PG
#So first of all, <UNK>, we have maintained our organic sales growth guidance for the year, which is flat to low singles.
So there's really no change in the overall outlook, which as you rightly say was for acceleration in Q2 and then further improvement in the back half of the year.
As I mentioned, the extent of that improvement in the back half of the year is going to be potentially impacted by what happens with access to dollars for imports into Venezuela.
It will obviously be impacted by other things as well.
But even with that, we remain confident that we can continue to grow in the second half.
In terms of the businesses in the US and the comparison to scanner data, as you know, we pretty dramatically accelerated our growth in the US from minus 2% in the quarter before to plus 3% in this quarter.
I mentioned that there was about 1 point of sales that's ahead of consumption.
That's on things like the ProShield razor that we shipped into the market.
But still, even adjusting for that acceleration as we expected.
It's getting increasingly difficult to look only at scanner data as a measure of a market's health or a business' health.
That's particularly true in markets like China, where a huge portion of the growth of the market is coming in the e-commerce channel, which doesn't cross a scanner.
You have some of that same dynamic in the US.
So, for example, the Shave Club sales, depending on how they're executed, may or may not cross a scanner.
I think that's part of the dichotomy.
But generally, if we look across several quarters to dampen out some of the short-term volatility and the noise, we continue to be pleased and encouraged by increasing strength in the North American business.
We expect it to grow going forward.
Thanks, <UNK>.
So first, China.
It depends on the individual category, but the market growth rates range roughly from, call it, 5% to 8%, so mid to high singles across the categories.
As I mentioned ---+ we see significant opportunity remaining in China: with those very attractive growth rates, albeit somewhat slower than they were two and three years ago; with the conversion from a manufacturing to a consumption based economy; with the dramatic potential that exists as a result of larger family sizes from the possibility of two children versus just one; and with the premiumization of the market, which I indicated, admittedly we have not been as agile as we need to be in exploiting.
But really, as I mentioned, I was there last week.
I was there a week before the <UNK>tmas holidays.
I walk away with a tremendous sense of encouragement while acknowledging that we have work to do.
In terms of pricing, the pricing dynamic should continue to be a favorable contributor to top line growth as we move forward, even if all we do is take forward the price increases that have already been executed.
They're not fully annualized yet.
So that should continue to be a positive on the top line.
The pricing calculus or algebra is fairly complicated.
You really have to look at the combination of currencies, commodities and competition to determine a course of action going forward in any individual product category or market.
The sum of those three things is very different depending on what markets you're in, as influenced by both currencies and by competition.
In general, the companies in our industry continue to price at some level for foreign exchange.
I mentioned in our prepared remarks that we expect our ability to price to be somewhat lower than it has been historically.
We'll make up for that over time with productivity and other savings.
In the US ---+ first of all, the commodity impacts aren't as significant as you would assume just looking at the headlines on oil prices, for example.
If you look at everything from diesel to resin to other inputs that are derived from the petrol complex, while the pricing benefit or cost reduction has occurred, it is not anywhere near the level yet of the crude price reductions.
So I think that's a potential source of disconnect as people think about this.
Generally, we're taking pricing behind very strong product innovation.
We're looking to improve the strength of our overall value equations, the combination of pricing, product performance, consumer usage, experience aesthetic.
Done in that way, I think that continues to be a contributor to growth and value creation.
So we expect, for example, our media spending to be up double-digits in the second half versus year-ago.
So as reinvestment as compared to the prior year, that will definitely be increasing.
As we look at those choices, we're obviously not encumbered by the math.
We're looking at the value creation potential that exists behind those investments in both the short and importantly the mid and longer term.
We'll invest where we have opportunities to do so.
So I think that you should think of the level of investment, reinvestment sequentially increasing as we go forward.
I think ---+ I know that will be the case this fiscal year.
I expect that will be the case next fiscal year.
In terms of the over-delivering and then maintaining the constant currency guidance, yes, that definitely is reflective of additional investment.
I mentioned in our prepared remarks that in North America, for example, we have increased our budgets by about 100 basis points since the start of the year, most of that occurring relatively recently.
That's driven both by our encouragement from a response standpoint to the spending that we have in the market and the acceleration of growth, particularly in the US.
So, yes, your interpretation is correct in terms of the various moving pieces.
The guidance range is really reflective of what the underlying constant currency range of outcomes could be.
Then we just apply the current FX math on top of that.
There's a lot of ---+ we're operating in a more volatile environment than we ever have.
I think our range is reflective of that reality, as it should be.
Some of those impacts in that 8 to 9 point impact of things like Venezuela de-consolidation and the beauty transition costs and the non-operating income difference are all in the EBIT line.
