Clorox Stock

All right. We're going to get started. So next up this morning, I am pleased to welcome the Clorox Company. We're joined by Linda Rendle, the company's Chair and CEO; and Luc Bellet, CFO. Linda, in May, you announced your decision to step down from your role. So before we get started, I just wanted to thank you for the thoughtfulness that you've consistently brought to your conversations with the investment community.

You've led the company through a time of extraordinary change, and we've always really valued the opportunity to hear directly from you, so thank you. And Luc, we're happy to have you here, too. Before we get started with questions, I think, Linda, you had a few things you wanted to open up with, and then we'll get into the questions I prepared.

Sounds good, and thank you for your opening. And in line with that, perhaps I'll give an update on the CEO succession process. The Board is well underway in identifying my successor. They laid out a process where they're doing a comprehensive search and they are well into that at this point. Until then, the team and I continue to be focused on our strategy and priorities, and we'll keep you updated as we have more information, but nothing new to share today.

With that, I thought I would just provide some brief opening comments on the business and then get into Lauren's questions. First, I wanted to talk a little bit about last year, our fiscal year that ended in June. It certainly was a year of volatility for the industry, given what was going on from a consumer perspective, and then for our company, it was a year of transition.

We implemented the final version of our digital transformation with our ERP in the U.S. which was a significant undertaking. We did a greenfield implementation, but that is now behind us, and we are moving into optimization mode. And in addition, we made a significant move on our portfolio with the acquisition of GOJO Industries, which you know better as PURELL, which is a key player in B2B and retail in the hand sanitization space and expands our presence in health and hygiene, and we're excited about that acquisition. I know we'll talk more about it today.

So we feel we enter fiscal year '27 in a much stronger place than we did in '26, and that was a result of making sequential improvement in '26 quarter after quarter after quarter. But we still see the environment as being tough. Consumers are under stress. Our categories remain muted, but we have a strong slate of innovation. We're investing in superiority in our brands. We can talk more about that. And certainly, as we face inflationary headwinds, we're taking all the necessary actions to ensure that we recover margins over time and importantly, have the fuel to invest in our brands, and we're making strong investments this year.

With that, maybe we just get right into questions.

Yes, sounds great. So let's start with category growth. As you mentioned, it's been challenging. So category growth has been trending below historical levels. We're seeing that broadly across our space. But I was curious if there were differences worth calling out on a more granular level and specifically where Clorox competes. Like are there areas where you see consumers more willing to pay up for premium innovation or areas where consumers have pulled back more or less than in others?

Yes, we don't see a really distinct difference in our categories. They all follow a very similar pattern, but they certainly have different things impacting them. So let me walk you through a few of them. First, in aggregate, all of our categories are being impacted by value-conscious consumer. Consumers are trading up to larger sizes and smaller sizes, and they're shopping in different outlets at an enhanced pace to do that. So you're seeing more in club and mass.

And certainly, they're going to continue to do that. We see as gas prices are elevated, and they're dealing with the impacts of inflation. So that's across all of our categories. And then even categories that have stronger growth rates, Cat Litter, for example, is a mid-single-digit grower, we've seen a little bit more muted, but that's still growing faster than our average.

Our Pro categories continue to grow faster than average. International continues to grow faster than average, even though they're under inflationary pressures in those markets as well. I would call out every one of our categories is positively impacted by innovation and consumers are willing to pay for a better experience. So whether that be in a trash bag where we've launched a trash bag that has an absorbent layer on the bottom, that is a premium, that's doing well at launch. To a Burt's Bees new lip squeezy balm that is a premium, and that is doing well. In our cleaning businesses, we continue to see trade-up to our Scentiva platform.

Consumers are entering into the new allergy space we launched with Clorox PURE, which is a premium. So we're seeing generally consumers very willing to accept continued innovation and premiumization in the category as long as that delivers a superior value. And that's what we're laser-focused on, is making sure that we have the right size, price-pack architecture in our base business that we're doing the right claims work, that we're investing strongly in advertising sales promotion. But then really to get these categories growing again, we need to continue to lean into innovation, and we have strong innovation plans this year.

Okay. Great. You've guided to organic ex-ERP comps. It's organic flat to up slightly for fiscal '27. But underlying organic will still be down in the first quarter. So -- and I think a big driver of that is Kingsford and some dynamics with charcoal specifically. But I think investors get nervous to see a second half weighted year. So what gives you confidence that organic performance will accelerate as we move beyond Q1?

Sure, I can take that. Well, maybe let me get us reconnected to our outlook for the full year. So organic sales growth is expected to grow 3.5% to 4.5%. But as you mentioned, that includes a little over 3.5 points of benefit from lapping the ERP transition last year. So excluding this, organic would be flat to up slightly for the full year.

Now Q1 is a bit of a unique situation. And you mentioned part of it is we -- excluding the impact of the ERP we expect organic sales growth to be down in Q1. And that's mainly driven by the timing impact of some merchandising as well as the expected softness in our grilling business following what has been a weak start of the season in the fourth quarter and resulted in higher level of inventory, both at retailers and consumer homes are going into the first quarter.

But if I leave that on the side, if we really look at the phasing through the year, category growth is essentially expected to be fairly consistent throughout the year, in line with what we saw last year. And then looking at market share, we exited last fiscal year with improved trends and the outlook is essentially expecting us to continue building on that momentum through the benefit of the focus and investment we're making on innovation and commercial execution.

Okay. It's been interesting to see the cleaning business is where Clorox has been having the most success. I guess and that's judging both reported results and also looking at Nielsen. So do you agree that that's a fair characterization? And if so, what do you credit it to? Like what do you take as learnings from cleaning that you can apply to other areas of the portfolio?

That's the right assessment. Our cleaning business has been a very strong driver for the company, pretty consistent over a number of years. And there's a few things that I would highlight that make it so, and it was actually learnings into how we built our strategy that outlined for this period.

The first would be the importance of brands. Clorox is an incredibly strong brand that stands for something very powerful with the consumer, stands for trust. It stands for superior cleaning and consumers with that, whether that be in the home space or in the B2B space. So continuing to invest strongly in our brands is something that the cleaning team has done for a number of years, and they've built that Clorox brand over years to being something different to the consumer. We used to just stand for bleach. And now it stands for a lot more for the consumer.

And in fact, there are many products don't have bleach in it today and some products that don't even disinfect, but they stand for powerful cleaning. The second thing would be is innovation. Cleaning has consistently launched innovation year-after-year going after new jobs that, that brand can take the consumer to. So if you looked at our portfolio 30 or 40 years ago, we were pretty much a dilutable business. And then we moved into more convenient forms of sprays, we launched the wipes category 20 years ago, and we continue to launch into adjacencies that allow that brand to go into new spaces, but with that primary benefit that we keep at the forefront.

And many of those innovation platforms we've built to invest in for years and years and years. Scentiva is a great example. We launched that in 2018. It's been a growth driver for us for almost a decade now. And so those are the learnings we applied in our IGNITE strategy to get those other businesses moving, and that has been working in a number of categories. We have more work to do, and I know we'll talk about Litter later. That's a good example where we have to reapply that formula to get back to consistent growth.

But that is why we have invested in health and hygiene. That is consistent with the acquisition we just made with GOJO. We see a real differentiator in our capabilities and our understanding of these categories and our ability to create value over time.

Okay. Another positive story, but so completely different. It's Hidden Valley, which historically hasn't gotten much airtime despite being a big business. But recently, you've, been highlighting the share gains for the brand. Super fun; Taste of America dynamic during the World Cup. But I think there's still an ongoing challenge from GLP-1s and maybe the Cyclospora outbreak. How should we think about the trajectory for Hidden Valley going forward?

Yes, it was really fun to be part of the World Cup fever unless you're a TSA agent and people are taking bottles of Hidden Valley in their carry-ons. People really fell in love with Ranch, which is great and gives us opportunities. But you're exactly right. We've been growing share in Hidden Valley. We had a period starting at about 1.5 years ago as the food category softened. I mean we had made some decisions on price pack architecture that didn't go as well as we had intended. So we went back to our playbook, refreshed our innovation plans, did some additional price pack architecture work, got that business going again and that led to share growth in Q4.

Right now, we're dealing with the temporary impacts of Cyclospora. So if you look at the category, it's been down double digits. We fared much stronger than that. So we've grown 2 to 3 share points depending on the time period over this time, but that -- it certainly is impacting us too, but to a lesser degree than the category. We see that starting to lessen in the data. So I think we might be through the worst of it. We're going to watch it closely.

But I really view that as temporary and people will get back to those eating occasions. I'm happy to be eating salads again. So we'll be watching that. But I think fundamentally, to your point, the category is under pressure from things like GLP-1s, et cetera. What we're trying to do with Hidden Valley is it's a brand that makes everything taste better, whether that be what you're doing on your GLP-1 journey or you want to enjoy it on something a little more indulgent like pizza, and that's working pretty well. We're going to continue to do that. So we're excited about the share growth, but we're really focused on getting the category going again.

Okay. Great. And then let's spend a moment on areas of portfolio that have struggled more. So let's talk a bit about Litter given its size, top of mind. So I guess for those who are here who don't really know aren't as close to the story, maybe you can an overview of Fresh Step struggles, the restage and why it's kind of taking longer to get back to growth than anticipated?

Yes, Litter is a good example. I spoke about that playbook in cleaning. The work that we do on our brands in equity, ensuring we have innovation and superior value where we had a lot of operational disruption in Litter that was disproportionate to the rest of the portfolio.

We built a manufacturing site in COVID, not a fun time to make a greenfield plant implementation, and so that took longer than we expected. And then when we had the cyber attack back in 2023, that was one of the categories most impacted because as you can imagine, and if you have a cat, you know this, to change out your trash bag for a period of time and then get back to your Glad bag is not that hard. You run out of the old bag, you purchase Glad.

But when you've trained your cat to use a particular Litter, that transition back takes a bit longer. So it took us longer to get back with consumers, and we were focused operationally on doing that in e-commerce, et cetera. And where we fell behind, frankly, was in innovation and ensuring that we had superiority and our competitors kept moving.

So the team took a very hard look at our plan knowing that, and we said we needed to do a complete restage of the business, starting with price pack architecture, getting our claims right and our packaging right, improving our formulation to remove more dust and we did that as the first part of the restage in Q4.

That was a lot of change for the consumer. And some of our retailers made decisions on shelf placement that weren't consistent with what we thought was going to happen. We got the distribution, but the shelf placement, it wasn't exactly right. And so they didn't go as exactly as we expected. But we do feel that restage was really important to get us going again.

Now what we're focused on is driving our brand equity, being really clear what Fresh Step stands for, which is freshness. And Odor Remover, we're going to get back to that, a strong innovation pipeline, and we have a good one this year that we'll talk more about in the back half. And then ensuring we have superiority over time. And the team is laser-focused on that playbook.

The first part of that implementation is in, and we're starting to see some green shoots for lack of a better word with some of the price-pack architecture work we've done. But this is going to be -- we view this as a rebuild for Fresh Step, and we have full confidence we'll get there. We've done this in other businesses over time, but that's really what happened. We were really operationally focused, and we need to get back to that playbook for our brand.

Okay. And so you just mentioned that there are some green shoots. So this isn't about reconsidering the plan. It's been refined. The plan is in place, and now it's time.

It is. The one thing I'd call out, and we've said this over and over again to our team we want to see a multiyear innovation playbook, and we feel good about that, but we want more. This is a category that is innovation driven even more so than others. And so we are pushing really hard to say, what does our innovation plan look like multiple years out and how do we back into that and ensure that we have the right value. So that's the place that our team is very focused on is innovation.

Okay. Great. Let's talk a little bit about pricing. So -- given the inflation that we've seen this calendar year, where the key topic has been for across Staples has been how companies are going to be offsetting these cost increases. You guided to cost inflation above $200 million in fiscal '27 and have also discussed some plans to raise prices on Glad given the exposure there, which makes a ton of sense.

So that's sort of the backdrop, and I had a few questions on this. So Luc, maybe you could give some color on the components of the $200 million. I think there's some questions out there as to how this ties directly to direct oil, how much is logistics in diesel versus downstream. Yes, so let's start there. And...

Sure. Well, as you mentioned, we expect input cost inflation of slightly over $200 million for the year. And for perspective, that compares to a historical average of $75 million to $100 million. So well above that. Now oil is an important variable, but it's important to recognize that the inflation, we expect this year is broader than just energy alone. And if I look at the components, certainly, a big part of it is input cost and commodities. And the largest driver would be resin-based or commodities, but we're also seeing meaningful inflation across a broad range of other communities that are not energy-based.

And beyond commodities, we're also seeing inflation across a broader area of the supply chain from supply chain -- from supplier cost increase, all the way to transportation. The market has been pretty tight, especially in the U.S. and other related logistic costs. So I would say the inflation this year is proving out to be much more persistent and extending beyond what just the headline from oil.

The last thing I mentioned is from a phasing standpoint. We expect inflation to be more pronounced in the front half. And that goes along with the fact that it generally takes a little bit of time for cost mitigation actions to take place. So that's where this year, the gross margin will be pressure, but it's more of the timing than the structural issues, and we expect sequential improvement throughout the year.

Okay. And then there's now been this more recent spike in logistics costs. So any changes to the outlook or impact?

No, no change right now. I mean, our outlook contemplated a pretty tight transportation market in the U.S. That was -- that's one of the drivers of the inflation that we assumed.

Okay. Great, so in addition to pricing on Glad on the conference call, you'd mentioned targeted pricing elsewhere and then also value investments to improve competitiveness in other spots. So -- is there anything you're able to call out now key categories in both sides of this equation to get more specific?

Yes. So we called out targeted pricing for a reason. We feel right now the consumer is stretched, and we have a very broad range of tools to recover margins over time. So we will use targeted pricing. You mentioned Glad earlier. Glad is one where we're taking truckload pricing in a more normalized level. across our food business in some areas of cleaning. We're taking pricing, but again being very targeted in how we're doing that, not taking broad price increases in any of those businesses.

And then at the same time, we are making investments on the other side. So we talked about Glad being one that we did last year, where we invested in our 80 count to ensure that we had the right price point. We're also doing that in areas like Litter. On price-pack architecture. So we are balancing where we're taking pricing up and also making them some investments. We're also investing in product in some cases. So you're not seeing that in the pricing line, but that actually plays out in TDC instead, but we're investing in superiority and a few of our things.

And so that contributes to ensuring that we have the right balance between where we're taking pricing and of course, using cost savings, RGM, price pack architecture and other places, but also ensuring that we're making investments where we feel we need to at the same time and we'll continue to talk more about pricing as we put it in the market. But we're being, as we said, very surgical, where we think we have the right ability to take pricing and where the right value is.

Okay. And then just how should we think about net price mix for the year in the context of everything we just said and then the sales guidance. Is it a full one point benefit, like I was trying to do some math on Glad, if it's mid- to high teens, anyway, so it is around one point...

Yes, price mix would be net -- slightly up, right? And this is mainly driven by some of the targeted price increase that we're taking in Glad or as Linda mentioned, in some part of cleaning. And that's tempered by, of course, continued headwinds on from consumer value setting behavior and channel shifting as well as some targeted investments we're making to improve value equation in some more challenged businesses like Litter.

Okay. So not quite a full point on net price mix.

Yes, slightly up.

Okay, okay. And then on Glad, I mean you've been happy with the business returning to share growth in the fourth quarter, which is great news. But at least from what we can see in the data, it suggests that this came with elevated promotion relative to peers. So just looking for some thoughts on the kind of competitive environment for Glad and how confident you are that Glad can maintain its market share momentum in an environment where everyone is pricing, but presumably, you'll have less promotion?

Yes, so. If you look at the drivers of what improved Glad quarter-after-quarter in fiscal year '26 and what we have in the plan for '27, it was much more than promotion. We revamped our innovation plan, that has performed well in market. Price-pack architecture played a large role with RGM. And so we feel the plan is very sustainable that led to the share growth turnaround that we saw in Q4 and we continue with that plan in '27 with the addition of pricing.

To your point, though, we're going to watch it really carefully. We don't know what's going to happen in the category. The good news is we have more sophisticated tools now to react quicker and to be much more targeted, if we have to make additional or take additional actions like we did at the beginning of fiscal year '26. It is a competitive and a promotional category.

I would say that's one of the ways that we might balance pricing. So we'll take a truckload pricing increase. We're going to see what the consumer does and promotion is always a lever for us to offset that if we need to. We're not afraid to do that. But what we don't want to get into is a place where promotion is at too high of a level.

This is still mostly a base category that consumers use every day, but it allows us to make quick changes to price if we need to, and we'll reserve the right to do that. But we see the competitive environment being relatively steady now, and we'll see how it plays out this year.

Okay. I just want to get a quick update on tariffs and the extent to which they're hitting your P&L. Sort of where are you exposed? How much of an impact is there in fiscal '27? I don't think you called it out on the conference call. And I didn't know if anything with the recent increased tensions with Canada change anything. I know there was an increase tariff on charcoal?

Yes. Well, I would say to date, the overall impact of tariff hasn't been that material in our P&L. And a few things to keep in mind. First, given that I think the heavy nature of our products, we tend to produce very close to the market we serve. And with a domestic -- with our footprint being mostly domestic, we tend to mostly produce in the U.S. with local suppliers.

In addition, early last fiscal year, we also were very proactive in making some sourcing changes to further limit the tariff exposure. So -- given that, I would say the overall tariff exposure or including the materiality of the refund, hasn't been that meaningful as I look at last year's result or even the outlook in fiscal '27. Now regarding Canada, we have been monitoring closely the recent development. It's obviously a very dynamic situation, and we will update our estimates if needed.

Okay. Okay. Let's talk a little bit about reinvestment. This is going to be long-winded. So just a head up. Okay.

Okay.

Go ahead please.

So the underlying organic sales growth rate is still forecast to be below historical rates. But sort of simplistic math when I think about the impact of inflation, productivity, pricing and GOJO on gross margins, that pretty much tied to the guidance you've given for gross margins, right?

And then on overall OpEx, you've got incentive comp step up, but the basis points change that you've guided to for SG&A feels consistent with what you'd said since announcing GOJO. So I just -- I'm like -- I'm struggling to find the room to reinvest and how that is flowing to the P&L and how we should think about that?

Yes. I would say at high level, we feel good about the level of investment in our plan. And as you would expect, our outlook incorporates a reasonable degree of flexibility. And as we look business by business, we'll continue to make adjustments to our plan if we see a change in consumer trends or competitive dynamics.

Having said that, there's a few places where we're making investment that might not be to your point, obvious as we look at the headlines. First, let me start with the gross margin. And I think Linda just alluded to this. We -- there are few places where we are making investments to either improve our value superiority or brand positioning. Some of it is in the form of price. And I think Linda mentioned it in the case of Litter, and that can be done through trade or through PPA, but that's actually impacting the gross margin.

And in other places, we're actually increasing cost to really just doubling down and stepping up product performance and superiority. And so that's coming in as part of some of the innovations. The -- another place is in advertising and sales promo. We historically had a very strong ROI and a leading industry ROI, and we keep seeing them improving year-over-year. But we're also driving material productivity in our production of what we call nonworking costs. And that's mostly through the ramping up our use of AI. And what we're doing is we're actually reinvesting all those savings into working media. So net new working media is actually up year-over-year.

And then finally, in SG&A, you mentioned it like, the headline is this is mostly driven year-over-year. The impact is mostly driven by the impact of GOJO and then lapping the lower incentive comp. But underneath, there's actually a pretty meaningful productivity that's not only offsetting inflation, but also offsetting incremental investment we're making behind capabilities.

So that's the way to think about all the investment we're making next year. So net, we feel good about the level of investment in our plans. And of course, we'll make adjustments as needed.

Okay. Great. Another question in this vein. So in early '26 -- calendar '26, sorry, the conversation, I think, among investors had been that with ERP shipment timing or through this $0.90 headwind, meant fiscal '26 earnings were $0.90 sort of artificially low. And so the right way to think about '27 would be to add back the $0.90 to the fiscal '26 base and then grow from there.

If we do that, if we add $0.90 back to what you just reported, the $5.53 for fiscal '26, '27 guidance at the midpoint is actually down $0.60 year-over-year. So input cost inflation and incentive comp or 2 drivers. But has anything else changed since early '26 that drives the underlying earnings to be down so much?

You mentioned it, the 2 drivers as we look at fiscal year '27 EPS is the input cost inflation and the gross margin compression as well as the lapping of the incentive comp. And so -- the one thing I would mention when you look at gross margin compression is the noise associated with ERP impacted both sales and EPS in fiscal year '26, but it also impacted gross margin because of operating leverage.

So when you adjust the base by $0.90 in fiscal year '26, you need to also adjust the gross margin to account for the operating leverage. And so when you do that, the gross margin compression is actually a little higher than what's stated in year-over-year in our outlook. But outside the gross margin compression, the main driver is lapping of incentive comp. We had an abnormally low both short-term and long-term payout last year and it creates a year-over-year headwind.

Okay. So that is the biggest cost inflation.

That's it.

Okay. Okay. Let's switch and talk about ERP, the transition itself. So just looking for a bit of an update there. I think, Linda, you said we're into optimization and out of stabilization. And so I think the latest expectation was that benefits would start to come through in late fiscal '27 or into '28. I just wanted to get a sense for that. Is that a bit of a delay relative to earlier expectations? And -- how should we think about potential cost savings once we get there?

I'll take that. So again, stepping back, we implemented ERP in the U.S. in fiscal '26. There was a major milestone in our digital transformation journey. First, because it really modernized the backbone of operations. The second, it really creates a data and technology foundation for us to drive a business that's much more resilient, stronger and faster.

Now we talked about it, but the transition wasn't without its challenges. Most of it was really concentrated in our order to cash process. And so it took longer than expected to stabilize our demand fulfillment, service level and operational efficiencies.

But as you mentioned, Lauren, as of today, our service levels are stable. Our operation incremental operational costs came down, and most of the noise and volatility associated with implementation is now behind us. And so while it took longer to stabilize and transition, we're now moving into optimization.

And now we expect benefits to build progressively over time and they start showing up late this year and then well into next year. There are probably 3 large areas of opportunities. First one is obviously supply chain with real-time end-to-end data visibility. You now can have just much more responsiveness in your demand fulfillment, a lot of productivity coming from both manufacturing and logistics as well as some lower inventory and working capital.

The second is really around our selling and admin. We're seeing some benefits from automation and more efficiency in our back office functions as well as the opportunity to continue expanding our global business services. So those are really the direct benefit. But the third and arguably more important benefit is really you now have a pretty robust technology foundation that enables you to have real-time end-to-end data visibility.

And we're seeing now it really enables us to really adopt and take more advantage of AI and strengthen a lot of our key capabilities within the organization. It can be things like integrated business planning or actually just Linda was talking about trade spending optimizations and RGMs, all of those are actually empowered by the new ERP. So net the new ERP is not only going to contribute, I think, to productivity and strengthening our cost-savings pipeline, but also improve our data insight and capability to strengthen execution and growth over time.

Okay. Great. GOJO. So I'm sure you're excited now the deal has closed, you can really kind of get into the weeds on integration and thinking about incremental revenue opportunities going forward. One thing that you guys have consistently highlighted is about 80% of revenue is B2B with a large installed dispenser base and kind of recurring refill demand. What is having that steady source of sales and cash flow enable Clorox would do that it couldn't do it easily before?

We love cash flow, and we love what that does consist with our business. But I think the biggest thing that is getting us excited and to your point, we closed on April 1. So we've been in the plan now for multiple months. Is really the power of a broader health and hygiene platform. And we talked about rightfully the cleaning business and how well it has performed over a number of years.

And what the attributes of that are, we very much see the exact same attributes in PURELL. Although it is more weighted to B2B, we still see those same attributes of a very strong equity that stands for something with the consumer that nothing else stands for when it comes to trust.

These are people who go into a hospital, and that's what doctors trust to disinfect their hands and nurses before they come in. And certainly, they live through COVID and not being able to have PURELL on the consumer side, given they were focused on doctors' offices, was a big downside to consumers.

So it has that equity. It has incredible innovation. That's the thing we're most excited about. We knew about some of it before we started. But when we got into their innovation plan, whether that be on dispensers. So we do have over 20 million dispensers on the wall today, but we continue to upgrade those over time and add to them and that allows us to give better benefits on the B2B side to our end users.

So I'll give you a really live example. If you think about what you used to do to dispense soap or hand sanitizer in the past, you went up to something and you pumped it -- and today, if you put your -- you go to most places, you put your hand or something and electronically gives you the exact right dose that you need. The type of technology that GOJO has invested in allows labor to come down in B2B.

So they've actually put the battery that was one of the biggest sources of labor issues people having to constantly check, does the battery need to be changed into the refill and they're able to charge up for that. And so over time, we have an innovation pipeline that continues to make those dispensers on the wall more and more valuable. But the big thing for us is bringing together the Clorox and the PURELL equities in both the home and away from home to give a health and hygiene solution across a number of services.

So PURELL plays in skin hygiene today and a little bit in surface hygiene. Clorox is primarily surface hygiene, so we see new jobs to do in the B2B space. We see new jobs to do in the home, and we see those equities as having distinct roles in our ability to do that. And for B2B, they have a very sophisticated B2B organization at GOJO more advanced than ours, and we had a strong business beforehand with direct relationships with these verticals, and they are very excited to bring these 2 businesses together.

So that these hospital systems, et cetera, can offer 1 solution for their health and hygiene of their professionals and of course, for the patients and consumers that enter their businesses. We've had more outreach from customers than we've ever had on any launch we've ever done with this acquisition with how excited they are for the growth opportunities.

And so GOJO was our already, [ PURELL ] was a mid-single-digit grower. That doesn't include any synergies. But we see synergies on contributing to the growth on both the Clorox side and PURELL, and we see this as something that was a good growth opportunity, but also because of the dispensers on the wall. This is really what offers lower risk because we already have that installed base. And we felt really good given this was our major acquisition for the last decade, really good and fits with our capabilities, add to our capabilities, but lower risk given that installed base.

Okay. Fantastic. One last quick thing is that you guys have been really active in tightening the portfolio or divesting Argentina, VMS. But I do get questions still and if there's room to further focus the portfolio, so I'd like to give you more attention and more weight to where you've been more successful with cleaning and hygiene. So how are you thinking about the potential to divest underperforming businesses?

First, I think we've been clear, we see health and hygiene as a North Star for our company and a place we want to continue to grow. And we want to do that both organically, and certainly, we have made the investment in GOJO to do it inorganically as well. But we also see the ability for a number of our businesses to fit under that health and hygiene banner, and they do. But we always evaluate our portfolio with the Board on a regular basis. And as a management team, we're always looking for opportunities to say, are we the highest value owner of this?

And are there other better uses of our investment dollars? We don't have anything to talk about today, but we're always doing that work, and it will be under that guide of continuing to move toward that health and hygiene North Star.

Okay, great. We're going to wrap there and go to break out. But join me in thanking Linda and Luc for being here.

Thank you, Lauren.

Good day, ladies and gentlemen, and welcome to the Clorox Company Fourth Quarter Fiscal Year 2026 Earnings Release Conference Call. [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 Luc Bellet, our CFO. Please note also that our earnings release and prepared remarks are available on our website at thecloroxcompany.com. 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 year 2027 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 statements section, which identifies various factors that could affect such forward-looking statements, which has 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 a reconciliation of non-GAAP financial measures to the most comparable GAAP measures.

I will turn it over to Linda.

Thank you for joining us today. Throughout fiscal year 2026, we operated in a dynamic environment marked by heightened value-seeking behavior, increased competitive activity, inflationary pressures and ongoing macroeconomic uncertainty. We moved with urgency on incremental short- and medium-term actions to better serve consumers and compete more effectively in this environment. That work is focused on advancing superiority in key categories by sharpening our product experiences, strengthening our price pack architecture, improving our promotion effectiveness, increasing the impact of our brand building investments and ensuring we are present where consumers choose to shop. At the same time, we took strong actions to advance our long-term strategy, while continuing the always-on transformation work that is strengthening our capabilities, improving productivity and positioning the business for more consistent profitable growth.

While the majority of our businesses are performing at or above expectations, we have taken decisive actions to improve in the errors that are not yet delivering what we expect.

We are encouraged by the sequential improvement and the progress we are making. As we look at fiscal year 2027, we're confident in our strategy and the stronger foundation we built. Our focus remains on the priorities that will create long-term value, delivering superiority across our portfolio, accelerating consumer-led innovation, investing behind our brands, shaping a portfolio structurally positioned for faster growth, advancing operational excellence, and generating fuel to reinvest in the business.

With that, Jen, we'll now open the line for questions.

[Operator Instructions] And our first question comes from Peter Grom with UBS.

Great. Two questions just on the top line. So maybe just a lot of moving pieces here, but you noted weaker category growth. Can you maybe just unpack what's embedded from a category standpoint relative to market share in the flat to up slightly organic sales outlook?

Peter, I'll start. So what we referenced as weaker category growth is very consistent with actually what we saw in fiscal year 2026. We expect the categories to continue to be muted given what's going on from a macroeconomic perspective and consumers continuing to engage in value-seeking behaviors, largely consistent with what we saw in 2026. Of course, we're watching that very carefully because this outlook assumes more of a continuity in category growth and no significant displacement depending on what happens with inflation and what happens in the Middle East, et cetera, but I would say very much in line with the category growth that we saw in 2026.

And then from a market share perspective, we expect to continue to make progress on market share. We had a number of categories that had turnarounds, particularly the exit rate is much stronger Food, Glad, home care continue to be strong, but we expect to continue to make progress throughout the course of the fiscal year on market share, and that gets us to the combination of what we expect from an organic growth perspective.

Great. And I guess just to that point, so you're expecting a slower start to the year. It sounds like a continuation of the current consumption trends as well as some of the timing-related impact from growing and some merchandising. So is that improvement simply just the absence of those latter impacts? Or are you expecting consumption trends to also show signs of improvement as we move through the year?

We -- right now, Q1 is a timing issue for the most part, as you noted, on Kingsford, in particular. We can talk about the grilling season that's underway, but really a timing impact to Q1. And then we would expect the remainder of the year, particularly the back half, more in line with the trends that we've seen over the course of '26. And if you look at what we've done every quarter, we've made sequential improvement. So consumption sequentially improved with a stronger exit rate getting back to flat consumption in Q4 shares sequentially improved. Our ex rate in June was nearly flat. If you look at our category share results. Distribution continued to improve, merchandising continue to be more effective and so Q1 is a blip given some timing issues, but we would expect that pattern to continue, particularly again in the back half of '27.

Our next question will come from Filippo Falorni with Citi.

So Linda, maybe just picking up on Peter's question. From a market share standpoint, can you give us an update where you feel you made the most progress so far from a category -- at the category level where you think there's more room to go in fiscal '27? And is the expectation to exit the year with some share gains? Like help us understand a bit the market share trajectory as you think about fiscal '27?

Sure, Filippo. So starting in aggregate, again, we saw a sequential improvement, if you looked at fiscal year '26 from Q1 to Q4 with getting to close to flat, we're down 0.1 of a share point in aggregate. And that was due to a number of businesses continuing to perform from a share perspective. We saw our Home Care business continue to deliver share growth for 8 consecutive quarters of share growth in Home Care. We continue to see stronger growth in our Pro and international businesses. And then really importantly, we saw market share turnarounds in Glad behind our reinvestment in superiority across a number of levers as we saw cash grow in Q4. And then importantly, despite the category still being a bit soft. We saw the turnaround of share for Hidden Valley Ranch behind all the actions we took on innovation, price pack architecture, marketing spend and our activation against the World Cup, and we want to continue to make that progress in '27. And all of those businesses have strong innovation plans, have strong brand investments. And so we continue to expect those businesses to perform from a market share perspective heading into '27. We want to continue to make progress in other areas. So of note would be litter, where if you look at the most recent weeks, some of the incremental actions we've taken to improve superiority are leading to a better trend on market share, but we're far from where we want to be on that business, and we knew that this transformation would take time, but we'd expect to make progress on that. And then as well as Kingsford, maybe I'll just go ahead and talk about the season for Kingsford right now. I think that would be helpful.

So if you look at the category from a drilling perspective across all fuel types, including pellets for the first time, the category declined, and this was largely and mostly due to weather-related issues on major holidays. So Memorial Day was unseasonably chilly and wet across most of the U.S. And then for July 4, 185 million Americans were under heat advisory and 100 -- almost 150 daily city temperature highs were broken during July 4th weekend. So we saw less growing behavior from consumers and that significantly impacted the category.

In addition, retailers made some choices on merchandising to go after value shopping consumers and put smaller sizes on deal, we'll correct that next year because it's actually better to load consumers earlier in the season. And so that was a learning and we'll repeat that next year. So that is what you're seeing in the category and share results for Kingsford, but we would expect that to also improve as we head into season year '27 that will start in March of next year.

Great. And then 1 question for Luc. At the gross margin line, can you remind us what is your expectation in terms of commodity cost for the year and the commodity headwind? And what assumption you have from oil prices for the year?

Sure, Filippo. So we expect fiscal '27 inflation to be about -- above $200 million. So for perspective, it's about more than double historical range, which has been in the $75 million to $100 million. Now clearly, the current geopolitical backdrop continues to create volatility across energy, commodity and supply chain markets. So our outlook assume an average for Brent crude oil at about $90 per barrel. But importantly, not just energy or community stories. While communities remain a significant driver, we are also seeing inflation across a broader areas of supply chain, including supplier cost, ocean freight, trucking costs and other logistic related expenses. So as a result, it's fair to say that inflationary pressures are proving more persistent and should extend well beyond what is just reflected in the headline for the oil price.

The last thing I would mention is there's a dynamic from a timing standpoint. We expect the impact of the inflation to be more pronounced in the first half of fiscal year '27.

And we'll move next to Andrea Teixeira with JPMorgan Chase.

So I hope to go back to the impact of GOJO and also kind of a clarification on the promo environment. On GOJO, the -- obviously, we can calculate how much the impact was on a like-for-like basis or are there additional M&A, but can you comment on how sales have been performing as an organic basis if you were to compare like-for-like. And then any indications of the plans, I think the integration you mentioned in the prepared remarks has been going well. But obviously, it's still in the phase of integration. And the clarification on the promo is like how we should be thinking you speak about big trick integrations with some of the promo. So I wanted to see if there is any puts and takes from Prime Day earlier, anything we should be aware of coming into the fiscal '27?

So Andrea, I'll start with GOJO, and I'll pass it to Luc to get into some more of the financial details. We're really pleased with the start that Clorox Purell has had. We are seeing the strategic rationale for this acquisition playing through. And of course, I'll notice early. But we continue to feel great about the synergies, about the opportunities to enhance growth and the integration is going as planned and in some places, slightly ahead given the opportunities that we found. If you look at the business performance outside of what we just thought you would add from a company perspective, like-for-like, that business continues to perform very strong. So they were actually ahead of their targets for and they have strong plans embedded into this outlook for fiscal year '27. So feeling very good about the base health and feeling very good about our Pro business in tandem, which delivered a strong Q4 and we have a lot of confidence that business will continue to be accretive and additive to the company's performance.

Yes. So I think from a financial standpoint, most of it will be in the adjustment except the fourth quarter where we'll start the growth in GOJO would start impacting the organic sales growth. And it will be an outsized growth contributor. That is just a quarter. So it's fairly small for the full year.

Going forward, though, we fully expect this business to continue growing at mid-single digits, and we expect to start seeing some of the revenue synergies showing up as early as next year. And so once we start putting those in place, we probably -- our expectation for the business will be mid- to high single digits for a few years as we realize those synergies.

