has remained strong and resilient. So during a time when it matters most, we are focused on delivering superior value to consumers and continuing to invest in our brands and innovation to win in the market. We have strong fundamentals in place and we remain laser-focused on advancing our transformation to be a stronger and more resilient company. Through these actions, we’re making good progress in building a more consumer-obsessed, faster and leaner company that’s well-positioned to deliver consistent and profitable growth. With that, Kevin and I will take your questions.

Thank you, Ms. Rendle. [Operator Instructions] And our first question will come from Dara Mohsenian. Please go ahead.

Hey, guys. Good afternoon. So I just wanted to touch on market share. You mentioned in the release that you guys have fully restored market share. As you look out from here, do you think you can consistently expand share, maybe talk about some of the key drivers behind that? And then specifically, if you could talk about the back half of the year, what are you assuming there in terms of your market share performance and volume growth? I’m guessing maybe you’re not assuming much in the back half of the year, so some short-term clarity there and thoughts on long-term share potential from here and how you drive it?

Sure, Dara. I’ll cover that, maybe just starting with the performance in Q1. We did indeed return our overall market share to its pre-cyber levels and we saw growth in almost every one of our categories. And I think it’s important to note that that growth came before we began lapping the cyber disruption as well, so our overall market share was up in that period before we started the lap. We’re also seeing, just from a private label perspective, not really a significant change in what we saw in previous quarters where private label share has been normalized coming out of the peak when they grew share during cyber. So if you look at aggregates, they only grew share in two of our categories and we also grew share in those same categories. And they’re actually down versus pre-cyber levels, if you look at this quarter, compared to the quarter before we had the attack. So we feel great about where our share position is. Obviously, we’ve invested more in both advertising and sales promotion and trade promotion to ensure that we have the health of our brands covered. I would say that’s generally in line with what we thought we were going to see. So the share growth that we experienced this quarter was in line with our expectations. Moving forward, we would expect to continue to grow share, albeit probably at a smaller level than we’ve seen given we’re in a lap period right now. So that share growth will be lumpy throughout the year, but we do expect the end of fiscal year with solid share growth and overall market share gains.

Okay. And within that, can you talk about what you’re seeing from a promotional environment perspective in the industry and maybe parse out some of the different business segments in terms of what you’re seeing there? Thanks.

Yeah. Our assumption for this year was that promo would return to pre-COVID levels and that’s exactly what we’ve seen. I would say some categories are slightly ahead of that, some are below, maybe the one that I think is probably the biggest variance versus pre-COVID and pre-cyber would be Litter. Litter’s promotional levels are significantly higher. And to be fair, we’re driving a lot of that as we work to get our business back with consumers and we’ve talked about those dynamics being a little different in that category than others. We view that as temporary though, and we would say over time, we would restore that back to regular merchandising levels as we reestablish our share. But overall, we’re seeing generally in line with what we expected returning to pre-COVID levels. Again, each category a little bit different, but on average, other than Litter, I wouldn’t call it anything that is materially different one way or the other.

Great. Thank you.

Thanks, Dara.

And our next question will come from Peter Grom with UBS.

Thanks, Operator. Good afternoon, everyone. Hope you’re doing well. I kind of wanted to follow up on Dara’s line of questioning there and just kind of ask around the phasing of the sales guidance. Yeah, obviously, once you came better, some of that’s coming out of the second quarter. I guess what I’m trying to understand is just, given what we’re seeing from many of your peers, talking about weaker category growth, a lot of them are delivering organic sales below their respective algorithms. Your guidance seems to kind of still imply solid growth in the back half of the year. So just kind of curious as to whether your expectations for organic growth in the back half of the year have evolved at all just given the current environment?

Hey, Peter. This is Kevin. Yeah. Happy to take that one as it relates to the phasing of sales. Obviously, as you folks saw, we had a good solid start to the year, 31% organic growth. I think you probably saw in our prepared remarks, we have adjusted Q2 a bit as some of that performance in Q1 was pulling forward volume we thought was going to ship in Q2. So we made some adjustment there and we’re now expecting Q2 to be down probably in the low-teens. And then if you consider that front half, what that would suggest in the back half of the year is, if you take the middle of our outlook that 4% or so for the full year, you’re growing probably 3% to 5% in the back half a year. So right in line with our long-term algorithm. I think your other question is kind of getting out what are those drivers that’s supporting that 3% to 5% growth? And you remember, Peter, we called back in August that we expected the categories to slow and that sort of flat to 1%. That continues to be our expectation. Also keep in mind though, for about 20% of our business are International or Clorox Professional businesses continue to perform quite well. We continue to expect those businesses to grow in the mid-single digits. So they’re nice contributors to our growth. We’ve also got the benefit of our divestitures. We didn’t fully see that in Q1 because we just sold our VMS business late in the quarter, but you’ll get the full structural benefit to the topline starting in Q2 and that will certainly benefit the back half as well. And then as Linda was referring to earlier, just the strength of our overall demand plans. We’ve got a good innovation program lined up for the back half and we certainly got strong marketing support. So overall feel very good about the drivers of how we think we’ll get to that 3% to 5%. And I think why that’s important is, because I think you folks know we’re, not only about us delivering 3% to 5% this year, but we’re spending quite a bit of time ensuring that we can continue to deliver 3% to 5% as we head into fiscal year 2026. So I really like the exit rate we’re focused on to make sure that we’ve got a good plan in place as we move forward.

