CLX
#Welcome, everyone, and thank you for joining Clorox's third quarter conference call
On the call with me today are <UNK> <UNK>, Clorox's Chairman and CEO; and <UNK> <UNK>, our Chief Financial Officer
We're broadcasting this call over the Internet, and a replay of the call will be available for seven days at our website, thecloroxcompany
com
Let me remind you that on today's call, we will refer to certain non-GAAP financial measures, including, but not limited to, free cash flow, EBIT margin, debt to EBITDA and economic profit
Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations
Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast's prepared remarks or supplemental information available in the financial results area of our website as well as in our filings with the SEC
In particular, it may be helpful to refer to tables located at the end of today's earnings release
Please recognize that today's discussion contains forward-looking statements
Actual results or outcomes could differ materially from management's expectations and plans
Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans
Company undertakes no obligation to publicly update or revise any forward-looking statements
So with that, we'll now turn to our prepared remarks
I'll cover our highlights of our third quarter business performance by segment
<UNK> <UNK> will then address our financial results and outlook, and then finally, <UNK> will close with his perspective
And then we'll open up the call for your questions
So let me start with our top line results
In the third quarter, we reported 4% sales growth, which is really building on the results we've seen year-to-date
And, I think it's worth noting, this is in a consumer environment, where generally growth has been hard to achieve
Helping drive these results for Clorox are the investments we've made in our brands, including in innovation, and I'll be talking more about that in a moment
So let me start with our Cleaning segment
In our Cleaning segment, we saw third quarter volume increase 13% and sales grew 7%, and this was behind higher shipments of Home Care and Professional Products
And sales growth, while quite strong at 7%, did lag volume growth primarily due to unfavorable mix from incremental distribution in the club channel, as well as our higher investment in trade promotion in the quarter
In Home Care, which is our largest U.S
business unit, sales increased double digits and this gain was driven by very strong volume growth, particularly from disinfecting products with record third quarter shipments of Clorox disinfecting wipes behind club channel distribution, as well as from our new Clorox Scentiva line of disinfecting wipes and sprays
These products provide an experiential fragrance while cleaning the home, and while still early, Clorox Scentiva is off to a strong start
If you look across all of Home Care, the gains in volume were really very broad-based across both channels and the entire portfolio
And this is really consistent with our results because, as we saw, the business unit delivered its 11th consecutive quarter of market share gains
Moving to the Professional Products business, it delivered strong sales growth in the quarter with continued strength in professional cleaning, driven by Clorox disinfecting wipes, Pine-Sol and Glad, aided in part by strength in B2B e-commerce channels
And in professional healthcare, the new product we discussed with you last quarter, Clorox Fuzion, continues to run well ahead of expectations
As a reminder, Fuzion is a new cleaner and disinfectant for healthcare institutions that kills microorganisms, but with minimal residue or odor which addresses a significant need in the healthcare business
Turning to our Laundry business, sales decreased slightly largely due to continuing softness in our Clorox 2 color-safe laundry additive business
However, our strategy for the entire Laundry business remains unchanged as we continue to trade up consumers to more value-added offerings such as Clorox Splash-less Bleach, which is doing quite well, as well as leveraging the Clorox equity across both Laundry and Cleaning, which is reflected in the success we've seen in our Home Care business
Turning to our Household segment, we delivered 9% volume growth and 4% sales growth
Lower third quarter sales in Charcoal were more than offset by the benefit of the Renew Life digestive health business we acquired last May, as well as from higher sales in Cat Litter
Starting with Charcoal, sales and volume were down in Q3, but this was following high single-digit growth in the year-ago quarter
So simply put, we were facing some pretty challenging comparisons versus a year ago
Looking at this year, the initial ramp-up for the summer barbecuing season was a bit slow, in part due to poor March weather, and it also skewed slightly away from our premium instant-lighting product, Match Light, resulting in an unfavorable mix impacting Q3. But, as a reminder, the bulk of our Charcoal business occurs in the fourth quarter, which is the current quarter that we're in now, and we're supporting the 2017 grilling season with our new premium Kingsford long-burning briquette that we started shipping in January
Turning to Cat Litter, sales increased strongly, supported by all-time record shipments of Scoop Away and strong shipments of Fresh Step, primarily due to increased merchandising support, the Fresh Step with Febreze innovation, and strength in the grocery channel
And while still early, our new Fresh Step Hawaiian Aloha item, which began shipping in January, is off to a strong start
And while the category remains highly competitive, we did have our fourth consecutive quarter of market share growth for the Scoopable Fresh Step franchise
Turning to Glad Bags and Wraps, sales came in flat for the quarter with volume down slightly, driven by a softness in our food protection business
However, our premium trash bag business, particularly behind OdorShield, continues to grow, consistent with our strategy to support retailers in trading up consumers to more value-added offerings
And then I'll wrap up the discussion of the Household segment with Renew Life, which contributed strongly to the segment's growth this quarter
You know, in short, we remain very excited about this acquisition
Again, we made this acquisition about a year ago, this month
And we continue to be focused on distribution expansion strategy
That remains on track, and we feel very optimistic about future distribution opportunities
Turning to our Lifestyle segment, volume decreased 1%, and sales decreased 3%
And the slight decline in volume was primarily driven by lower shipments in Water Filtration and Natural Personal Care, reflecting comparisons to double-digit volume growth in both businesses in the year-ago quarter
So, starting with our Brita water-filtration business, despite the sales and volume decline due to tough comps, again, particularly on our faucet mount products, our Q3 shipments this year on our pour-through systems and filters increased behind our latest wave of innovation, and specifically that was on a couple of products launched in mid-February
At that point, we started shipping our new Brita Stream Filter As You Pour Pitcher, which makes filtering water ten times faster, as well as our premium Brita Longlast Filter, which lasts three times longer than legacy filters and reduces more contaminants, including removing 99% of lead
Looking at Burt's Bees, Q3 sales and volume declined in comparison again to double-digit volume gains in the year-ago quarter as we lapped the launch of Burt's Bees lipsticks
At the same time, our lip balm business continues to perform very well with record third quarter shipments
And looking ahead to fiscal year 2018, we have strong plans in place for innovation in several areas to keep growing this business
Turning to our Food business, sales decreased and volume was flat for the quarter as we made significant incremental investments in March that are anticipated to contribute meaningfully to fourth quarter volume growth in support of new products
And these include Simply Ranch, a preservative-free offering in our original ranch lineup, and two new flavors of ranch, chili lime and cucumber basil
We're also leveraging the strength of the Kingsford brand, our Charcoal brand, by launching a new line of barbecue sauces
And then finally looking at our International business, sales increased 3%, while volume declined 2%
The modest volume decline was mostly due to lower shipments in certain Latin America countries, notably Argentina, driven by macroeconomic conditions
Partially offsetting this were increased shipments in Canada, which benefited from the Renew Life acquisition
And broadly speaking, although macroeconomic conditions remain tough, we are encouraged by the progress in our International business as our go-in strategy to improve profitability is also providing for selective investments in key markets which will support future top line growth
For example, in recent quarters, we have launched laundry innovations in several international markets that are off to a good start, including in Asia and Latin America
So with that, I'll turn it over to <UNK> to provide more detail on our Q3 performance and financial outlook