And since we're talking about financials, maybe just 2 more comments. Linda mentioned, the business is actually performing well and a little ahead of their plans. So they were actually accretive, not dilutive as we anticipated in the fourth quarter and we expect them to be accretive to adjusted EPS as well next fiscal year. So that, as you remember, we expected them to be initially neutral. So that's a stronger performance.

And then last thing, we talked about it in our prepared remarks, and we talked about it last time, but it's just helpful to remember that GOJO is a B2B business and has a different P&L profile than The Clorox Company. So legacy. So when you look at the pro forma of the business we acquired on a gross margin standpoint, there's about half a point of dilutions and then the SG&A would be about make the post acquisition about less than a point higher than what it was and then advertising is about 1 point lower than what it was. So just keep that in mind as you look at -- I look at the different lines on the P&L for our outlook.

Good, Andrea, and then I'll turn to your question on promotion. So I'll maybe just make a comment on Q4 and then what we expect for '27. So for Q4, to your point, there was some noise in the promotional numbers which meant that promotion was higher than a year ago, given the prime day shift into Q4 from a category perspective. But we view that as a timing issue versus a significant change in the increase in a promotional environment as a percent of sales. What we expect for fiscal year '27 is a continued elevated promotional environment given the fact the focus on value, and that's more in line with what we saw pre-COVID levels, and that varies again by category, but for the most part, just returning to those more historic promotional levels. And then, of course, you'll see a little bit of noise and timing in Q1 given the shift in Prime Day, but nothing structurally different from a promotion perspective.

And we'll move to our next question. This comes from Anna Lizzul with Bank of America.

Linda, as you look at the business now and where it stands with some of the portfolio changes you've made in the last few years, especially on innovation and with the GOJO acquisition, do you see an opportunity here for a potential portfolio trimming with some of the underperforming categories like litter? And now that we are near the third anniversary of the cyber attack, I wanted to ask in light of that, how do you see those impacted businesses performing? And if some of the investment is maybe better used on other parts of the business or categories at this point?

And secondly, as the challenging economic environment for consumers continues and you're expecting lower category growth, how is this impacting your plan for innovation and different pack sizes across the portfolio?

Anna, great. I'll start with portfolio. I'll probably move to your third question, second and then I'll tackle the cyber attack question to bring it home. So from a portfolio perspective, we are very pleased with the results of the disciplined action we've taken on our portfolio over the last number of years. The divestitures we've made aimed at getting a more predictable and steady and higher-growth company, and that certainly has played out in the divestiture of Argentina in vitamins, minerals and supplements. And as well as the large acquisition we made in GOJO, we see very clear line of sight to that improving company performance. And what I'll say is we'll continue to be disciplined, just as we've shown up over the last number of years. We regularly review our portfolio as a management team and a board, and we're always looking to see is there a way to strengthen our core whether that be through acquisitions or divestitures. And we'll, again, just stay disciplined. It's always focused on shareholder value. It's always focused on ensuring that we have the capabilities that can execute with excellence against each of the businesses that we own. And that's the way that we'll approach it. So hopefully, based on our track red, you can see the exact way that we'll approach us moving forward, although nothing to comment on at the moment.

And then as you look at just the challenging categories, I think there's 2 things to note. And both of them are challenges in some ways, but both of them are very big opportunities. And what this is predicated on is we believe we are the drivers of category growth. And of course, there's things that impact category growth, macroeconomics, where the consumer is, but as the leaders of categories, when you have #1 and #2 share brands, we take the job very seriously that our job is to grow the category. And of course, we'd like to grow share in those categories as well. And we're focused on 2 major areas to do that. The first is addressing value-seeking across consumers, and we see that across all consumers most potent in low-income consumers right now, but we are laser-focused against every aspect of value superiority. And for us, we have a superiority model. We shared this before. It takes into account the product, the package, the proposition, the place, so where consumers can find it, and of course, the price. And we're looking through all 5 of those levers by business, by retailer to ensure that we have value superiority, and we're laser-focused on that. And so what you'll see in the plan that we just finished in '26 as we made some of those investments, Glad Trash and Hidden Valley are 2 great examples and those are playing out in share growth.

As we head into fiscal year '27, we're also willing to be making additional investments in superiority to do the same thing. We're going to be investing in some product superiority on a number of our big businesses, including packaging upgrades, we're investing in some places in a targeted way like we did with Glad on pricing because based off the amount of pricing we took since COVID, there's a few places where we need to make adjustments. And that's going to be a key focus for us as we move forward to continue to support consumers and category growth. And then very, very importantly, consumers continue to look for better experiences overall. And of course, value is part of that. but they are looking for us to address trends that are important to them in their lives. And we highlighted some of them in the prepared remarks, but consumers continue to focus heavily on their wellness. And there's opportunities to provide them solutions like we're doing with Clorox Pure on their allergies or continuing to address pet health in litter. There's just a number of opportunities that we can address to ensure that we continue to support category growth and support getting back to more normalized category growth over time. And we do that through innovation. In '26, our innovation as a percent of sales doubled, and we expect continued progress in '27. We have a very strong slate of innovation targeted at those trends and ensuring that we deliver value to consumers. So that's how we're thinking about it.

And then finally, on the cyber attack, I think it's a good point, Anna. Between COVID and supply chain disruptions in the cyberattack, we would've been very operationally focused as a company, getting back to basics. When you lose distribution after cyber, you have to get that distribution back. Your competition has, in many cases, had a 6-month head start on you on innovation because they haven't been focusing on that. And so job 1 was restoring distribution, which we did, restoring the fundamentals which we did. And now most of the businesses have also been able to welcome consumers back fully. So I give a good example, Homecare did that in full, and you can see the share results. And I feel great about trash and food and some other of our businesses at the same time. Litter is the 1 that I would say continues to have a hangover. Given the operational challenges on that business, given the amount that was on e-commerce, et cetera, I feel good that we've gotten distribution points back, but we're still working through our literary invention to ensure that consumers know that we are a better value than competition and making sure that, that is clear on packaging and the way that we talk to them in our marketing, improving the product, et cetera. and we're making some additional investments in superiority to deal with that. So I would say, largely, we're through a lot of the cyber attack effects, but you have seen over the last couple of years just that operational intensity at higher levels and we're getting back to innovation, getting back to full brand building and leaving most of that behind, which is energizing to us as a management team and as a company.

Our next question will come from Bonnie Herzog with Goldman Sachs.

I just had a quick question first on your EPS guidance. I guess I'm wondering why your range is, I guess, relatively wide versus the tight guidance range on sales and the specific 42% gross margin guide. Maybe you could help frame for us what's implied at the bottom end versus the top end of your EPS growth guidance range this year?

Yes, Bonnie, I can take that. The I mean it's -- at the end of the day, there's a lot of moving parts, especially with the transitory element on ERP. But if you look -- and the fact that we are comping lower-than-usual incentive comp in the base year. And if you remove all those, essentially the main impact on EPS is the lower gross margin. And -- but it is about 42%. It actually -- there's a little bit of movement and the EPS is quite sensitive. And as I just mentioned, this is probably where we have the environment around the cost and commodities and especially the timing more than the total is what's leading to a slightly wider than usual EPS range.

Okay. And just maybe a second quick question on A&P spend for the year. How should we think about phasing of that spend throughout the year? And I'm asking in the context of the incremental spend related to GOJO and then the steps that you've talked about as you're continuing to overhaul your litter business?

Sure, Bonnie. I would consider ex GOJO, where we're spending over 11% of sales as we have in the past, over the past number of years where we increased it from 10% to continue. And so the 10% reflects Gogo's lower percent of advertising and sales promotion. And I would just consider phasing to be very much like we've thought about in prior years. We tend to heavy up our spending during key pulse periods, whether that be back-to-school, cold and flu and particularly when we're launching new innovation, which tends to happen in Q3 and Q4. And again, we're not super detailed on when we have that spending, we wanted to mirror the business plan, but it should look largely like other years have in the past.

Our next question comes from Robert Moskow with TV Cowen.

I have a couple. One for you, Luke. It's great to see all these investments in digital capabilities in the rearview mirror your ERP is set up. Can you give us an example of how it's helping you move faster, maybe, make decisions with fewer touches, combined data pools? And are we right to think that at some point, it can help you shrink your overhead cost as the organization learns to use the new platform?

Yes. Thanks, Robert. Yes, nice to starting the cost noise and volatility associated with large complex implementation in the rearview mirror. And we expect to see the benefit ramping up. It will take a little while. We are just very much in stabilization mode right now, and we're going to start seeing optimization across the supply chain and across our admin functions I would say, probably later this fiscal year and then into next fiscal year. This is when we see the brand benefit on efficiencies. There is -- as you can imagine, there is obviously some productivity gain to be had on the supply chain through just better planning, lower inventory levels, just more automation opportunities, but there's actually a lot of effectiveness and where we start seeing it is now people are able to see end-to-end data. So you can have just your supply chain being much more reactive and, in some cases, proactive, to some change in demand signal. So we'll start seeing this in our integrated business planning though, and we also see a lot of efficiency or like we have some initial inefficiencies that we'll be lapping, but some efficiencies, demand fulfillment and order to cash functions. And then later, we also expect to see much more automation and efficiencies in the back office. We went from an environment that was quite manual working on spreadsheets were now fairly automated. And I think I had mentioned this, 1 of the benefits also of upgrading our digital infrastructure is we're able to take advantage at a broader scale of global business services. And so this is something that will accelerate in the next few years, and that's a great source of productivity for us in SG&A.

Okay. Very good. Luc, was there any quantification of what those inefficiencies were in fiscal '26 to maintain customer service? Is it material enough to provide a benefit in comparison in '27?

Yes. If you remember, Robert, we experienced most of those in the second quarter and the third quarter. There's a little bit of a range with it. But I would say, it's under alpha point and then we definitely included that lapping in our gross margin guidance.

And we'll move next to Kevin Grundy with BNP Paribas.

Two for me. First 1 is for you, if I may. Just on visibility on free cash flow and then sort of relative to the dividend policy, then I have a follow-up on pricing for Linda. So specifically on the dividend, as you're well aware, the Board decided to modestly increase the dividend again, it sets the payout ratio for you guys around 85% of net earnings, the group, the Staples Group is around 50% to 60%. It's not quite as onerous from a payout ratio perspective. If we look at free cash flow, provided that the company is able to deliver against this 11% to 13% of sales, which has been a bit choppy in recent years given all the volatility. So that's all kind of a big wind out. Luc, maybe just comment on the current dividend policy why you think it's appropriate, I guess, given that payout ratio has crept up and is well above staples peers. And if there's any consideration by the Board to potentially look at a reset to free up capital flexibility for more reinvestment elsewhere?

Kevin, thanks for the question. Actually, let me use your framing, I like that. I'm going to start with talking about free cash flow. So we have a business model that generates and continue to generate strong free cash flows. In fiscal year '27, we expect another year from cash flow generation. That should be in line with our targeted range of 11% to 13%. That does include the temporary lower margin in the front half of the year, driven by the elevated cost wins, but it also includes some continued focus on working capital and balance sheet discipline to drive cash flow improvement. So net, we feel good about cash flow. As a reminder, GOJO also bring some -- not only some strong cash flows in line with the 11% to 13%, but very stable cash flow because of their installed base. And beyond that, the way we structured the acquisition of GOJO, we also expect to see some tax benefit in the years to come. So all of that is actually just helping strengthening the cash flow. So net feel good about our cash flow generation.

Within that context, I think answering your question on dividend. I think at this point, our commitment to support the dividend has not changed. As you know, we have a long track record here. Dividend has increased annually for a decade. And for now, you should expect this to continue. We do regular reviews with our board, and we have a really robust process. And at this time, we are comfortable with our current dividends. As you mentioned, the current payout is a bit elevated, but we see this as something more transitory as we rebuild our gross margin and not something structural. So -- but of course, we'll continue to evaluate this over time.

Very good. If I could just squeeze in a quick follow-up. Maybe it's not quick. But for you, Linda, on the pricing side, I guess I'm a bit intrigued by the reluctance for more pricing when there seems to be a price justification for it and more on household products and less in personal care. So this is an industry sort of question. It's a proctor question. It's a church in to 1 question, et cetera, where it seems like in past cycles, there's been more of a, I guess, a leaning to use that as a lever when it seems like the pricing window would be open, and there's a price justification for it. And it sort of begs the question, is it just cyclical? Or do you think this is something more secular going on in some of these categories and particularly those where you play where private label is high, so whether this is going to be trash bags, whether this is going to be bleach, whether it's going to be litter, et cetera. So I'd just be curious to get your thoughts on that and whether you think that has merit that there may be a loss of pricing power within some of these household product categories.

Yes. Thanks for the question, Kevin. So I don't view a structural issue on pricing over the long term in our categories. We see consumers to continue to accept pricing and better innovation that we price for with better experiences, and that's playing out in many of our categories today. I think I'll speak for Clorox only. What we view is a unique period of time where we have near back-to-back inflation cycles off of a record-setting inflation cycle back in '22 and '23, where we experienced costs at a level 10x higher than what we had normally experienced. And we took 4 rounds of pretty substantial pricing across our categories. And it turned out that the elasticities in that pricing were a bit better than we had expected. But now as consumers come under pressure, you can kind of see little places where we've had to adjust pricing, et cetera. So I think from our perspective, we just look at our toolbox because pricing is only 1 tool in the toolbox and say that it is best for our categories right now to take targeted pricing, which we are doing. There are places where we are taking a regular price increase Glad is a good example, given its commodity exposure to resin. We are taking a regular price increasing at that category and have already announced and implemented that pricing but in other places, we're being much more targeted. And we're using the other tools we have in the toolbox, which we feel confident about, whether that be revenue growth management, price pack architecture, cost savings, and we'll have another strong year of all of that this year and we have our confidence ability to do it over the mid- to long term.

So I think, Kevin, the point is, it's a unique period where we typically have a bit longer between inflation cycles I think given the uncertainty and volatility consumers are experiencing, we are just being more targeted in the toolbox, but feel fully confident that these categories can take pricing over time, continue to do that through innovation. Again, we'll take targeted pricing this year where we think it's warranted, and we'll take a strike price increase on Glad trash as you might expect, and I think as we move forward, when we get back to hopefully a more normal set of cycles around inflation, you'll continue to see pricing be a strong lever for our type of business.

We'll move next to Kaumil Gajrawala with Jefferies.

I guess the big question is on what's the right level of spending. It looks like shares are just slowly starting to get better Hidden Valley Ranch may have had a bit of a boost from the World Cup. We don't know if that's sustainable or not. Why not maybe a higher figure for investment as you just to assure that you don't end up back in the situation you were in earlier with more broader share losses because it feels like we're sort of just at the edge, and I'm curious what the math is behind what that right level of spending is?

Kaumil, I'll tackle that. So first, I wouldn't attribute some of the bumpiness we had in fiscal year '26 to a lack of investment. We had an operationally challenging environment. We were transitioning our ERP in the U.S., et cetera, which caused more of the issues than a spending issue. And what I would say is we looked across every line of investments across the P&L and balance sheet to say, do we have the right level of spending to support superiority in the categories we can see. And we are being very targeted and disciplined about adding incremental spending, and we have done that. You see that in margin this year as we're investing in some product performance. You see that in advertising, where we're spending over 11% in retail again. You see it in our trade spending where trade has been higher. And so we want to do that in a way that we have better data, we can do that in a much more targeted and effective way to get to the place we want to and it's working. You've seen we have been able to increase consumption, increase share over time. We expect that to continue. But that's the way that we approach it. And even in advertising, we expect a very high level of efficiency improvements every year from our team, but we have reinvested those efficiencies back into the business where we have the highest return, and we'll do that again this year. So we feel good about the spending level. If it turns out that the consumer environment weakens or strengthens in any way, those are things that we will reopen up and ensure that we continue to have the right level of spending. And our team is prioritizing ensuring we have superiority, ensuring we support the innovations that are growing the categories in the market that we're launching. And as I mentioned earlier, we have a very strong innovation plan for '27. And if there's opportunities to put good ROI spending in the system, we will.

Got it. And then just following up on that a little bit on value-seeking or superiorities. You talked about for 2027 more focus on value seeking more focus on value superiority. There's -- I think sometimes when going through that exercise, you realize maybe a larger percentage of your portfolio, maybe offside there and it may take a while to turn and that it's not just related to price, it's also related to speed of product innovation or whatever it is. So how do you feel about the sort of current set products that you have out or innovations that are coming in the near term that would sort of make sure you're on the right side of the sort of value superiority equation versus where you feel you stand now?

Yes. I think for the vast majority of our portfolio, I feel very good. We either continue to see performance. So again, I'd call out our health and hygiene business in aggregate, which is over 50% of our business continue to feel very good that we're staying ahead of the consumer on value superiority. There will be places even in that business. We're investing in product improvements this year to continue to advance that superiority and continue to win market share. I feel very good about the changes we've made in Glad. Glad was not just pricing work that we did in large card trash. We also improved our innovation plans. We improved the proposition for better marketing campaign behind Don't get mad, get Glad. And so I feel very good about the comprehensive nature of what we tackled. And then to point we did see a category lift from World Cup, but we grew share significantly. And so our team's ability to activate price pack architecture at that time, strengthen our innovation plans, and, of course, take advantage of the fact that there was a lot of eyes on ranch during that time led us to market share improvements. And we'll watch the category carefully. I feel very good about the plans that the food team has in store for '27.

So I would say, largely, we're in a place where we are going to continue to improve security, et cetera. The 1 I would call out that is early work in progress is litter. We have made improvements across the full range of superiority for all the things I spoke about, product, packaging, the proposition place and really focused on winning in e-commerce, but we've taken some additional actions on pricing recently in a targeted way, and we're seeing improvements off of that, but we'll continue to take additional actions, including launching a set of innovations in the back half. And to your point, come those take a while, innovations don't happen overnight, but you'll start to see those things flow through in the back half of the year, and that will lead to further improvement.

Our next question will come from Chris Carey with Wells Fargo.

The first question I wanted to ask, just Linda, I suppose a bit of a personal professional update. Clorox has announced that it will be looking for a new CEO, you have been very transparent about you'll be running the business for us as long as is needed. And so can you just tell us how is that process going? What are the sorts of skill sets you're looking for? Do you have any updated view on time line? Would just love to get a little bit more context for the leadership development for the organization if you'll entertain that?

Sure, Chris. Of course. As we announced back in May, as you note, I informed the Board of my intent to step down from my role given personal health challenges. The good news is I continue to do well. I'm cancer-free and feeling well and continue to execute on my job just like I did before. The Board has made good progress in the search. When we first announced that we let you know that they were in the process of hiring a leading external search from they have done that. And I can say that the search is progressing as expected against the time line the Board has laid out. And then from a skill set perspective, that independent group of the board is properly evaluating our strategy and where we are in our execution and looking for the next leader to take that next leap. We've made a very large transformation as a company, rebuilding the foundation of our data and technology, our innovation plans, our portfolio, and of course, it will be up to a new leader to take a fresh look at that, continue the progress, but also depending on where they land, maybe take it in a different direction, too. And the Board is hard at work in determining the right person to do that for the company. In the meantime, we are laser-focused on continuing to execute high personally and laser-focused on continuing to execute and then, of course, ensuring a smooth transition that we will do once that new leader is named.

Okay. And we're certainly sending you many low wishes. And then just from a fundamental perspective, I just had 2 clarifications from this earnings call. The first would be on why growth accelerates a bit relative to the fiscal Q1, which I think you characterized as a blip. Was that a reference specifically to the seasonal impact of the grilling category? Is it -- if we were to exclude the Grilling business, you should be running about in line with your full year guidance? Or are you looking for something else to improve relative to where you'd be in fiscal Q1?

The second clarification is just around pricing. You noted in the prepared remarks projects for pricing. You said strategic pricing several times, including on Glad. How much -- what level of pricing that we should be thinking about when it comes to your for your expectations for flat to slightly positive organic sales growth?

Sure. For Q1, Chris, you have it right in assuming that the timing impacts due to Kingsford and some other promotional impacts are really the story in Q1. And if not, that would look much like the trajectory for the remainder of the year. So that is the primary impact to Q1, as you note. And then from a pricing perspective, back to Kevin's question, we are taking what we would call targeted or strategic pricing, and we've done that across the portfolio, looking at the places where the purity warrants it, where we feel we have more exposure, but being very disciplined about that. And the 1 category I called out that is more like it has been in the past is Glad given its exposure to commodities. That price increase is being implemented right now and largely going as expected. But you would see versus historical inflation cycles, if you look back, certainly 2023, a more muted price impact from that perspective, given the degree of pricing we're taking. And then, of course, we price through innovation, which you see as innovations roll out and that gets built in. But that's the extent you won't see a very, very large aspect from straight price increases given the amount that we're using it for this year to offset inflation.

Great. And just -- is it fair to assume that pricing should be positive when we see the net price line for the end of the year and that the initial outlook for volume is for negative volume that perhaps you think a little bit better over the course of the year. But is that the construct for the outlook?

That's correct, Chris. We have a few things going on, but net, this is how it will play out.

We'll move next to Javier Escalante with Evercore ISI.

I guess I'm going to ask the pricing question from a different angle. Perhaps for Luc, it would be helpful if you frame it on the context of the gross margin in 2027 sort of a bridge, right? You mentioned that commodity inflation is about $200 million plus, so that would you around 300 basis points of negative. So if you can dimension the offset basically the mix or savings or pricing, what have you, that would be very helpful and whether that take, why is it doesn't risk the recovery in market share that you mentioned on Glad?

Yes, sure, Javier. I can take it. So yes, as you just mentioned, inflation of $200 million would be -- it's going to be more concentrated in the front half. AS you look at our levers to offset those, productivity would still be the primary level, right? And we actually feel very good about the strength of our cost-savings pipeline. And pricing would be another level, strategic pricing. So not as much as productivity. There are other levers that we're taking, Linda just mentioned. In some cases, we're making investments to actually improve our superiority brand position. And it can be adjustment in pricing or trade promotion going the other way. But when you net all of that, we expect to start recovering gross margin in the back half. Now of course, across the full year, we won't be able to fully recover the gross margin, but we expect to exceed the year with a much stronger gross margin.

And Linda, if you can comment on the market share?

Sure, Javier. Is there a particular angle on market share you want me to cover?

Yes, because you basically -- I mean, and it seems kind of like antagonistic kind of goal because you talk about value-seeking behavior and the 2 categories where -- that you flag are bags and cat liter. And those -- what you see there is that you have value brands actually gaining share. And basically, investments that you talked about, at least from the cane standpoint, shows negative pricing. So from going from negative pricing, which is what drove the share stabilization to positive pricing going forward if you can help us have your confidence in terms of this is not going to come at expense of the share recovery that you mentioned?

Yes. I think it's really important that we're balancing those 2 things, Javier. We're balancing, ensuring that we recover margins over time with continued performance from a category and share perspective. So let's just take Glad trash. I think it's a great example. Glad trash is actually growing share, and we feel good about the progress that it has made and we are taking pricing consistent with what we see in the category. We see that the pricing is moving in other parts as well. And typically, when we've taken price in the past, that's a place where share is either neutral or positive. We're going to see how this plays out. We don't know the level of pricing other people will take. We've determined our own level of pricing that we think is right to recover the right degree of commodities combined with all those other factors, but we'll watch it very closely. And the good news is we have better tools to evaluate those changes in pricing. And if we need to make adjustments after we take that price increase, we'll do exactly like we did in Glad trash before. And all of our other businesses will follow a similar model. I'd also call out for Hidden Valley at the same thing. We've been very targeted in how we think about pricing. We've recovered share through good fundamentals through good distribution, strong innovation, good price pack architecture. And so as we layer pricing on top of those things, we will look very carefully to see that, that whole package of superiority is coming together. And if not, we'll make adjustments. But right now, feeling good about the share position we head into, sequential improvement quarter after quarter, exit rate in June the strongest we saw all fiscal year '26, and we'd expect that we continue to make progress in '27. And we know with pricing, it might be a little bumpy or heading in the right direction.

Our next question will come from Olivia Tong with Raymond James.

Given the volatility in fiscal '26, can you talk about your retail relationships and how you're adapting your business for the level of promotion in the market? And any other learnings from this year that you think should help you stay better on track towards targets this year?

Second, can you talk about inventory levels at the moment beyond the grilling and food-related categories that you talked about for Q1. Is there anywhere else where shipments and sell-in have -- where shipments in sell-in might have diverged?

And then lastly, on shelf space, are you still below where you were pre cyber? And what's your view on opportunity for incremental shelf space gains this year?

Sure. If you don't mind, I'm going to go a little bit out of order. I'll just start with the simple 1 upfront, which is inventory levels. So largely, we see inventory levels in line with what we would expect and have not seen in our categories any material inventory changes or pressures from retailers. We would expect that to be fluid throughout the year as retailers make choices, but we have no visibility to that. And again, it's short-term noise. It doesn't tend to change the way that consumers consume or how retailers approach our brands in store. But for now, we don't have any aspects outside of the ones that you mentioned with promotional timing in Kingsford.

Shelf space from cyber, we fully recovered all the distribution we lost from cyber, and we did detailed planning at a bi-retailer level by business level. Distribution is actually higher today than it was post cyber, and we gained share of distribution this year as well. And based off of our innovation plans, we expect to continue to have another strong year in gaining physical virtual shelf space as well as PDPs. And I think that moves nicely into your question on retailer relationships, Olivia, because the reality is that the sales environment, the retail environment is changing really rapidly and in exciting ways for consumers given the technology, given the data that we all have in the ecosystem, we have an opportunity to give consumer better shopping experiences, whether that be through e-commerce, through the way that we talk to them about our brands all the way to visions of having Agentified commerce where consumers are really out of a lot of the decision-making patterns, and we can ensure that they are spending time doing things they really love doing rather than shopping. And with that, we've invested with our retail partners to ensure that we're ready and leading in many of those aspects. I'd call out, in particular, with some of our larger retailers our focus on e-commerce. We're getting much more sophisticated with those retailer partners on how we talk to consumers in e-commerce, how we translate that into sales, how we tie that into brick-and-mortar stores and our plans there. And we're seeing the impact. We've had a number of categories significantly improved their growth rates in e-commerce. And that will continue to be a focus for the company in '27. We have relatively strong share position in e-commerce, but there are places where we're under-shared and we will make progress this year and ensuring that each category by retailer, we have specific plans for and are laser-focused on e-commerce.

And then I think from a future perspective, because we've invested so much in those retailer relationships, we're ready for whatever comes and want to be building in our categories, the plans of the future for retailers. And we've seen that with them. We are a category advisers given our leading share position in most of the categories we compete and we continue to invest in that capability through category growth ideas that we work with retailers on and then, of course, the future of capabilities.

So I feel very, very good that our retailer relationships are stronger than they've been, but that's an area where you have to continue to improve year after year, and that's what we're focused on for '27, particularly on the e-commerce side.

And we'll move to our next question from Stephen Powers with Deutsche Bank.

Maybe can we just -- as you mentioned in the prepared remarks, there's been a lot of work done on Fresh Step over the last several months, and I know it's still relatively early, but maybe a little bit more perspective on what you've seen since you made those changes? And what your expectations are in terms of the progression from here?

Yes. Thanks, Steve. Maybe just taking a step back on Fresh Step. I think this ties really well to how we talk about growing categories and making sure that we win share in our categories. And that all ties to do we have an overall superior proposition that we're giving the consumer through all aspects. Is the product better? Is the packaging better? Are we communicating that difference to consumers in a way that's compelling? Can they find us wherever they're shopping and is it easy to procure. And then of course, is at the right price. And when we evaluated our plan on Fresh Step, we could see that we were not in a place where we had superiority. And so we overhauled the entire Fresh Step brand to address every single 1 of those elements of superiority, and we knew that, that would just be a first phase. So we improved the product. We had some product that was -- had too much dust. So we reduced the dusting in our product. We changed our focus on some of the categories where we haven't been competing a lot lightweight is a very important part of the segment, and we had a very small business there. So we've invested in innovation in lightweight. We've invested in packaging changes to consumer preferred packaging in that lightweight. We changed our marketing and all of our e-commerce sites. And then in addition, more recently, we've invested more in price. So that's all in an effort to improve that superiority. But because we changed all of those elements, that takes a while to ensure the consumer understands the value you're getting with that better product, translating that into sales and then translating that into repeat. And that's what we're in right now is getting through the hump of that, making executional changes where things weren't shelled exactly right, making claim changes where we are not communicating exactly right, the product changes, we're in early innings. And then, of course, most importantly, is getting back to a strong slate of innovation that drives the category. And we knew that would take some time, and that really starts in earnest in fiscal year '27, which we're excited to get out in the market in the back half. So I would characterize it as something where given cyber, given the impacts and given the very strong competitive that we have here who continue to make strides, we sell behind the superiority, but we're taking all the right steps to address that. And you can see through examples and whether that be Glad Trash or Hidden Valley that when we put our mind and get that superior right, we can make the right changes to get back to a leadership position in this category. So I feel confident over time, we will, but it's early innings, Steve, and we'll continue to keep you updated as we make progress.

Yes. Okay. Very good. And if I could, I guess a question on guidance, but more from a philosophical perspective, I mean, given the CEO search, as you mentioned, being still underway, and a transition anticipated. I guess, was there anything that was done differently in approaching the fiscal -- to fiscal '27 guidance formulation in terms of embedding just enough conservatism to make sure that you're setting up incoming leadership for success and avoiding a need to make additional changes in reinvestments from this new level is a fiscal '27 base, if you will?

Yes, Steve. As we set this budget with our Board, we took the exact same principled approach we've taken every year, which is looking at the external factors, making the assumptions around what we expect from the consumer category and cost looking at the plans that we have and doing everything we can to strengthen them and then setting an appropriate and balanced outlook based off of those factors. So nothing else was taken into consideration. It was the same set of factors that we always consider. And from a management team and Board perspective, we are laser focused on executing that because that's the best way that we can set that up for a new CEO to come in, is to execute these plans we have, and we feel these plans are the right plans to continue to advance our categories and our share position within them.

We'll move next to Lauren Lieberman with Barclays.

Great. Just a quick ones, I know we've covered a lot of ground. SG&A drivers, I know you mentioned the incentive comp reset and then like sort of a structural increase from GOJO, but just Luc, how should we think about like comparable level of SG&A going forward? And then also, I don't -- I apologize if I missed it, but if there's been any conversation on beginning the ERP-enabled savings? I know you've talked about productivity as kind of the first line of defense versus inflation. But ERP-driven savings that may be starting to manifest in SG&A this year or also in logistics savings, another area we talked about is being subject to help with the new ERP.

Yes. Thanks, Lauren. There's a lot going on in the SG&A line. So let me unpack it a little bit. The -- first and foremost, the 16% of sales includes about 40 basis points of negative impact from GOJO transaction-related costs, right, some onetime. So that, you're about 15.5%. Now as I mentioned, GOJO has a higher level of SG&A. And so that adds about 1 point also. And so excluding this, you get pretty close to where we finished the year. But keep in mind, this year, the -- actually, the incentive comp was quite significant. And so without going through the math, what I'll tell you is that the level of productivity next year more than offset the level of inflation. So we are making progress. Now we're not making step progress. There's 2 things. One, because the top line is fairly flat. You don't get the benefit of operating leverage. But most importantly, most of the initiatives that we talk about that are enabled by the ERP and further expansion in Global Business Services will start taking place, maybe starting late this year and most likely next fiscal year.

Okay. Just so I can clarify that. Did you say that total productivity will be greater than inflation?

That is correct. So we are actually -- on a comparable basis, we're actually making progress in SG&A next year.

Okay. Net productivity statement, sorry, that was specific to SG&A, not gross margins as separate conversation.

That is correct.

Okay. And then since we're doing this, on the $200 million of inflation you mentioned, I just want to clarify what that covers? Is that just inputs, does that include logistics and transportation inflation as well or not?

Yes, that's total inflation across supply chain, right? So commodities is going to be the majority of it. But as you mentioned, we're actually seeing pretty material inflation across different elements of logistics as an example, labor is actually not as much of a driver next year.

Okay. Great. And then actually just 1 last 1 thing. Interest expense for 2027, I'm guessing that's north of $200 million. Is that right?

Yes, that's right. Right now, it's about $210 million.

Your next question comes from Nik Modi with RBC Capital Markets.

This is Clark for Nik Modi. Ranch saw an uplift in demand and consumer engagement during the World Cup, as you noted in your prepared remarks, what type of capabilities do you have in place to monitor these trends? And how do you plan on leveraging this momentum to drive further growth for Hidden Valley Ranch?

Sure. Clark, it was an exciting moment, I think, for everyone around the world with the World Cup. And of course, an exciting moment for our company was the love that international visitors experienced when they tried Ranch for the first time. That is an American staple and not available in many other countries. And the team was prepared that this could be a moment and took full advantage of it. So we worked with our retail partners to ensure that they were putting ranch out in front, given visitors were wanting to try it and giving incented consumers in the United States to remind them to use it. We did the largest sampling program that we've ever done once we started to see the impact. We got to many of the quarter final semis and finals games and did the largest sampling program with our dry product, which allowed those consumers to take it back home with them if they wanted to. And then, of course, we captured a lot of attrition on social media as we talk about the love that Ranch was getting and turning that again into sales. I think the important part here is, one, we have a superior product that consumers love and we continue to invest in that product. We will continue to invest in it in fiscal year '27. We have a very strong slate of innovation that is targeted at consumers who are thinking about wellness. And there's a number of innovations we have, whether that be avocado oil, et cetera, that are focused on that trend. We ensured that we got price pack architecture right for those consumers that are value stretched. And so we have focused some smaller sizes and larger sizes and getting that distribution right, and we will see that play into '27. And then given the love and attention, we continue our social campaigns to remind consumers of all the great ways to use ranch to make their at-home meals even better, and we're seeing strong consumer reaction to that as well. So I feel good about the progress feel good about the moment that we took advantage of, but this was much broader than a moment. It was taking our full capabilities to bear and building a stronger plan for '27.

We'll move next to Pria Oregupta with Barclays Capital.

I was just wondering if you could address how you plan to think.

Pria?

Yes, notes that you have outstanding. Should we expect those to get refinanced?

I think we lost you a little bit. Do you mind repeating your question?

Sorry about that. I just wanted to see if we should expect you to refinance the short-term and CP balance that you have outstanding?

Pria, we don't have any plan for the moment. Actually, just the way we structured the debt is to ensure that we would actually repay those with the free cash flow that we'll generate over the next 12 to 18 months. Now we do have some maturity coming up. And so that will be -- that will give us an opportunity to just reassess the debt structure going forward in next calendar year.

And this concludes the question-and-answer session. Ms. Rendle, I'd like to turn the program back to you.

Thanks, Jen. I will close by saying we're entering fiscal year 2027 from a stronger position than we started fiscal year 2026, and we expect that momentum to continue building as we move through the year. With our ERP implementation complete, we're focused on optimizing the platform, unlocking productivity and realizing the benefits of that investment. At the same time, we're continuing to advance our long-term strategy, sustain our always on transformation agenda, and take the necessary targeted short- and medium-term actions to strengthen superiority. The acquisition of GOJO further strengthens our foundation by expanding our health and hygiene platform, bringing the Pure brand into our portfolio and creating new opportunities to serve consumers and professional customers with a more complete set of trusted hygiene solutions. Combined with the investments we've made in our business over the last several years, these actions give us confidence in our ability to accelerate category and market share growth, expand profitability and create long-term shareholder value. Thank you for your time and questions today. We look forward to updating you on our progress next quarter.