Great. And then just maybe a quick follow up on gross margin. So just the first quarter, it came in well ahead of your guidance. Was that entirely related to the better, fixed cost absorption related to the shipments or were there other drivers that kind of led to the upside in the quarter?

Yeah. It was really driven by the over delivery in the topline that just flowed through to better cost absorption, which also benefited earnings. But other than the benefit of cost absorption, everything else was pretty much in line with our expectations across the other elements of total delivered cost.

Great. Thanks so much. I’ll pass it on.

Thanks, Peter.

And we’ll move next to Filippo Falorni with Citi.

Hey. Good afternoon, everyone. I wanted to ask two questions on the businesses that you called out, Linda, the Glad and the Litter business. In Glad, it seems if you look at track channel data, it seems you’ve recovered a lot of your shelf space with their introduction of the large pack sizes. So maybe you could give an update there. And in Litter, it seems like there’s more opportunity to recover shelf space. Can you talk a little bit about the progress and your ability to convert consumers back to your brand after a period of shifting in calendar? Thank you.

Sure. Thanks, Filippo. Just starting with Glad, we continue to make very good, strong progress on Glad, and it was one of the businesses that we talked about that would take a little bit longer to recover. But we made great progress in Q1. We returned to share growth. We grew seven-tenths of a share point in Q1 and you saw that accelerate as we moved through the quarter. We’ve had very strong merchandising plans in place, including, I think we shared this last time, but Glad Trash was the number one consumable item on all of Amazon Prime Day. Performed very well and we’re seeing merchandising across other retailers perform very well in addition. And that is a business where we have fully restored distribution and we’re seeing that stick and hold as we come out of Q4 and into Q1. So I feel great about the trajectory on Glad. A little bit more work to do on share, but we feel like we’re heading in the right direction and have the right plans from an innovation and demand building perspective. Litter, I’m also pleased with the progress, but we have more work to do. We’ve made some good progress on restoring our subscription business. So one of our leading retailers that uses subscriptions, we have restored over 90% of that subscription business that we lost. We’ve also returned to the number one share position at that retailer with Fresh Step. So feel good that we’re moving in the right direction in places where it’s a little bit more difficult to get consumers back, given the nature of subscriptions. We also returned to share growth in Litter. So that business also grew seven-tenths of a share point in Q1. Again, accelerated throughout the quarter. We’re seeing good merch support. Again, a bit higher than we would normally see pre-COVID, but feel it’s warranted given what we’re trying to recover and ensuring we get our consumers back and we’d expect that to normalize over time as we get our share back. But again, Litter’s one where it’s just going to take a little bit longer. I’m pleased with the progress. But I think if I look across all the businesses, that’s the one that we just feel like is going to continue to linger on for a couple more quarters and we feel good about innovation that we have in the back half. We’ll continue to invest strongly in advertising and sales promotion. And I would say we are on track with the plan that we have for this year and we’ll continue to make progress in Q2, Q3 and Q4.

Great. That’s very helpful. And then, Kevin, if I can ask one more on gross margin, given the outperformance in Q1, even if you account your guidance for Q2, it seems like you’re going to be well ahead of your four-year target in the first half. So can you give us a sense of what are your expectations in the back half on gross margin?

Sure, Filippo. If you look at Q2, you probably saw our prepared remarks. We’ve updated our expectations. We think gross margin will be down primarily due to the deleveraging of volume declining in the low-teens and so I expect Q2 to be down. And the expectation in the back half of the year and important for our exit rate is I’d expect it to be sort of in that 44%, 44.5%, really what we’re projecting for the full year. I don’t expect it to be that different front half versus back half. So fairly consistent through the year and then exiting at a rate that would reflect a forward recovery of where we want to get to at the end of the year.

Great. Thank you. Super helpful.

Our next question will come from Andrea Teixeira with JP Morgan.

Thank you, Operator, and good afternoon, everyone. I was hoping to see if you can talk about a little bit more on category consumption, Linda, because obviously there are puts and takes, and you’re taking and you’re recovering market share. But just thinking of the comments that you -- that we heard from you in a long time for value-seeking behaviors and how you’re responding to it with RGM and different countbacks and all of that. And then as a follow-up to your comments, Kevin, on the cadence of margins in the second half. So should we think about like because it was lumpy last year, last fiscal year, with like a more pronounced margin in the fourth quarter. So thinking about how to model for the third quarter and the fourth quarter like a more balanced, given that it seems like your revenues will be more balanced as well, if you can help us with that. And in commodities, your commodities outlook has changed from what it was last quarter as you initially guided and now as you exit the first quarter?