So that's a significant driver of lower EBIT comparisons second half versus first half.
As I mentioned, most of those hit the second half disproportionately.
In terms of currency, there is some let-up but not a lot in the back half.
I expect our margin progress to continue to be reasonably strong, certainly constant currency on both gross and operating.
So it's really ---+ the comparison is most dramatically driven by FX and by things like the Venezuela de-consolidation, the transition costs associated with the beauty business that are not in discontinued operations.
For example, if we have employees in our global business service organization that are working to stand up to the new Company in terms of building the systems that are required, et cetera, those are employees that are going to remain with Procter & Gamble; therefore, their costs are not in discontinued operations, they're in continuing operations.
Then as I mentioned, the divestiture gain in non-op is a big driver as well.
Good morning.
Thanks, <UNK>.
Duracell, as I mentioned earlier, should close this quarter.
The exact date will depend on work that still needs to occur.
But that's on track.
Coty is currently scheduled to close as well in the timing that we initially indicated, which would be in the back half of the calendar year.
So no changes in either of those, both progressing towards the desired end points as we would hope.
In terms of market share, our objective is balanced growth and value creation, with the growth objective being over time at to slightly ahead of markets.
So market share does matter but particularly in a time when we need to restore structural economics in response to currency moves, we can get ourselves in big trouble if that becomes the driving metric.
So as we've said, we're prepared to lose some share in two situations, one is where we're restoring a structural economic attractiveness.
Having a higher market share with a negative gross margin isn't helpful to anyone.
Also where we're doing some of the portfolio cleanup that I mentioned on the core categories, where we'll be in a much better position longer term from both a growth and value creation standpoint if we can focus on the parts of our portfolio that are really working for us.
So if you look at the percentage of business that is holding or growing share, it's about 45% globally.
Currently, we would expect that to be higher going forward.
In the US, where we're further ahead in the strengthening of our portfolio, et cetera, we've got about 60% of the business holding and are growing share.
The current guidance does expect an improvement in China in the back half.
That should be very doable, just based on the math alone, in other words, the annualization of some of the changes that we made in our go-to-market and inventory levels in the back half of last year.
So we do expect that will improve.
Again, as I said, our view on China is an opportunistic one, not a pessimistic one.
We really think that there's significant continued opportunity there, both top and bottom line.
I think ---+ we picked the categories that we're going to compete in, in the new portfolio based on our view of our capability to be more than competitive, to win.
These are categories that we have won in.
We're global leaders in almost every single one, I think 7 out of the 10.
We're among the leaders in the balance.
There's a margin structure that allows for significant investment and growth in each of these businesses.
These are our higher margin businesses.
They're businesses that importantly leverage our core capabilities as a Company.
So they've been deliberately chosen for success.
So the two drivers of the volume reduction, one as you indicated is the portfolio cleanup within the core categories that are still reported within continuing operations, and as you rightly indicated that's had about 1 point worth of impact.
The other is the market reaction from a consumption standpoint and in some cases the share price evolution as we take pricing to offset foreign exchange impacts in large devaluation markets.
So if you take Russia or the Ukraine as an example, where devaluation has been 70%, 80%, 110%, we have negative gross margins.
We need to price over time as well as do everything we can from a savings standpoint to restore those margins of at least to a positive level so that growth is meaningful.
During that process both at a market level, markets tend to contract in response to higher price points and sometimes from a share standpoint and Russia and the Ukraine are good examples where we're competing against strong European competitors.
In the case of Russia, Japanese competitors as well.
Sometimes there's a modest share impact that comes with the pricing that we deem necessary to take.
We are not prepared to lose share indefinitely.
Our history in this area is that we ---+ it takes six to nine months to work your way through this.
Some of the pricing that we've taken has been recent because a lot of the devaluation has been recent.
So I haven't actually looked at it quarter by quarter to see, what's the quarter where volume will re-inflect positive.
We'll have to work our way through this pricing.
I don't believe ---+ go back to the comments on market share.
We fully intend to grow at market growth rates or slightly ahead of market growth rates over longer periods of time.
That requires volume growth.
I mentioned markets growing 3%-ish.
We're not going to be able to take 3% pricing indefinitely, nor is that our intent in any way.
So we will ---+ also, we're not ---+ in markets where competitors don't respond from a pricing standpoint, remember, we, because we're the market leaders, typically have to lead or nothing happens.
So we're exposed for that period of time.
Competitors can take six to nine months sometimes before they respond or they cannot respond at all.
In the cases where they don't respond to the levels that are necessary to maintain our value equation comparisons, or where they don't price at all, we will reduce price.
We're not going to be uncompetitive.