This concludes today's conference call. Thank you for attending.

All right. Welcome, everybody. Thanks for joining us. For our next session, I'm very happy to welcome back The Clorox Company to our conference. With us today are Chair and Chief Executive Officer, Linda Rendle; as well as Chief Financial Officer, Luc Bellet.

Linda and Luc, thank you for joining us again.

Always a pleasure to have you here.

Thank you for having us Steve.

Let me start -- let me give you the platform because there was some big news over the -- well, I guess, late last week and over the weekend. So let me address that, and we can pick it up from there.

That sounds great. Thank you.

[ Do I need a microphone? I do? Okay. ]

Assuming you can all hear me now. I want to take a moment to address some news that we announced last week. I have asked our Board of Directors to initiate a search for our company's next CEO. And this was due to health reasons, and I won't get into that in a great detail here, but I would offer that I posted a blog about this with more detail, and I welcome you to read that. It was an incredibly difficult decision. I love this company and love my job, but this is right for me and for my family.

And with that, I just wanted to leave you with 2 takeaways before we get right into the business. The first is that nothing changes in the short term. This was a long-term decision for me. And so I am still Chair and CEO, operating as I always have and will continue to until the Board finds my successor, and we have a successful transition. And then the second part is our entire team is focused on executing our strategy at the moment while the Board does the work on the search. And that's a great way to divide and conquer. And so I just wanted to make sure that people are aware of that and let you know nothing changes. And with that, maybe I'll spend just a couple of seconds on what we saw for this year, and then you can -- then I'll let you ask the them...

Sure. Sounds great.

So for this year, this was an important year for the company. We implemented the last part of our digital transformation. We executed our ERP transition in the U.S. beginning in Q1, which we finished in Q3 and we've been stabilizing that, but it's an incredibly important part of our company's future and how we create value. So we're glad to be past that and moving back into really ensuring that we have healthy brands and that we have market share plans and supporting category growth.

Importantly, in Q3 we made progress sequentially on a growth and share perspective, although it was behind our expectations, and we can get into that on a couple of the categories. But we feel we're taking the right actions to return to market share growth broadly. And that is, of course, in a very difficult environment. We'll talk a bit about more about what we expect in fiscal year '27. And I'll let you run the show.

No, that's fantastic. And most importantly, speaking for everyone here and probably everyone listening, we're most happy that you're in good health and wishing you all the best. And also very happy that you're still Chair and CEO and get to work with us for a little while longer.

Let's talk about -- let's pick up from where you just left off in terms of 3Q and the state of the business exiting '26 and entering '27. Maybe we can focus in on where -- from your perspective, where you're, I guess, most happy and most confident to build off of into the future and then also some of those spots where we have more work to do.

Good place to start, and I'll start with the consumer in that way because I think that's the most important part. We're obviously seeing a consumer that is under stress right now. And we've been talking about that for a bit of time, and that's meant our category growth has been below what it normally is. We typically see our U.S. retail categories growing at 2%, 2.5%. This year, we expected them to grow be flat to up 1%. They have been within that range, although very volatile week to week.

We saw our exit rate on Q3 a little better on category, but then it quickly went negative for a couple of weeks. But generally, I would say it's in that range. And we're watching low-income consumers get under more and more stress. They don't -- they're not making decisions to choose private label in our categories, but they are very value-seeking as are all consumers, but we're particularly focused on low-income consumers at the moment. That being said, in our category context, we have done quite well in a number of categories consistently.

So I would call our Cleaning, our largest, biggest, most profitable business. Our business is in international, we're growing share in those markets as well as our Pro business have been consistent winners throughout these last number of years. We've had a few businesses that we told you we all wanted to address and improve. I'll call out Glad and Litter. The good news is that Glad has reached that change in trajectory point through a holistic amount of work that we did to ensure we had the right innovation and brand building plans. And now we've seen Glad trash turn and is beginning to grow share. Litter, we have more work to do, but I think Steve will talk a bit more about that. So I will talk about it when you get to that part of the question.

But I'm feeling good that the ERP is now behind us. We're finishing the stabilization of that. And then we're going to get into optimization as we head into fiscal year '27 and beyond, and that's the value creation stage, where we drive the efficiencies, we are able to remove SG&A. We're able to get more efficient in how we do things. I mean it will be a key way that we drive margin improvement in the coming years. But it will also be a really important way in how we grow because it gives us a better data foundation and allows us to use modern technologies like Gen AI to drive product improvements and innovation off of consumer insights.

So I think we're just at that tipping point where we've laid the foundation. We're getting back to what we want to do day in and day out with more focus, which is growing categories and winning with our brands through innovation. And then just as we look ahead, the thing that we're watching really closely is the consumer and the cost environment.

Yes. On the consumer, is your base case that we maintain that level of category growth that we've been seeing with volatility? Or are you increasingly concerned that we see another leg down in growth? And to what do you describe the volatility that I think is not just unique to your categories we've seen it across the board?

Yes. I think a good base planning assumption is what we've seen in our categories, which is flat to up 1%. The question mark will be, to the degree that inflation comes out of what's going on in the Middle East, that will impact the consumer even further, and we're seeing some early indications of that with gas prices, et cetera.

So I think that's yet to be seen, and we're planning against a number of scenarios, what I call out though is we're household essentials. So even if you look back at 2008, when consumers were under incredible amounts of stress, our categories were mostly flat to down slightly. So that, I think, could be the delta that we're talking about if it gets worse for the consumer consumers need to take out their trash. They need to clean their houses. They need to change their litter box. They care for their cats like they're their family. So we feel we're in categories that are resilient, and they're not as discretionary as some others.

Now when it comes to volatility, what we believe is that there's so much uncertainty. And when consumers are getting news in an uncertain environment, they are making decisions week-to-week to deal with that uncertainty. And so you see that people might pull back on a purchase when they're hearing news and they're nervous. The gas might go up at the pump or they're hearing other news. The other thing I'd say is they're way more sophisticated than they've ever been. So if you watch a consumer shop, they are shopping in a store with their phone, and they have multiple carts going at the same time. And so I think some of it is, if they don't see the deal they want, they're waiting. And they know that because they have the data now to be able to ensure that they are getting the most out of their wallet. So I think those are the 2 things we're seeing that are creating some of the volatility.

Sure. Okay. So Luc, let me pivot to you. And I guess let's start with 3Q into 4Q because I think coming out of the third quarter when we took -- we lowered the fiscal '26 guidance. A lot of questions as to the moving parts in that EPS bridge from prior to now. Maybe we can just start there and just walk us through kind of what happened 3Q to 4Q what you saw in the business and what led you to take down the call for '26?

Sure. There's a few things to unpack. So maybe let me start with top line, and I think Linda alluded to some of it and then talk about the cost side of things.

So on the top line, again, I think we -- the environment is playing out generally as expected, which is consumer under pressure, the categories being lower than our historical average, close to flat to 1%. From a market share standpoint, we actually saw sequential improvement in Q3, and we'll continue to see improvement in Q4.

Now this is less of an improvement than we expected when we started the year, but still improvement throughout. And if you get rid of the noise associated with the ERP lap and the GOJO acquisition, you look at organic sales growth, it was negative 2% in the front half, negative 1% in Q3, and we -- our Q4 outlook is expected to be about flat. So that give you a sense of the momentum.

Now on the cost side of things, there's probably 2 things to talk about. First, we had a higher cost to serve related with the ERP implementation. So let me talk about that, and then I'll talk about the inflation impacting Q4. So following the ERP implementation at the beginning of the fiscal year, we started experiencing some challenges on the order fulfillment part of the ERP. And our #1 priority since then has been to reestablish our service level as well as essentially stabilizing the order fulfillment system and process.

And as a result, we incurred incremental expenses in the second quarter and the third quarter. Those were most of them logistic type of expenses, think about expediting orders, moving inventory around or even higher level of operational labor. Now at this point, service levels, by and large, have been stabilized. And so we don't expect a higher cost to serve in the fourth quarter or going forward. So that was one element. Now the other element is, of course, we communicated that we expect to see higher inflationary supply chain cost in the fourth quarter tied to the Middle East conflict. And we -- where we communicated is we expect an incremental $20 million to $25 million in cost increase on our supply chains in the fourth quarter and for perspective that represents about a little under 150 basis points of gross margin pressure. Okay, which is about double of what we experienced in the prior 3 quarters -- and so that's what we're communicated.

Now there's a little bit of noise in the fourth quarter outlook gross margin, which is currently projected at 41% to 42%. But if you exclude about 150 basis points of GOJO-related onetime transaction costs, which are not in our adjusted EPS you get a fourth quarter gross margin about 43%. So that gives you a sense of the exit rate.

Yes. Okay. I think just to drill on a little bit more. I think the a little bit of the confusion because I think I'm wondering if there's one more bucket. The GOJO dilution is a couple of cents on the year. That was incremental coming out of 3Q. And the $20 million to $25 million that you called out, I think, is adding those two things together, you get about $0.20. The midpoint of the guidance came down $0.40.

And I think you also took a reset on incentive comp. So there's a there's -- in addition to the expenses you incurred through 3Q, there seems to be some incremental expenses that remain in 4Q. I think that is timing of cost saves, there were some programs that were delayed and there are some other programs that were started up. If I'm right about that, maybe you can elaborate that missing piece.

Yes, that's right. We had a little more change in timing of cost savings, both when we're seeing cost savings and when we're incurring onetimes. And if you think normally, when we start the year, cost savings pipeline is pretty well established for us. What happened is as a result of the challenges that we experienced on the order fulfillment, we had to redeploy resources to address this first and foremost. And as we did this, we ended up delaying and changing the timing of cost savings. Now the good news is this is just a delay. So if anything, that strengthened the cost savings pipeline for next year.

For '27, yes. Yes. So if we roll forward to '27 and I know it's early, you don't have guidance out there and visibility is exceptionally low. But is there a way to think about the ledger of pluses and minuses that you're thinking about as you start to plan for and consider '27 framework?

Maybe what I mentioned is probably 3 very unique items that I'll go through. And then you have to essentially project what you think would be categories, sales and inflation. The 3 unique items are -- and we mentioned them already. But first is the lapping of the ERP, the timing of shipments. So that will create a year-over-year benefit of 3.5 points in sales and $0.90 in EPS. The second is related to the incentive comp that we just talked about. We have lower incentive compensation this year. This will normalize next year and that will create a year-over-year headwind.

And the third one is the integration of the GOJO business, which we're very excited about. So that will add, call it, $600 million plus our year-over-year on the top line. This will be neutral on EBITDA and neutral on EPS, and it will just create a little bit of change throughout the P&L because they have a different margin profile and SG&A profile.

Yes. Okay. Very helpful. Okay. In terms of -- just one more question just to round it out on the costs. Maybe a little bit of education in terms of your coverage or lack thereof in the future and also just the surety of supply because there's one thing about just the cost of raw materials and packaging. The second one is just is it available?

Yes. In general, on that one, and we're working on continuously working on evaluating the safety of supply as well as contingency. So far, we haven't seen any material disruption in our supply.

From a cost inflation standpoint, we do have some hedging in place, and it really depends the duration and the breadth of hedging depends by commodities, by commodities. But I think I'll share a few thoughts as we think about inflation for next year. First, I think there's still a level of uncertainty of what would be the level of cost inflation going into next year. We're currently working on our plans for next year. And as you can imagine, we're working through different scenarios as making different assumptions around the length and the implication of the conflict in the Middle East.

Now I think what we communicated in the fourth quarter give you a sense of the initial and first order impact of the Middle East conflict. But of course, as the conflict potentially persists longer, these numbers could be bigger either because we see even more pressure on oil price or you start seeing secondary impact and knock on impact from the conflict? So there is a level of variability.

The second thing I would mention is I think as we look in the medium term, we feel very confident in our ability to mitigate inflation and rebuild gross margin. I think we have a strong track record of doing so through the different inflationary period. And as I think as we mentioned, we feel good about our margin management capabilities. The last thing I would say is it generally takes time. If you look at prior inflationary periods, there is a lag between the time you see the impact of inflation and the time you recover, and it's at least a couple of quarters and sometimes a bit longer. So this is all the things we're wrestling with as we're looking at next year planning.

Very good Okay. Very helpful. And a lot of moving parts, but helpful. Okay. So maybe stepping back and Linda, on thinking about the top line trajectory. As Luc mentioned, a lot depends on where category demand levels off, but then there's also company-specific initiatives. As you think about the puts and takes into the next year, I mean, how much do you think of your outcome depends on the category versus your own improvement initiatives in some of those categories that you mentioned were yet lagging?

Obviously, the category will matter a lot. But as I outlined, if the scenario continues in a way that is similar to what today is or resolves, we would expect our categories to be generally what they're doing today. And then if that impact would be greater, if you look at history, I would say, you're slightly below that.

So that leads us to it's really important what we do and what we can control. And we're really focused on market share improvements. And the #1 way we do that is by driving superiority on our products. And that's what we're focused on right now. As we've gone product by product, to understand the levers that we can pull to ensure we're offering superior value to consumers, and we are making improvements on that through innovation, using our new tools through our digital and tech foundation like RGM, price pack architecture, design to value. And those are all creating different ways for us to ensure that we are extracting as much value as we can that we're delivering the best experiences for consumers.

And we're really focused on getting our innovation to be stickier and bigger, and we're off to a strong start there. Our innovation is more incremental than it was in the past, and we have larger platforms. A good example is Clorox PURE Allergy, which is off to a terrific start. But we have innovation across the portfolio, and we'll be focused on ensuring that we execute that with excellence next year.

Okay. So maybe we can talk about the kind of 3 categories of -- categories that you mentioned. So you have the, we'll call it, the positives, the improving and then the still to improve. So cleaning, international, professional, very different, but all relatively resilient and consistently on the positive side. Is there an element of commonality that makes those all on the positive side of the ledger? Or what has contributed to those businesses being better performing?

That's where we execute the playbook that we believe drives categories with excellence continuously. We have superior products there. We do a great job at driving marketing and communication. It's where we have growth plans with our retailers, where we're leading them to what's the next thing for the category.

Again, PURE is a great example of that. It's a category that didn't exist that we created and we co-created with retailers. And so that's the commonality. It's about superior products and then executing with excellence. And we have the ability to do that on all of our businesses. And as you mentioned, there are some that are beginning to turn. So food is a good example where we have done that for years and years and years. The category has been under pressure given what's going on with GLP-1s and other trends.

And then we had the unfortunate timing of making a model change right when all of that hit. So we have since rectified that, and we've returned to share growth in Q3. And what we're just watching carefully is the category growth number. But in that one, I feel we have a great innovation pipeline of health and wellness type of initiatives, protein forward options, avocado oil for consumers who care about that. So feel good about that pipeline.

Glad is another one that we've been talking a lot about. We turned to share growth on Glad Trash this quarter, and that was through that same playbook. We had some distribution gaps on the [ Clorox ], which we did. We launched some great innovation. We have a new trash bag that has LeakGuard technology on it, and that has the ability for the bottom of the bag to absorb liquids. So if you were to get a wholeer bag, it wouldn't then be dripping as you're walking out to the trash barrel. That's off to a good start as well as we released a new purple Moonlight Breeze bag. Just try that one. And that's off to a strong start as well. And in addition to that, we're using our new RGM tools to do some very detailed understanding of price gaps in the market.

And we found a gap on one of our items, a very important item. It's an 80-count item we have in a number of retailers we saw an opportunity to narrow the price gap, and we believe would pick up share and be financially attractive. We tested it in October, and we ended up rolling it out. And that item in itself grew mid-single digits to high single digits in share and overall has helped with the Glad business, and we're going to continue to apply those tools. So it's a good example of when we are focused on all those right things, even in a very difficult category, we can get back to growing share.

And I feel good about that. Litter is the one we still have more work to do on. We announced that we were making a large transition in Q3 and Q4. resetting the foundation of our Fresh Step business, which is our largest brand and our strategic brand in Litter. We changed it all, price pack architecture, new sizing, pricing. We changed the naming convention. We launched some new packaging forms. We upgraded the formula. And that was a lot of transition. So one thing is a hard conversion, meaning retailers had to take the old product off the shelf, and that takes a period of time. They had to bring a new product on. So that creates a little bit of noise, but it's important that we make that transition.

And then there were some things in execution. We got the distribution we wanted. It's the more distribution, we didn't get everything placed on the shelf exactly where we want it, and that's what we're going back and modifying. And then we're helping the consumers understand if they bought a certain package before this is the new one to buy what the benefit is. That's just the first leg of improvements we need to make we've had to go back and rebuild our innovation pipeline. This is a business that when you're doing a lot of things operationally, we had built a new plant in order to sustain volume, we had the cyber attack, which was more impactful to Litter back in 2024. And then what's happened more just recently that's one that they've been focused on operations. And now we're going to get back to growth.

And so that innovation pipeline will begin kicking in, in earnest in calendar year '27 and that will be a further way for us to advance our progress. But right now, we're focused on just getting to the place where we're growing where the category is, which is highly attractive, it's a mid-single-digit grower and then focusing on share growth from there.

Okay. So I guess, is the expectation -- operational noise as that gets behind you, you get incremental improvement in the back half of '26 and then the innovation kicks in and hopefully brings that up into the positive column.

That's exactly right. Okay.

Can I just -- on the kind of the platform revamp on litter, what was the consumer insight or the consumer -- yes, I guess, consumer insight that led to that kind of large scale of a change.

There were 2 things. First and importantly, the Fresh Step brand stands for odor. We have stood for that for a long time, and we have superiority in how we deal with odors and consumers. If you have a cat, but the last thing you want people to do when you walk in your house is think you have a cat from the smell. And so we're returning to our core benefit of odor control and ensuring we're communicating that clearly and strongly, and that was an insight that we had not been doing that as sharply as we could, and we will do that going forward.

The second thing is we took a large number of price increases as the industry did back in the inflation cycle in '22 and '23. And we knew there was going to be things that we didn't get quite right. And in Litter, there were places we took too much pricing. So we needed to reset the value equation and that was why the price pack architecture work was so important to ensure that comparably against other options in the category, the consumers understand the value. So those are the 2 main components. And then, of course, innovation is about bringing new benefits to the category in the future.

Okay. Where you've had innovation, you mentioned trash, Clorox, the allergy innovation, Scentiva platform. Were those -- with that innovation cycle has been effective, are you winning new households, winning back old households? Or are you seeing increased frequency of existing households? Is there a way to parse that?

It varies by category. So for Clorox PURE, it's a completely brand-new category. So this is new households to a new benefit, which is great, highly incremental, obviously, 100% incremental to us, very incremental to the retailer. And there's just not been offered this benefit before. So we love when we can find these.

There's an opportunity in France right now, by the way. Allergies are everywhere.

Yes. They're killing me too. I know it was like, I need a travel size. I immediately sent my team a note and said, "Where is my travel PURE Allergy size?" and this is one where we see many benefit spaces. In the future, we have our second wave of Clorox PURE launching in the fall. So we've already sold that into retailers. They're very excited about it. And we think we can offer more forms and deal more explicitly with certain allergens that are really meaningful to consumers.

So we're excited about that. Then there are ones that offer consumers an opportunity to trade up. Maybe they're a current household, but you get a better value and they -- you get a trade-up occasion with that consumer. A good example of that is Glad. Moonlight Breeze, it's like, oh, that's nice. I want to pay a little more for a purple bag, makes taking out the trash a little better, and I certainly don't want anything leaking, so I'm willing to pay a premium for LeakGuard and then there are things where we're doing to expand usage. So a good example of that would be innovation that we do on things like wipes, where we have good household penetration, but there's so much more to get and there are so many more occasions to get with a wipe. So that's how our team thinks about it is what behavior are we trying to drive, and it depends on the category and its maturity. And then we're very clear on what that is.

So you'll see a range of innovations. Our Hidden Valley innovation, for example, that's about getting some new households in that may not be choosing to use a ranch because they want a non-seed oil, for example.

Okay. All right. We haven't yet talked -- we've alluded to GOJO, we haven't really talked about GOJO. Let's spend a little bit of time there. And maybe you can tag team on this.

Linda, maybe you can address the -- you've talked a little bit about this, but the strategic fit, the strategic rationale for the GOJO acquisition and maybe what -- as you've learn more about that business, what you're. How you're framing it in your own mind into the future? And then Luc, from a financial perspective, as you mentioned, different P&L structure of that business versus the core. So the considerations that investors should have as that does layer on to the business?

Sounds great. We are really excited about this acquisition. GOJO are the makers of Purell. And Purell is a leading brand in the health and hygiene space when it comes to skin health and hygiene. And we obviously compete very strongly in health and hygiene today on the surface side. And we have both a retail and a B2B business. They also have retail and B2B business, but they are much stronger in B2B and have very sophisticated technologies, et cetera.

So we closed on April 1. We've been hard at work at integration, which is going well, and we have more confidence than ever that this was a great acquisition for the company and will yield value. and some of the things that we're getting really confident on. One, we had a pretty conservative case when we did this since we feel very good about that, but we also see upside. And from a strategic perspective, it makes a lot of sense because if you. I started with cleaning as a business that's done really well. It's been one of our fastest growing, it's our most profitable business. our international business, which has done the same over the last 6 years is the majority of that business is cleaning.

And so we feel this is really consistent with our capabilities, but takes us one ring out in their superior B2B capabilities. and it allows us to have a bigger platform in health and hygiene. So that's the strategic rationale. And the opportunities are, one, the category is accretive from a growth perspective. It has good tailwinds on both on the professional side and the consumer side.

In the B2B space, not only do we have opportunities to take their terrific innovation and the installed base we have. So we bought 22 million dispensers basically on walls that we own the annuity and the refill for, and they're able to improve the technology on a regular basis and they price for that. For example, they're -- they've been able to remove labor from the professional side by instead of having a janitor has to come by and take a battery out and change it and consumer experience is terrible you go in, it doesn't work. They've built the battery into the refill.

So you just pop the refill in and no one has to do any work outside of that. That's a huge savings as people think about labor cost in B2B. What we're really also excited about is we had tremendous customer interest when we announced this on the professional side because of the incredible relationships and business GOJO has, and they see the ability for us to scale our Clorox business in addition to Purell.

And then on the retail side, they have an amazing brand. It's so amazing that during COVID, they discontinued all of their retail business because they focused on health care. There were 0, you all know this because you were probably looking for Purell hand sanitizer if you live in the U.S., and it wasn't available. They discontinued it. And when they were able to supply, they went back and did a test with a leading retailer. It did so well, they immediately brought it in and they got distribution back everywhere but their skill is not marketing and consumer. That's where we come in.

And so they have good innovation in the pipeline, but we think we can take that to the next level. And it gives us a brand to be complementary to Clorox where we can really own surface to skin in a different way and is a great growth platform for the future. And then of course, financially, it's accretive from a growth perspective, neutral in earnings in year 1 accretive in year 2, has a little bit of a different P&L profile as Luc spoke about, but strategically and financially a great fit, and it's off to a good start.

Yes. Maybe, so again, reemphasizing $800 million business, growing very steadily at mid-single digits. And when you add the revenue growth opportunities, you could see this growing mid- to high single digits for years to come, right?

So that's the top line. On the bottom line, it's -- EBITDA margins are in line with that of the company, so that will become accretive once you start layering the cost synergies. And importantly, we don't talk about this often, but this is very high and stable cash flows, which is actually gives us a lot of confidence as we focus on delevering over the next few years. So that's the big picture.

Now specifically to the P&L, you have to remember that 80% of the business is actually professional and only 20% of the business is retail. So while the EBITDA margin is actually comparable to that of the company, the different lines of the P&L are a little different. So their gross margin is a little lower. And so that will call it close to 40% or so. So that will create a headwind of about 0.5 points on our total company gross margins when we integrate it. Their advertising is lower, actually in line with our professional business unit.

And so that will lower the total company advertising by about 1 point. And their SG&A is a little higher because they have mostly driven by a higher sales force. Because it's more fragmented in marketplace. And so that will add about 1 point on our SG&A as a percentage of sales. So that's -- those are the main differences.

Okay. Very helpful. Where you've -- it's early, obviously, but where you started to integrate or have the teams collaborate professional to professional, consumer to consumer. What's been the fit -- the cultural fit, the acceptance between legacy GOJO and Clorox, et cetera?

When we first went out and met this team, we were blown away. It was like, oh my gosh, we're talking to just an extension of ourselves. They have very similar values. In fact, if you read their values, they're very close to ours. And they view the world and the role that Purell has in very much like the way we view the world.

But we also saw cultural upgrades that they could help make. They're fast they have a culture of innovation that we are building, but want to continue to nurture. So as we brought the teams together, we've just reinforced that. We have retained almost the entire management team and people are really excited about being part of the company. We've also retained their culture. We've retained their leadership headquarters in Akron, Ohio -- get to go to Ohio a lot now. And so it's just been a great fit when we told our professional business, you can imagine that would be difficult for them. They said, "Oh, finally, this makes a total -- a ton of sense." so good cultural fit, integration off to a strong start and really importantly, we retained the management team. So we can keep the rest of our teams focused on improving businesses in our core.

Good. Couple of topics I want to hit before we run out of time. One -- the first one is for you, Luke. A lot of focus across CPG on capital structure, capital allocation the GOJO transaction does raise your leverage profile. Maybe think -- talk a little bit about how you're seeing the capital structure and your prioritization of -- for capital going forward?

Yes. First of all, our capital allocation priorities remain the same. And so briefly, they are in rank order, first and foremost, investing in the business. This is where we can strengthen our competitive advantage, deliver profitable growth and generate the highest return for our shareholders. Second, we want to continue to support the dividend. We have a long track record of increasing the dividend annually, and you should expect us to continue doing so.

Third, manage debt leverage and our targeted debt leverage ratio is 2 to 2.5x debt to EBITDA. And then fourth, if we have any excess cash, return it to the shareholders, which we've been doing in the past few years. So with that as backdrop in the near term, following the GOJO acquisitions, our top priority is going to be on balance sheet discipline and delevering, right?

We're going to -- we expect to end the fiscal year with a debt leverage of about 3.6x, and our focus is to bring that down to about 2.5x within 2 years. Now as I just mentioned, the great news here is we're bringing a business that generate strong and steady cash flows. And in addition, the way we structure the transactions, we expect to have pretty significant tax benefit in the first 2 years. So that's really give us a high degree of confidence in our ability to deliver. But again, our commitment to dividend remain unchanged. Having said that, we have suspended share repurchase and we continue to do so until we reach our targeted debt leverage.

Leverage. Okay. Perfect. The other point I wanted to hit before we close, Linda, is ERP. We've talked about ERP a couple of times today as a form of disruption. But in prior conversations, we've talked about that as a huge unlock an enabler as part of the overall digital transformation. So as we turn the page, hopefully, on those disruptions.

Can you talk a little bit about what you're seeing on the plus side and what value remains to unlock given that the technology sort of evolution has now run its course.

I think it's really important what you mentioned, Stephen, so I'll just take a second to recap. We did a holistic digital transformation of the company. And the first thing we did was we got our data clean, and that's an enormous task with the amount of data that we have access to and created a data lake. And we knew that, that would be important as we layer technology and the ERP on top of that. So that was the first step.

Then the second step was we put a bunch of technologies in place to begin to take advantage of that. An example is the work that we did in marketing personalization, which is already yielding tremendous value, and we have industry-leading advertising ROIs as a result of that.

And then the final step, the most expensive step, and the hardest step is implementing the ERP, and our ERP was 25 years old. So this was a greenfield implementation, building a completely new house doing all modern electrical and plumbing, which means everyone has to operate in the house differently than they did before. And that's really the hard part. The technology I dare say, is the easier part, but we've got every single person in The Clorox Company working different in this technology. but that creates tremendous opportunity in the future.

So having this data, having this technology layer, now the ERP gives us better insight and access to data. It allows us to move faster. It allows us to drive productivity. So there'll be a whole slew of new projects that come out of that, many of which we dreamed up, we've come up with new ones since we begin to implement it. And we'll start to see that value creation happen in fiscal year '27 and beyond. What we're seeing from our team right now is it's hard to do new things. So that's some of what the stabilization phase is about. And we used to touch kind of every order almost that came through our system.

Now those things just have to run on its own. We need our team building growth cases and not doing that manual stuff. So we're well on our way there, but we feel terrific that we're past this milestone. It was a very important part of getting our company's foundation set to grow. And we just -- we feel fortunate because those things like AI come out, we wouldn't have not been ready to take advantage of that. Had we not invested in this time and effort. And unfortunately, have to deal with the disruptions. But now we're on the side of value creation and driving the ROI that we signed up for.

Maybe to close out, if investors were to ask you what they should be most focused on, 1 or 2 critical proof points as we progress forward over the next 6, 12 months? What would you say?

Market share improvement. We intend to improve that, and we have made sequential improvements, but we intend to win in the marketplace on our key brands. And so we will continue to report out our progress on that through innovation, et cetera. And the second thing I would watch is this is -- we made a large acquisition with GOJO. We intend to integrate it with excellence and drive value from that, and we'll continue to report on that. And I think that's another good sign that we're executing as we intend to.

Okay. Good place to leave it right on time.

Thank you.

Thank you, both.

Thanks, Steve.

Thank you all for joining us.

Good day, ladies and gentlemen, and welcome to The Clorox Company Q3 FY '26 Earnings Release Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference call, Ms. Lisa 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 Luc Bellet, our CFO. Please note that our earnings release and prepared remarks are available on our website at thecloroxcompany.com. 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 2026 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 statements section, which identifies various factors that could affect such forward-looking statements, which has 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.

I'll now turn it over to Linda.

Thank you for joining us today. As we approached fiscal year 2026, we knew it would take a disciplined, phased approach. In the front half of the year, we intentionally focused on implementing and stabilizing our new ERP. That work was foundational to strengthening how we operate, even though we knew it would create some near-term disruption. As we moved into the back half, our focus turned to rebuilding momentum, getting innovation to shelf and sharpening execution. That sequencing is still the right one and it remains central to our plan. That said, the pace of improvement has been slower than we expected in some businesses. And as a result, our third quarter results were mixed and fell short of our expectations.

We continue to make progress on market share across much of the portfolio, but more gradually than we anticipated in certain categories. Gross margin also came in below expectations, driven by higher-than-expected supply chain costs and delayed cost savings as we deliberately prioritized stabilizing the ERP. Even with those challenges, we remain confident in the path forward. With the ERP implementation now complete, we're better positioned to convert our innovation, investments and distribution gains into value superiority for our brands and stronger results.

Our focus is squarely on execution, delivering the fundamentals, accelerating innovation performance and finishing the year with momentum as we set up for fiscal year 2027.

With that, Luc and I are happy to take your questions.

[Operator Instructions] And our first question comes from Peter Grom with UBS Financial.

Great. I was hoping you could start just on the top line trajectory. You touched on some of the macro pressures, but as you just mentioned, the progression of your business has not been in line with your expectations. So I mean you touched on different areas in the prepared remarks, but do you just have any perspective as to why the improvement is it taking shape the way you hoped? And I guess as you look out to you have confidence that you will see stronger performance across more pieces of the portfolio.

Thanks, Peter. I'll get started and Luc can build if there's anything he wants to add to this. I'll start with there's areas of continued momentum in the portfolio that are going as well as we expected or better. I'd call out our Cleaning business, which continues to be an area of strength and, of course, is our biggest business. Innovation is going extraordinarily well there. And despite a very competitive promotional environment right now, we continue to win and win share. International, despite disruptions around the world continues to perform with strength. We're seeing Glad make significant progress. So shares quarter-after-quarter have sequentially improved. We're seeing distribution pick up on that business and some of the actions that we took investing back in price have done really well.

Food, we've returned to share growth this quarter. So lots of things going well and where momentum continues. And really, the area of the shortfall is a few businesses we expected to make more improvement that did not quite make the improvement that we expected in Q3. We expect continued progress there in Q4 and then continuing to make improvement in fiscal year '27. And I'll talk about a couple of them. The first and most importantly, would be Litter.

Category tailwinds continue to be exceptionally strong, and we are committed to getting back the share that we have lost, and we're doing that through a complete reinvention. So for those of you who saw what we talked about in CAGNY, this is really a fundamental reset of our fresh debt business. We changed all of the items. We changed their names. We changed their claims, pack size, through price pack architecture. And that began to roll out at the end of Q3. And while largely that foundation is now in place, now we're doing the really difficult work of mapping consumers from what they used to buy in freshed up to the new items.

I would say the distribution came in generally in line with what we expected, which was an increased amount of TDPs. But unfortunately, some things aren't quite where they need to be, and we're working on improving those in the next few months. And that would relate to shelf placement on a couple of items in key retailers, et cetera. But we're addressing those fast and making changes. So I think Litter is going to be just bumpier, and it's not totally unexpected given the amount of transformation we're taking on there.

And I also remind you, Litter is going to be a multiyear process. We talked about this was the first important step, but we've got to get innovation back on track to the place where, over time, we can begin building or growing share not just rebuilding share.

And then the other area I would just call out would be Food. And although we did grow share in the quarter and we saw a portion of the elements of the things we put in place working, that category was weaker than we had expected. So we expected a low single-digit decline. It was closer to a mid-single-digit decline in the category. And we're seeing high promotional intensity and deep discounting from competitors in that category, which is putting pressure on dollars. And we're also seeing some consumer trends that we're watching closely on GLP-1s, et cetera. But the good news for Hidden Valley is we did some price pack architecture work. I think you all recall, we had made a transition where we flipped our bottle upside down, which was consumer preferred right before last February when kind of value superiority really accelerated from a consumer perspective. So we have since reversed that decision and put our regular 16-ounce bottle that everyone knows and loves back on the shelf, that's playing well.

In addition, we've just recently launched a number of trend forward Hidden Valley launches, including protein forward options, Avocado Oil item, and we believe that's why we've seen that inflection in share and that, that should continue moving forward. So net, Peter, lots going well, and we're making progress in a lot of the areas we expected to. I would just call out Litter making slower progress than we had expected and Food are really working to get that category going again.

Okay. Great. And then I guess, I know we've got '27 guidance in August, but there's just a lot of moving pieces here with the $0.90 is going to do and now that's inflationary pressure. And I guess, if I look at the guidance this year, it would seem the majority of the $0.40 move at the midpoint is related to cost pressures, which if you were to annualize, it would seem like a pretty substantial headwind. So it is just -- is there any way to frame how you see costs and inflation looking out to '27 at this stage?

Peter, this is Luc. I can try to answer that. I mean, obviously, it's a very dynamic situation and uncertainty. I would say it's too early to share any perspective for next fiscal year. And as you can imagine, we're currently working on next fiscal year, working on a wide range of scenarios, including a wide range of potential outcomes. Having said that, what you can see in Q4 is the current impact of the higher oil price. Right now, we're assuming about $100 per barrel will be the midpoint of our estimate in Q4, which is about between $20 million and $25 million of headwinds or about 130 basis points of gross margin. So that gives you a point of reference.

This is obviously material. But because it's in Q4, we didn't have time yet to deploy any of the mitigation actions. So this is -- we're basically getting the full growth impact in Q4 and not yet any of the mitigation.

As we talked in the past, over time, we feel confident in our ability to cover those input increased costs. We have a solid track record over the last few years. And if anything, we've developed a really robust set of tools around integrated margin management. And we have a really strong pipeline of cost savings next year. Now again, I'll get back to my first point, which is it's very hard to predict what might happen in the next few months, next quarter or even the next year.