All right, Andrea, I’ll start with your category and consumer question. The consumer environment is largely playing out as we had expected. We’ve been talking about for the last several quarters that we expected the consumer to be under more stress broadly. And the impact on our categories was that we would move to low single-digit growth to low, low single-digit growth, which is about zero percent to 1% and that’s exactly what we saw in Q1, right in line with our expectations. Some categories a bit higher than that, some a bit lower, but we got the average just about right. What we continue to see from the consumer is that value-seeking behavior. They’re looking for ways to maximize their budget. They’re buying larger sizes. They’re buying smaller sizes to get a low out-of-pocket. They are looking for promotion. So the promotions that we’ve put in place returning to those pre-COVID levels have worked well and we’re seeing temporary price reductions work well with the consumer. Obviously, we’re seeing retailers fighting for shoppers’ wallets at this point. So you’re seeing different tactics that are very normal across different channels and different retailers. We’re seeing a shift of moving to more value-oriented channels for consumers. That continues. But I would say all of that is exactly in line with our expectations in aggregate. We expect that to continue for probably the balance of the year. These cycles usually run 12 months to 18 months. That’s our best guess at this point of what the timing will look like if we look at history. But I think it’s safe to say that there’s an uncertain environment out there, particularly in the U.S., over the coming months. We’ll see how that all plays out. But the good news is that for Q1, the consumer environment is exactly what we expected. And I think I’ll just reiterate the point I made earlier on private label shares. What we’re not seeing is trading down to private label in our categories. Private label shares are down versus pre-cyber levels this quarter in every one of our categories except two and that’s wipes and salad dressing. And even for those, we’re growing share in those categories. So it’s coming -- private label growth is coming at expense of competitors. We’re feeling very good. Our brands are resilient. The superior value we offer, the increase in advertising and sales promotion and trade promo are working. And we feel that we’ve got the environment at this point right on and we’re going to continue to execute our plan and intend to grow share in that environment.

And then, Andrea, on your questions on gross margin, maybe I’ll start with the commodity view. And you’ll recall when we came into the start of this year back in August, our expectation was we’re operating at a fairly normalized level of cost inflation across the supply chain. We said about $75 million. And our view is that would be split fairly equally between commodities and inflation across the rest of the supply chain. We have made a fairly modest update for this outlook. I’d say in commodities now, we think it’s going to be just slightly better, still inflationary, but just a little bit less in place than we anticipated. So it won’t have much meaningful impact on our full year expectations based on the update we’ve made. And then I’m phasing on gross margins. Our margins are actually in Q1. We delivered about 46%. I do expect our margins to be down in Q2 because of deleveraging, and we said, we’d be down less than 100 basis points. So that’ll probably put gross margins somewhere around that 43% range. And then the back half, well, we don’t break it out by quarter. I continue to believe the back half will be sort of at that run rate, exit rate, somewhere around that 44%, 44.5%, kind of in line with the full year estimate.

Perfect. Thank you very much. I’ll pass it on.

We’ll move next to Anna Lizzul with Bank of America.

Hi. Good afternoon. Thanks so much for the question. I just wanted to ask in light of your full year guidance and expectations on the consumer environment with the increased promotional spending, how should we think about pricing in order to drive volume growth as we move through the year? And also on advertising, you spent over 12% of sales in the U.S. retail business and is that a dynamic you expect to continue? Thanks.

Hi, Anna. As it relates to pricing in particular, in the U.S., we have very little pricing outside of net revenue management and that really is what you’ll see for the remainder of the year as well. We expect that program to continue to build, delivering value in fiscal year 2025, but building in fiscal year 2026 and beyond as we put that program in place. So this really is volume-based growth that we’re seeing as we’ve lapped those price increases. The other dynamic that we’ve talked about that is a hit-to-price mix, of course, is trade promo, and we are seeing that play out. That impacted Q1, but was offset, of course, by some other factors on segment mix. But we would expect that to continue into Q2 and with less of a dynamic happening in the back half given the fact that that increased promotion started in Q3 of last year as we fully restored distribution. So this really will be about volume-based growth through innovation, through demand spending, through ensuring that we have the right value at the shelf for the consumer, and we continue to expect that our trade promotion expectations being around pre-COVID levels are about right. When it comes to advertising and sales promotion, we say about 11%, 11.5% at the aggregate level. We typically spend more in the U.S. than we do in International, so I would expect to see that dynamic continue to play out in the quarters to come. And of course, that varies by business depending on what’s effective for each one of the business units and what we have going on in the quarter, whether that be innovation or a particular merchandising pulse period that matters for that business. But you would expect to see the U.S. run ahead of International as we move forward.

Okay. Thank you so much.

Thanks, Anna.

We’ll move next to Bonnie Herzog with Goldman Sachs.

All right. Thank you. Hi, everyone. I had a quick follow-up question on Litter. Linda, you mentioned you’re promoting quite heavily, so I guess I’d love to hear if you believe you’re getting the appropriate lift on your promotional spend, and if not, do you have plans to modify your strategy in any way going forward? And then, I guess, how concerned are you overall that, you might be in a prisoner’s dilemma right now in this category considering the elevated promo spend by everyone?