We're not going to lose share on a sustained basis.
Thanks for the bigger picture question, <UNK>.
That's actually something we'll spend some time talking about at CAGNY.
It's interesting, the market on a relative inflection point ---+ standpoint that's growing the strongest, which is the US, is one where these changes were made first.
They were made about a year ago, were basically ---+ in addition to the 10 categories and their ability to operate somewhat independently, we've sectorized our sales force.
So we're going end-to-end from the GBU all the way through to the customer with dedicated sales support.
We're not moving people as rapidly across categories.
The GBUs have full decision rights on the amount of resources that are supporting their business from a go-to-market operations standpoint, which has led to some choices quite frankly to increase coverage.
In some channels, it's led to choices to hire mid-career talent that has experience in a category that extends beyond the experience of our current employees.
So it's having a dramatic impact.
Every change has a slightly different time line in terms of, one, it gets reflected in business results but I think we can ---+ I think we're making good progress in this area.
I think we have more to do.
Again, we'll talk about that at CAGNY.
I don't think it takes a long period of time to make a difference.
So first, sorry, I did miss the first part of <UNK>'s question.
Thanks for bringing that back.
The relationship of organic volume to organic sales in the October/December quarter, developed markets organic volume was plus 2%, organic sales were plus 3%.
If you look at developing organic volume was minus 6%, organic sales were flat versus year-ago.
If you look at those comparisons, they are indicative of exactly what I've said a couple times in this call in terms of what's driving the volume reductions.
It's pricing in developing markets to offset FX.
Where you don't have as much of an FX impact, for instance, in the developed markets, our volumes grew at 2% on the quarter.
In terms of ---+ you mentioned Mexico can as an example.
We actually had a very good quarter in Mexico.
The changes that we've made there we're very pleased with.
Organic sales were up 4% in Mexico in the quarter.
Remember, I talked about the tissue/towel impact or the fact that tissue change in the portfolio which has negatively impacted organic sales, that's in Mexico.
Excluding that, Mexico organic sales were up 8% in the quarter.
Volume was up as well.
So again, there's a bit of noise as we work through the combination of the portfolio and foreign exchange.
But we expect volume will grow as we go forward and share will also be something that becomes increasingly attainable.
Thanks, <UNK>.
Brazil, for the quarter, organic sales were up 11%, that compares to minus 12% the prior quarter.
I think that again is another good example of the volatility that's going to occur here as we get the right pricing set in the market and as well, our ability to pull that through and generate growth on a sustainable basis.
So again, Brazil was up 11% on the quarter.
In terms of commodities, looked at as a single variant, so just the reduction of input costs, that impact is about $500 million on the fiscal year.
Some of that we anticipated going into the year, of course, but that's the amount.
I would argue that, in total, in other words, inclusive of consumption impacts in oil producing countries where there's been massive disruption and instability, if you think about markets like Saudi Arabia, markets like certainly Venezuela, I would say that the net impact in our P&L is likely neutral to negative but the pure cost impact is $500 million.
The amount is the correct amount, you're right.
It was about 1 point on the quarter.
We would expect ---+ we really started this work in terms of execution in July/September, maybe some in the latter part of last fiscal year.
So we would expect this continue through the next couple quarters, but then it should dissipate going forward.
There may be a few additional choices we need to make but in general, you'll see it for the next couple quarters and then it should start to dissipate.
On the FX multiplier, as you can imagine the different currencies that have ---+ we have no ability to forecast which currencies are going to move and how much they're going to move.
The top and bottom line relationship between currency movements is very different depending on the market.
It depends on how the market's sourced.
It depends on the balance sheet of the market.
I mentioned balance sheet revaluations.
So for example, in Argentina, we talked about the balance sheet revaluation that occurred there.
So it's really a function of what actually is happening in the marketplace country by country, how we source the markets and what the balance sheet exposure is in different markets.
So I guess I'm saying we don't really have a good ability to forecast exactly what the currency impact is going to be on either the top or bottom line.
Frankly, we spend very little time thinking about the relationship between the two.
In terms of the comments on trade inventory reduction, that is largely a China dynamic.
I've mentioned in prior calls that our inventory levels were too high, particularly in the wholesale channel in China.
As a result, our pricing was too low, which was driving a bit of distortion and difficulty for our distributors.
So we have made some choices to address that and that has a short-term volume impact.
That's really what that comment was designed to indicate.
Relative to senior executive engagement with the investment community, we tend to be fully engaged with the investment community through a combination of quarterly conference calls, investment conferences, meetings here in Cincinnati.
David will be on the road frequently as well interacting with the investment community.
So again, our strategy is one of very high engagement.