And we'll move next to Filippo Falorni with Citigroup.

Linda, it's hoping you can talk about the shelf space gains that you realized so far versus expectations, especially as we think about Q4 organic sales as we're heading into fiscal '27. Are they going according to plan, especially around the innovation? And then are you seeing any of the areas of the business where you're seeing maybe more or less shelf space that you were expecting?

Sure. Thanks, Filippo. So shelf space gains are going according to our plan at an aggregate level, and then I'll touch on a few businesses. So if you look at Q3, total distribution points for Q3 were up over 5%. And we know that our retailers are still resetting our shelves and will through the remainder of Q4. So we expect continued progress on that as we move through this quarter. That being said, what we're watching is not only that we got the gains, but the items are in the right locations. So I'll call out later. We got the distribution gains that we expected there are places where it was shelved in a different place than we had expected or next to an item that we didn't expect.

So we're doing that type of detailed shelf work. But all of the distribution points were there. And I would say a number of the businesses, like I called out, Glad that we have been working on. We feel good about we're landing on distribution points there, and that will continue to accelerate into Q4 as well as Food behind our innovation and our price pack architecture work. So on track from a shelf space perspective, but now we'll do that work to ensure that items are placed on the shelf where they should be.

Great. That's helpful. And then, Luc, maybe I could follow up on Peter's question on the cost headwinds into next year. I guess as you think about the mitigating -- potential mitigating factors, how are you thinking in terms of order of importance between cost savings, potential, some pricing? And any other levers that you can pull to mitigate some of those headwinds?

Filippo, yes, we're looking at a whole set range and looking at essentially all elements of our integrated management set of tools anywhere from leveraging RGM and leaning more in RGM and PPA in some business units, to lean more into productivity and cost savings, and it's a whole wide range of potential savings, including potential reformulation, supply chains. And we're also looking to accelerate some more structural cost savings that we had planned, maybe later in '28 into '27. And as you probably saw in Q4, we are recognizing a large onetime cost, and this is in our gross margin. That's a headwind of 50 basis points, but that's going to allow us to actually accelerate one of those more structural cost savings.

So I would say it's across the range of levers. Of course, it will differ by BUs, depending on the competitive dynamic as well as the pipeline that was already existing.

And our next question will come from Andrea Teixeira with JPMorgan.

I wanted to just go back to the comments on a you made on the exit of the quarter in the prepared remarks and things got offer, especially for the Food for Hidden Valley. I'm assuming you -- can you comment a little bit on how you landed as you exit the quarter, the categories as you said it was like a mid-single-digit decline for Food, but just in general, categories that you're in, you can give us like an estimate of how much the categories have contracted?

And then as you think about like the view that you embedded in there in terms of the mitigations and all of that, do you feel you can have a potentially an RGM that could allow you to create or maybe pivots into RGM as you pointed out, even in the first half of the year? Or that's going to be more of a long-term let's say, a long-term shift that you wouldn't be able to make in such a short period of time?

Thanks, Andrea. I got it. I'll start with the categories, and then I'll move to your question on RGM. So from a category perspective, we thought at the beginning of the year, we would be in the range of flat to up 1% in aggregate for our categories. And what's played out through Q3 is exactly that. So we're about in the middle of the range. What we did see in Q3 though was market differences in January, February and March. January and February were more in line with what we expected and March was slightly better, meaning that the categories at the end of Q3 were slightly above our expectation of 1%.

What we think happened in March was that people received additional tax refunds and some of that money they spent back in Essentials categories on stock-up trips. But we're starting to see that decline a little bit as people are having to spend more money at the pump. But generally, still for the remainder of the year, we expect our categories to be in that range of 0% to 1%. Some of them are higher as we noted. So Litter is closer to mid-single digits. We're seeing Food down closer to mid-single digits, although we're hoping against some of those actions that we've taken are going to help mitigate some of that and then a range between those 2.

Most of our categories were positive, though, this quarter, which is good news. I think the important part to note here is that even though the consumer is under stress, and you could argue a lot more stress now, given what they're experiencing from gas prices and just the uncertainty of what's going on, they're still really resilient in our categories and that's a good sign. We're seeing them continue to buy innovation. Private label shares did not increase this quarter. They're still shopping for brands. We're seeing the premium here and many of our businesses do very well as people are looking for value in all of its forms, whether that be convenience or a little bit of joy in their lives as well as trading up to larger sizes and trading down to smaller sizes.

So all of that is playing out. But I would say, generally, again, the consumer is pretty resilient in our categories. And we will watch closely for '27 for what this means. I think what Luc outlined from a cost perspective is the single most important variable, whatever happens in the Middle East and how costs play out, that will impact the consumer environment in '27. But again, what we're focused on is that we have resilient categories. They respond well to innovation. They respond well to growth plans, and that's what we're focused on is improving our superiority and being the leaders in category growth as we move to '27 and making improvement on share.

And one of the important levers is the second question you had, which is GM. And this is something that we are live in action right now. So we gave an example, if you might recall, at CAGNY that we did RGM work on Glad. And we actually took the price down on one of our items. That made a significant difference and grew a significant amount of share. We are doing that work across our businesses. And actually, in the coming weeks, we'll have a couple more tests in market. And if those tests do well, we'll expand those. So we have that built into our Q4 plan, and we would expect additional activity as part of our fiscal year '27 plan.

And that's very helpful. And then if I just can squeeze the Gods acquisition. I mean, obviously, you have given the synergies. Did that change as you point out to like the impact that I think, if I understood it correctly, Luc, you mentioned 30 basis points gross margin headwind, but how does that change for GOJO's when you gave guidance at the time wasn't when we saw oil prices at these levels?

So for GOJO, and then I'll have Luc walk through the financials just so we're clear, but I'll make a few comments. We closed on April 1 and have been deep at work on integration and integration planning since then, and I'll just say my confidence remains incredibly high on this acquisition, both from a strategic perspective and the fact that it gives us additional growth exposure in health and hygiene, where we have a long history of strong performance.

The team, we were able to retain the management team. We're seeing strong results on the business. And as we think about that moving forward, we knew it had a different profile given it's a pro business, just like our Pro business has a little bit of a different profile. It's higher SG&A lower advertising, a bit lower gross margin. But overall, this is financially attractive and will be accretive to the company in the near term, and we outlined that in the prior remarks. And again, I'll have Luc go through it. But I would just say that my confidence continues to increase that this is a great acquisition for the company.

Yes, I can -- I'll add maybe a little bit more context around how it's impacting the P&L. Maybe what I can do is some of it was already included in our prepared remarks as we think about Q4, but I'll also just give you a sense of how it might impact next year. So maybe let's start with growth. So we're adding a business of $800 million, that is a solid track record of growing mid-single digits. And so far, they're progressing as expected during the calendar year. So that means that we will be adding $200 million in Q4, right, which adds about 10% for the quarter and about 3% for the full year, and we'll add the remainder in fiscal year '27. So that's on growth.

EBITDA margin, nothing changed as we discussed, the business EBITDA margin is in line with that of Clorox, right? And so -- so it would be year 1 EBITDA neutral. And of course, as we continue to be confident in generating about at least $50 million of run rate cost synergies, and so that mean accretion in EBITDA over time.

Now maybe just a comment on how do we think about the integration and strategies. We're really going to prioritize the integration during the first year and expect to start delivering both revenue and cost synergies starting the second year and the third year. We -- the good news here is that we have retained the management team. We have a separate resources that are dedicated to the integration, and we're also a retail and integration partner to help lead through the execution, which is already off to a great start. So that's on EBITDA margin over time.

Now on the rest of the P&L, Linda mentioned it, given that the business is about 80% B2B, the P&L looked a little bit different than the average of Clorox, right? So the gross margin is a little dilutive, and so that will be about 50 basis points of dilution in year 1. Now of course, some of the synergies will be in supply chain, and so we would expect gross margin to increase over time and get pretty much in line with -- over time with the average of the company.

Now that's going forward, and that's also in the fourth quarter. But in the fourth quarter, you also had the recognition of onetime associated with the transactions, which are related to an inventory value step-up, right? And so just that's one time, that's worth about 150 basis points of headwind in Q4. But that's been nonrepeating.

And then if we look at the other line of the P&L. If you look at SG&A, as Linda mentioned, it would be -- it's a little higher than the average of the company. So it probably had less than a point to the total company average when it's fully integrated in year 1. Again, that will go down over time as we start realizing synergies. And advertising is much lower, not that different than our own pro business. And so that will actually probably bring the advertising as a percentage of sales down by about 1 point initially and probably ramp up as we continue growing the consumer business. So that's for the different lines of the P&L.

And the last thing I'll mention, of course, our interest expenses will increase. Our run rate pre acquisition was about $100 million, and so we will see about an incremental $30 million in Q4. And then next year, we expect about $110 million above and beyond the $100 million run rate.

We'll move next to Robert Moskow with TD Cowen.

You are one of many HPC companies that have talked about rising inflation from oil-related costs. And the higher costs are all pretty uniform. Is it possible that since everyone is kind of facing the same cost at once, that makes it a little bit easier to go to retailers and argue for either some price increases or maybe some less generous price promotion?

Robert, yes, I think what you've heard from everyone is we would expect rising inflation and what Luc talked about was our ability to handle these over time, and we feel confident about that ability, given the toolbox that we've built over the last number of years and certainly, how we handle the last round of inflation that we experienced in 2022. That being said, on the pricing front, although we're evaluating pricing and expect that we could take potential targeted pricing, we are approaching this with a high level of discipline and caution. We know the consumer is under stress, and our absolute #1 priority is to ensure that we are driving improvements in value superiority to drive our categories and to drive share.

So we do see there's places where we think we can take pricing. There are places where we can do trade optimization. The point that Andrea made on RGM is going to be very important, and we can be very targeted with that activity. So I think these are conversations that certainly everyone in the industry will be facing, which always makes it a more productive conversation because everyone sees what we see. But at the same time, we are all focused on the same thing, and our retailers are seeing exactly what we see, a stressed consumer, and we want to make sure that we're doing the things for long-term category growth that are right.

And so again, I feel like we have the right tools. I know we can handle this. we'll discuss the pacing between sales and margin as we get a better look at what '27 will bring from an inflation perspective. And our #1 priority will be on driving consumer stability and ensuring we have value superiority to do that.

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

So your second half guidance here, it was somewhat hinging on your ability to deliver here on innovation. And I know it's still moving forward, but it's proven challenging, I think, for that to come through fully in this environment. So I was wondering if you can elaborate on the ways maybe how you're adjusting moving forward, meaning have there been any changes made on these innovation investments core marketing spend as you're thinking ahead. We've also seen some greater exposure from private label and the data coming through in certain categories. So wondering if you can comment on this as well.

And then longer term, just with Gogo, do you see -- still see our ability here to meet your longer-term Ignite strategy just given the margin profile of the business? And then the potential advantages that come from this acquisition here longer term?

Thanks, Anna. I'll go through these, and if I miss anything, please come back to me. Innovation, that has been largely very successful in this back half. So despite everything that's going on, our innovation execution, and I'm going to put Litter to the side for a moment, and I'll touch on that again. has been great. So our largest innovation with Clorox PURE, which is our allergen platform, has gone very well. We got early wins on distribution. We were online early. We're getting great reviews. Retailers are very excited and they're excited for the next round that we have coming at the beginning of fiscal year '27. We'll bring them some new benefits in this category.

But on that, we got preferred shelf placements and these are new sections of the store for us, and retailers are partnering with us to ensure we can get this in front of consumers. So feeling terrific about that big innovation platform, its execution and the results, which are at this point from a velocity perspective above expectations.

I'd also note that the other innovations we have in Cleaning, including the expansion of our Sentiva line continue to do really well. We launched a new flavor in Cherry Blossom and that has been our #1 scent. And we're expanding that scent into different forms. But that's a place where, as I talked about, consumers are continuing to willing to pay for a premium experience and Joy in Scent fit in that bucket, and Scentiva continues to personify that.

I'd also call out our Food launches, which we believe are off to a good start. And our lab line, where we have a new absorbent layer in our trash bag. We continue to feel good about the distribution and the plans for that as well as new scents. So generally, innovation, very strong execution and strong performance. Litter, again, early days, and this was a hard conversion. So I would note, it's not unexpected where we are, but we just have not proven yet that it is exactly what it needs to be, and we are making the adjustments to the plan. I feel good about the fact that we're offering a better value. The claims are better. The packaging is better. Our digital execution is much stronger, and we're seeing very strong digital pickup on Fresh Step, but we don't have yet the whole thing in market yet to see exactly where we need to make adjustments.

The places we do know we need to make adjustments, we are with retailers right now doing that. So I'd call that out as the one place in innovation that is behind our expectation with everything else at or above.

And then on -- I'll go to your next question as long as I've covered innovation sufficiently for I'll start with private label. And I think I mentioned in one of my comments that private label shares have been flat over the majority of our categories. It's basically stabilized. We're watching it really carefully because we have seen ticks up in certain time periods as retailers promote it or and bring in a new item. But generally, consumers continue to want brands, and they continue to want value overall, not just the lowest price. There are places where we've seen a bit more pickup in private label, Brita would be one. We're watching that 1 carefully. We've seen that trend over time. And as we continue to launch innovation, we end up getting some of that share back. But that's a place we're watching carefully.

And then I'd say we're watching carefully any other place where retailers are leaning in and making investments. But overall, private label just hasn't had the impact that many would have expected. And I know many of you are asking questions about that. We've continued to see it play the role that it normally does, which is offering a low price for those consumers who need it. And then on Gogo on the long-term algorithm, certainly, Gogo is a strong step to delivering our overall algorithm, which we remain committed to but also what is also very important is that our categories get back to normalized levels in order for us to deliver that. So because it's accretive from a growth perspective, we see that playing a role in '27 and beyond. And of course, most importantly, we're focused on getting our core categories back up to what they were before and low mid-single digits.

And our next question comes from Chris Carey with Wells Fargo.

I just wanted to ask about just, first and foremost, as a clarification. Was there any kind of like shipment versus consumption dynamic in the quarter? I think just health and wellness and household specifically came in a bit different than expectation. I realized that you had the timing dynamic from last quarter, but I just wanted to check how results compared to underlying consumption as you see it. Then I have a follow-up.

Yes, Chris, I can take that. There was certainly a lot of movement across segments on a difference between shipments and consumption. For the total company, U.S. retail, we -- it all netted out to about a point of negative timing relative to consumption. Now if you remember, in the second quarter, we shipped volume ahead of consumption in Health and Wellness ahead of our last wave of manufacturing ERP implementation. So we were expecting that point of favorability in the second quarter to reverse in the third quarter, and that happened. So that's on Health and Wellness.

But then you have more noise in both household and lifestyle, and they were related to a mix of retailer inventory adjustment, mostly in lifestyle as well as some early shipments in -- mostly in household, both in Litter and in Kingsford. So those 2 offset each other. They're worried about a point of the company -- a point for total company each. And the retail inventory is just onetime and not repeating. But of course, the early shipment is something that we expect to reverse in the fourth quarter. So that will be a little less than a point of headwind in the fourth quarter.

Now the fourth quarter has a lot of mutualizing leading up to July, August, September period. So there might be more noise. And so we'll see what happens. But that's the gist of it as you think about shipment related to consumption.

Okay. The follow-up question is just around the portfolio. There are some areas of the portfolio, which have been challenged for some time. There are some categories where maybe they're not traditionally where you would think you are right to win exists. When you go through moments like this where market shares are maybe progressing a bit slower, there's potentially an opportunity to be even a bit more focused. Are you having those portfolio review conversations? Is that activity becoming a bit sharper? Any context on just when you're going through these kinds of cycles, how you think about them and how you react?

Sure, Chris. Yes, first, I'd start with we're always doing portfolio work, and we have a regular review process as a management team and, of course, importantly, the regular review process as a Board where we're looking at our portfolio and we're doing a number of things. We're deciding how we allocate resources within the portfolio that we have, where we want to place bets, where we think we need to be more efficient and we do that on a regular basis. And in fact, we'll do that again coming up here for fiscal year '27.

And then we are evaluating the portfolio more strategically as well and looking at inorganic options. And that's led to many of the things that we have done, including the divestiture of Argentina, the acquisition of the majority of the ownership in the JV that we had in Saudi Arabia as well as the sale of MS and, of course, importantly, the acquisition of Gojo and our expansion in our Health and Hygiene portfolio. And that is exactly the result of the work that we have done. And we'll continue to do that work. It's important work to ensure that we have a portfolio set up for success.

Thing I would note is some of these issues, we just -- we've got to execute better, and we have to deliver better superiority. And a case in point would be Glad. In Glad trash, it can be a tough category. It's very competitive. Consumers can be price sensitive, but innovation works in that category. And we've seen through the work that we've done in getting sharper price points, better innovation, stronger plans that Glad has begun to progress and make progress. We saw the trash category was quite strong this quarter, up over 2 points, and our share is sequentially improving significantly. And we feel good about our Q4 plan. So it's a great example of where we talked about that, that's been a little bit of a thorn for the last couple of years.

But through putting the right measures in place, being disciplined about cost management, ensuring that we have superiority, we can make progress and we're doing just that. And I would expect that for any of our businesses. So maybe just to sum up, Chris, yes, we're always doing the portfolio work. That leads to the type of actions like we've taken. And job #1 no matter what, is always ensuring that we have a healthy core, and that's exactly what we're focused on.

Our next question will come from Javier Escalante with Evercore ISI.

Hello, everyone. I guess mine are for look, I think. So double clicking on the -- hello? Sorry for that. Okay. So perhaps for Luc, I think, because they are very mechanical questions. One clarification about price/mix for household. So reported was flat, right? But Scana data shows pricing running down mid-single digits. So trying to bridge the difference. Should we think of that to be some sort of an artifact, meaning that the advanced shipments of liver and grilling and that trade and marketing spending will accrue in Q4. So shall we expect pricing to become negative in Q4? And then I have a follow-up on Glad.

Yes, Javier. In general, like the price/mix for household, I would I would step back and you might have a little bit of noise by quarter, but we expect it to be about 1 point of headwind, meaning that volume would grow about 1 point ahead of sales. That's the average for the quarters.

We'll see a little bit of difference by quarter, and it depends, of course, of promo events. And in our household especially if you have different promo at Club, this can actually really disturb the data and which might not be fully reflected in the same exact period from a P&L standpoint. So that's maybe what it is. But we don't expect a big shift in Q4. Again, just we're currently tracking as expected on price/mix for the remainder of the year.

Very helpful. And on the Glad JV buyout, what category growth pricing assumptions you guys built as you presented capital spending model to the Board, when you value the acquisition, right, and whether you compare that NPV and return of the buyout, the gains divesting it, for instance. Could you elaborate on that?

Yes, Javier, we won't get into that level of specificity. But what I will say when we are talking about this with the Board and why we feel really good about what we did in Glad, we saw an opportunity to move faster. And that -- our Glad JV offered great innovation results for a number of years. But we knew that by having full control, we would be able to move faster. We would be able to get innovation to market faster, make changes faster. And we've seen that come to life in the plan, and we believe that's part of the reason we've been able to have an inflection in the Glad business.

The other thing I would just note is, we look at all of the businesses, like I said with Chris, we're always looking at our portfolio. And of course, there's a multitude of things that have to be true. There has to be buyer. There has to be interest. It has to be the right move for our company. We have to make sure that we're able to execute any time we take very seriously whether we've divested a business like Argentina or VMS or acquired one, the organizational capacity and resources to do that. So we're evaluating all of those things with the Board. And net where we landed is ending this JV and moving forward with our Glad business was the right thing to do. And we are continuing to be focused on innovation in that category, ensuring that we get prices right and then managing through what -- I don't know exactly what it's going to look like, as Luc said, but a potential difficult cost environment coming up here for an uncertain period of time.

And our next question comes from Olivia Tong with Raymond James.

Great. I wanted to ask about a comment that you made in your prepared remarks on Glad and saying that you're prepared to adjust your plans as needed to balance growth and profitability. Obviously, that business is the most impacted by resin costs and if they start to materially move. So we've seen a lot of your staples peers doubling down on brand support and how that isn't going to be an area where companies are going to look to pull back despite the increased anxiety about the consumer or despite the increased inflation because of the increased anxiety about the consumer. So if you could just sort of elaborate on that comment around the balance of growth and profitability, where you could potentially find areas of flexibility within the P&L, given that Glad has started to turn the corner and just understanding your ability to hold that momentum?

Thanks, Olivia. Yes, we really do mean a balance. And Glad is one, as you rightly note that does have a big impact depending on energy complexes and then how it plays out into resin costs. And it's one that we have a long history of taking price and actually taking price down over time, depending on where those markets are. So too early to say what we're facing in fiscal year '27. So we're evaluating it closely. But I'll just make a comment that's true of Glad and it's true of the entire portfolio. I said a little bit earlier, but I'll emphasize it.

Our #1 priority right now and in fiscal year '27 will be on driving value superiority in our brands, investing in them and strongly, and I mean that very broadly. I mean that in advertising and sales promotion, and we're strengthening our plans and investments right now on that as we think about '27, ensuring that we have the right RGM activities in the market as I gave you an example of Glad. And we'll be putting more tests in the market that we think will pan out well and potentially could be more permanent moving forward.

Of course, we've invested in data and technology. So we're making all of the spending we have more efficient at the same time, moving more dollars into working media and out of nonworking media, using AI to take costs down. We're focused on just a holistic way that we can get more investments to our brands and drive superiority. And that will absolutely be true of Glad.

And we will evaluate it's is pricing the right move, would we change trade, et cetera. But that's the order of operations for us. Number one, value superiority and driving categories and shares. Number two, and we believe we will be able to do both of these balance over time is recovering cost. And we think we have the toolbox to do both, and Glad will be no different than the rest of the portfolio.

And the other thing that I would note is it's really important that we continue to be focused and we are on innovation. We said we were ramping up the back half. We have. Most of it has gone very well. We expect to continue to make progress in fiscal year '27. We feel great about our innovation pipeline over the next couple of years. And getting -- if we can get another point of innovation, that is a significant driver to our top line and to our shares.

And our next question comes from Lauren Lieberman with Barclays.

First thing I just wanted to ask about was just the ERP stabilization that you talked about in this quarter. First, a technical aspect. Sort of where does the incremental costs from that show up in the gross margin bridge that you guys shared, so we could just kind of try to understand the magnitude of pressure as we think about into next year, the comp?

And then just sort of anything that you could add on where you stand, you said, I don't know where -- when during the quarter you thought you reached stabilization and kind of what that entailed? And then I do have a second question afterwards.

Lauren, thanks for the question. I'll start, and then I'll hand it over to Luc for the technical margin. So we were able to complete our ERP in Q3. If you all recall, we did the major portion of the U.S. at the beginning of our fiscal year, but then we had a series of changes at our plant, and that's finalized in Q3 with very minimal impact as we had expected. So mainly the ERP stabilization too is about getting our performance in service levels up. And we continue to stabilize that in Q3, and that was a result of the cost.

I think I would just maybe take an opportunity to say again how important this transition is to the company. And we recognize it's created some dispersed focus, but it's critical to having the foundation of the company that allows us to use all of the tools from a data and technology perspective that can help us grow our business, make our business more efficient. And so recognize the noise and certainly the dispersed focus we've had. But we feel good about where we are and the fact that we've gotten to the place where it is all 3 rounds are complete. And it did have a margin impact. I think we talked about that last quarter where we would expect some incremental costs that were a bit higher than we had expected. And I'll have Luc walk through those details now.

Yes. And Lauren, maybe one more piece of context is we rolled out a lot of different, what I would call, module as part of the ERP transition, some of it is supporting our manufacturing operations, some of it we're supporting our logistic demand fulfillment and order to cash. And if you remember, in the first quarter and second quarter, we've been slower in ramping up our order to cash and stabilizing our service levels. And we knew that we will continue that stabilization through the third quarter and the fourth quarter, right?

Now we had expected -- we incurred additional costs in the frontal as we stabilize that -- as we stabilize that service -- the service level. And those costs are mostly in the area of logistics and fulfillment, right? So think about cost of expect in orders, additional costs moving around inventory model you should, less than optimal transportation costs and incremental labor costs. So as you -- now we expected those to linger in the third quarter, and those costs ended up being a little more than we had anticipated.

Now the good news, though, is that as we moved through the third quarter, we started making more progress on stabilization and towards the end of the quarter and in this month. We incurred very minimal cost. So we're seeing those come down. And for the fourth quarter, we would expect no incremental cost or very minimal. So that was one portion of the shortfall relative to our outlook.

And then we also ended up delaying some cost savings and having a little less cost savings than we planned in our outlook, which further put pressure on gross margin. And that's, again, related to the stabilization of the order to cash and service level. If you remember, in Q1, Q2, as we were at the peak of the AP disruption, we had lower cost savings than our historical level, especially in Q1. As we essentially at the organization and operational organization and resource really focused on stabilization and ramping up service levels.

And so since it took a little longer to ramp up in the third quarter, we had to further delay some cost savings. And so that will -- some will go in Q4 and some of Q4 will go in next year. Now the good thing here, though, is that we already had a strong pipeline next year, and that will only strengthen the pipeline going forward.

Okay. Great. And then my second question was just about TDPs earlier in the call. Linda, when you shared that TDPs are up 5%, which is great, we can definitely see that when we look at the Nielsen data. But what we have seen is that the velocities have actually been pretty weak. I guess you shared that the items are in the wrong place. So maybe the answer is just that simple. But I just wanted to check in if that's kind of the right way to think about it and that as you get that on-shelf execution more in line with your plan and your thinking that that's where we should see the indication of change. Is that right?

That's right, Lauren. We would expect that ramp up as we get things fully on shelf and we turn on advertising related to those specific items. I'd also note on Litter, if you're specifically referring to velocities there, which you likely are given what we've seen in performance. Because that was a hard conversion, and I know you all know this, but I'll take the opportunity to explain it a click more, we took an item and then we completely changed it. So actually changed the UPCs, and that requires a hard conversion at a retailer.

So what happens is, in the old items, they start to discontinue it and they sell it down before they bring the new item in. And in some places, they don't want to have any overlap in that. So there were places where we had some out of stocks, it's pretty normal in a conversion, which can impact velocities. And that's what we think some of what the noise was in Litter and will continue to be until we get the shelf fully reset is. And we're also noticing there's some change in velocity data, Lauren, due to the fact that people are making value choices. So we're trading up to larger sizes and small mix of velocity information a little noisy. But where it's cleaner, we see strong performance. And as we continue to ramp up spending, we would expect that to continue. Litter will be watching very closely, and we might have to make additional adjustments so we can get those velocities back up.

We'll move next to Stephen Powers with Deutsche Bank.

Great. I thought I was on mute. I'm glad not. Okay. Fantastic. First question to round out the gross margin. I guess -- and maybe I'm a little slow to the punch here, but can you just, Luc, maybe bridge exactly what's changed and what the drivers are between last quarter's full year outlook for gross margin down around 100 basis points and now down 250 to 300. I think I've got the buckets qualitatively, but I'm having a hard time assigning like numbers to those various drivers.

Yes. And Steve, just confirming you, you're asking a bridge for the third quarter or for the fourth quarter?

For the full year [indiscernible] guidance.

Well, yes, you mentioned there's essentially impacts. The third quarter, we just talked about it. It was a little over 1 point, and we just talked about what drove that. And then there was Q4. And Q4, let me unpack this a little bit because there's certainly some complexity. I guess the most important thing when we look at Q4, projected margin is probably important to frame it within the context of several temporary and nonrepeating items.

So maybe what I can do is let me do a quick rack versus a year ago and then just talk about what is different in the new outlook. So versus a year ago, we're also -- we're seeing about 5 points of decline versus last Q4 gross margin. 150 basis points of that is coming from the fact that we're lapping strong shipment and operating leverage associated with the ERP transitions. So that was in our prior outlook, but it's still significant on a year-over-year basis.

And then we have about 200 basis points coming from the GOJO acquisition. Now as I mentioned, we'll expect ongoing in the first year to see about 50 basis points of gross margin dilution. Then in Q4, we have 150 basis points of onetime items related to -- that are associated with the inventory value step up of the -- that we acquired. And so that won't be repeating, but that creates a total of 200 basis points.

And then the last item is really just recognizing about 100, 150 basis points of elevated input costs related to the conflict in the Middle East. So that's the 5 point versus year ago. Now what is new, we already had the first item, which was the lapping of the ERP transition, both the GOJO and the Middle East are new and that creates most of the variants. And then there's a few -- probably the most meaningful 1 is what I mentioned. We have about 50 basis points of win associated with some onetime expenses related to a large cost saving projects that we're accelerating into fiscal year '27. So that's the bulk of the difference between our prior outlook and the current outlook.

Okay. I follow that. That's very helpful. Okay. My follow-up then is 2 parts. One is you said earlier that the fourth quarter Middle East impact at $100 oil was a pretty full impact at $20 million to $25 million a quarter. So I'm assuming that annualized at $100, your impact at $100 of oil would be $80 million to $100 million. And therefore, we'd be looking at roughly $75 million incremental in fiscal '27, if you followed that kind of math.

My second question is on advertising. You held the 11% of sales even as we layered on more sales with the addition of GOJO. So there's implied more advertising dollars in the guide now. And I'm just curious if that incremental A&P is intended to go against the GOJO portfolio or if it goes against your legacy portfolio? And if the latter, kind of where you'd be targeting it?

Perfect. Steve, I'll start with just maybe a framing on the Middle East and cost, and then I'll hand it over to Luc for a couple of more details, and he can cover the advertising in Q4 as well. So just from the Middle East perspective, I think what's important to note, and I'll just go back to what Luc said, I think that's what everyone knows, 2 folds right in front of us. So we can see the energy complex effects that are happening and you got that right in the $20 million to $25 million.

But as we look to the year ahead, what I would just caution us all to do is there are so many impacts potentially depending on how this conflict plays out, how long it goes, other related downstream commodity impacts that can happen that we're watching carefully, and they're just really uncertain in volatile right now. And so if everything were to continue as is, and it was just energy complexes that would be a fair set of assumptions. But I think based on what we know and what goes through the Strait of Hormuz and things that are happening now across infrastructure, it's -- we'll be better positioned to tell you in '27 exactly what we think that looks like, depending on the assumptions that we'll have at that time.

But I just -- I wouldn't take that and just multiply that. That's only 1 of the impacts. And again, we'll be watching the other ones carefully as we move forward. I'll hand it over to Luc.

No, I think that's right. I mean, it's still very helpful. number and certainly materialize what we're currently seeing. And maybe just switching to your advertising question. So the short answer, Steve, is just rounding. So you are correct. In Q4, we will see advertising as a percentage of sales going down by 1 point due to the integration of the BOJO business. But because it's only 1 quarter, it's about negative 25 basis points or so for the full year, so we're still running to 11%.

And our next question comes from Edward Lewis with Rothschild.

I guess just a couple of ones for me. Just Linda, you talked about value superiority of the last. We've heard you talk about it alone. I guess, just wondering now how much of a role does price take when you're considering sort of value superiority, how it sort of calculated or perceived just in light of what you were saying around the actions you've done about Glad. Just any color on that would be interesting.

And then you've talked about making some investments to address further cost savings going forward. Can you just elaborate a bit more on those? Because obviously, we've got pretty used to seeing very consistent cost savings coming through. And so I'm interested to hear what you're doing there.

Ed, I'll start on value superiority and I'll cover investments as well. And if anything, Luc wants to add. So on value superiority, that is by definition, a combination of the entire experience that we provide to a consumer. It's the product, it's the package. Is it where that needs to be? Is the place right? And is the proposition right? Does the brand stand for something? And then, of course, importantly, price. And those 5 things work together, those 5 Ps to give an overall value to a consumer. And what we aim to do is take those 5 and create overall superiority.

And what we want to do is drive superiority through a better brand experience through a better product through a great package that gives consumers a new way to use a product or an easier way. And then we want to be able to price to that superiority, which usually means we can command a premium, which is what we do in most of our categories. And we just got to make sure we have that balance right for example, in Glad, on that RGM activity where we took price down on 80 count, we didn't have that quite right. We took the price down and we got back to a place where we felt we had overall value superiority, but we did need to pull the price lever to get closer in line to the right price gap that we needed.

We're testing other things, as I mentioned, in RGM that we'll look at that for other brands where we want to be targeted to ensure that we have that overall equation right and where we think prices a little bit more of an important goal or because we took 4 price increases as did the industry during that significant period of inflation, and there might be some places and we've said we knew we would have to do this where we'd have to adjust.

And again, we're testing a few of those now. And we also want to use things like price pack architecture and other RGM levers where we don't have to just take a truckload price, but we can do -- take pricing in different ways as we trade off benefits. So I would say price play is a very important role, but it is really about connecting it to those other 4 levers and making sure you have overall superiority.

The most important thing that we can do so is have those other things right. So I'll take Pure, for example. We have a superior product that we know gives consumers more benefits to remove allergies. It's in a great package that consumers love and makes it easier for them to use. The proposition is clear, their claims are clear. We're spending against it strongly. And then we've leaned into digital and on-shelf placement to ensure they get it, and we can command a premium for that experience as a result and velocities are quite strong to start. That's the magic. And that's where we want all of our brands to be.

But if we need to lean into price in a couple of places to get back in line, we will, Ed, we've done that, like you said, on Glad, and we'll do that in other places.

Yes. And then moving to the second point on your investment on cost savings. So I won't give specifics on the project. We'll talk about it more later, but it's a big supply chain project. that we're able to accelerate and will offer significant savings moving forward. But as we look ahead into the cost environment in '27, we thought the right thing to do was to go ahead and accelerate that project. And so we made that investment in this quarter, and we'll talk more about what we're doing as we head into fiscal year '27.

Yes. And Ed, maybe just as a context, we always have one-time investment associated with our savings is digitally planned pretty tightly by quarter. Since we've been removing and delaying some cost saving and accelerating some, that created a little bit of a difference in the fourth quarter. And just the magnitude of the project is a little larger than normally what we see. Those investment can be asset write-off, could be engineering cost, if you look at the manufacturing project -- manufacturing cost saving project as an example.

And this concludes the question-and-answer session. Ms. Rendle, I would now like to turn the program back to you.

Thanks, Jen. As we close out today's call, I want to reinforce a few points. First, while our third quarter results did not meet our expectations, we're operating from a much stronger foundation. The ERP implementation is complete, service levels have stabilized and complexity and costs are coming down. These are critical enablers of better execution.

Second, we see clear signs of progress as we focus on driving value superiority across our portfolio. Innovation across the portfolio is strong, on-shelf presence is improving and teams are sharply focused on the fundamentals that matter most. Availability, pricing and promotional effectiveness and end market execution, these actions are essential to building momentum through the fourth quarter.

Looking ahead, we're also strengthening our plans and investments in targeted areas to accelerate share gains. And finally, we remain confident in our ability to translate these efforts into improved performance over time. While the environment remains challenging, we have the right strategy, capabilities and teams in place to finish the year stronger and enter fiscal 2027 with greater momentum. We thank you for your time and questions and look forward to updating you on our continued progress next quarter.

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

All right. Thank you for joining us at the Global Consumer and Retail Conference. We are here with the Clorox Company. Filippo, you can take it over.

Great.

Good morning, everyone. I'm Filippo Falorni, Citi's Beverages, Household Products and Personal Care analyst, and we're very happy to welcome the Clorox Company here. We have Luc Bellet, Clorox Executive Vice President and CFO. Luc, thanks so much for coming.