Hi, Bonnie. Yeah. On Litter, this is a case where consumer behavior is a little bit different. We’ve talked about in the past when you have a cat using Litter for a number of consumers, that’s hard to change them. And so there’s a bit more thinking about what we need to use the levers that we have in our toolbox, including trade promotion, to ensure that we remind them of why they love Fresh Step and that we were sorry to disappoint them while we were out of stock, but it’s time to bring their cat back to the Litter they love. And so we think this is smart promotion. What we’re not doing is anything that is incredibly deep discounting or outside of what we would think is right for our brand value. And as long as we don’t do that, we’re not communicating anything to the consumer that changes the value of our products, et cetera. So I feel very good that this is strategic promotion, that it’s done in the right way. However, I would expect over time that that promotion will normalize and we are certainly seeing competitors also promote given what we’ve had in the marketplace. But I think this just category is a little bit unique, and I don’t feel like we’re doing, again, anything outside of what we would normally do to gain share back in a category that way. I think moving forward, the great news about this category, which I think gets to your question on Prisoner’s Dilemma, I don’t feel that at all. This category has natural tailwinds that many categories don’t have. It grows faster than the average given the number of cats that are in the U.S. and in places around the world. In addition, it’s a heavily innovation-driven category. And you can say this category has been reinvented many times by us and our competitors if you look at things like lightweight or different substrates. And so I have no fear that this is turning into that. I think what will get all of us out of this is great innovation, and we certainly are planning that for the back half and well beyond that, and I’m sure we’ll see that from competitors as well.

Okay. That’s helpful. And then if I may, I just also wanted to get your perspective on any channel shifts or growth rates by channels. We’ve heard that some of your peers have seen some weakness like channels, whether it be the consumer or just lower foot traffic. So, as I think about your lapping cyber tech, are there any specific channels that have shown weaker recovery? And I guess how has the performance maybe differed between tracked and untracked channels for you? Thank you.

Sure. So on channel, we are not seeing anything specific to our recovery on cyber that’s driving a change in consumer behavior, but we certainly are seeing a change in consumer behavior that’s expected due to value seeking. So we see consumers moving to more value oriented channels. We see consumers shopping a bit more on deal and promotion and channels where that’s really important. So a channel like that would be in grocery. And we are seeing consumers as they move to large sizes and small sizes go to channels where they can get those. So obviously for club, that business is very strong because that’s where you can get the, you know, the largest size and the lowest price per use. So we would expect those dynamics to continue. They typically have in times when the consumer is more value stressed. And we tend to see more stock up trips, some more fill-ins as consumers are managing their wallet. But there’s nothing unusual in what we’re seeing. It’s about in line with our expectations and nothing related to distribution or merchandising or any of our recovery from cyber.

Okay. Thank you. I’ll pass it on.

And our next question will come from Robert Moskow with TD Cowen.

Hi. Thanks for the question. I just want to make sure I understand the logic for the gross margin being at 43% for 2Q. I understand the deleveraging compared to last year, but is there something seasonal about gross margin, because if you’re 45.8% in first quarter and then you dip down to 43% in second, I’d like to know what causes that. I doubt it’s the deleveraging. And then secondly, just on EPS, I mean you’re beating consensus by like $0.50. You’re only raising by about $0.10 or so. So did you beat your internal estimates by this much or by something less than that in first quarter?

Yeah. Robert, happy to take those questions and gross margin, particularly around Q2. We do have a seasonal element to our business. Typically, in normalized years, Q2 would be our lowest gross margin quarter of the year and it’s really driven by two primary factors. The first is we’re now out of the Kingsford charcoal season. So Kingsford’s a nice profitable business that we do about 50% of the business in Q4 and Q1, and Q2, then it’s a low season for Kingsford, as well as it tends to be the period of time when our Burt’s business, where we’re doing quite a bit of holiday merchandising, which comes at a bit lower margin. So historically that’s always been a lower margin quarter for us and this reflects that as well. Plus, the added impact of the deleveraging with the topline declining, as we said, double digits. And then on EPS, well, we don’t disclose our internal forecast. This came in stronger than our internal forecast. There’s a couple of things we were thinking about as we set the outlook for the year. And certainly the first one is, and I think you’re going to appreciate this. We’re only one quarter into the year and so we want to be thoughtful and not get ahead of ourselves for the full year. And having said that, that’s, I think, always good counsel, but particularly this year, as we’ve talked about a couple of areas we’re watching pretty closely, which is the health of the U S consumer, as well as the promotional environment. Now, as Linda just said, Q1 played out very much like we expected, but that doesn’t mean that that’s going to continue. So that’s something we’re going to watch very closely. And then we had some tiny elements. So some of that over-delivery in Q1, as we mentioned, was based on pulling some shipments forward from Q2. So that won’t have a full year impact. And then maybe just the last perspective I’ll give you is, I think what I like is I think it gives us some financial flexibility and I think that’s important. This is still a volatile macroeconomic environment and if the environment changes and it’s different than what we think, we’ve got some financial flexibility to address that. So I think that just builds our confidence and be able to deliver the year. But it’s really how we approach the full year and as you know, we modestly took up the full year, but I think we’re in a, we’ve got the right plan for where we sit this early in the year.

Got it. Thank you.

Thanks, Robert.

And we’ll move now to Olivia Tong with Raymond James.

Great. Thanks. Good afternoon. Could you talk about your inventory positions at this point, whether at retail or if you have a view on consumer pantries, especially in Trash and Litter, given the level of trade spend in those businesses and how you think about consumption trends once the, once the promo is sort of normalized. And then just one follow-up on gross margin. If you could just talk about, how much of the overage was sort of ongoing price pack architecture work you’re doing other revenue management, digital stuff that you’ve been working on just to kind of think about what sort of the ongoing portion, as opposed to the fixed cost leverage/recovery from cyber portion of the gross margin overage? Thank you.

Hi, Olivia. So on the inventory front, there’s really no major things to call out here. We see pretty much normalized inventory in the retail environment. We’re not seeing anything, where inventories are coming down or going up. We just see the normal things that happen at a retailer quarter end quarter beginning, but nothing material to call out. On the consumer front, I would say much of the same. We tend to watch our shipments and consumption pretty closely to see if there’s any gaps. And at this point, there’s nothing to talk about. The only thing I would call out is in, as we noted in our Professional business, we did see some shifting and cold and flu shipments into Q1 from Q2. But that’s really just about retailers and distributors getting ready for season, and that’s a pretty normal thing and we just anticipated it would be in Q2 and it happened in Q1 instead. But I wouldn’t call it anything material, nor do we have plans for that and so if there are any adjustments by retailers, et cetera, we don’t have plans for that in our forecast.

And then Olivia, on your gross margin question, I think that the nature of the question is what portion of the strong performance in Q1 is structural. I would certainly point to our cost savings and I think you can see in our web attachments we deliver about 240 basis points of improvement to gross margin in Q1 from cost savings. We’re on track to have another very good year this year. I think as you know, we target 175 basis points of EBIT margin expansion each year, but because of the very good work by the team over the last couple of years, we’ve delivered over 200 basis points each year and I believe we’re on track to do that again this year. So certainly the cost savings element will continue. The other item though, we’ve talked a bit about back in August was the benefit of the two recent divestitures. They are both margin dilutive to the company. So by divesting those businesses, they will structurally improve our margins 50 basis points to 70 basis points on average and so we’re starting to see the benefit of that in Q1. Again, we didn’t get the full benefit because we sold the VMS business in the middle of the quarter, but you’ll start to see more of that playing out as we move into Q2 and beyond.

Got it. Thanks. And then just one follow-up, the 20% of the business that’s growing at the mid-single-digit rate, like PPD, what’s driving that? Because if I remember correctly, the comps are particularly demanding. So maybe that’s a piece of it, because I can’t imagine that the demand is really changing all that materially in PPD? Thank you.

Sure. So we talked about both PPD and our International business growing at that mid-single-digit rate and we feel strongly that there’ll be a better contributors moving forward. International, I think we’ve spoken a lot about as we’ve reduced the volatility of that business, removed a lot of the FX headwinds that we had experienced coming out of Argentina. We see more stability and ability to grow in different parts of the world and that continues. And we feel even stronger about that now that we have divested the Argentina business. From a PPD perspective, we got to a place that was up and down during COVID, we’ve seen that normalize. This is not a result of a lot of people coming back to the office as one might expect, but what we’ve talked about in the past, which is we have so much opportunity across our portfolio with innovation, different places that we don’t play in today. The industry is pretty favorable right now, as we see consolidation in healthcare and we’re able to work with those systems to ensure that they have the right cleaning and disinfecting products to protect their workers and to protect patients. So we see continued upside in that business and we feel confident in its ability to deliver above average -- above company, average growth moving forward and certainly we’re seeing evidence of that in Q1.

And we’ll take our next question from Kevin Grundy with BNP Paribas. And Mr. Grundy, your line is open. Mr. Grundy, could you check to see if your mute button is engaged, please? Okay. Hearing no response. We’ll move to our next question. That will come from Kaumil Gajrawala.

It’s been a big piece of conversation sort of in the past, but not as much today. And maybe just the learning so far on the turning on Canada and perhaps, what the timeline is for the U.S.

Hey, Kaumil, do you mind repeating your question? The first part was cut off.

No problem. I was asking about ERP and what you’ve learned so far from Canada and what the timeline looks like for the U.S.

Sure. We spoke about just briefly last time that we implemented the ERP in Canada at the end and beginning of this -- end of last fiscal year, beginning of this fiscal year and it went very well. The team had done a lot of preparation as our lead market to ensure that that execution went as smoothly as possible and it did. We didn’t have any customers experience any significant disruptions, and in fact, many of them noted they didn’t even really remember that it was going on, which is actually exactly what you want from your retailers when you’re doing an ERP transition. That being said, the U.S. business will come next and that is much more complex with a lot more ship points, a lot more businesses. So the team is taking the learnings that we had from that Canadian implementation and building our implementation plan for the U.S. right now. We would expect that that would begin at the end of this fiscal year. We’re still working through what the exact timing will look like and how we will phase that because it won’t all happen at once and we’ll be able to report at our Q2 earnings release a little bit more detail on how we expect that to play out and any potential impacts, but feel very good about what we did in Canada, giving us a lot of confidence heading into a very complex U.S. implementation.