Yes. Thank you, Filippo, and good morning, everyone. Maybe let's just start by taking a few moments to maybe frame where we're at in our transformations and how we've been navigating the current environment. I would say probably 3 key messages for you. First, we started the fiscal year knowing that the front half was going to be challenging. And this was driven by the environment, but also driven by the fact that we were implementing our ERP and expected some temporary negative impact. Now the second quarter came generally in line with expectations. And the good news is now the ERP implementation is behind us with cost complexity ramping down and then the benefit ramping up.

Second message is we have strong plans for the back half of the year, and we expect to sequentially improve organic sales growth, and we're really focused on execution right now. Now this is really supported by a more stable supply now that we passed the ERP implementation, but also supported by the strong slate of innovation and demand creation plan. And then third, looking ahead, we feel like we now have a stronger foundation that positions us well for the future. If we look at our innovation pipeline, our margin management pipeline for the upcoming years, they're quite strong. We also now have put in place a solid digital foundation that's going to enable us to modernize capabilities, strengthen our brand and reinforce our competitive advantage for years to come.

And then finally, with the GOJO acquisitions, we are expanding our leadership in health and hygiene and adding a business that should structurally improve our growth and financial performance. So net, still more work to do, but we're relatively optimistic about the future.

Great. That's a good intro. So maybe starting with your first point, right, of improving top line growth in the second half of the year and starting with the categories. Obviously, you said your category is approximately flat in the first half of the year. but you saw a little bit of an improvement in January. Can you help us give an update on like what you see at the consumer level, category growth expectation for the back half within your expectation of improving top line?

Sure. So for context, we -- our outlook for the full year assumed that categories will be about on U.S. retail category on average, flat to 1%. That is below our historical average of 2% to 2.5%. Now we also assume that there will be some volatility in any given month and any given week. In the front half, we -- like you said, our category average about on the low end of that range, about -- we're flat. And for the back half, we assume that they would continue to be flat to 1% in the current quarter, we certainly saw volatility week by week. I think we were referring to earnings call where at the end of January, we saw double-digit increase as people were loading their pantry ahead of the storm. And that was followed by double-digit decline in early February and bounced it back after that.

Now if I look at quarter-to-date, categories probably averaged about 1% on the higher end of that range. So we expect that for the remaining of the fiscal year, we would continue to ocillate between flat and 1%.

Great. And then to your point, like that's below historical growth rates for your categories. So as you look a little bit ahead like in the next couple of years, what do you think you would need to see categories normalize more towards like 2%, 2.5%? And especially given the promotional environment has been a little bit more elevated in the U.S. Do you need that to kind of return to more lower levels to see the categories get back to like more the historical kind of like 2%, 2.5%.

Yes. I guess the short answer is we're confident that the categories will normalize back to 2%, 2.5%. But given the current environment, it's hard to predict when that might happen. And again, what we're currently seeing is essentially category being compressed mainly due to value-seeking behavior, right? So consumers stretch their usage. They adjust the pack sizing as well as shift in channels. And that's putting a little pressure on the categories. That's actually fairly consistent with what we've seen in the past when consumer was under stressed. And then we saw that bounce back. What gives us confidence is we're not seeing any structural changes. Those are everyday essential categories. And if you look at the share of wallet spent on those categories, it's been remarkably consistent over a long period of time and in recent years.

We're not seeing any structural change in at-home behavior, and we're also not seeing any significant trade down to private label. So hard to predict when it will normalize. In the meantime, we're focusing on what we can control. And as market leaders, we have -- it is our responsibility also to drive that recovery. And this is what we're doing in the back half with a strong slate of innovation as well as RGM activities. And then the last thing I would say, the GOJO acquisitions will add a business that have categories that are growing probably closer to mid-single digits ahead of that average, and that should also help enhance our ability to increase growth.

Great. Zooming in maybe in some of the categories and your actions to your point, to improve market share. Maybe starting with litter. You mentioned some of the changes in price pack architecture that you're implementing. How do you expect that to impact both volume and price mix? And like do you think you can get back to better market share performance in litter?

Yes. Well, on litter, maybe let me first acknowledge that this is a place where we've not been happy with our performance. In litter, we've been plagued by a series of supply issues over the past few years, and we've been able to recover on each one of those issues, but we fell behind our value proposition and from a market share standpoint. And the other thing about litter, this is a category that has strong tailwinds driven by cat adoptions and also the fact that people are spending more and more money on their pets. So we haven't been able to fully take advantage of those tailwinds, and this is something that we are addressing. And the way we're addressing it is through a full relaunch of our litter -- sorry, a full relaunch of our litter businesses.

And so that includes change in formulations with better order control and dusting that includes new packaging and new claims that also include, we design a new and improved e-com and mobile experience, and that also includes some price pack architectures where we're getting sharper on a 2-tier approach to the lineup. The one thing I would mention is this relaunch is really just the first step in regaining competitive positioning, and we have a strong innovation pipeline in the upcoming years. Now from a price pack architecture in the long term, we really want to drive sustained volume-driven growth. In the near term, some of the activities we've taken will either be positive or negative from a price mix. If I look at the net, most likely volume might grow slightly ahead of organic sales growth for the time being.

And then another category that you're trying to improve performance as well is trash bags. Obviously, there's been a lot of promotional environment, an increased promotional environment in the category. Like what are the main plans there in terms of improving both category growth and market share performance in trash bags?

Yes. So in trash bags, I would say competitive activity and promotional level have been elevated, but as expected. And we've been very disciplined and mainly leveraging RGM as well as innovation to address the heightened competitive activity. RGM has been allowing us to be very granular and much more real time in addressing price gap, and we've been able to adjust make surgical adjustments to specific SKUs and specific retailers, and that's been actually really improving market share. And then, of course, innovation is the only way to drive profitable category growth. And so we have a new line extension on our ForceFlex platform that's called LeakGuard that use -- that basically leverage a super absorbent polymer at the bottom of the bag to absorb any liquid and prevent leaks, which has been a major dissatisfier in the categories.

And so looking at some of those actions, we're seeing good momentum in trash. We've been improving share and consumption consistently over the past couple of quarters. Private label was about flat in share last quarter. And while we have a little bit more work to do, we feel good about the momentum and the plans going forward.

On the cleaning business, that's been like probably the best area of strength from your portfolio. And you talked about, obviously, the new Clorox Pure innovation. Like how significant do you see this innovation? And just in general, like about expanding categories into adjacencies, right? That's something that you both you and Linda mentioned recently. Is this the first step? Should we see more after the Clorox Pure? Like what are the opportunities there?

Yes. I would say we're really excited by the Clorox Pure launch, and it really represents a meaningful platform opportunity for years to come. For perspective, this is a really large category that's growing really rapidly. There is about 100 million of people in the U.S. that suffer from allergies, and there's a significant unmet need. Most people report still allergies returning despite cleaning, despite medication. And right now, the current allergies remedy category is about $4 billion and again, growing rapidly. And so we feel like we have a right to play and a right to win in these categories. We have a breakthrough patent-pending technology that enables us to destroy the protein -- the allergen protein before it can impact people and also is safe around kids and pets.

We actually have significant retailer support. They see the same unmet need, and they've been engaging with us very early. And we also have a very strong marketing and influencing campaigns, generally spending about twice as much as we would do normally on this type of launch. And then what's important, it's really just a multiyear innovations. We have already a strong pipeline, and we already start selling the next round of innovations to retailers. So net, we are excited, and we think this is a great opportunity for years to come.

Great. I guess on the innovation point that you just mentioned, like how impactful is the innovation in the back half of the year? Like are you seeing shelf space gains at retail? Can you help us understand like how much visibility do you have in that improvement as we think about your back half of the year?

Yes. So what we saw to date is of the distribution gain associated with it, and they're generally in line with our expectations. And we'll see most of the benefits probably towards the fourth quarter because, as you know, most of the resets tend to happen in the spring. And then we need a few months to just really see how the innovation is tracking in terms of both trial but also repeat.

Got it. And then on just your point earlier on price mix and volume for litter. Can you help us understand at the total company level, how you see also the back half shaping up in terms of composition of volume and price mix?

Yes. So from a price mix standpoint, first thing to mention is there's still a lot of noise as you look at reported financials driven by the ERP transition. But if I exclude this, generally, we would expect organic volume to grow roughly in line with organic sales for the full year. Probably net maybe 1 point of negative mix for the full year. Now that will -- that might vary from quarters to quarters driven by the seasonality of some merch events as well as innovations. But for perspective, the second quarter was about flat. And so we'll probably see some -- a little bit of movement around that. But for the year, expect about 1 point of headwind from a price mix. Mostly -- the way to think about it, this is mostly driven by value-seeking behaviors, right, people shifting size, channels and offset by RGM activities and the benefit of innovation.

And then on the ERP front, obviously, was a big undertaking from your part. You're largely behind it now. Obviously, you have to cycle in Q4 the shipments from last year. But as we think ahead of fiscal '27, can you help us understand the pieces that you will be cycling from both top line and EPS? Obviously, you had $0.90 of negative impact to the EPS line. So how should we think about like the base of which to grow into '27, both on top line and EPS?

Yes. So the ERP, as I mentioned, the ERP created some noise as -- for context, we launched a new ERP in the U.S. at the beginning of the fiscal year. And as we went with the implementations, we basically had to turn off the old system and waited a week to transfer all the data and then turn on the new system. And when you're turning it on, it takes a little bit of time to ramp up shipments. So what we did is essentially ship 2 weeks of inventory ahead of that implementation and shifted 2 weeks from fiscal year '26 into fiscal year '25. And those 2 weeks represent about 3.5% of sales. And so on a year-over-year basis, since I have overstated fiscal year '25 and understated '26, I have about 7% of headwind.

Now it's only temporary noise, and that will actually reverse next year. And so what that means from an EPS standpoint is next year, we will step up the fiscal year '26 basis to get to fiscal year '27 by $0.90. And then we will also see about 3.5% of sales.

Great. Maybe shifting to margins. Obviously, there's a lot of question more recently with the spike in oil prices post the conflict in the Middle East. Can you give us any perspective of the potential implications on the resin side, which usually takes -- there's a little bit of a gap? And then on the transportation and freight side, as you think about it, I know it's very recent, but like any thoughts there?

Yes. As you mentioned, very recent and still very much developing. So -- and very dynamic. So we're working on many different scenarios right now. It's a little early to tell what might be the impact, but we certainly will have better perspective at the end of the quarter when we release results. A few things to think about. For sure, the duration of the conflict is definitely a main driver here. We would expect headwinds from a cost standpoint, mainly energy driven, energy communities driven. As you mentioned, it takes a little bit of time to show up just because we transfer price may have a month or 2 lag and then we also have some inventory. So we don't expect that it will impact our third quarter, but it could impact our fourth quarter and beyond depending on what's happening. We'll have to see in logistics.

Generally, in the past, what we've seen is that when you have disruptions globally, it tends to impact your logistic network, and there's a lot of externalities. So we're looking into this. Beyond the cost, we're also staying close to what might be the impact on demand. And again, too early to tell. And then the last thing I would say is we do have operations in the Middle East. About 2% of our sales are in the areas. So far, we haven't seen major disruptions, but that's another area that we are monitoring closely. So again, developing and dynamic, and we'll stay close to it. And -- but right now, it's too early to tell what might be the impact. Right.

And then thinking about the other drivers of potential margin and offsets to these pressures. Obviously, you have the Glad JV benefit starting to flow through in the second half of the year. Any other big like levers that you can pull in terms of like trying to offset any cost pressure that might materialize, especially at the gross margin level?

Yes. I think a few things. First, if we step back, in general, we feel really good about our ability to expand margin over time. I think, as you know, in fiscal year '22, we lost about 8 points of gross margin at the height of the inflationary cycle, and we've been able to fully rebuild gross margin to pre-pandemic level. And that's really a testament to kind of our new approach on margin management, which has been the evolution of an old cost savings program that were in place for decades and we're now adding new capabilities like design to value, RGMs. We brought a lot of new experts and talent teams as well as now leveraging our digital foundation that we put in place. So that's the good news. We've been delivering record level of cost savings, and we feel really good about the pipeline going forward.

Now specifically to this fiscal year, if I exclude noise of the ERP, we're essentially looking at gross margin to be declining in the front half and then expanding in the back half. And when you compare the front half and the back half, there's a few things to consider. First, in the front half, I had to incur additional expenses more than expected to deal with the stabilization of the ERP and optimizing services. Those costs will start coming down in the back half. And then we also had a less cost savings in the front half than the back half. Some of it is just regular timing of projects, but the other is the fact that I had to use more resources on the stabilization of ERP and delay some of the cost savings. So that's between the back half -- the front half and the back half.

And then in the back half, I have a little bit of phasing between the third quarter and the fourth quarter. First, some of those additional expenses associated with the ERP will still continue in Q3, but then probably go away in Q4. And then I have like a little bit of timing between onetime and manufacturing expenses that bring Q3 down and bring Q4 up. But so net, right now, we feel confident in our ability to expand gross margin in the back half, but we'll probably see most of that in the fourth quarter.

And on that point on the fourth quarter, you obviously also have like the reversal of the cycling of last year ERP shipments. So like how should we think about that impact on your gross margin bridge because obviously, it was a benefit in the fourth quarter of last year.

That's right. I think the easiest way to think about it is when you look at an absolute gross margin standpoint, there's no implication. The only implication is that last year was slightly overstated. So it will have an impact of over 100 basis points when you look at a year-over-year comparison.

Makes sense. And then I guess, thinking about below the gross margin line, there's still an opportunity on SG&A given your medium-term target there. Can you help us understand what are the drivers there? Like obviously, you made a big investment in digital transformation, and this is like the last big year of spending. So should we start seeing some ROI into fiscal '27? What are the areas where you're expecting to see some benefit?

Yes. We feel good about our ability to drive productivity in SG&A over the next few years, probably starting '27 and then '28. There's a few things. First, with the investment we made in ERP and digital transformation, we expect to see a lot of automation, which will drive productivity. And in addition, we're going to be able to expand our global business services capability. In the past, it was hard to do so with really outdated infrastructure, but now that we have a modern standard global data infrastructure, we can do more of that. And just there, we see millions of productivities over the next few years. So those are the main drivers.

Great. And I guess on that point, like on the long-term outlook, we get a lot of questions, obviously, like the return, right, to like organic sales, 3% to 5%, operating margin 25 to 50 basis points. I guess what are the key points that you need to get more consistently there on a sustainable basis from a category standpoint, from a market share and in terms of like some of the drivers that we discussed on the margin front?

Yes. I would say on the growth side, our algorithm just assume that category normalize -- our U.S. retail category normalized to 2% to 2.5% per year. And we just talked about it. It's -- we feel confident that they will do so. It's hard to predict when. So right now, we're really focusing on what we can control. And that's -- I think the back half is a good example of that, where the strong slate of innovations, strong demand creation plan and also RGM initiatives. And so we're seeing sequential improvement in the back half, and that means that we're going to exit with stronger fundamental and better momentum than where we started. And then we actually feel that we're well positioned to continue to accelerate growth beyond the back half.

I mentioned earlier, we feel really good about our innovation pipeline for the years to come. And we're just starting now to scale new capabilities like RGMs. Beyond that, we continue to see international and professional businesses being outsized growth contributors. And then over time, as I mentioned, the acquisition of GOJO is also going to structurally accelerate the growth of the company. So that's on the growth side. So I think, again, relatively optimistic in improving and accelerating growth going forward. Margin, I just mentioned it, it will depend -- some of it will depend on the cost environment, of course. But on what we can control, we feel like we have a very strong pipeline of margin improvements. Some of it is driven by our current efforts, and that includes a lot of potential savings in procurement, logistics and supply chain.

But of course, now that we're past the ERP implementations, we also see a new source of productivity coming from the ERP, and that impacts supply chain and manufacturing logistics, but also impacts our working capital and inventory. And so that really strengthen the pipelines for years to come.

Great. Maybe talking about the GOJO acquisition that you mentioned a few times. So obviously, the Purell brand, great brand, very well established. Solid growth, right, mid-single-digit growth you mentioned. Maybe first, what got you excited about this brand? Where do you see the biggest opportunity? And I think on the call, the last call, you mentioned the opportunity to accelerate growth, maybe to more mid- to high single digits. So where are those opportunities to get the brand to further accelerate?

Good. Yes. Very excited about the GOJO acquisitions. Again, it really allows us to expand our leadership in health and hygiene, and I think will help accelerate both the growth and financial performance of the company. Maybe I'll mention 2 things. First is the GOJO acquisitions represent an investment in leaning into a place of strength. Our Health and Wellness segment is our largest segment. It's been the fastest growing and growing about 4% CAGR past 10 years. And it's also the most profitable. And then if you really look at the Purell brand, it really mimic a lot of what we're seeing in the Clorox brand in many different ways. It's ubiquitous. It's highly trusted and science and innovation driven. And then the other thing is we see this acquisition as a strong strategic and cultural fit, whether you look purpose, values, the companies are very well aligned. And then the business are complementary.

The Clorox business is mostly focused on surface cleaning and 80% in retail, 20% professional. The Purell business is mostly focused on skin hygiene, and it's 80% B2B and 20% retail. And so when you look at the combined business, we think that we have a lot of scale and ability to activate growth. So that's the first thing. Now the GOJO business you mentioned itself represent a strong growth opportunity for us. First, it's actually participating in categories with strong tailwinds, both in B2B and in retail. And we see opportunities to further accelerate this. So it represents about $800 million business has been growing mid-single digit, as you mentioned, and really driven by category tailwinds. And on B2B, we see opportunity to accelerate this through cross-sellings.

Both businesses have strong presence and positions in the professional business, but in different verticals. one business might be stronger in health care and other business might be stronger in schools and offices verticals. And so that's very complementary. And so when you actually combine the businesses, you're able to bundle a larger offering and then cross-sell to those different verticals, reducing complexity for the end users and the distributors. And just since the announcement, we actually had a lot of excitement and interest from our partners, which kind of validates that. Now we still need to close before we act on this. And then on the retail side, we also see opportunities to accelerate growth. The Purell brand is in extraordinary brands with tremendous amount of awareness and trust.

But the reality is there hasn't been a lot of investment in retail activations, in brand buildings and innovation on the retail side. And so we feel like leveraging Clorox consumer insights, brand building, innovation engine and commercialization capabilities should enable us to accelerate the business. So net, we feel good about the growth prospect of the business.

Great. Yes, maybe on that point on the retail opportunity. Brand has been around for a while, like distribution is already pretty elevated. But to your point, there is an opportunity to innovate the brand, and we've seen premiumization, especially in the hand sanitizer with a lot of different other brands that have innovated more at the premium point. So how do you see the strategy there? Like do you see an opportunity to elevate the price point or to have different price proposition within Purell? Like help us understand like the retail opportunity.

Yes. I mean I think there's a few -- first, pretty basic things. There's very little merchandising happening on this brand just because they don't have the scale. And so if you think about the integrated and pretty large effort we have around cold and flu merchandising, as an example, we can just take advantage of that by joining Purell with Clorox. So those are pretty basic things, but they're significant. And then, of course, you just mentioned it, there's an element of brand building and there's an element of innovation. Innovation is really about increasing form, increasing usage. As you mentioned, there's a lot of new consumers with new needs coming in these segments as well as potential expansion into adjacencies. So too early to go into details, but we do see a lot of upside there.

Great. And then on the cost synergy front, you mentioned $50 million in cost synergies, which is probably pretty conservative given the complementarity of the business. You mentioned there could be upside there. Can you walk us through like the key buckets of cost synergies and where there where you could see upside?

Yes. As you mentioned, the acquisition case included about $50 million. We think it is conservative, and we have a high degree of confidence that we will achieve those. And there could be some upside, especially when we start to leverage our holistic margin management bots. Now yes, there is a lot of overlap between the business. And so we see cost synergies across the cost structures. And if I look at the $50 million, they probably be split evenly between supply chains as well as operating expenses. Now the one thing I've mentioned on the synergies is from a timing standpoint, we expect most of them to come by year 2 or 3s but we're being very thoughtful, as you can imagine, on how we integrate. We have strong governance in place that's clearly sequence and resources, and we will balance going after synergies while ensuring that we derisk and manage the integration well.

And then on the revenue synergy side, you mentioned the cross-selling opportunity. That's not part of your official part of the model. But how do you see the opportunity both on the B2B side and the retail side in terms of cross-selling?

Yes. Cross-selling, I just mentioned it to you, like a lot of it has to do on the B2B side and the fact that we have different -- our relative presence in different vertical is complementary. And so I think essentially by offering a broader end-to-end hygiene solutions, we are able to unlock sales with some end users and distributors that we couldn't before. That's the main one. I would say on the retail side, the example I just gave you around just using merchandising together across brands is another opportunity in the short term. And as you mentioned, some of those -- a lot of those opportunities tend to be upside to our business case, which again give us comfort in the fact that this acquisition should deliver strong returns for the company.

Great. Maybe shifting to capital allocation. Obviously, that leverage post acquisition is going to increase to about over -- a bit over 3.5x. But just can you give us a sense of like your return to like your 2.5x goal and like the ability to delever potentially even quicker? And how does that change your medium-term capital allocation?

Sure. I would say right now, balance sheet discipline and delevering is the top priority from a capital allocation standpoint. As I mentioned it, the -- we expect our debt leverage to temporarily increase to about 3.6x by the end of the fiscal year, driven by the acquisitions. And we think we can bring it down to about 2.5x, which is the high end of our targeted range by the end of calendar year '27. Part of it is the fact that we're delivering strong free cash flow as a company. But the other part is so is GOJO. And so we're able to actually leverage those cash flows to delever. And we also anticipate to have some tax benefit as transactions will help us to get there. Now as we're focusing on delevering, we'll continue to support our dividends. Our commitment there hasn't changed. We have a long track record of increasing dividends for decades, and you could expect this to continue. But while we delever, we will suspend share repurchase until we meet our target leverage.

And then thinking a bit more medium to longer term on capital allocation, how important is M&A post after you get back to your target leverage ratio like going forward in terms of seeing potential deals similar to GOJO going forward?

Yes. I mean we have actually been -- while we haven't transacted in a little while, we have been very active. And we've just been very disciplined in trying to find the right assets that's a strategic fit at the right price and generating the right returns. So we'll continue to be active in evaluating opportunities. Until we delever, it's likely that M&A will take a little bit of back seat. But once we meet our leverage targets, we'll definitely intend to be active again.

Great. And then on the divestiture side, you exited the VMS business in 2024. Are there any other parts of the portfolio that you're reviewing for potential rationalization of portfolio or potential exits? Or do you think the portfolio in the current shape is in the right place?

Yes. I would say, as of now, we like our portfolio as it is, and this is really nothing to share. Having said that, we have been active in doing regular portfolio reviews with our Board to ensure that long-term value is aligned with shareholder returns. And this is what really drove the divestiture of Argentina and VMS, as you just mentioned. And we're quite pleased with both of those divestitures. We think it really strengthened our portfolio, helped reduce the volatility and increase both our growth rates as well as our margin. And more importantly, or as importantly, I should say, it enabled us to shift time and resource to businesses that had better growth opportunities. So again, as of now, we like our portfolio as it is, but we will continue to evaluate and see if there's any additional opportunity for divestitures.

Great. And maybe just a last question. Just taking a step back, you've obviously had a like a big implementation of all these strategic changes with Linda, the digital investment, like a lot of the heavy lifting is behind you at this point. So as you look ahead over the next couple of years, like what are you most excited about as you think about like starting to see some of the ROIs from all these initiatives and potentially getting also the top line to accelerate in market share?

Yes. Our focus in the short, medium and long term is really about accelerating growth, and we talked a lot about it today. I think the sequential improvement in the back half is a start. And I think we're -- as you mentioned, with the investment that we made, we're well positioned for the future. I think the digital information that we have is really going to start modernizing a lot of the capabilities we have and with that, strengthen our brand and accelerate growth. And from a margin standpoint, as I said, we feel like we have a strong in-house pipeline going forward. And if anything, the implementation of the ERP is actually giving us extra fuel for productivities for years to come. So hopefully, enable us to expand margin and reinvest in profitable growth.

Great. That's a good place to end. Okay. Thank you so much, Luc.

Thank you. Thank you.

Good afternoon. It is my pleasure to welcome Clorox back to the CAGNY stage. And before I start, please join me in thanking the company for their generous sponsorship of this morning's break. In what remains a dynamic and challenging environment, Clorox has been steadfast in its commitment to build a faster, stronger and more resilient company that stays ahead of evolving consumer needs. The company has undergone a significant digital transformation and evolved its operating model, enabling it to scale capabilities, enhance efficiency and accelerate decision-making. The early signs of the progress have been encouraging. Clorox has fully rebuilt gross margins through its holistic margin management program and advance its revenue growth management and insights-driven execution. Looking ahead, we're excited to see that the company can deliver through bigger, stickier innovation platforms that further enhance the consumer experience. There's been some germs in here. But good thing, I have my trusty bottle of Purell with me at all times. Never leave home without it. Joining us today, we have Clorox's Chair and CEO, Linda Rendle; and EVP and CFO, Luc Bellet. Linda, over to you.

Thank you, Andrew. I love that little prop up there. Good afternoon, everyone. Thank you for your interest in Clorox and for joining us today. A good reminder that this presentation contains forward-looking statements. I know you take that as seriously as we do. And with that, let's get started. So today, we want to talk about how we continue to position Clorox well, as Andrew highlighted, to continue to deliver long-term shareholder value. I want to acknowledge that our organic sale trends have been mixed over the last few years, and that's due to a number of factors. We experienced a cybersecurity attack in 2023. We had an ERP transition. But we can and we will do better. And we're confident in our ability to do that because we have a portfolio of leading brands in essential categories that we continue to invest in. And we're going to spend a lot of time today talking about the trends that will allow those brands to continue to great superior value and experiences for people. .

In addition to that, we have modernized our capabilities and talent to win in this ecosystem, including building a completely new data and technology foundation. And then finally, our ERP is now behind us, but the value creation is just beginning. I plan to spend the majority of my time today connecting our growth plans to the consumer and what we're seeing but also grounded in the reality of what we're experiencing today as consumers are under stress.

So before we get into all that, let's spend a brief moment on who we are and how we view our competitive advantage. We have a portfolio of leading brands, trusted and loved by consumers in the health and hygiene and household essential spaces. We can compete in over 100 countries around the world, but the vast majority of our sales are in the U.S. Our North Star is maximizing economic profit, and we do that with a choiceful and disciplined playbook, focused on building leading brands with superior value in categories where we can apply megatrends and our capabilities, we embed sustainability into everything we do at Clorox to maximize value and minimize risk, and we drive operational excellence in all that we do. And really important in this playbook are our leading brands. So 80% of our portfolio has the #1 or #2 share position in the categories they compete.

Let me speak a moment about those categories because they're essential to consumers' everyday lives, but consumers are certainly under stress. But when you take a long-term view of these categories, it's clear. Over the last 20 years, consumers consistently spend 12% to 14% of their budget on household essentials, and we have zero evidence that that's changing. It just means we need to get to know them better, we need to understand them in ways that can give them great experiences and we can continue to prop up and grow our categories.

Back in 2019, we knew this playbook could be successful it had for many years, but we saw a more challenging future then when we set out to rewrite our strategy. And what we saw was some of our portfolio not delivering against expectations, and we knew we needed to invest more and spend more focus on that portion of the portfolio. We also saw an amazing future in capabilities that require data and technology and our foundation and talent just weren't ready. And then finally, we saw opportunities to continue to strengthen our core, as I mentioned, on the businesses that we're performing, but also be more discerning about portfolio evolution over time. And that was what our strategy was created to do was to address those foundational issues and ensure that we had a bright future of stronger growth and consistent growth.

So our choices were 4, the first is to fuel growth, and that is about expanding EBIT margins 25 to 50 basis points annually and at the same time, investing in our brands. And our brands are all about creating great experiences for consumers, they grow household penetration, grow categories and of course, grow our share when we do it well. We knew we needed to reimagine work. The world was moving so much faster, and we saw it exponentially increasing and consumers were moving faster and changing, and we need to change the way we work and the talent that we have in order to be as fast. And then finally, I mentioned on the portfolio, we needed to strengthen our core and be more discerning about how we evolved our portfolio.

And as I noted at the beginning, we have not yet got to consistency in accelerating our sales growth, but we feel optimistic in the future given the capabilities we've created and hopefully, I can convey that optimism today in what we see. But we have built a very strong foundation to grow from. We have completely rebuilt the capabilities of the company centered on data and technology. We also have portions of our portfolio that are doing exactly what we expect them to do. And we know that proof points that these capabilities work. And then finally, our recent portfolio moves, including the planned acquisition of GOJO give us confidence in our future growth opportunities.

Okay. So now we're getting to the section where I'm going to spend the majority of our time, giving you examples of these capabilities, and we're going to spend a lot of time talking about our brands and innovation. So as I mentioned before, we need category and consumer insights to make sure that regardless of the environment that we're in, the environment is tough now, but there are opportunities to grow. And when we get those insights right, we drive new occasions. We bring new users and new households into our categories, and that allows us to reunite category growth. And of course, when we do it well, increase our market share.

And as I said, consumers are stressed Almost 90% of consumers are engaging in value-seeking behaviors. And you can see a number of those on the screen. But I want to call a couple of things out. The first is this is not unusual. We've seen this many, many times before where our categories get impacted about 1 point or 2 of growth in our household essentials. And we see consumers engage in these behaviors. But there are 2 things I'd like to highlight on this. The first is, this creates great opportunity for us to get our fundamentals right with consumers, getting our pricing right, our claims. It's a call to action to ensure that we're delivering the very best value in everything that we do. But it also creates opportunities for growth, and they're not apparent right away if you spend your time thinking about all this and only doing this. Consumers are under stress and they don't want to feel that stress anymore. Our brands can create great opportunities and create opportunities to grow. And that's what I'm going to show you as we move forward.

But I think before we do that, it's important to note, Consumers are engaging with private label even in these times, just as they have been for a number of years. So the level and the way that consumers are engaging is the same as it's been for many years. What does that tell you? It tells you that value means so much more to consumers than just a lower price. So let's get into this. I'm going to spend a bunch of time on this one slide. And I hope you'll bear with me because this is incredibly important to how we think about getting our categories growing again. I'm going to talk about the trends that we see in forming our business.

The first, we used to call Health and Wellness. Health and Wellness has been a global trend for years and years and years, so many people focused on taking better care of themselves. And what we're seeing now is the rise and continued rise of mental health. People are under so much stress that they want to ensure that they're bringing moments of comfort and joy into their life, to counter all of the things they experience in the external environment. And this happens in a number of ways.

In our categories, we see things really working that are sensorial, Consumers want a better experience. We've heard from about 90% of consumers when their home smells clean, their anxiety goes down. It gives them a real comfort and a joy to have those small things, a pop of color on a trash bag, a little more joyful when you take your trash how. New textures and skin care. This is what is getting consumers excited and they are focused on this because they know it's connected to their overall wellbeing. Also in that, their home has become the center of their world like it never has before. Consumers are spending more time at home and they're doing more activities at home, for example, in our world, cleaning is up 29% versus 2016. And people are creating more messes, but they're also just like cleaning more.

And this is maybe one of my favorite stats in the presentation. Gen Z, when you ask them, are they looking forward to cleaning, 49% of people say, yes, they get excited to clean Gen Z, do you know what we all think? Only 18% of us get excited to clean. And there's a real point and insight on that. It's about people being able to control their own environment, being able to create a safe haven. And there's a really interesting trend in home at the center, and I'm really familiar with this because I have one of these. Gen Z is doing this thing called bathroom camping. And I want to see if any of you are brave enough to make you bathroom camp after explain what it is.

Bathroom camping is when someone retreats the bathroom. This is my 14-year-old. And unfortunately, it's my bathroom, not his. Retreats to the bathroom with a digital device, some headphones, maybe blanket, in my case, full meal or snack and they're in there for hours, hours. And what they tell you and what my son would tell me is that's an area of solitude. No one comes in the bathroom when you're in there and they get to reset their nervous system and they get to come out feeling much better.

Now of course, this is only enhanced by a clean bathroom, right, because who wants the bathroom camp in a dirty bathroom. We spent a lot of time cleaning the bathroom in my house. Okay. People are using screens more than ever. I don't like any of these stats that I'm about to tell you about, but they're important, and we've got to deal with them. The amount of leisure screen time for consumers is up 18% since 2016, but that doesn't include gaming, which is up 42%, and it also doesn't include all the time we spend using screens to get work done. Screen time is on the rise. The fact is that consumers are living in a multi-device universe, and they're doing things like watching a show, shopping on Amazon, all at the same time. And we have to be there with them, but it creates tremendous opportunities for our brands to engage with them in a deeper way, and we'll talk about some of that in our capabilities section later.

And then finally, responsibility used to being to people big are, the planet. And now they still care about those things, many consumers. But what it comes down to is how does it impact me and my family. If you're in a zone that experiences floods or fires, you're concerned about that. A lot of people are concerned about water quality today. These are the way that consumers are internalizing these trends around responsibility. Okay. I'm going to give you a minute if you're interested. We have just released a report with retailers that goes deeper into the trends that I just spoke about. You can scan the QR code to download that report. I'll give a minute. And if not, we'll make sure you have the QR code after.

All right. So we take those consumer insights and we combine them with the capabilities we built as a company. And as I told you, we modernized all of our capabilities. And that's how we build leading grounds. I'm going to take you through the list of capabilities on the right, we have more, but these are the ones that we see creating a lot of value in the future. They're all in different stages of development. Some of them are capabilities we've worked on for many, many years, and some of them were just getting started on. And they're all based on the investments that we've made in data and technology. Data is the most important thing that we have and our ability to use manipulate that data is incredibly important. So we invested in a clean, modern data fabric during our digital transformation and we're now able to seamlessly access and use that data given the technology layer that we put on top.

Really importantly, in a lot of these capabilities, it requires new talent, and we've invested in significantly new talent. I'll call it a couple of areas where we've done that as I take you through the capabilities because some of these have already been built at scale in other companies. So we've been able to hire people in and build them very quickly versus learning ourselves. So let's start with the first capability personalization. You've heard us talk about this 1 for a long time. This has been something we've been hard at work at. And at this point, we have built a database of 100 million known users in the U.S. that we house on a state-of-the-art data platform. We built a high-efficiency content hub, and this allows us to personalize now 70% of our marketing on a digital signal. That's up 10 points versus last year and continues to support our industry-leading ROI. And of course, personalization delivers better ROI because it's a better consumer experience. When you deliver the right content at the right time to the right person.

I'd also highlight the right cost, and this takes me to this next example on Kingsford. AI is completely changing the game on cost. This is an example where in Kingsford, people are grilling in all types of locations and weather seasons and they want to see a grilling experience that reflects if they're in a Chicago winter or a Florida summer. We were able to build against 13 different locations, 4 seasons in a studio and reduce the cost and time by 90%, and we're just getting started on this capability. But AI is changing the game in ways as personalization continues to proliferate given the media proliferation, and we're now building agents across the content journey to coordinate, they're learning our brand standards, they're learning about safety with us, our past performance and we'll be able to personalize it a whole scale. Which gets us to our big future goal, where 50% of our media is personalized on a one-to-one basis, where a consumer feels we're speaking to just them because we are.