Okay. Great. And then on Litter, when you’re -- as you’re thinking about how to get the consumer to come back, promos is a piece of it, but I suppose marketing is also quite a large piece of it. So can we just talk about what specifically you’re doing to try to get that consumer to switch back to where they were or maybe even bringing in new consumers?

Yes. Absolutely. You’re right that trade promotion is only a part of what we are doing and clearly reminding people about the benefits of the products that we have and why they’ve always loved or maybe why they should be introduced to your point for the first time to Fresh Step or Scoop Away or any of our other Litter brands is top of mind. And with that, we put new advertising in place in July for our Fresh Step business, which we think is doing pretty well and contributing to the share of results that we saw in Q1. We’re continuing to ensure that we have the right claims and ensure that we have the right price pack architecture and Litter. So we’re taking steps. We’re doing what we can in the short-term, which really is through increased advertising, better advertising messaging, using digital, which can allow us to do kind of claims real time to ensure that we’re communicating with those consumers. And obviously at the subscription level, we can have more of a one-on-one conversation with them and engage with them on reminding them that Fresh Step is the brand that they know and love and that’s worked pretty well. Moving forward as we’re thinking about innovation, we’re looking at all of the levers that you would expect us to pull. What are the next sets of innovation that we can launch that delight them? How can we ensure that we’re communicating superior value overall for our proposition and how they shop for it, the product, the package, the brand communication, and so we are taking under advisement that entire ecosystem right now to say, do we really feel great about the plans that we have in place and we’ve done a lot to already improve those given what we faced? But I feel good about the plan that we put in place over the last couple of quarters. It’s clearly beginning to work, but more to come as we sequence through the remainder of the year.

Got it. Thank you.

We’ll move next to Lauren Lieberman with Barclays.

Great. Thanks. You would talk about the sources of surprise in the quarter on topline and that pull-forward and timing on Professional products. But I think in the prepared remarks, you also mentioned International. So I’m curious if you could just elaborate a little bit on kind of what went better than expected on International and that sounded less like it’s timing and more like it’s better trend. So I’d love to hear more about that. Thanks.

Yeah. Overall International just performed well, and certainly, we’re seeing the impacts of removing Argentina. We’re also seeing some strength in pockets around the world, but I would say, International wasn’t wildly outside of our expectations. It was a bit better and it’s just all things coming together as we put innovation in the market that’s working, our consumer plans are working, and we’re seeing some stability now that we’ve removed the majority of the FX headwinds that we had due to Argentina. But I would just say it’s good execution of the fundamentals. Nothing of major surprise one way or the other, just everything went a little better.

Okay. Great. Thanks.

And we’ll move next to Chris Carey with Wells Fargo.

Hi everyone.

Hi, Chris.

So I have a question about pricing in the quarter and into really, I guess, the back half of the year. So if I look at the segment disclosures, pricing’s flat and Health and Wellness price mix that is down 5 and Household down 8 and Lifestyle. And yet in a prepared remarks it’s plus 1. There’s like a positive pricing dynamic and International, which I don’t think I fully understand. Given the 11% organic is driven by 11% volume growth. So I don’t know if you can maybe just help me bridge that gap and really what I’m trying to understand is if the underlying U.S. business is kind of running price mix down low-single digits right now. Is that the expectation for the U.S. business going into the back half of the year? I guess, I’m trying to understand if the volume is going to be over and above that to get to this 3 to 5 or if I’m just misunderstanding something, I fully realize it kind of a tactical on Litter and you were probably quite tactical on promotional activity to recapture sales growth in Q1. But I am just, so anyway, I am trying to close the logic gap on the couple of these things. Any perspective would help?

Yeah, Chris. This is Kevin. I can certainly answer that one and I agree, it’s a bit challenging to read the performance right now given the cyber lap. So maybe I can separate what’s happening because of cyber versus underlying business. If you looked last year in Q1, we had very significant favorable price mix and what you’re seeing is most of that’s just reversing out. That’s strictly noise of the lap in cyber. And I’ll just give you a little flavor for why that happened. I’ll give you an example. If you looked at our Lifestyle segment last year, you’d see about 9 points of favorable price mix. The reason that occurred is, when you think about the business in Lifestyle, our Brita, our Food and our Burt’s Bees business, Burt’s Bees declined at a faster rate than our other businesses. That business is what we call LTL or less than full truckload. It had a much more negative impact as a result of the cyber event and we generate less revenue per case in that business. And so you got what appeared to be a nice price mix last year, because you just sold a lot less Burt’s than the other businesses that now reverses out this year that -- our Burt’s business grew almost twice the rate of Food and Beverage are just getting back to a normal normalized level. That’s really all noise of lapping the cyber event. What I’d tell you is structural within price mix. If you think of that plus 1, what is structural and unrelated to lap is we had about 1 point of negative trade spending very much in line with what we’ve been talking about. We’re returning to a more normalized promotional environment. We expected trade spending to be up, particularly because we’re lapping the cyber event. So there’s 1 point of negative trade spending and that was more than offset by 2 points of favorable mix and that mix was a little bit what Linda was talking about, particularly in our U.S. cleaning business. We saw some favorable mix at the skew level. And so that was a benefit to the quarter that we did not anticipate that helped with the over delivering Q1. And that was really that, that’s how you get to that 1-point overall price mix. So you really have to take away a lot of the noise of the lap and just get down to kind of the fundamental elements that are part of the ongoing business. But let me stop there and see if that answers your question.

Yeah. That’s a -- so as you get through that lap dynamic into the back half of the year, this will start to go away. I’m still confused, and look, I can take this offline. Maybe this isn’t the forum, but you had 11% organic sales growth in International driven by 11 points of volume. So what’s the 4% price mix that’s offsetting that. And again, I realize this is kind of a modeling question and I can take it offline.

Yeah.

But if there’s any context there, that would be…

Yeah. I’ll give you the quick answer and then you can follow up at least, but that’s the structural benefit of that divestiture, the Argentina business, it shows up in mix now. And after a year, that’ll just be part of the base business, but it shows up in mix when you, the first year, you don’t have that lower revenue per case business in your portfolio. And then in terms of the phasing, as we said, we expect trade to be unfavorable in the front half of the year because we’re lapping on an unusually low level promotion last year during cyber. And we were back to a normalized level promotional activity in the back half of last year. So when you get to the back half, we don’t expect to see negative trade spending. That’s really a front half issue as we’re lapping cyber.

It’s really helpful. Thanks for explaining that, Kevin. Thanks a lot.

Yeah. You bet. But if I didn’t get you all the way there, feel free to follow up with Lisah afterwards.

And our next question will come from Javier Escalante with Evercore ISI.

Hi. Good afternoon, everyone. I have a question when it comes -- if you can remind us what is the underlying category growth that you’re assuming for, which is equivalent to the 3% to 5% organic sales growth that you are targeting for 2025? And I have a follow up.

Sure, Javier. We had said that was low-single digits. So we said zero percent to 1% and we were within that range for Q1.

And if you -- we both used our Canada data [ph] and you see that there was a spike, at least it seems as if in October and it coincided with the hurricanes down in the Southeast. So when you mentioned that your quarter was above expectations and it was strong, is there is any possibility that basically at the time that you merchandise very strongly and at the time you have the surge of impulse purchases because of the storm and somehow you are -- your -- the promotional lift was stronger than otherwise would have been. Is that a possibility or not necessarily a factor?

We’re not seeing that as a factor, Javier. We have pretty good analytics given hurricanes unfortunately happen pretty often nowadays in the U.S. And so we don’t see the hurricane having any meaningful impact in the course of time. It can, if it splits a quarter, but if we don’t see that at this point, we don’t see significant pantry loading and we don’t see any impact as we think about the Q1 versus Q2 dynamic. What I would note is, I would also be very careful looking at short time periods, looking at anything in October. We have merchandising, there’s different timing shifts, there’s different laps and so we try to take a little bit of a longer view, but we still feel very comfortable that the zero percent to 1% range is right for the year. Again, though, we’ll watch the consumer, we’ll watch the pricing dynamic in the U.S. to see if there’s any adjustments we need to make or if there’s any changes there. But for now we still see zero percent to 1% is the right range.

So by the high level, then Linda, you basically said that again, the business is strong above expectations. So if it is not that externality, could you tell me kind of like the one or two things that you believe pan out better than you expected?

If you look at just overall, our portfolio Health and Wellness came in stronger and that was, we saw very strong share growth in our Home Care and Laundry business. We actually picked up significant share in our Bleach business. PPD came in very strong as you saw and we talked about, we think there’s real tailwinds to that business. So what I would talk about is, the strong demand plans that we have in place, the advertising and trade promotion is working very well. Consumers are coming back to our brands because we’re offering them superior value. It’s really good execution of the fundamentals and that’s what’s delivering the strength. And then, of course, PPD was a bit of a surprise. Some of it great. And overall, we see PPD performing better, but some of it was a shift between Q1 and Q2.

Thank you very much.

And our next question comes from Steve Powers with Deutsche Bank.

Thank you very much. Two questions, one for each of you, if I could. The first one, Linda, just perspective, as you think about the progress you’re seeing in market, just perspective on the Household penetration metric that you guys track, how that’s progressing, how you think it plays out over the balance of the year. And then perhaps related Kevin for you is the 3% to 5% growth that you referenced in a roundabout in the second half, I guess, can you talk a little bit about how you think that compares to consumption? Is it in line or do you think that you’ll be continuing to gain points of distribution or ship ahead of SAP with any materiality as you exit the year, just trying to frame that 3% to 5% relative to what your expectations are on consumption? Thank you.