All right. The next set of capabilities, these are all in a more early stage. We built a holistic margin management toolbox that Andrew referenced at the beginning as well as we're in early days of revenue growth management. And you can see the number of buckets and capabilities that sit underneath this. We really built this capability because we saw the inflationary impacts a few years ago, and we needed a more comprehensive way to do what we did well already which was cost savings. That was something in the company's DNA for decades, but we needed new ways to drive value. So we built this toolbox, we were able to fully recover our gross margins, and now this supports our EBIT margin expansion of 25 to 50 basis points annually. Let me take you through some quick examples here. The first 2 are in the logistics space, and this one is in transportation. Now with the data that we have, 1 of our business units was able to optimize transportation lanes and this reduced cost and drive efficiency.

Last year, I shared an example of Kingsford. We were looking to significantly improve margins, and we have finalized this project now. What we did was take an end-to-end look at package design and our supply chain because Kingsford is a very seasonal business for us. And what it meant is we had a lot of external warehousing and that costs a lot of money. So through this end-to-end look at formula, we were able to simplify that formula, increased stackability for those beautiful pallets that look like that in our warehouses, but we were also able to eliminate a number of SKUs. And that means we were able to get rid of a lot of the external warehouse and we had significantly reducing cost. And we're applying these types of tools to all of our business units now.

An area where we are just in early days is in the manufacturing network and value levers there that we saw when we implemented our ERP we're just stabilizing that ERP now, but we're starting work on these, and we expect them to deliver value for years to come. Same in the procurement area, there's a number of levers for us to go after with the goal of having global fully automated data-driven decision-making. An example of what we're doing right now in procurement is on AI commodities forecasting. We're using an AI-based tool that gives us near real-time insights on individual commodities and allows us to make better decisions, sourcing decisions that lead to better financial outcomes. And it's also reducing our cycle time by 90% and getting much more efficient on the resources we have.

As you heard me say before, RGM is a relatively new capability for the company. Certainly not a new capability for the industry but new for us. And you're going to see some examples of RGM in the future. When I talk about innovation, more in the price pack architecture, the big RGM levers. But this is actually an additional lever that we're using right now as we have real-time issues in the market. This is on Glad. Our new data models allow us to evaluate price gaps and price impacts in more real time. And we realized we had an issue on one of our most important segments at a leading retailer with Glad 80 count. We were able to adjust the pricing. We've seen a significant change in share. So we're back to our 2022 share levels, which is about 7 to 10 points higher in that segment than we were before the October.

All right. design to value. We've given you examples of this last year, but they were on the cost side. So what design to value allows you to do is look across all the things that consumers care about as we design a package, and a product, we also can look across the supply chain for levers. And what the team wanted to do here was we were wanting to accelerate our performance on all-purpose cleaners, which is a relatively new segment for the Clorox brand. We tend to play in things that disinfect with bleach. And what we needed to do was amp up the communication on versatility. So by doing this evaluation, we found out that consumers, the bottle tells them a lot about safety and versatility and the clear bottle was something that they preferred and we're already looking at expanding this as a platform, given the insights that we've had for our all-purpose sprays business.

And then the final one I'll touch on before we get to the innovation, the most exciting part of this presentation is trade optimization. For many, many years, we have had a capability to drive efficiency and effectiveness in marketing. And we count on that every single year from our business units, getting more and more efficient. But we haven't had the data and infrastructure to do this at scale on trade. And so this is a value lever we see in the coming years, the ability to increase ROI on our trade, which is a large investment for us as well as increased sales.

With that, I want to turn to innovation and how those insights create great experiences for people. I can't take you through all of the innovation we have across the company because of the number of businesses, but we do have a video in a play that shows you the breadth of innovation we have in fiscal year '26. Go ahead and roll it.

[Presentation]

All right. So now I get to take you through the capability that we built that got us to a stronger innovation platform that we had in the back half of this year that we expect will continue to accelerate in fiscal year '27 and '28. We built a digital core that allows us to get to ideas faster, evaluate them in a more stringent way as well as deliver higher consumer appeal. So I'll tell you a little bit about this core, and then I'm going to take you through an example of how we built our newest platform on this core. So the first capability this has is AI signal sensing. It takes millions of data points from everywhere, ratings and reviews, how consumers buy, what they're commenting on in social media, and it starts to outline trends that it sees that we then can decide if those trends make sense for us to prototype, which we use with AI as well and really rapidly test in the marketplace and understand how well they're doing as we test them with consumers.

The third part, which I will take you through is tipping points. We look at a trend. And what we don't want to do is be on the back end of it. We want to ensure that there's still value to be had there, that it's not too late in a trend or too early where we can't monetize it. And these sets of tools we implemented on our businesses right after we recovered from the operational impacts of the cyberattack. We put every one of our teams hard at work and said, you have to improve your innovation pipeline. We knew the consumer was under stress and our teams have done just that. So our pipeline is 3x stronger. We are now getting ideas to market in half the time. And as I said earlier, these ideas have significantly higher consumer appeal.

Let me take you how through how the digital core built our newest innovation with Clorox PURE. So the allergy space, which we did not compete in until December is a very large space. It's about $4 billion in the U.S. of allergy remedies for people. But what we were hearing in that signal sensing out in the marketplace was that there was actually a very high unmet need. And basically, what we heard back from consumers is no matter how much I clean, no matter how many meds I take, my allergies keep coming back. And then when we ran the modeling to say, where is this, geez allergies have been around for a long time. It's actually still in an early phase. And what you can see is the dark orange is where we are today and the dotted line is where it predicts this trend will be in 2 years. So 20% growth versus the need today. So we thought there's really something here where we can create a different consumer experience.

The challenge was there wasn't a technology that did what we needed it to do. So we set out to create a product that would really fundamentally change consumers' lives. If any of you experience allergies, at almost 90% of U.S. households do, you know how just miserable it can be. So we set out with 3 very high goals in this product development. The first is we couldn't do what a lot of products on the market do today. We couldn't just knock allergies out there and stick them to fabric. Because when they sit on that fabric, the allergies just come back and you still feel sick. So we had to denature or change that allergen protein to ensure that people would not feel bad when it was around them. We had to have the highest safety standards. This had to be able to be used around kids and pets. You have to be able to breathe around it. And then finally, we had to formulate with our 82 known fragrance allergies that are used in air care today. It was quite a challenge, but we got there.

And we have a product that does what other products don't do out there. This is a patent-pending technology it actually destroys the allergen, it changes the protein in it so that it cannot make you sick. And we knew we needed to build a great proposition. We had to have the right marketing. We had to ensure that we had the right retailer support in order to make this as big as we know it can be. So we got retailers involved very early. In fact, this is the exact TikTok video we shared one of our largest retailers. I'll play it for you.

[Presentation]

And retailers said, yes, we heard this too, in our data. Consumers don't feel well. And they saw in their categories the opportunity that we saw, and they recognized there was no solution. So we have retailers engaged very early from the start. That helped us ensure that we have the right customer requirements, and they gave us access to their tools and data to ensure that we could reach them in a new way. And that has led to tremendous early wins with retailers. We've seen most retailers take all of the items that we launched. They're some of the best promotional plans that I have seen in a new launch in Clorox in my over 2 decades. As well as we've got placement in the pharmacy section and they're allowing us to use our marketing tools to ensure that we reach these new consumers.

We're making strong investments in this launch. We're spending about 2x the average of this size of launch from a marketing perspective. We also launched first in e-com, and of course, that's where consumers are. But really importantly, before this product even hit Walmart shelves, we have 1,000 5-star reviews. And that allows consumers to see that this is a product that can work for them and it makes that decision making really easy. We're also using a different level of influencers. You can imagine if you don't feel well, you tend to rely on your doctor to give you advice. We developed this product with allergists, but we also launched it with allergists first at 2 allergy conferences in the fall, and they're helping in the influence around help people have solutions. And I'll share some of that with you later when we talk our e-comm and social capability.

Why don't we look at the long-form advertising though to start.

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And we are just getting started. As I mentioned, this is a new platform for the company. So we have a multiyear plan. We just announced a partnership with Claritin, one of the leading allergy medicine brands, which we're very excited about, and we think creates a great holistic solution for consumers. We also have the next wave of products, and they're shipping in just less than 4 months here. We've already sold them into retailers offering new benefits in this space.

All right. Turning to a more established platform that we've had for many, many years in our cleaning business is our Scentiva platform. And this is an interesting one, and this is the power of being able to invest in something for many years and continuing to drive sales. And this platform has helped us drive some of the strongest sales and growth that we have in any of our businesses at Clorox. I told you earlier that consumers are seeking joy in those everyday experiences. They want their home to smell clean, but they don't necessarily want it to smell like chemicals because they can interrupt the mood in their household. And Scentiva does just this, and we've been able to expand Scentiva into new segments and new fragrances to continue to delight consumers. We relaunched this platform in 2024, and we were able to double the household penetration. So we still have lots of room to grow, and we'll just play the next video that shows our next items.

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And we are expanding this platform internationally. This is an example where we're using our market-leading Pallet brand in LATAM combining with the power of Clorox and we know consumers already have this layering behavior and think this is going to be an exciting way for them to tackle both cleaning and scenting their home at the same time.

Moving to Trash. There's nothing more that can make your home field terrible than a leaking trash bag. In fact, it's one of the things that consumers hate most in this tour is when a bag leaks. And so our answer to that is a new innovation, Clorox Max strength with LeakGuard and I'm going to play this video for you now. And what you're seeing is this bag actually absorbs liquids in the bottom. So if there were to ever be a rip in the bag, you're not going to have a leak. Pretty cool technology, and we think a very big upgrade for consumers.

And then this person, I don't think is bathroom camping. I think she's just taking a bath. I don't see any food or digital devices. But she certainly is enjoying the fact that self-care is becoming more important and people are also looking at a category level for benefits that they put on their skin. So vitamins, nicinamide, peptides, they want those on their body. And with that, we've launched a platform of lip and eyecare under our Birks brand that offers these boosted benefits. They're boosted with vitamins, they have ceramide peptides. They're beautifully formulated. I love them. And we really have had some strong early wins with retailers and consumers based on this launch.

And then Cat Litter, it would never be a presentation if we didn't have cats on it at Clorox, we love this. So humanization they make pet family. And in addition, consumers continue to adopt more cats and a lot of them are becoming multi-cat households. And this has led to strong category growth category has been growing mid-single digits for a long time.

But as we talked about, we have not taken full advantage of that and gotten our fair share. And this is our First Step in doing that with the reinvention that we've launched this back half fiscal for Fresh Step. And you can see on the screen, all of the components of this reinvention. We've improved all of our products and freshed up with new and improved odor control technology and less dusting. We've also used price pack architecture on this to create 2 tiers because what we knew we needed to do is compete in both the popular segment and the premium segments, which we hadn't fully done. We completely redesigned our e-commerce experience. You can see this is one of our landing pages with one of our larger customers. This allows you to quickly pick the product you want and then drives you to subscription.

And we redid all of our sites to ensure that they were mobile first and mobile-friendly because that's how consumers are shopping today, giving them a really great experience when they go to buy Fresh Step. And I'll note is we're just getting started on Fresh Step. We had to reset the foundation, I feel good about this. We've got incremental distribution with retailers. They're excited about the steps we're taking, and we have excellent innovation plans in fiscal year '27 and 28 to complement this reinvention. All right. I have 2 more capabilities to talk about. I've got to go fast because Luc is realizing I'm about to take his time over. And that's not good. So I'm going to go fast. I'm going to skip a few slides that I think you'll get quickly as we talk about the capability.

So evolving with shoppers, we need to make sure we are where they are in e-commerce, and that continues to get more sophisticated. And so we are focused on continuing to win in e-commerce. This is an example of our leading brick-and-click retailer, where we have been working with them on our digital penetration now for a number of years. This year, we experienced 19% growth in our e-commerce with them. And we have higher digital penetration on most of our brands than the category. And Clorox PURE was also the #1 item in ship to home in our category as a result of all of the work that we've done here.

And this is the one I'm going to go pretty fast through, which is disappointing because you may or may not like these videos. They're a little -- this is social first. So what does social first mean, in old world, we used to take whatever we did on TV or other marketing vehicles, and we would retrofit it for social. It was very one way the cycle times were long but we've developed a new capability called social first, where we're developing content real time for social media. It is highly interactive and the cycle times are incredibly fast and in a lot of cases, leading to a purchase directly in an app. So I'm going to take you through one of these examples and I'm going to skip the next two. The example I'll take you through is Pine-Sol. And this is not the marketing going to warn you that we grew up with, but let's look at the first video.

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You can see how it connects back to consumer insights, but not necessarily for everyone in this audience, maybe for your kids. But what's really interesting is this picked up. And the video I'm about to play for you now shows the result of this going viral. And there was a wife who asked what it would take for her husband to get her name tattooed on him. And he said, if you get 50,000 likes on this and Pine-Sol replies, I'll get a tattoo, which, of course, we did. And he end up getting two tattoos.

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That doesn't normally happen after TV advertising. I'll tell you that. But what's really important other than some fun videos is now social is our most efficient vehicle in Pine-Sol and has become our most efficient vehicle in other brands. All right. I'm going to skip, unfortunately, Brita. These are some fun videos, but we don't have time. And I'm going to skip Clorox Pure, but that's an allergist, letting everyone know how great our product is, and it's one of the solutions you should have.

I'm going to talk about our portfolio. As Andrew highlighted, we are in the middle of a planned acquisition of GOJO Industries, which are the maker of Purell, and I wanted to spend a little bit of time talking about our excitement in adding this to our portfolio. And why are we so excited? This is building on an area of strength for Clorox. Our Health and Wellness segment has been performing well for a very long time. It's our largest, most profitable and fastest-growing segment and in fact, it's had a 4% growth CAGR over the last 10 years. And GOJO and Purell had a similar profile. Purell is the #1 hand sanitizing brand. It has a high installed base in B2B, where we have dispensers, and I hope you've had a chance to use the dispensers we have throughout the hotel. As decades of strong growth, strong tailwinds and they have world-class capabilities in innovation and many other capabilities that will be additive to Clorox.

Really importantly, this brand is like our Clorox brand. If you read the quote on the screen, this brand drives trust and loyalty. It means something deeply to consumers and how they keep their family well and thriving. And what we see is these 2 companies come together with complementary scale. So 80% of Purell sales are in professional hand hygiene, 80% of Clorox sales are in retail surface cleaning. So combined, we offer a health and hygiene solution across B2B and retail that we know we can get better scale, better activation on having to scale across these 2 very important ecosystems.

We see 3 main sources of value creation. The first is continuing to grow the B2B business for both PRL and our brands. GOJO adds incremental capabilities that will continue to support our already strong professional business. And really importantly, we are strong in different verticals. And so will help our penetration based off of the varying strengths we have in that ecosystem. We also see the ability to continue to accelerate PRL in retail where they haven't been as focused and we have very strong capabilities, many of which I just outlined.

And in fact, they only have 14% Household penetration, so that gives you an idea of the potential opportunity. And then finally, we see a significant opportunity to drive cost savings as we combine both businesses.

I'm just going to spend a very quick time on why does this matter in the complex B2B ecosystem this idea of scale. So today, GOJO sells hand sanitizers and hand cleaners and they sell them to distributors and they sell them directly. And we do too. We sell Clorox products into distributors and end users. And we do that in very distinct and small segments. But by providing this overall health and hygiene program, not only do we give better programs to distributors to sell to their end users with more scale, which they're very excited about. They're all excited about they have to wait where we don't -- haven't closed the deal yet, but they're all very excited to talk to us.

And then importantly, when we sell directly to end users, we can give them a different solution. So for example, at a nurses station, we can really help them through all the steps they need to make sure that their employees and their patients are keeping their hands clean and they're keeping the surfaces around them sanitized and that really will help us drive scale in sales. With that, we think that GOJO will be additive to our company from a future growth perspective. We're very excited about it, and we're excited to keep you informed as we make progress on the integration.

And with that, I've given Luc less time than he needs to cover the financial update.

Thank you, Linda. Good afternoon, everyone. What I'm going to walk us through the financial update is a short amount of time as I can. Andrew, just might have to give me a few extra minutes. But I'll work through it in 3 parts. First touch base quickly on the outlook, then talk about the financial goals and historical performance and then touch base on how we think about our capital allocation. Key message is this. While our recent organic sales performance has been mixed, we're taking the right actions and rebuilding momentum. And as you heard today, our strategic; progress positions us well for the future. With strong foundation, capabilities and innovation, we feel like we are well positioned to deliver more consistent profitable growth and long-term shareholder value, okay? So with that, let's turn to the outlook.

Now our fiscal year outlook reflects a transitory year where the ERP implementation is creating material but temporary year-over-year change. And so if you exclude the transitory impacts, really, what we expect is organic sales growth to be negative 1.5% to positive 2.5%, gross margin to be flat to up 50 basis points and adjusted EPS to be flat to up 6%. And as we previously communicated, at this point, we currently think that our result will be on the lower end of that range.

Now in the first-half our growth has been challenging, but that was as expected. And we now expect sequential improvement in the back half, right? And there's a few things that support that. First, stable supply, now that we move from the ERP transitions, robust demand creation plans, and as you just saw, a really strong innovation select across all our businesses, but including new to the world platform, Clorox PURE. So now stepping back. and looking at our long-term financial goals, they remain unchanged, right? We're really trying to accelerate the financial performance of the company. And specifically, we target sales growth of 3% to 5%. And EBIT margin expansion of 25 to 50 basis points, and we expect to continue delivering strong free cash flows.

So with that, let's jump into our organic sales growth performance. And as I've just mentioned upfront, and as you heard from Linda, organic sales growth performance in recent years has been mixed, right? And we -- the good news as Linda said, part of it was driven by some of our -- the challenges following the cyber incident as well as the ERP transition. But at the end of the day, we can and we will do better. Now the good news is the ARP is behind us like with the cost, complexity, ramping down and the benefit just about to begin to ramp up.

In this fiscal year, as I just mentioned, we're taking the right actions and rebuilding momentum. And so looking ahead, we're confident that we will build momentum and accelerate organic sales growth going forward. We have a very strong innovation pipelines for the upcoming years, and we're just starting seeing the benefit of new scaling new capabilities like revenue growth management.

So now let's turn to margin. Now gross margin in contrast is a different story, and this is a place where the team has executed very well in recent years. During the inflationary cycle, about a few years ago, our gross margin declined by 800 basis points, and we were able to fully rebuild our gross margin. Now this is a clear indication of the actions and investments we're taking in strengthening our capabilities delivering meaningful results. For perspective, we had a long established cost savings program for decades. And more recently, as you heard Linda, we shifted to a more holistic margin management adding new tools and new capability like design to value, hiring new talent and experts and leveraging our new data and technology foundation.

And this is working we've been leveraging, we've been delivering record level of cost savings over the past few years. And importantly, we continue to see opportunity ahead of us. We have a very strong cost-saving pipelines, and we have a clear runway for years to come. So now when we step back and evaluate our performance versus goals, we always look for ways to deliver improvement that are more structural. And that brings me to GOJO. Our GOJO acquisition is really going to expand our Health and Hygiene platform as well as accelerate our financial performance.

Let me set a little bit of context here. We have 4 operating segments, Health and Wellness, Household, Lifestyle and International. And the Health and hygiene part of the business includes all of Health and Wellness and half of International. So that represented about 40% of our portfolio at the beginning of the strategy period. Now Linda you heard Linda talk about Health and Wellness. It's been an area of strength for us and so is International. And so both of those business have consistently delivered outsized growth for the company. And so the proportion of health and hygiene has been growing steadily for us.

And now that we're adding the GOJO acquisitions, we expect health and hygiene to be north of 50% of total company sales. And of course, by having GOJO, we're also adding a business that's expected to grow mid-single digits to high single digits going forward. So the expansion of the health and hygiene business is reshaping our portfolio and also creating a more stable and faster-growing core. And with this added stability and growth, we also feel that this is strengthening our ability to grow earnings and free cash flow, which I'm going to talk about next.

So we have a long history of delivering strong free cash flows. You can see over the strategy period, we delivered about 12% on average, which is in line with our targeted range of 11% to 13%. at a time where we have to deal with elevated inflation and investments. And then looking at our use of cash, we have and will continue to be very disciplined and consistent.

First and foremost, we want to reinvest in our base business. This is where we can strengthen our competitive advantage and generate the strongest return for shareholders. We continue to support dividends. We have a long track record of doing so. And then we'll manage our debt leverage. Our targeted debt-to-EBITDA ratio is 2 to 2.5 and we've been on the low end of that range, and we expect after the GOJO acquisition to temporarily go to 3.5. And then we will bring this down to about 2.5 at the end of calendar year '27.

And finally, for our priority, we will distribute all excess cash to shareholders through share repurchase program. And with a business that generates strong cash flow and a disciplined approach to our capital allocation, we can deliver strong ROIC. You can see over the last 5 years, we were on the high end of the industry. Okay. Let me bring this home and start where Linda actually started. We believe we have an attractive investment case. As you heard today, our strategic progress positions us well for the future. We have a strong portfolio of leading brand in everyday essentials and we're investing behind that. We modernize our capabilities. We built a strong digital foundation that will strengthen our brands and help us reinforce our competitive advantage for years to come.

And then finally, with the ERP implementation behind us, we're going to see the noise, the cost and complexity ramping down and then the benefits ramping up. So when we consider all this, looking ahead, we feel like we are confident in our ability to deliver more consistent profitable growth and share long-term shareholder value.

With that, I thank you for your time. And for those of you meeting us in the breakout room, we look forward to seeing you there. Thank you.

Join me in thanking Clorox again for their generous sponsorship of the conference. And as Luc said, we'll take it over to the breakout.

Good day, ladies and gentlemen, and welcome to the Clorox Company Second Quarter Fiscal Year 2026 Earnings Release Conference Call. [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.

Thanks, Jen. Joining me today are Chair and CEO, Linda Rendle; and CFO, Luc Bellet.

The following remarks include forward-looking statements that are based on management's current expectations, but may differ from actual results or outcomes. In addition, these remarks refer to certain non-GAAP financial measures. Please refer to CLX's earnings release, which identifies various factors that could affect forward-looking statements and provide information that reconciles non-GAAP financial measures to the most directly comparable GAAP measures. The Risk Factors section of the company's Form 10-K also includes further discussion of forward-looking statements.

With that, I'll turn it over to Linda.

Good afternoon, everyone, and thanks for joining us. Before we get into your questions, I want to take a moment to frame where we are in our transformation and how we're navigating a highly dynamic environment. We entered the year knowing the first half would be challenging given the volatile macroeconomic environment and the temporary impacts of our ERP implementation. While external pressures added complexity, we delivered results largely in line with our expectations.

We're strengthening our foundation by advancing our digital transformation, enhancing execution, driving value from our newly modernized ERP foundation and accelerating innovation that delivers superior value to consumers. And with our planned acquisition of GOJO Industries, we're taking a decisive step to expand our leadership in health and hygiene and unlock long-term growth opportunities. There's more work to do, but we're optimistic about our future.

With that, Luc and I are happy to take your questions.

[Operator Instructions] And our first question will come from Andrea Teixeira.

I was hoping to see if you can talk about the exit of the quarter and how are you seeing. I mean, obviously, you did reaffirm your guidance, how we should be thinking of the competitive environment now and the promotional environment?

Andrea, we saw, as we expected, a sequential improvement in the quarter, which was good and consistent with what we are expecting in the back half of the year, where we expect both the category and our performance to be stronger than they were in the first half. If you look at the category numbers, it was about in line with where Q1 was. If you exclude our beauty business. Q1 was flat from a category perspective. Q2 was down 0.1 point, so about in line.

Our share performance was what it was supposed to be or what we expected it to be, not what we want it to be, but we were down in share, but again, we saw sequential improvement as we move through the quarter. The competitive environment was largely what we expected it to be. Competitive activity, again, is back to what we'd say pre-COVID levels are. There are pockets where it continues to be a bit more competitively intense.

We've talked about litter and Glad. We saw some pockets in Home Care, but nothing outside of what we are used to and able to handle, and we feel like we have the right plans to address that. And then as we head into the back half of the year, we continue to expect category growth to be in the 0% to 1% range. We expect to have stronger share performance based on our plans. We have excellent innovation plans in the back half, strong demand plans, and we're beginning to see the fruits of that.

If you look at consumption in January. There was certainly a pickup. Some of it due in the last half of January to weather, but we are growing share in the last week. And so that's -- we're seeing the investments that we're putting in place working. I think as you maybe take a step back on the consumer, the only other thing I would note, consumer is largely what we expected it to be. We're seeing consumers continue to focus on value. We're seeing them trade up to larger sizes, down to smaller sizes.

We've seen trips increase in the broad market basket in our categories. We're seeing more stock-up behavior, which is pretty normal in our categories. And then, of course, we see consumers moving to more value-oriented channels. But I would say the consumer was largely steady as we had expected and in line with category growth.

And if you can comment on some of your peers, Linda, that's helpful, but some of your peers had said that they're seeing the exit rate improving a bit. You might not be seeing that specifically because of the puts and takes on the ERP transition, but I understand that you've done -- you're mostly done in January from your prepared remarks. Just to think about how this trajectory had to think about the third quarter of fiscal.

I want to make sure, Andrea, that I'm getting your point. I'll return to the point I made at the beginning on Q2. We did see sequential improvement in Q2. So the exit rate was stronger coming out of the quarter than it was going in. We've seen that continue into January. And again, some of that at the end of the month, I think, is due to weather, but we saw our share results pick up in that as well. So I feel good about our plans to address that.

But I would say our expectation on the category based on that is still what it was before. It remains between 0 and 1. We don't see anything to indicate a trajectory change. We think it's well within that band. And again, Q1 and Q2 were about the same category. Growth rate about flat, and we expect to see 0 to 1 in the back half.

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

So maybe one housekeeping and one real question. So you alluded to some shipment favorability in the quarter that I think is expected to come out of the third quarter. So can you maybe help frame the magnitude of the upside or maybe what we should be expecting to reverse? And then, Linda, as we think about the back half of the year, and you kind of just spoke to this to Andrea's question, and I get it's only a week, but you talked about share gains in the most recent weeks. So can you just talk about your confidence that can continue? And then specifically, can you speak to when we should start to see the benefits from all the innovation that you outlined in the prepared remarks start to show through?

Peter, this is Luc. I can take your first question. Yes, we ended up, I think, about a point of favorability due to higher-than-expected-shipments ahead of consumption on a few different businesses. And we'll expect that it will reverse in the third quarter. Now there are a few drivers, but I would say the main one was some higher shipments related to the final phase of ERP implementations. And just for context, if you remember, we went live with a new ERP in July. And that was for most of our operations, including audit cash, demand fulfillment and logistics.

But for manufacturing, given the large number of facilities that we had we took a phased approach. And so we essentially transitioned manufacturing facilities into 3 phases. The first one was in July, the second was in October and the last one was in January. And so we had a little bit higher retailer inventory prebuild as a result of that last phase. To be clear, we had expected some level of prebuild, it just ended up being higher than expected. So the good news is, at least the last phase went very smoothly, and this is -- it's great to have this behind us. So that's really just quarterly noise and there's no implication on the full year.

I'll take your second part of your question, Peter. For our back half, it is heavily weighted towards launching innovation across all of our major brands, and we're pretty excited about the innovation we have slated. And as we talked about, I think, last year at CAGNY and have spoken about on our call since, we're excited about this back half because it introduces some new platforms as well as builds on existing and very successful platforms we've had in the company. So a good mix of both like the spending that we have, addresses what we need to, to ensure we're driving trial and to continue to expand on the platforms we have.

How they'll build throughout the quarter, I think, it's important to note, we've begun shipping many of these innovations already, but most shelf resets won't occur until the back half of Q3 or early Q4. So that's when we would expect to see a significant ramp-up from innovation. And certainly, that will impact share at that time. But maybe I'll talk about a few of the innovations, how we're thinking about the investments and then I'll talk about some of the early indications we've had on success and what we're looking for.

I think many of you have seen we've launched a new platform in our cleaning business, which deals with one of the most troubling things that consumers have, which is allergies, and they fight these things constantly through different avenues. They take medication, they clean more, et cetera. But this is a proprietary technology that actually destroys the allergen, and we saw great consumer results when we did testing. That began shipping. It's very, very early, but so far, we have good consumer reviews. And most importantly, we have very strong plans with retailers. They're very excited about a new platform and a new launch in this space. And again, we would expect that to ramp up over the back half of Q3 and early in Q4.

And then from an investment perspective, we have double our typical launch size investment plan behind marketing, behind demand creation, et cetera. So feeling very excited about that. And this is one that we're launching, of course, not just to have a launch in our back half of the year, but to be a platform that we can build on for many years to come. And in fact, we're already selling the second and third wave of this platform out with retailers.

Ticking through a few of the others, we're expanding on our Glad ForceFlex program and adding a new technology with LeakGuard in the bag. So a frustration for consumers is if a tear happens in the bag, they end up having liquid leak out. And the bottom of our bag now has an absorbent layer that absorbs that liquid and prevents leaks. And this will be in our premium line of trash bags. We're excited about continuing to offer consumers additional value in the trash segment and particularly, again, focused on ensuring that we are innovating and giving people better experiences. And this is a way that hopefully, we can temper a little bit of the promotional activity that we've seen out there.

Litter, we are fully relaunching our litter business, beginning in the back half of this fiscal year, and we actually have a multiple year plan in place. But this first -- this first portion of our litter relaunch will include new packaging, new graphics and claims, some updated items, and we're feeling good on what we've seen in early results. Some customers have started that implementation and early results are encouraging. That category continues to be competitive, but we feel like we have the right plan for the next 6 months and the next couple of years to begin to win some of that share back that we've lost as a result of both cyber and then our ERP implementation.

And then other businesses, I would call out Hidden Valley as another where price pack architecture will play a big role in the back half of the year. We've seen consumers trading up to larger and smaller sizes. So we're addressing that in the back half as well as a new avocado ranch, which addresses people who are looking for non-seed oil dressings and food items.

The list goes on and on. But Peter, I think, the main takeaway here is the plans are very strong. They ramp up throughout the year. We would expect that this is a major lever for us to improve our share results and of course, our sales results. We have investment behind all of them. We're ready to lean in if any of them starts to take off, and we have the ability to do that given our strong gross margin position and the fact that we rebuild that fully. But feeling terrific and excited, and we'll speak more to you about the specific items when we talk to you later at CAGNY this month.

We'll move next to Filippo Falorni with Citi.

I have a follow-up on the question on pricing and promotional environment. In Q2, your pricing was flattish for the total company, but you had negative pricing in household. I think, Linda, you mentioned that you're expecting still a competitive environment. So should we think -- how should we think about pricing in the second half of the year? Do we still see flattish for the total company? Or could there be some more price intervention?

And then on gross margin, can you help us understand the puts and takes in the back half of the year. I think, in this quarter, you called out higher-than-anticipated supply chain cost. Do we expect those to stay elevated in the back half? And what are the puts and takes in terms of cost saving, pricing and commodities?

Sure. What I can do -- Filippo, this is Luc. Let me just answer your question on gross margin. And then just talk a little bit of how do we think about price mix within the context of the outlook. And then I'll just pass it on to Linda that to provide a little more perspective on how we see this externally. So on the gross -- if you step back or after excluding the impact, the temporary impact of the ERP or look -- assume that gross margin will be expanding in the back half, and it's been contracting in the front half. And so there's a few differences when you compare the back half to the front half. Inflation is actually fairly consistent across quarters. So that's not really where we see some differences.

But there's about 3 that are worth going out. First, generally, our projected cost savings run rate is a little higher in the back half than in the front half. Second, as you alluded to, we incurred incremental expenses in the front half as we stabilized and optimized our service level following the ERP transition. And as you can imagine, we had a lot of different types of expenses, especially on logistics that came up with that. But this will start coming down in the back half and then will fully go away by the fourth quarter. And then finally, we also expect the benefit and step-up of the Glad JV termination. As we talked to you in the past, that creates about a 50 basis points of benefit in the back half that is not in the front half. So those are the main differences.

From a phasing standpoint in back half, we expect the third quarter to be about flat, and we expect solid expansion in the fourth quarter. The main thing you have to consider is that there's some timing of manufacturing expenses and cost savings between the 2 quarters, which is bringing Q3 down and Q4. And we also still have some of those few incremental expenses that we just talked about in the third quarter, and they kind of go away in the fourth quarter. So that's from a phasing standpoint. And it's a little bit of noise by quarter, but overall, we feel confident in our back half and full year outlook on gross margin.

Now regarding -- maybe just a comment on price mix. As you look at our full year outlook, our assumption is the same as the prior outlook, which is we expect price mix to be a little bit of a headwind, probably about 1% or so for the full year. So volume would grow slightly ahead of organic sales growth. Now this might vary a bit by quarter, right? In the second quarter, we were about flat and some other quarters might be a little worse than that. But I think the -- about a point is we still feel that this is the right number for the full year. There's a few drivers there. The main one is really the continued headwind from consumer value-seeking behaviors and continued channel shifting. And that's partially offset by the net revenue management initiatives that we put in place.

Filippo, I'll just talk a bit about what we're continuing to see from competition and then your particular question on household and what we're seeing out there is largely consistent with us. We've seen elevated promotion levels this year versus last year as we expected, but those are in line with historical category rates. And we've called out and this particularly impacts household that the Cat Litter and the trash bag categories or 2 where we're seeing higher promotional levels. And we're seeing that both in our Glad, Fresh Step and Scoop Away business.

I would say Kingsford is a minimal impact, given this is a small quarter for Kingsford, and so we're seeing a little impact there. The other thing I would call out is that we continue to see consumers trade to larger sizes in our trash bag business, and that certainly impacted Glad this quarter as people change channels, but are also just looking to stock up and get a better price per unit. But overall, I would say both of those were generally in line with what we expected for the quarter and we're watching them very closely. And we're being disciplined about how we react when we see promotion. We're trying to do promotion that is strategic and focused, and we're seeing the benefits of that play out in Glad as you saw sequential improvement in that business throughout the quarter.

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

Good afternoon, everyone. I have a clarification and a question, actually a double click. The clarification is with the ERP already done. So why is -- are we still going to see investment in digital capabilities or this is going to wrap up this quarter. And if they are going to continue, if you can explain us what is it that you are spending on that is not related to the ERP, but it still need to be separated out from results. So that's the clarification.

And number 2 is double-clicking on the household piece. So it is rare in staples when you have negative volume and negative pricing at the same time. So is this because Scoop Away is driving most of the growth, and this is where soft or negative pricing or you are taking prices down, say, or promoting Glad and the other brands and the volume is still negative? So if you can explain that, that would be great.

Let me take your question on ERP. Yes, we're wrapping up the fundamental investments around the digital transformation, which is really about fundamentally upgrading the digital infrastructure of the company, which included the ERP and the core suite of technologies. I think there's about $0.08 of adjustment in the third quarter and will be done on the adjustment associated with the 5-year digital investment road map. Now keep in mind, we've been steadily increasing our investment in technology over the past few years, and that's in the P&L, right? And just as we take advantage of our technology and as actually, as we take advantage of the new digital infrastructure that we put in place, we expect that this will continue.

This generally tends to be offset by a lot of productivity savings from automation as well as some effectiveness gains. But as far as the onetime investment, Q3 will be the last quarter we see an adjustment. And then on household, I think, just at a high level, there's 2 things going on. One, there was some loss in consumption in market share that was really volume driven. And there was also some shift to larger sites, especially in bags and wraps as well as some channel shifting that are creating a headwind on the price mix. As I mentioned, we -- especially -- it depends by business, the timing, but every business has a pretty robust net revenue management plan to try to offset this. And I think when you look at the total portfolio, for the full year, I think, we're able to do this fairly effectively.

And in the promotional spending, particularly in Cat Litter, what Circana data shows, and I don't know whether this is reflective of reality or not, but what Circana data suggests is that if you that is promoting is not competitors. Is that the case that is reflective of what is the negative price mix that you have in the P&L?

Javier, what we see is the overall category merchandising is certainly higher. We see that for competitors, and it is true that we have higher promotional levels as well. And we did that intentionally as we're building back some share. You're also seeing a significant amount of promotion for Scoop Away from Costco, which can create noise because that's a large promotion and can significantly impact the results. And those events, given a lot of people are moving to Costco have become much more sizable over the last 12 months.

So I think that's the combination of the 2 things that you're seeing, Scoop Away having a disproportionate impact on the amount of merchandising you see from us in Circana but we are seeing overall competitors raising their level of promotion as well, which is just making an overall competitive category. Nothing different than what we had expected. But those are the 2 main factors that we see playing in the category.

And our next question comes from Bonnie Herzog with Goldman Sachs.

All right. I actually wanted to stick on household, if I may. And I just maybe asked a little differently. Organic sales remain quite pressured despite your stepped-up promotions behind trash and litter as you highlighted. But if I look at it that way, then I see the pressures are also, I assume, negatively impacting your margins in the quarter, in addition to the higher manufacturing logistics costs you called out. When you look at the margins in the quarter, they were -- EBIT margins this is. They were only 5.3%. So I guess could you talk about your strategy behind trash and litter? And how much further you're willing to promote to try and improve share? I guess, essentially, how are you balancing a return to growth with profitability?

Bonnie, yes, we've been talking about the trash bag and litter category for a little bit of time now. And certainly, both of those were impacted as we talked about coming out of cyber and then certainly a change in competitive activity that we've seen, particularly in the trash bag segment. And we have returned to what we believe the best way to return a category to growth is, which is doubling down on our innovation plans, and we worked hard over the last 18 months to refresh our innovation plans on both Glad and litter, and you're going to see those come to fruition in the back half of this year.

As I mentioned, we have a full relaunch of our litter business that includes price pack architecture work, some upgrades in formulas, packaging, et cetera. And then we feel like we have a great, robust innovation plan for the remaining 2 to 3 years coming after that which really gets back to growing the category the way that we like to do and want to do, which is investing in better consumer experiences that deliver superior value.

And trash much the same. We have great innovation in the back half. We have been doing some price promotion, and we've been disciplined about trying to do that because we want to make sure that we're doing it in a way that doesn't destroy value in the category. We know people don't use more trash bags just because they are lower priced per bag. They want benefits in a trash bag that helps make their life easier at home. They don't want it to leak. They don't want it to smell. They don't want it to tear as we continue to invest in that.

And that's exactly the balance, Bonnie, you spoke about. We want to make sure that we are balancing market share and consumption data and profitability with growing the category in a way that we think is sustainable. And what we're happy to see is our back half plan really leans into that. But we haven't been afraid to increase some price promotion in the short term to deal with the headwinds that we've been experiencing.

I think over the long term, we remain confident that we can grow these categories through good innovation work, strong demand spending and building, continuing to drive efficiencies in that spend, and, of course, making sure that we are doing all the great margin work that we've done for the last few years in the company and for, frankly, decades before that, to continue to fund that. And we have strong programs in both our Glad and our Cat Litter businesses internally.

So overall, I don't think anything has changed strategically. These categories are competitive, but we do well in competitive categories. I can't say that we would say our last 12 months have been our best performance in these categories, but we feel like we have the right plans moving forward to address that and have taken the right short-term steps to ensure that we get that balance right.

And we'll move next to Anna Lizzul with Bank of America.

Linda, I was wondering if you could comment on where you are now post the quarter versus the category growth rate in light of the improvement that you're seeing in consumption trends. And then where do you think category growth would have to be to get back to meet your longer-term algorithm with your IGNITE strategy of 3% to 5% net sales growth?

Yes. So if you -- we'll walk through Q1 and Q2 again and then just what we expect in the back half and then bridge to what we expect over the longer term. So in Q1 and Q2, we saw our categories about flat. So in line with what we had expected. We -- recall we had expected about flat to up 1%. January, I would just advise if you look at any -- actually, any time period beyond January, there's a lot of noise in the data. So I would not look at a 1 week or even 4-, 5-week category number and project from that.

For example, January has significant weather-related events, and that will have many impacts. One, consumers stocked up. But two, you can have challenges dealing with weather and retailer inventory, et cetera, and none of that has played out yet. So we'll see what those impacts are. And then of course, we'd assume consumers we'll use that household inventory and may not -- might extend their purchase cycle depending on how much they did stock up in advance of that. So I would warn not to look at the last 2 weeks as a significant change in the category trajectory, but simply, I think, some shifting in timing, given what's going on with weather.

That being said, we still expect the consumer to remain under pressure and that means we expect categories to be flat to up 1% in the back half of the year. We certainly hope we could get to the top end of that range given the plans that we have but we'll see how that plays out and what the consumer decides to do. We just feel like we have the right plans to both support category growth and share growth within those categories. Whether that be innovation, the base distribution that we're working on with retailers, our demand spending and plans, which is very strong. So we feel like we're doing everything we can to continue to support getting back to category growth that is in line with what we've experienced in the past.

And that leads me to our IGNITE strategy algorithm. We assume for us to get to that 3% to 5% range that categories have to return to what they were historically. And that's typically been about 2% to 2.5%. And then we're able to add a point of incremental growth from our Pro and International business, and that gets you well within our IGNITE range. And of course, we talked about the acquisition that we made of GOJO, and we would believe -- we believe that will be accretive to growth as well and supportive of us getting to the growth algorithm that IGNITE contemplated in the 3% to 5% range. We don't see that yet, obviously, this year in our categories. But we're hoping now as we continue to invest and others continue to invest in the consumer and in innovation that we'll start to see that build over time.

And we'll move next to Kevin Grundy with BNP Paribas.

I'd like to ask you both a question on price investment. It's topical today with the PepsiCo news and obviously, you don't compete in the categories. But what is relevant is the consumer under pressure, the K-shaped economy, et cetera, et cetera. So Pepsi is making substantial price investments embarking on a lot of productivity to do it. Your categories have been weak for a while. You're not alone, Linda, Luc, of course, but we've been talking about this for a while.

Would you be willing to take price investments off the table for your categories, particularly where volumes have been weak for a while. Whether this is bags or whether this is bleach, et cetera? Because you talked about innovation Linda, we would all collectively agree. That's exactly how you want to win, but maybe it's not an either/or, maybe it's a both/and we're seeing at PepsiCo given the unprecedented level of -- excuse me, of inflation that we haven't seen in 4 decades and a consumer that's still under pressure? Would you take that off the table?

Thanks for the question, Kevin. Maybe just start with what we're seeing from the consumer, which I think is largely consistent with what you just outlined and what we've seen from some competitors as they've spoken out or people who are even competing in our categories. We're definitely continuing to see bifurcation of consumers. We continue to see all consumer groups under pressure, but I would note that we have seen from low-income consumers some additional pressure and making sure that we have the right value for those consumers is absolutely top of mind.

And that is what we're doing in the capability that we've built on RGM to ensure that we have the right price pack architecture. So getting them supported with smaller sizes for consumers who only have a little bit of cash to outlay, larger sizes, et cetera. And the purpose of that program is to deal with just that. And it's more important than ever that we have that capability, and we're beginning to ramp that up, and we've had some success in a number of businesses, but we need to, frankly, expand it faster across our portfolio.

That being said, on price investments, we have made some, and I think that's what you've seen in some of the promotional activity that we've done. We have made selective price investments in places where we're seeing the consumer be under more pressure. Certainly, trash bag is one of them. We've seen a bit more in Home Care, and we continue to do that in a disciplined manner. But our team is looking at this all the time. And we're committed to making sure that our price gaps are where they need to be. And we do not want to get in a place where we're losing significant household penetration with consumers or share because our price is out of whack.

So you can hear my commitment to if we need to make a price reduction that is strategic, we will do it. And the good news is we've built a holistic margin management capability to be able to fund that if we need to do it. And again, we have made some of those investments over the last 12 months as we've noticed for out of whack on a certain size or certain price points. It will be something that we'll watch very closely.

The other thing I would note is in our categories, we have not seen significant trade down to private label. The last quarter, private label was up 1/10 of a share point, and we didn't see any material change. Consumers still want brands. And we just need to figure out the right way to make sure we're giving them the right price, the right pack at the right moment at the right retailer. And I feel like our back half plans better contemplate that. But again, Kevin, I'm not taking it off the table, but we'll do it in a disciplined way. And now with our RGM capabilities, we have even more ability to do that at scale.

And we'll move next to Olivia Tong with Raymond James.

Great. The promotional environment has obviously been heightened for some time, and it doesn't seem to be abating. And as more sales go to club and e-com and larger pack sizes, can you talk about what initiatives you have or are putting in place sort of longer term to help offset what could, I assume, be multiyear headwinds? And then can you also talk about what inventory levels look at -- look like at retail outside of club and e-com post-ERP? Is there any risk that as activity continues to shift outside of these channels that you run the risk of having to deal with destocking in the next 12 months more so than your peers?

I'll take both of those, Olivia. So on the large sizes, this has been a trend on our business for quite a while. We've seen consumers move to value channels, including Club, but they've also been moving to Dollar and that has the opposite effect where they tend to buy smaller sizes. And we've been able to manage this for many years and would expect we'd be able to do that moving forward. And it's a little bit about -- to the question that Kevin had, the RGM capabilities that we are building are going to enable us to do this faster and at scale and with more data.

We did a lot of work in our ERP implementation to harmonize our data across the company, and that's giving us more real-time insights that allow us to design exactly the right pack for the consumer for the right retailer and also at the same time, remove costs where we can. So we feel like we have a capability for a long time, but adding RGM gives us additional capability to address this. And I think the good news is we want to be wherever a consumer is. If they're in Club, we want to be there if they're in dot-com, we want to be there. if they're buying at a small grocery store, we want to ensure that we're there with the right price and pack. And we've been able to do that for many years and been able to absorb and frankly, fund it through our margin work.

I think the one thing you should note, though, and I think that is important for our portfolio is the point I made on dollar and smaller sizes, there is a corresponding downward pressure on sizing as well. And that will offset some of the trade-up that we are seeing to larger sizes. And that is why you're seeing, I think, the price mix that you're seeing right now for the company that some of those things are offsetting each other. And I would expect that to continue given the strength of the dollar channel and consumers having a low out-of-pocket expenditures. And I think that will keep that in a reasonable range for the next couple of years, and we're well positioned as consumers continue to move to different retailers to address that as well.

And then on inventory levels and destocking we're largely, if you look across our enterprise inventory levels are where we would expect them to be in retail. There's always puts or takes here and there, but we wouldn't call out anything material that we see at this moment that would impact our potential destocking for us versus anyone else.

And we'll move next to Kaumil Gajrawala with Jefferies.

On ERP, it looks like the last of the big phases is complete. Can you maybe -- just talk about what you should be able to do now, what you see maybe some cadence of benefits that flow through, whether there are things that are driving top line or things that are driving savings? And maybe I think, Luc, you mentioned some of it will be automation inception. So should there be a different goal or a new goal on where gross margins can go now that a lot of that hard work is behind you?

Kaumil, yes, thank you. So you're right. Like as I just mentioned, we'll be finishing the implementation and at the end of our large digital transformational investment at the end of Q3. And by the way, I think, we have about $0.04 of EPS. I think I mentioned about $0.08 of adjustment in Q3. But really, right now, the remainder of the year on the ERP is really going to be about stabilizing, right? You heard us. We've been spending the last quarter or 2 just stabilizing and optimizing service level. We expect incremental cost of doing so to just go away by the fourth quarter. And once we're done optimizing then we can start the optimization phase.

And really, what happened now that we have a new both data and technology infrastructure, you essentially have to redesign the process as well as change the talent and the different type of work that is being done around those processes. And sometimes that can happen, the redesign can actually just happen fairly in a matter of months and sometimes you can take a little longer.

Now a lot of the benefit of optimizations will be on the supply chain, whether it's on the manufacturing or the logistics, both in the P&L and on the balance sheet. And of course, we will also start seeing some benefit of automation in our admin, right. So we'll see some benefit in both gross margin as well as EBIT margin. And on admin, I think we mentioned that in the past, now that we have a global data infrastructure, we're able to actually accelerate our adoption of Global Business Services, which will create further efficiencies on the admin side.

Now we do see all of those as just more inputs and initiatives to feed our pipeline of cost savings over the next few years and then just contributing to our goal of expanding 25 to 50 basis points. Our goal has always been to expand EBIT margin, but of course, we would want to expand gross margin generally in line with that because gross margin is really what creates the fuel for us to reinvest in our business.

And our next question will come from Lauren Lieberman with Barclays.

So in the reiterated guidance, you guys mentioned advertising still targeted at 11% of sales for the year. First half came in at 11.5%. So I think the implication is second half dollars are going to be down maybe like mid-singles. So just given how much innovation you have coming, I was just curious about the timing of that. If my math basically is right, but also if it is, why it would make sense to have your spending down year-over-year in the back half?

Yes, Lauren. So yes, there's a little bit of rounding. So I'll just make sure not to drive too much conclusion on the back half level. Having said that, keep in mind that advertising investments are generally not something that's planned top down, but really planned at the SBU level, at the business unit level. And they really integrated demonstration plans, balancing the investment across advertising and trade promotions. So with a clear objective of supporting both the innovation and reinforce superiority. So net, I think there's a little bit of shift, but when we look at the level of investment behind the innovations, we feel that they're adequate and quite strong.

Okay. So does that mean more is, I guess, in trade promotion to drive trial on some of this innovation?

Yes, I think it's both. Yes. That's right.

Okay. Okay. And then I had one follow-up question on litter. Just in the discussion of the relaunch, what you mentioned in the -- I can't recall if it's the release of the prepared remarks. The discussion about the innovation, there's packaging, but also some mentions on value and competitiveness, which did suggest potentially some price changes and just in keeping with Kevin's question, just curious in litter specifically, if there's sort of a reset on price pack architecture and pricing with this relaunch?

Yes, you read that right, Lauren. We are including price pack architecture work in the relaunch. We looked at our sizing lineup for litter, and we are making some adjustments to address changes in consumer trends, et cetera. So you will see that play through. And that will support also the innovation that we have and making sure that consumers understand the tiering that we have in our litter business. What value Fresh Step offers versus Scoop Away, et cetera, and of course, versus competitors. You will absolutely see a price pack architecture component of the back half litter plan in addition to the other things listed.

And our next question comes from Edward Lewis with Rothschild.

Yes. Thanks very much. Linda, interesting to hear you talk about the price investments. And I just wondered if you can look at the other side of the coin, when you consider the innovation plans. Specifically, are you able to pitch these new products at the historic premium what we would expect? Or does the current environment give you a pause when you consider the potential pricing levels?

Ed, we do a lot of work when we are testing innovation to say what the right value mix is. So what are the benefits that we're offering that are incremental to what's offered today in any given category, how differentiated are those, how strong does the brand play there and then what price makes sense given that benefit brand mix for the consumer. And what we're finding is that continues to be price premium and that consumers are willing to do that for a superior product and a superior experience. So you're seeing many of our innovations launch with a price premium.

And we're seeing many of our price premium categories doing very well. So I'll give you a few examples. If you look at our Home Care business, where we play in the full spectrum, so we understand this really well. We play in the most value-oriented segment with things like Clorox Liquid Bleach or our dilutables business with Pine-Sol all the way up to a much more expensive price per use like a wipe or even across Clorox ToiletWand, which is a significant premium versus other things.

And those are growing well. Wipes and our toilet business are tending to lead the category growth. Consumers are willing to pay for that time and ease convenience. That is a good trade-off for them to make. And we see the same with pure allergen, for example. Allergy sufferers don't have great solutions today, and they're willing to pay that premium versus what they do today in order to get that set of benefits.

I think though correspondingly, Ed, and I think it's to the questions that Kevin and Anna and others had, we are seeing consumers who really need to get the lowest price per use that they can, but they still want the branded players. So we also need to appeal to them. And we're doing everything we can to make sure we remove anything from our products that's not offering that value, invest those back in the brand, get the price and sizing right, and that matters to those consumers deeply. So I think the answer is, no, we just can't lean on price premium innovation.

It's an important component, and we see it working across all income groups. We also must get the value equation right on our core business. We're laser-focused on that and have better tools than we ever had to do it. And I think both of those are the answer to growing categories and growing share.

And we do have one further question. Yes. Our next question will come from Robert Moskow with TD Cowen.

I was wondering, Linda, I don't know if anyone asked this on the call about Purell. But you have a lot of categories that you're trying to juggle all at once and several of them are having some pretty significant weaknesses. And now you're adding the hand sanitizer category on top of it. What's the risk of getting distracted as you're trying to execute on the core business. To what extent will the Purell business kind of run itself, so to speak, for a few months before it's fully integrated?

Robert, really, when we sit back and think about Purell, this is leaning into a place where we've had very strong performance in the company for many years. If you look at our Health and Wellness segment at international, where a lot of our Health and Hygiene business resides, our Pro business, those businesses have continued to perform year after year, and we feel we're adding just another business with very strong tailwinds from a category perspective and lots of upside in both B2B and retail. And really, that combination will make the current plans that we have that we feel very -- are very strong and performing well even better. So we have strong confidence in our ability to do that.

And I would also call out, they have a very strong management team, a very talented team, advanced operations. And so we feel like that was another way we could have confidence in integration that we would be able to do this seamlessly. And of course, we are integrating in a very disciplined way to make sure that we're focused on the places where we can add value and not integrating in places where it does not add value. So we feel very good about that.

That being said, too, we are laser-focused on improving the performance in the categories that are softer right now where we've had less strong share performance. And we feel like we have made a turning point in our plans. We feel you'll see that reflected in the back half plans through innovation and improved share results and that we have our arms around those. And as you know, we've been a company of managing many categories and brands for a number of years and the way that our operating model is built is built to do just that.

We have dedicated teams that run our businesses. So nobody who's going to be working on the Purell integration has anything to do with Glad. While the Glad team will be laser-focused on continuing to improve performance as well all the other businesses in their individual business unit teams. So I would just reiterate, I think this is such a strong strategic financial fit for the company, adds to a very strong set of businesses that have been performing for many years. We have a 4% 10-year CAGR of growth, if you look at our Health and Wellness business, and I have every confidence that we can integrate successfully and continue to double down in a place where we've delivered year after year.

Our next question will come from Chris Carey with Wells Fargo.

I just -- I wanted to ask more logistically about the components of fiscal '27. Is it still correct to think about taking the impact from the ERP shift this year and then adding that back effectively in fiscal '27 and then assuming some underlying growth? So that's number one.

And then secondly, I ask this in the context of if market shares are perhaps a bit softer than expected for longer? I realize you got some innovation coming in the second half, comps get easier and these sorts of things. How would you think about using some of this incremental ERP get back and investing some of that back if these objectives that you have for the back half maybe don't come to fruition? So really just asking about the logistics of the model and how much flexibility you think you may have to lean in if you so desire?

Chris, yes, on the ERP, you're absolutely correct, right? As you remember, we essentially shifted some sales that should have been in fiscal year '26 to fiscal year '25. And so essentially, the current shipments and sales in fiscal year '26 are understated relative to the underlying consumption at the retailers, right? And so next year, when you have normalized shipment and sales, you would have a pickup of about 3.5 points on sales and a pickup of about $0.90 in EPS. Now I would say that's going to happen no matter what. And we're not seeing this as something that -- we make any investment decisions on the spend level, on our brand based on strategy and return on investment. And that is totally independent of the financial impact of the ERP next year.

Chris, I'll just add to that. Maybe just taking a step back, and I think it's getting to the point that many people are asking today just on investment levels and how we're scaling, et cetera. And just how we think about this philosophically. We are certainly in a time and we've seen this before in different contexts in the recession, et cetera, where the consumer is under more strain.

That being said, they've been fairly resilient. Our categories, we'd love to see them in the 2% to 2.5% growth range that we're accustomed to. They've been below that, about flat in the last 2 quarters, but we think between 0 and 1. So actually fairly resilient given what's happening, certainly very noisy and volatile. So lots of puts and takes across weather and government shutdowns and SNAP benefits. And looking at that noise, we want to make sure that we're not reacting to noise, but we're reacting to what's really going on with the consumer and what's going on in our categories.

We believe the right and the best way to grow categories for long-term value is to give people the very best experiences that we can with our brands. That those are superior to other experiences they can get in the category or for alternative options. We do that by innovating. We do that by ensuring that we have the right fundamentals in place so that we get our claims right, our packaging right. All of the components that give consumers the way to live their life at home with a product just a little bit better and easier. Save them time, save them hard work, make a meal taste better, bring people around the table. We fundamentally believe that's the right way to grow. And we're excited about our back half because they're very consistent with that.

That being said, I don't know exactly what the consumer environment is going to look like coming up here. We have made a set of assumptions. We've largely been in line for the last 12 to 18 months. But if that were to change or innovation plans were not to be -- do not come to fruition, we absolutely will make the right investments to grow our brands, grow our categories, protect our shares. We always want to get that balance, right back to Bonnie's question, on that and profitability, but we feel we have all the right tools in place to do that through the digital investment we've made and the additional capabilities we've built, as well as the pure firepower given our margin transformation and holistic margin management efforts, then if we need to invest more on our brands than we absolutely can.

But we feel like we're in the right place right now. We feel like we have a good plan. We're happy to see early, very early share results in January. We expect it will be up and down depending on the month and the plan, but we think we'll end this fiscal year in a different trajectory with some momentum, and we're excited about entering fiscal year '27. As you know, we build our innovation plans for multiple years. So we already know what we have planned for '27. We're excited about those plans. Retailers are excited about those plans. But I think like we have had to be and everyone in the industry had to be, we're going to be nimble. We're going to watch the consumer closely. And then we will adjust if we need to, to ensure that we are growing our categories and growing our brands. I appreciate the question.

And this concludes the question-and-answer session. Ms. Rendle, I would now like to turn the program back to you.

Thanks, Jen. As we wrap up today's call, I want to emphasize that we are confident in the solid foundation we've built over the last few years to make Clorox a stronger, more resilient company. We're investing behind our brands, delivering innovation that delivers superior consumer value and strengthening our portfolio in ways that position Clorox to more consistent profitable growth. We are encouraged by the momentum we see in our fiscal year '26 back half plans.

The addition of Purell and the capabilities of the GOJO team further extend that trajectory. Their leadership and innovation, combined with our scale and margin management expertise positions us to create significant long-term value. Thank you for joining us today, and we look forward to sharing more with you at CAGNY later this month.

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

Good day, ladies and gentlemen, and welcome to The Clorox Company Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference.

Thanks, Paul. Good afternoon, and thank you all for joining us on such short notice to discuss our company's announcement earlier today regarding the acquisition of GOJO Industries, the maker of Purell brand. Joining me today on the call are Linda Rendle, Chair and CEO of The Clorox Company; and Luc Bellet, CFO.

During today's discussion, we'll make forward-looking statements. These statements are based on management's current expectations but may differ from actual results or outcome. Please also refer to our press release and SEC filings for a discussion of those risks. We'll also reference certain non-GAAP measures, which are reconciled in our materials. Today's press release and accompanying presentation can be found on the Investor Relations section of our website. A replay of the webcast will be available at the same location.

With that, I'll turn the call over to Linda.

Thank you. As Lisah mentioned, we are all grateful that you're able to join this afternoon's call. As you saw, we issued a press release announcing we've reached a definitive agreement to acquire GOJO Industries, the makers of the Purell brand, a leader that is synonymous with skin, health and hygiene. Today, I will share more about GOJO, why it is a strategic and financial fit with Clorox and how it advances our IGNITE strategy to create value for shareholders. Luc will then go into details of the financial benefits, and then we will take your questions.

Let me first ground us in our core business in health and wellness, our largest, fastest-growing and most profitable business segment. Our trusted cleaning and disinfecting brands across retail and B2B deliver superior value and create a durable strategic advantage. Importantly, we've leaned into powerful consumer megatrends, including health and wellness, personalization, convenience and sustainable solutions to further strengthen our leadership and unlock long-term growth. By adding GOJO and its category-defining Purell brand, we're strengthening our core advantages in scale, innovation and distribution capabilities while unlocking a fully integrated offering with $3.5 billion in sales that expands Clorox's position in health and hygiene for consumers and institutional end users alike.

GOJO is an 80-year-old purpose-driven private company. It invented Purell, a brand that has become virtually synonymous with skin hygiene. As America's #1 hand sanitizer, Purell is a clear market leader and holds leading share positions across both B2B and retail channels. GOJO's deep commitment to innovation and delivering superior value in skin hygiene has built Purell into one of the most trusted names in homes, health care facilities, schools and businesses around the world. This strong foundation of deep customer and distributor relationships and best-in-class capabilities has resulted in decades of consistent performance in the fast-growing B2B channel. Today, GOJO generates nearly $800 million in annual sales and has a long history of delivering mid-single-digit growth with a 3-year CAGR of 5%. Its portfolio generates more than 80% of revenue through a broad and stable B2B network underpinned by roughly 20 million dispensers that drive recurring demand. The Purell brand, trusted for safe, effective hygiene is the leader in hand sanitizer across both B2B and retail channels.

GOJO is a great fit with Clorox and will create significant shareholder value with compelling strategic and financial benefits. First, it advances our portfolio evolution. This acquisition allows us to realize strong financial performance and capabilities in addition to strengthening our leadership with a trusted brand with both consumers and professionals. Building directly on our core strengths, we believe we can meaningfully accelerate Purell's growth.

Second, it positions us squarely in attractive durable categories. Skin health and hygiene benefits from long-term macro tailwinds where brand trust truly matters, and Purell has unmatched awareness, loyalty and credibility with consumers and end users. The skin health and hygiene categories have benefited from favorable and sustainable tailwinds, including elevated interest in hygiene and remaining healthy, increased willingness to pay a premium for quality brands and greater demand for smaller pack sizes. The addition of GOJO increases our exposure to these large and growing categories, allowing us to capitalize on attractive macro dynamics and shifts in consumer and category tailwinds.

Third, it unlocks meaningful profitable growth opportunities across end users. GOJO brings deep innovation, B2B relationships and capabilities with state-of-the-art vertically integrated manufacturing, over 680 global patents and cutting-edge dispensing technology. Clorox brings world-class brand building, consumer insights, innovation capabilities and retailer relationships. Together, we see clear opportunities to accelerate Purell's growth in retail while strengthening our professional business through an expanded single-source hygiene offering.

Today, approximately 80% of Purell sales are in B2B hand hygiene, while 80% of Clorox brand sales are in retail surface cleaning. These strong complementary market positions create a significant opportunity to drive scale leadership in health and hygiene and unlock substantial cross-selling opportunities across both B2B and retail channels. In B2B, GOJO is a leader with a durable installed base. We believe we can continue to drive core B2B expansion through premiumization and new B2B segments. GOJO's B2B reach and capabilities will also bolster Clorox's already strong professional business as we leverage its commercial, manufacturing, R&D and regulatory experience and expertise. With GOJO, we can lean into complementary B2B vertical strengths, particularly in education, health care, office and government to increase share of wallet, improve customer penetration and grow share.

In retail, where Clorox is a household name, we have a sizable opportunity to accelerate Purell's growth potential. Despite limited focus and investment to date, Purell leads the category in both aided and unaided brand awareness. And despite being the leader -- the leading national brand, its household penetration is only 14%, suggesting a significant opportunity as part of our powerful and trusted brand portfolio. By bringing the Purell brand into Clorox's portfolio, it will benefit from our industry leadership, proven brand-building capabilities, consumer-led innovation, distribution and deep retailer relationships.

Through our disciplined approach, our focus is centered on incremental growth opportunities that enhance brand meaning and relevance while remaining complementary to the broader Clorox portfolio. And finally and importantly, the culture fit. GOJO and Clorox share a purpose-driven mindset, a commitment to science-based innovation and a focus on long-term value creation. GOJO has a stellar management team and talent base with world-class manufacturing facilities. This gives us strong confidence in integration and execution as we retain the capabilities that make GOJO's model work and integrate in a way that preserves relationships and service levels.

GOJO adds a stable recurring revenue stream that is accretive to growth, supports our long-term sales algorithm and provides a consistent earnings base. We are excited about the growth synergies I walked through earlier, and we expect meaningful run rate cost synergies driven by our combined scale and proven holistic margin management capabilities. Luc will speak to the financial details shortly.

In closing, this is a compelling combination that makes Clorox stronger, more resilient and better positioned for consistent profitable growth. We are excited for the opportunities that will be created from the addition of GOJO to our portfolio as it expands our leadership in health and hygiene, strengthens our strategic advantages and extends our collective reach across B2B and retail channels. We look forward to welcoming GOJO and the Purell brand into Clorox, and we are confident in our ability to integrate, execute and unlock the full potential of this acquisition to create significant long-term value for our shareholders.

With that, I'll turn the call over to Luc to walk through the financial details.

Thank you, Linda, and good afternoon, everyone. I'll provide an overview of the key financial takeaways and details related to the acquisition.

As we announced earlier today, Clorox has agreed to acquire GOJO Industries for approximately $2.25 billion with $330 million of anticipated tax benefit, resulting in a net purchase price of $1.92 billion. The deal will be funded primarily through debt financing. We expect to complete the transaction by the end of the fiscal year, subject to regulatory approval and other customary closing conditions. From a valuation perspective, this transaction represents an adjusted EBITDA multiple of 11.9x net of anticipated tax benefits and an adjusted EBITDA multiple of 9.1x on a synergized basis.

Turning to GOJO business fundamentals. GOJO has a durable recurring revenue stream reflected in its long track record of mid-single-digit sales growth and a stable earnings base. As Linda mentioned, approximately 80% of its revenue is generated through the B2B channel, supported by a refill-based model and strong distributor relationships. Importantly, this portfolio also benefits from strong consumer tailwinds with faster-growing categories.

Building on GOJO's strong stand-alone sales, we expect upside potential from executing the growth synergies mentioned across both B2B and retail channels and category adjacencies, which will further accelerate growth. In addition, GOJO has a strong margin profile with adjusted EBITDA margin in line with that of Clorox. We are confident we can achieve at least $50 million in run rate cost synergies and deliver margin accretion by leveraging our combined scale, efficiencies and holistic margin management capabilities.

Looking at the financial structure of the deal. The transactions will primarily be funded with debt, raising our net debt leverage to about 3.6x at closing. We expect to be back to approximately 2.5x by the end of calendar year 2027.

GOJO generates strong cash flows in line with our targeted level of 11% to 13% sales. The combination of Clorox's and GOJO's strong cash flows as well as significant anticipated tax benefit from the transaction support our confidence in reaching our target leverage ratio while continuing to support dividends.

In summary, we expect to deliver strong financial returns, create long-term shareholder value and accelerate the financial performance of the company. The transaction is expected to be adjusted EPS neutral on the first year, and we expect to deliver accretion in the second year. Overall, we expect this transition to enhance Clorox's ability to deliver its financial algorithm more consistently.

Lastly, in conjunction with today's announcements, we are reaffirming our top and bottom line outlook for fiscal year 2026, excluding the impact from the transaction.

We will now transition to Q&A, where we'll take questions related to the transaction. As a reminder, we'll address your questions on our Q2 results when we speak to you again during our earnings call on February 3. Paul, you may open the line for Q&A.

[Operator Instructions] And our first question comes from Peter Grom of UBS Financial.

Congratulations. So I guess I wanted to ask a couple of questions just on the growth trajectory of the business. So just the 3-year CAGR of 5%, I think the slide mentions that more than 80% of the business comes from the B2B channel that grows faster. Can you maybe just help us understand what the B2B growth looks like relative to retail? And then I guess, underpinning the B2B growth, how much of that has been driven by growing penetration of dispensers versus growth from kind of the existing footprint? And then just lastly, as we look ahead, kind of the 5% CAGR that we've seen over the past couple of years, is that a reasonable target moving forward?

Peter, I'll kick us off, and then I'll hand it to Luc to talk about some more of the details. But this is attractive in both the B2B and retail space from a category perspective. So as we shared, they've grown about mid-single digits for a very long time, and most of that is from category growth on both sides. And so we are excited about opportunities in both to continue to expand in B2B, and we see lots of opportunities to do that, as I outlined. And then we see significant opportunity in retail. They still only have a 14% household penetration. So there's lots of room for growth. But we're feeling that both categories are faster growing and accretive to our average category growth.

And so Peter, I think it's safe to say that this will be accretive to our growth and really support our long-term sales growth target of growing 3% to 5%. I think 2 things. First, the acquisition really adds a stable and recurring revenue base that has been growing mid-single digit consistently for many years, and we expect to continue. And this is really supported by the refill-based model that Linda just mentioned as well as strong consumer tailwinds.

Now in addition, as Linda mentioned, there, we see upside from the growth synergies mentioned both in the B2B and the retail channels as well as potential categories adjacencies. So when we look at both of those items, we expect the business to grow mid-single digits to high single digits for years to come. And so if you really just translate down on what might be the impact to the company, that would really just translate to about 30 to 50 basis points structurally for years to come.

And our next question comes from Kaumil Gajrawala of Jefferies.

I guess the first question is a little bit on timing. This business has done well for a long time. It's profitable, and it's been around and private for, I don't know what it is, 70 years or so. So sort of why is now the right time? Is it -- why is it now the right time maybe for them, the right time for Clorox to do what's, I think, one of the largest deals that you've done in maybe forever?

Kaumil, thanks for the question. Certainly, a large deal for us. We're very excited about it. And thanks for the question on timing. This is a really unique opportunity to have a company like GOJO that has been growing really solidly for decades and been able to take a brand like Purell and build that into a world-class brand. But they're at a point now where they see so much opportunity and they need a partner to help them do it. And at the same time, on our business, we've had great success in our Health and Wellness business. And if you look at the 10-year CAGR for our Health and Wellness business, it's been 4%. It's our largest, fastest-growing segment. And so we see the opportunities that they have that they feel like they can't unlock on their own. And certainly, our opportunity to continue to accelerate progress on our cleaning business as a way to do this at scale. And so we really believe it's the right time to come together and advance this. And the other thing that I'd mention from a timing perspective, we feel good about our plans for this year. You heard us reaffirm our outlook on top and bottom. It's certainly been a difficult environment, but we're seeing our plans come to fruition. Obviously, we'll talk more about that coming up on February 3. But we're confident in those plans, and we feel like we have a disciplined integration plan, and we're ready to go. So I think if you talk to both of us, we would say this is the right time because we feel the scale of this, the opportunities on both sides, these 2 complementary organizations coming together offer exactly what's needed for us to continue to accelerate growth.

Okay. Got it. And maybe from the context of returns, Clorox has always been very good at thinking with an EVA mindset or returns mindset. We have your sort of accretion guidance that you provided in the press release, but how are you thinking of the returns, especially in the context of a business that is expected to grow mid-single digit, high single digit, plus the $50 million. Where does that return profile look like versus what you guys use for your own WACC?

Yes. Sure, Kaumil. I would say, in addition to the strong long-term strategic benefit, the acquisition is expected to deliver very strong financial returns well above our cost of capital. And of course, we always compare those returns relative to other potential use of cash.

And our next question comes from Anna Lizzul of Bank of America.