Sure, Steve. Starting with Household penetration, that is something that we monitor closely, and obviously it’s a metric that we look at over the long-term to say, are the health of our businesses on track? Are we bringing new consumers in and are we retaining them? We certainly expected a trade-off when we took four rounds of pricing in Household penetration and we saw that, but it wasn’t unique to us. It was true for our categories. We had consumers change behavior as they reacted to pricing, but the good news is as we expected, we’re starting to see that trend reverse and that showing up in the volume based growth that we’re experiencing right now. And we would expect over time as we bring consumers new innovation, as we continue to invest strongly in advertising and sales promotion, that will bring those consumers back in and Household penetration will begin to grow again and that’s what we’re focused on. But we would expect to be at about this point. Then you throw in the noise of a cyber-disruption where we were out of stock for a period of time and that puts some noise in the data as well. But I would say the fact that it has turned and we’ve reversed that trend is the right place to be and we’re focused on growing it from here and doing all the things that we know how to do with a focus on if we have superior value experiences for people, that’s how we grow Household penetration. We want to grow categories and we want to grow share within those categories. So I’d say on track, but more work to do and I think that’s what we’re all focused on from a category perspective. During a time when the consumer is seeking value, we’re focusing more on things like trade promotion and other things than we would normally do. But we’re also ensuring that we’re doing the good long-term things that bring consumers into categories and retain them.

And then Steve on the back half that 3% to 5% are kind of growing in line with our algorithm. We don’t -- we believe that’s in line with consumption. We’re not assuming we’re shipping above consumption. We have not built in any impacts for SAP. I think you mentioned that. So that’s, as Linda said, we’ll come back in February and make any adjustments we think are appropriate as it relates to the impact of SAP. So this really just relates to all the building blocks we talked about, modest category growth in the U.S., good strong performance and that portion of our portfolio outside the U.S. Clorox Professional, International, as well as the benefits of that divestitures of the two businesses. Those are really the building blocks and that really the expectations it’s in line with consumption.

Great. Very clear. Thank you both.

Yeah. Thanks Steve.

And our next question comes from Kevin Grundy with BNP Paribas.

Hey. Good afternoon. Sorry before my line dropped off. And anyway, thank you for taking the question. I will be quick because we’ve covered it -- covered a ton of ground. There’s an election next week and just in the way of housekeeping. Kevin, can you just remind us what portion of the business, this is sort of a broader question would potentially be at risk if there were sort of broader tariffs that came back into play. So maybe just a question around sourcing outside of the U.S. would be helpful?

Yeah. Kevin, I can tell you, I won’t go into too many specifics here, but we’ve done quite a bit of work. If you obviously remember all the supply chain disruptions we had a number of years ago…

Yeah. Yeah.

… as a result of that and I think we not just Clorox, but many companies realized we were more vulnerable than we anticipated. We’ve been doing quite a bit of work to, I’d say, near shore and onshore production to move it much closer to our consumer. And so over the last number of years, you may know we’ve expanded Wipes capacity in the U.S. We’ve stood up contract manufacturers in Europe and Asia for businesses in those markets. And so we’ve done quite a bit of work to reduce our risk of these long supply chains. I certainly -- I think that certainly benefits us. And as you know we have a broad network of suppliers. And so I won’t go into too many specifics, but certainly something we’re aware of something our team has been very focused on to make sure that we’ve got access to product and we can manage effectively. And so we don’t see this as having any major disruptions on a business at this point. And I think we all have to wait and see exactly how this plays out. There’s a lot of discussions going on, but I don’t want to get ahead of ourselves and start speculating on what may play out. I want to see how this actually turns in any types of legislation and so right now though, it’s something we’re looking at and we’re very focused on making sure we’re prepared for any eventualities. But beyond that, it’s nothing that we’ve baked in specifically into this outlook.

Totally fair. Just to box it in maybe a little bit more understanding. We’re in a realm of a lot of, I’m going to ask you an uncertain question on top of an uncertain outcome, but what portion…

Yeah.

… of the company’s cost of goods are currently sourced from outside the U.S. let me ask it that way.

We don’t break that out to you. So that our Kevin, that’s not something we provided publicly. We have a broad network of suppliers all over the world, but we don’t break out how much comes from outside the U.S. versus inside the U.S.

Okay. Very good. All right. Thank you. Congrats on the quarter.

Yeah. Thanks Kevin.

This concludes the question-and-answer session. Ms. Rendle, I will now turn the conference back to you.

Thanks Jen. As we close today’s call, I want to stress three areas. First, we have made strong progress against our commitments. Second, our brands are strong and we continue to invest in them to deliver superior experiences for consumers. And finally, our team is taking the right steps to accelerate growth and transform for the future. We’re building a stronger company, poised to deliver more consistent profitable growth and enhance long-term shareholder value. Thank you for your time and for your questions. We look forward to updating you on our continued progress in February.

And this concludes today’s conference call. Thank you for attending.