My understanding is that GOJO had a deal that fell through to one of your peers in 2023. And I was wondering if you had looked at GOJO at that point in time. And I know, just building on the last question, what makes the company more attractive almost 3 years later versus at that point in time if you had taken a look or if you had passed on that? And also, Purell has been around for a while and it launched in the consumer market, I think, in 1997. What do you see here as maybe additional distribution opportunities or innovations for that brand?

Yes. I won't comment on the old process in any detail. Certainly that I don't have. But I would just maybe remind you, in 2023, we went through a cyber attack. So we were busy recovering from that. But I'll tell you, we've long admired this brand. We've long admired this company. And we've been watching them over the years, growing and always keeping our eye to see what the next step was and would there be something we'd be able to offer them and with what would they be able to offer to us. So this is certainly the right time.

And then from a retail perspective, we're really excited about the opportunities for Purell because they are so strong in B2B and they have tremendous innovation capabilities and regulatory capabilities and manufacturing on that side and they have really cool dispensing technologies, et cetera. They've just simply not had the time to fully focus on the retail side. And they've done great work. I mean they're a [ 45 ] share position, they have a very strong position in that channel, share leading, but they haven't spent much marketing. They don't devote as many of their innovation resources to the retail side. So we believe unlocking our brand building, our marketing capabilities, our innovation machine, consumer insights as well as our holistic margin management program that we can do to make sure that we continue to drive efficiencies is really going to help us accelerate this business, and they're really excited about what we can bring to the table on the retail side.

And our next question comes from Robert Moskow of TD Cowen.

A competitor of yours bought a competitive hand sanitizing brand that kind of competes at the higher end of the spectrum. I was wondering if the Purell brand had been impacted by the growth of that high-end competitor in any way at retail or whether it's been undisturbed?

Yes, Robert, we've seen -- this is a place where the category is expanding and new users are entering, so we haven't seen any meaningful impact. It gets us excited about the opportunity here. Younger people care about this category. They are aware of hand health and hygiene. These kids grew up in COVID. So they're very aware, and we see category expanding opportunities, I'm sure, just like our competitor does.

And our next question comes from Filippo Falorni of Citi.

So maybe, Linda, given you mentioned the big opportunity in the B2B channel and the fact that it's already 80% of Purell sales. Can you give us a sense of the addressable market there? How you're thinking about it going after those opportunities? What is the penetration of Purell in some of the big B2B channels, I think offices, airports and so forth, where you really see the opportunity?

And then in terms of competition, can you talk about like how is it different there? Like it seems like they have a clear advantage relative to retail. And maybe like within retail, there's obviously a premiumization asset, but there's also a private label competition. So how are you thinking about the competitive landscape in retail versus B2B?

Thanks, Filippo, for the question. Why don't I start there on the competition side. And if you look at the B2B space, this is a place where they have very deep B2B relationships in a number of verticals and actually very complementary verticals to what Clorox has. So we see both sides being additive, where we have a very strong portfolio of items in certain verticals, they have a very strong set of items in other verticals. And so we see the ability to cross-sell is really high.

From a competitive perspective, just like we do in retail, there are private brands in this space and other smaller brands. But this is a place where branding really matters. And in fact, if you see the dispensers on the wall, you'll see they are branded. And this gives people the reassurance in a space where hand health and hygiene and skin health and hygiene is incredibly important. You're talking in hospital waiting rooms, doctors' offices when you're traveling, that brand means so much. And the Purell team has done a terrific job in ensuring that they get dispensers on the wall, that those are branded, that consumers at those places in B2B are reassured that they are using a product that's going to work. And so we see continued opportunity, one, to expand into different verticals with an enhanced end-to-end solution. And we see the opportunity to continue to get dispensers on walls. And of course, we have the installed base of 20 million dispensers already out there. And those dispensers stay on the wall for about 7 years, and we're consistently selling refills. So competitive set, we feel good about and much like we compete in today on our B2B business.

On the retail side, I think I'm going to tell you a story about the power of this brand. It was one of the things that we have been following, and we experienced some of this during COVID, but I think this gets you maybe to the same place we are about how special this brand is. During COVID, the Purell team had to make what was a very easy and a very difficult decision at the same time. They had to stop selling their brand in retail in order to supply enough doses in the professional space. And they worked tirelessly day and night to get as much capacity as they can, but they literally went to a 0 share in retail. And I think everybody thought, okay, hand sanitizers was just going to be commoditized, et cetera. And of course, the team went back to a large customer and said, hey, we believe in the Purell brand, give us a test. They did. It was an immediate success. And in well under a year, they were back up to a 45% share, and it was expanded nationally nearly overnight. That's the power of this brand.

Consumers, even when they had years of being exposed to private label, choose the branded player. They want the experience. They want the germ kill. They like the overall formulation, et cetera. So I hope that helps you understand what we see as the power of the brand, even being out of stores for that long for consumers to come back and for retailers to get it back in stock so fast.

Great. That's helpful. And just on the B2B following up, like any sense of like addressable market and the market share within B2B?

We'll talk more about some of the details coming up here. But here's what I would say. We are a leader in hand sanitizer. We're the #1 share. And so they have a very strong position. And it varies by, as you can assume, verticals, and they're very, very strong in health care. They're very strong in government, et cetera, but they are the leader in B2B.

[Operator Instructions] And our next question comes from Lauren Lieberman of Barclays.

i was just thinking back to kind of the 2020, 2021 time frame when you guys really increased your focus on building your own B2B business. I know it had been a part of IGNITE, part of the strategy for a while, but you really saw that as an opportunity to accelerate. Maybe you can talk a little bit about sort of what the hurdles were to that playing out in a more substantive fashion? Because one of the things that strikes me that the Purell business as strong as it is, it's still going through distributors. So to get that cross-sell, it's not really a direct sale, it's still through the distributor network. So just little thoughts maybe on lessons learned from, let's call it, like your first direct go at the channel and how you can leverage that as you now look to capitalize on the cross-sell opportunity with Purell?

Yes. Thanks, Lauren. Our Poett business for a very long time, and thank you for acknowledging that, has been a strong contributor to the company, growing mid-single digits. And certainly, you call it in the right period in COVID, where there was ups and downs to everyone's business. We had years that were much stronger and then we had to lap some of that. But overall, this has been accretive to the company and a mid-single-digit grower. And what we have found, which is a really unique position in the B2B space and Purell has exactly the same and complementary position is the power of a brand that consumers recognize that's in a form where the brand matters, it's right when they wash their hands or when a nurse is wiping down a station in a hospital room and they're worried about what disease has been in there. That brand matters. The quick form matters. It's not the diluted chemistries in the back that a janitor is using, but this is reassuring a human who uses these same technologies in their home that they're getting the right experience. That has been an unlock for the Clorox brand. And we have seen Purell do exactly the same thing.

And so the lessons that we're applying together, scale will be helpful here. So this is a place where some of our growth is limited by our limited scale in B2B. So this makes our portfolio significantly bigger. And to your point on distributors, in many cases, we are selling to these large end users directly now. And Purell will have that capacity and capability to do that, and they have very sophisticated relationships with these end users. So we feel there's significant upside there.

I think the other lesson is there's halo going both ways. So when you are doing marketing in the retail side, that is impacting the B2B business and the purchase decision as well as when you have a dispenser on the wall that says Purell or a canister that says Clorox, consumers are noting that that's what doctors and nurses are choosing, that's what airports are choosing, and that reinforces their behavior at home.

So we think this is a very unique place to play in B2B, where there's ready-to-use products with strong margin profiles and really the consumer branding matters. And the lessons for us are scale, which GOJO brings, innovation matters in the space. You have to have the very best of the technologies, and we do and Purell does as well. And then I think to your good point, this requires a different selling organization, which we have a lot of skill in our professional business, but GOJO brings a different level of that to the table.

And our next question comes from Andrea Teixeira of JPMorgan.

We -- I was just like hoping to see some -- to get some clarity on the execution of some of the synergies. And Linda, you and Luc have both talked about the opportunity to distribute and the low household penetration. I'm assuming none of those are included in the numbers you provided today. Just curious how we should see it evolving, the timing of the cost synergies. And then as we go into the revenue synergies and innovation, how we should be thinking at the path forward to get the realization of that?

And then related to that, I understand you didn't give us like the actual EBITDA and backing out the debt that you're getting from the transaction. I mean you're obviously financing, as you said with that, but you're also like assuming some debt. So if you can kind of help us with the timing and how to absorb and how to take that leverage, as you pointed out, to 2.5 and how long it would take?

Andrea, I'll start, and then I'll hand it over to Luc. If you kind of take a step back on what this brings, we certainly see the opportunity for growth and revenue synergies. And as Luc highlighted at the beginning, their CAGR for the last 5 years -- 3 years, excuse me, has been 5%, so mid-single-digit grower. And what we see is opportunities in both the retail side and B2B side, getting us to mid- to high single digits over a number of years. So you can see we -- the 2 companies coming together offer significant opportunities on the growth side.

On the cost side, we highlighted the $50 million. And I would say we've been fairly reasonable and conservative on that. And as well as we plan that into the time line and how we're going to integrate, we feel very confident in our ability to deliver those and hopeful that there's upside given our holistic margin management tools, et cetera.

Maybe one of the things I would note on that timing and as we think about integration, we have, as I said, a very detailed thinking on how we will integrate. We have a disciplined way of thinking about the value creation and when we will do the different parts of this integration to ensure that we're getting those value pieces. But I feel great because I feel like we've been conservative and that we have strong line of sight to what we just shared in terms of both top line and bottom line.

And maybe I can take your question on the debt. Yes, as we mentioned at the time of the close, our debt leverage will increase to 3.6x. And we are confident that we can take this down to 2.5x by the end of calendar year 2027, okay? And so I think given the combination of Clorox and actually GOJO's strong cash flows as well as we have the benefit of anticipated tax benefits in the first 2 years that will be fairly material that will help us repay some of the debt, and we're confident that we will reach our target leverage ratios while being able to continue to support the dividends. So I would say near term, like balance sheet discipline and deleveraging as well as supporting dividend is really our priority, and I will take priority over share repurchase. So we do not expect to make any share repurchase until we reach our targeted debt-to-EBITDA ratio.

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

Two quick ones, I hope. Linda, can you and Luc as well maybe comment on the scope of the due diligence process and how you got comfortable with this? How you can get investors comfortable with this asset and integration risk. I guess just given some of the history with Clorox and perhaps some of the transactions, which maybe did not perform as well as you would have hoped. And I ask that in the context that this is a decent-sized deal relative to the company's market cap. So maybe just some comments here around due diligence, comfort and integration risk. And then I have a follow-up.

Sure, Kevin. I'll get started. As you can imagine, we went through an extensive due diligence process on this. And we went deep getting to know their business, getting to know inside and out what's going on in regulatory manufacturing, what goes on in innovation, et cetera, and we were really excited about what we saw. And then we spent time thinking a lot about our own business and were we at the point where we felt that our businesses were on the right track according to our plan, and we do. And we spent a lot of time with our Board of Directors and our advisers ensuring that we were ready to go on integration. And your point is fair. We haven't made an acquisition in a while. But I do feel confident given we made 2 divestitures and although that isn't nearly as complicated, you still have to unwind a lot of things in your company, and we did that seamlessly. But we've been spending time building capability in this space.

The other thing I'd note is the comment that I made when Andrea asked her question. We've been fairly conservative in the assumptions on the synergies, and we have timed those to ensure that we are very, very thoughtful and disciplined on this integration. And we have a team ready to go once we close to get that going. But our Board, our management team, we've been preparing for this moment for a while. We look at a lot of assets. This is absolutely the right asset for us and a place that we have shown strong performance for many, many years and where we're ready to jump on it, and we have full confidence we'll be able to execute as well as deliver on our core plan.

Great. I agree. And -- go ahead, Kevin.

No, please, go ahead. And I have an unrelated follow-up, if you don't mind. Go ahead.

Sure. No, I was going to reemphasize that I think the acquisition case is based on a fairly conservative approach on cost synergies. So we have a high degree of confidence in achieving at least $50 million and seeing material upside. As we combine the businesses, we expect cost synergies across the entire structure and including material savings in supply chain, manufacturing, logistics, procurement, there's a lot of overlap, I think complementarity.

And -- but from a timing standpoint, we expect to see the majority of cost savings probably completed in the next 2 to 3 years, and that's actually reflecting what Linda just mentioned. There is really a strong governance and plan in place to both realize the synergies in an efficient manner while maintaining the strong and derisked integration as this is really our top priority.

Okay. Very good. The quick follow-up, and I appreciate the time. Just the ability to innovate in this product category. So I think historically, has been known very good execution in some tough categories, more prone to higher private label penetration. What would you say on the push to that? Is this not just kind of doubling down on another more commoditized sort of product category that's going to be more difficult and more sort of prone to private label penetration. So any comments you have on the innovation pipeline or in response to that sort of push would be appreciated, and I'll pass it on.

Sure, Kevin. If you just look at the categories, they have tailwinds beyond what many of our categories have from a growth perspective, and those have been pretty durable tailwinds for a long time. And this business has grown for mid-single digits for a very, very long time. And even coming out of COVID with all of the noise of that, that's returned to that stability. So we feel very good that the categories are accretive and that innovation works in these categories.

In the B2B space, this team is an incredible lineup of innovation from the dispenser to the refills to the product. And maybe we'll show some of this coming up here at CAGNY so that you can see it live in action, but they have a very sophisticated innovation department, very sophisticated on the dispenser technology and other things that we'll bring to life in CAGNY in more detail.

And then on the retail side, there's a lot of opportunity in form. We also see category expansion opportunities with the brand. But we have seen time and time again, these are the types of categories because brand matters so much, because product experience matters so much, just like they do in Clorox, that we are able to innovate, command a premium and continue to advance the category. And the like, I'd say, Kevin, why we have so much confidence is not only Purell's performance, but our own, and I'll return to the point.

Our Health and Wellness business for a 10-year CAGR of 4%, that is significantly accretive to the company. And so -- and we've done that time and time again in a place I think many of you have argued could be commoditized and has a risk of private label, but we've been able to create new experiences for people, make it more convenient, give different forms, take on new tasks. And there's plenty of room to do that in this category, just like we've proven for many, many years in our Health and Wellness business.

And our next question comes from Olivia Tong of Raymond James.

Can you talk about what the growth for Purell looked like pre-COVID? Just was it also in that mid-single-digit percentage or what? And then as you think about the opportunities ahead of you, can you talk about how this helps the existing business and whether you think there's more opportunity leveraging their B2B reach for the Clorox brands or your ability to bring Purell into more households? And then lastly, what do you think about the international opportunity here? And I guess, just as importantly, your ability to capitalize on that international opportunity?

Thanks, Olivia. On the growth piece, this has been consistently growing mid-single digits for a very long time, decades. And of course, like any business, it can have ups and downs depending on the year. And certainly, COVID was a time where there was incredible growth and then had to come back just like we did from a wipes and other disinfecting perspective. But this has been a mid-single-digit grower for a very, very long time, consistent with what their last 3-year CAGR was at 5%. And again, we see opportunities to go beyond that given the combination of the 2 companies.

On the existing business upside, what we're really creating here is a scaled end-to-end solution. And that's true both on the retail side, and I'll maybe give you an example of how that could look and then certainly on the B2B side. From a B2B perspective, I mentioned a little bit about this, but we have a lot of strength in some verticals, and they actually have a lot of strength in complementary verticals. And we think a bundled offering creates more relevance to those end users and opens up more conversations, more opportunities to sell because in the B2B space, you don't want to be working with a bunch of small manufacturers, et cetera, and Purell has very deep relationships in the B2B space. We have good relationships as well, but they happen to be in different verticals. And so we see the cross-selling opportunity of our powerful Clorox and other brands we sell in Professional, and Purell is additive to growth and something that we couldn't do alone.

And then on the retail side, let me just give you an example of how this might come to life. Today, we have a very big cold and flu program, for example. Back-to-school is another time where we're really introducing people to our products, and it's been fundamental to household penetration growth over the long run and fundamental to that 4% CAGR that I spoke about over the last 10 years. It's an opportunity to create scale with a solution for skin health and hygiene, surface health and hygiene that we haven't had before in a more material way. And these are the things where 1 and 1 starts to equal 3. And we're pretty excited about those opportunities in addition to applying scaled capabilities in this space, things that we're doing on consumer insights. Internally, we get a lot of scale from that end-to-end solution, but we really think this is an opportunity to lead even more than we do in health and hygiene in both retail and B2B and unlock opportunities we just couldn't do on our own.

International, Olivia, I'm going to -- before you have to correct me for not answering that one, let me jump in and cover international. We have very little international upside, if any, really, in our case. And so that -- they do have an international business. It's about the same slightly smaller percentage-wise than ours is. Ours is about 15%. This is slightly lower than that. But here's how I would think about it. This is one, just like we have in our Health and Hygiene business in international, it has been a strong grower. You see our international business growing mid-single digits. It's mostly a cleaning business. And we will approach this the same way as upside. Where we have opportunities to create scale in the markets that we're in, where Purell maybe already is or is not, we will do that work. Of course, we will first deliver the valuation case, but we are absolutely looking at opportunities that we could take this and expand our growth in international.

And our next question comes from Chris Carey of Wells Fargo.

So yes, just maybe more bigger picture and strategic. So we have a transaction today, which is a form of doubling down on cleaning in your kind of core categories, core competencies. We have a recent transaction to exit the VMS business. There's been some consolidation in international. Do you think it's overreached to view this as broader strategy to refocus or increasingly focus the portfolio behind areas that you have scale? And we get questions all the time about just why the portfolio is the way it is? And what is the long-term vision? Are we -- is it fair to think this is in the construct of a broader thought process on the portfolio, which is evolving as we're seeing sluggish category growth rates and high levels of competition, a higher level of focus on portfolio at the Board level? Or is this just kind of an interesting opportunity that you've been watching for some time that kind of came together? I just love any thoughts on that. Any sort of context that you could provide on kind of the bigger picture and what it all means with the longer-term aspirations of your business, that would be helpful.

Yes, Chris, this is absolutely leading into our strengths. And let me maybe back up to why. When we first launched our IGNITE strategy back in 2019, we spoke about evolving our portfolio being a very important component and that we wanted to increase the health of our core business, but we also wanted to lean into consumer trends and that we were looking for businesses that were accretive to growth for us and profitable. And of course, the last 5 years have been quite busy since we released that strategy between COVID and cyber attack and everything that's been going on, but we've been diligent at work looking for what is the right place where we could place a bet. And clearly, we feel very strongly that our business in health and wellness is very strong and something we can build upon, create more scale. We have advantage. And we've proven it time and time again, we can grow market share. We have sales accretive to the company at 4%. And if you think about the size of that business, nearly 40% of our business is in the Health and Wellness segment. And then if you look at international, which grows mid-single digits, that adds another 15%. So we do see this as a move of getting stronger where we're strong. And of course, we'll continue to evaluate our portfolio with that lens. We're always doing that with our Board. We were ready to go when this opportunity presented itself because of that work. And we remain open to other portfolio moves that are aligned with our strategic position and continuing to make us a stronger, more resilient, faster-growing company.

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

I don't think these have been covered. I'm sorry, I joined a little bit late. The first one is just on the, I guess, the manufacturing process for the Purell brand and the supply chain. I think that's mostly manufactured in-house. If you can confirm or discuss that. And to the extent that it is, can you talk about just, I guess, the capacity and whether, based on your growth aspirations, there's growth CapEx and cash costs that we should think about associated with the, I guess, the asset intensity of the business?

Steve, yes, thanks. No, this is an incremental question, so thanks for asking it. Manufacturing, this is one of the areas we were so excited to learn about as we got to know this company. They are in-house manufactured, vertically integrated, and they invested in significant capacity during COVID, and we have plenty of room to grow. We also have room to drive the synergies that Luc spoke about, that $50 million come in a number of formats, manufacturing included and our ability to use some of that capacity and including other places like procurement, logistics, et cetera. But they have state-of-the-art manufacturing facilities and of course, products with all the patents that they run through there, but they have a very, very strong and a place -- a very strong manufacturing process and discipline and something that looks just like the Clorox company, and that's why we're so confident in the integration.

Perfect. And then I guess on the margin profile, of the business. I guess, the gross margin profile relative to the current portfolio and if there are, I guess, any differences between B2B and retail and to the extent that the business shifts over time -- mix shifts over time more to consumer and retail, just incremental advertising needs, just how the P&L of the Purell business may evolve to the extent that there is an evolution to think about there?

Yes, Steve, I can take that. So not unlike our professional business, there's a few differences when you look at the line item on the P&L. For example, you mentioned it gross margin is a little lower, but operating expenses as well are lower. Over time, I think what we probably will see is the benefit of the synergies that probably be like the biggest incremental change. And you might -- as we -- there's an acceleration potentially on the consumer side, you're right, we could see some change in advertising and sales promo. So maybe just a balance. But net, we expect margin to increase going forward, mainly driven by the benefit of the synergies.

And this concludes the question-and-answer session. Ms. Rendle, I would now like to turn the program back to you for some closing remarks.

Thank you for your questions today. As we close out the call, let me leave you with a few final thoughts. The acquisition of GOJO Industries expands Clorox leadership in health and hygiene. It builds on our strengths, leverages our unique advantages to accelerate Purell's growth and will enhance our B2B offering. Importantly, today's announcement reflects continued progress against our strategy. As you've seen, we've been executing a series of deliberate value-creating actions to accelerate profitable growth. This has included expanding our participation in attractive categories, fueling brand-led and consumer-driven innovation, modernizing our capabilities, including our digital transformation, streamlining our organization and importantly, evolving our portfolio. Today's transaction represents us leaning into our largest, fastest-growing and most profitable segment, health and wellness.

In closing, I'm excited about this compelling opportunity for Clorox, and I'm confident in our ability to execute and create long-term value for shareholders, customers and teammates. Thanks again, and we look forward to sharing more on our Q2 earnings call on February 3.

This concludes today's conference call. Thank you for attending.

Ladies and gentlemen, good day, and welcome to Muthoot Capital Services Limited Q3 FY '26 Earnings Conference Call hosted by Elara Securities India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Shweta Daptardar from Elara Securities India Private Limited. Thank you, and over to you, ma'am.

Thank you, Vikra. Good morning, all. On behalf of Elara Securities, we welcome you all to the Q3 FY '26 Earnings Conference Call of Muthoot Capital Services Limited. From the management today, we have with us Ms. Tina Muthoot, Whole-Time Director; Mr. Mathews Markose, Chief Executive Officer; Mr. Ramandeep Gill, Chief Financial Officer. We express our gratitude towards the esteemed management of Muthoot Capital to provide us the opportunity to host this conference call.

Without further ado, I now hand over the call to Mr. Mathews Markose, Chief Executive Officer, for his opening remarks, post which we can open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Shweta. Good morning, everyone. First of all, let me start by wishing you all and your loved ones a very happy and prosperous 2026. We are happy to connect with all of you once again to announce our Q3 results. While I'll give the -- let Ramandeep, our CFO, do the broad numbers, I would take you through the -- all the things that happened in Q3.

Q3 was an extremely fantastic quarter for the entire automobile sector with the GST rate cuts and the festive season coming together, it was a bumper quarter and all vehicle segments saw a huge growth. Overall, for the calendar year, the year has ended with almost 10% growth with 2-wheeler and passenger vehicles leading the growth, both almost touching double-digit growth figures. So all in all, it was a very good quarter for all the OEMs as well as the financials as well because the share of financial has also increased.

The new things that has happened in the credit industry is the emergence of the new-to-credit profile, which is the below-25 age group borrower segment. That has significantly increased. There is a Y-o-Y growth of almost 11% in that segment, and that is bringing in a whole lot of new customers into this credit space. And as usual, Muthoot Capital Services always had a 50-plus percent share of NTB, new-to-credit borrowers, and therefore -- and we've had the core competence of underwriting credit for such customers. So we're proud to say that we've been instrumental in bringing a whole lot of new people into the credit segment -- into the formal credit as well as into the formal economy because most of these people also open new accounts while taking loans with us. So we are actually inducting more and more customers every quarter, every month into the formal economy as well.

On the broad numbers, I think what has changed drastically for us this year and particularly this quarter is that we've shifted our focus from earlier, it was a hybrid model where we used to do co-lending, BC as well as our own business. However, our focus has drastically shifted towards the self-sourcing of Muthoot Capital Services' own business and through the businesses done by our group companies. So the share of group company business is constantly increasing, while the share of co-lending and BC partners is constantly reducing. That is a strategic move to make our capital more effective because we are getting better yields on our own sourcing compared to what we were getting from the co-lending and BC partners. So -- and therefore, we decided to reduce that share. That has seen a slight drop in the overall numbers for us, where -- but if you look at the share more closely, we -- the MTSL-owned business has grown by about 20%, 25%, whereas the share of the co-lending has come down drastically by about close to 70%. And that would see in the numbers. But as I said before, Ramandeep, will take you through the broader numbers.

I will take you through the tech initiatives that we have implemented this quarter. We have collection as our main focus because after the credit underwriting part, most important component of this business is how effectively you can collect. And we have done a lot of tech investments in the collection piece. So we adopted a new collection app from our loan originator for our LMS, which is Fin One, that's called MCollect. And we've also started issuing all the sales team, the first 6-month collection has been given to sales team, and therefore, they also use the MCollect app. And then we implemented a strategy builder on the collection side, which can predict which customer should be approached through which medium because some of them respond to SMS best, some of them respond to WhatsApp best, some of them respond to calls best. And all of these was a manual process. The collection strategy almost was a manual process. That has been completely automated now, and it's an AI/ML-based model, which predicts which customer should be approached through which mode, and that has seen a lot of improvement. Our slippages quarter-on-quarter has been coming down, and we expect to continue the same trend in Q4.

On the other initiatives that we have taken on the tech side, we have brought in agentic AI-based telecalling, which is reducing our physical strength of telecallers. And the cost has seen a drastic reduction, and the number of calls that we are able to make has drastically improved. All the team that used to take about 1 month to reach out to the customers can be done in just a matter of 1 day because of the bot is capable of making any number of calls. Also, of course, the proportionate cost reduction is an added advantage to that, which will accrue over the next quarters in our financials as well.

We were also able to launch a new product, which took baby steps in construction equipment finance. We had launched commercial vehicle last year. And at that time itself, we had said that we would be going the entire journey of having all the product -- all the products on wheels under our folio. And as a step towards that, we have launched construction equipment last month -- last quarter, and we've started taking baby steps in that business. Q4 onwards, that business also will start increasing.

And as I had mentioned before, the used 2-wheeler product is also ready and is under UAT. So hopefully, in January, we will be able to go live with that also. So by the end of the calendar -- financial year, we will have all of these products offered over the counter from our staple, which is new 2-wheeler, used 2-wheeler, used car, used CV, used construction equipment and the loyalty loan, which is a top-up loan over and above our 2-wheeler customer base.

We also saw growth in our retail FD book as I had mentioned in previous call that we have put up a retail liability sales team. So our retail FD book grew by about INR 26 crores in the quarter, and that has been the best growth for us. And we will continue leveraging on that growth story. And our aim is to cross INR 100 crores by the end of March, and that is where we will be reaching.

So I think all in all, the quarter was good for us in terms of both numbers in terms of -- you are aware that the first 2 quarters were low in terms of profitability, but we've been able to cover all of that and show strong results in Q3, and we will continue to grow at a rapid pace in Q4 as well.

With that, I would hand it over to Ramandeep to take you through the broader numbers. Over to you, Ramandeep.

Thank you, sir. Good morning, all, and a very happy new year to all of you.

Talking about the numbers. In this quarter, we did INR 626 crores of disbursement. While doing that, we have added 64,458 customers, and we have taken our total live customer base to close to 6 lakhs now. This has taken my total AUM to INR 3,399 crores with a balance sheet size of INR 3,944 crores. The borrowing for the company stood at INR 3,198 crores, which took debt to equity of the company at 4.81x, and this -- the CRAR of the company stood at 22.49 percentage. The GNPA of the company on cost, we have reported 5.93 percentage, whereas NNPA 3 percentage.

The total growth from the quarter 3 of last year till now, the company has seen wherein last quarter 3 of '25 financial year, the total AUM of the company was INR 2,832 crores. That has gone up to INR 3,399 crores in this quarter.

Now when we say in this quarter what we have done, so last year, the MCSL portfolio, I just wanted to give you a breakup of the portfolio between MCSL and the co-lending as our CEO, sir, has said. Last year, at the same time, MCSL portfolio was INR 1,911 crores. Now in this quarter, we are closing at INR 2,712 crores, marking a growth of 42 percentage in the MCSL portfolio only.

On the co-lending side, we have reached at a height of INR 939 crores as a co-lending closing portfolio. Now that has been brought down to INR 685 crores, marking a degrowth of 26 percentage in the co-lending portfolio on a year-on-year basis.

On the product side, the company has 4 products effectively, wherein 2-wheeler takes the overall share, whereas -- and that has been -- and there are 2 more products which have been introduced by the company in the last financial year, which are used car and CVs. On 2-wheeler side, the company has seen a year-on-year growth of 15 percentage, whereas loyalty loan, we have seen a growth of 149 percentage. The products which were new to us are 4-wheeler and CV. From 4-wheeler side, we have seen a growth of 84 percentage year-on-year, whereas on CV side, we have a remarkable growth of 476 percentage year-on-year.

Now talking about the NPAs of the company and what is the kind of impairment expense that we have incurred that people can also analyze in the financials as well. Product-wise, first, we'll talk about -- we'll have splitted it into these 4 products, which is 2-wheeler, used 4-wheeler, CV and loyalty loans. On my 2-wheeler, the AUM of INR 2,308 crores, we have reported an NPA number of INR 214 crores. Of that, the provisioning has been made as INR 111 crores as a 50 percentage provisioning. On used 4-wheeler, the AUM stood at INR 136 crores with NPA of INR 2.40 crores. On that, the provisioning is INR 2.81 crores. And on the CV side, the closing AUM is INR 186 crores with INR 75 lakh of NPA. The provisioning here is INR 2.5 crores. Loyalty loan, we are closing an AUM of INR 50 crores with an NPA of INR 1.48 crores. Provisioning is INR 86 lakh, which is 50 percentage. On CV and used car, since these are new businesses for us, that is the reason impairment expense for this is higher than the NPA. So overall impairment for this, including Stage 1, 2 and 3, if we take on the NPA, it is more than 100 percentage.

Now talking about the business of the company. Last year at the same quarter, we did INR 845 crores of business. In this year, we did INR 625 crores. Primarily, the growth we can see in the NCSL portfolio. But yes, in the other portfolio like partnerships, we have seen a degrowth here.

Rating of the company in this quarter, CRISIL has upgraded us like A+ was there. Now that has become A+ with a positive outlook -- a positive outlook with the A+.

Now from the revenue side of the company, we can analyze from the P&L as well. The comparison has already been shared for the year-on-year. So for the first 9 months of the last year, the company has posted a revenue of INR 336 crores. In the first 9 months of this financial year, the company has posted a total income and revenue of INR 463.85 crores.

The finance cost of the company, which was for the first 9 months of the last year stood at INR 156 crores, that we have closed at INR 237 crores, which can be -- which is basically a contribution towards the increase in the AUM. The OpEx of the company, which was INR 123 crores in first 9 months of the last year, now in this year, we are reporting at INR 163.76 crores. The impairment expense, which was only INR 2.82 crores for the first 9 months of the last year, now therein, we have seen it has gone up to INR 54.59 crores, which has given us a bit of it in the profitability of the company for this year.

In this year, the -- taking the conscious call because we knew that from the Q4 of the last year onwards, slippages were happening in the NPA. So company has took a conscious call of taking my LTV from which used to be 84.57 percentage. Now that has been brought down to 79 percentage as an LTV on which we are operating.

The overall yield on which the blended yield on which the company is operating is 20.42 percentage, where incremental yield for the Q3 onwards, the sourcing that we have done for 2-wheeler, we are operating at 22.25 percentage. For CV, we are operating at 17.39 percentage. And for 4-wheeler, we are operating at 18.36 percentage. Loyalty loans, we are operating at 24.92 percentage.

So this is -- and we have also seen an income in the form of insurance income, wherein we have taken a corporate agency at the start of this financial year. In this quarter, we booked the income of INR 2.31 crores. The partners are Godjit, Lombard and Across Assist.

On the portfolio side of the company, the standard assets of the company stood at 93.55 percentage and remaining contribute to the Stage 3 asset, which including of interest comes at 6.45 percentage. Bucket-wise analysis we did on my 0 bucket stood at 83.77 percentage, which is fairly good as compared to the last quarters. On the source-wise analysis, when we do the dealer channel contribute 8 percentage of the NPA, whereas alternate channel is contributing 7.5%. And on the segment-wise analysis, when we do our 4-wheelers, when we say used car, this is contributing 1.75 percentage of the NPA and my CV is contributing only 0.40 percentage.

CEO, sir, has also spoken on the slippages. Yes, in the Q1, when the company has reported a loss at minus INR 4 crores, wherein we can see the slippages when we say slippages, which means percentage of flow forward towards my standard AUM. It used to be 0.91 percentage. That has been gone down to 0.80 percentage in Q2. And in Q3, we have reported at 0.65 percentage. So it's a good achievement wherein basis on this, we can see that the worst which we have seen in Q1, that has been over. And in Q2, we have seen an improvement. And from Q3 onwards, we are onwards and upwards, specifically for the NPA side of the company.

When the slippages were so high, the rollback, the repo sale and the recoveries from those NPAs have been increased substantially in this quarter. So therefore, what we have seen -- we have taken a detailed study wherein we have taken help from the outside consultant to build an ECL for the company in Q2. In that, we have seen -- what is the LGD for the various product on which the company has to operate. So for 2-wheelers, since the company -- we have the data since inception, we have taken the total LGD of the company, which was coming to 28 percentage on a conscious call, we have added 2 percentage extra there. Now on my 4-wheeler and my CVs, wherein the company is not having enough information since we have started recently, we have taken a market study of that. On that, we have posted an LGD of 40 and 45 percentage. That is what we have taken a feeler from the market. So which is fairly high. Therefore, keeping the entire view where the LGD of the company should operate at, we -- the PCR of the company was at 60 percentage and that 2 from last 12 to 15 months. And seeing the trend wherein the roll forward to NPA has also been brought down from 0.91 percentage to 0.65, the company has taken a conscious call of bringing down the PCR from 60 to 50 percentage, and therefore, the release in the overlay has happened in this quarter.

Apart from them, one more change has happened. We have also analyzed the portfolio wherein the company is not getting recoveries from those portfolio and DPD is fairly 450 days plus. So we have taken a portfolio of D3, D2 and D1, wherein no contribution is happening. And because of that, because of no contribution is happening from this portfolio, the numerator keep stagnant. And when I said that MCSL portfolio is growing, whereas we are consciously taking efforts of not growing the other partners, co-lending and BBC portfolios are not growing, so which is basically giving me a hit also in my overall GNPA.

This GNPA has not been created. Now it is basically coming from the pool of D1, D2 and D3. So therein, we have taken a call here wherein INR 14.09 crores of the entire pool has been written off by the organization in this quarter. So write-off call has been taken with the factors that, okay, the recovery is not coming from this pool from over a year or so, and DPDs overall comes from 450 days and plus.

Before taking that call, what we have done, we have also analyzed the static pool, which I have also shared in the investor slide this time. The month 5 and month 6, month 5 onwards to month 12 to month 18, we have analyzed that if a case is on the book, then the NPA trend, when it moves to Stage 3, what is the contribution? So when -- at month 5, we have seen it has gone to 1 percentage, at month 8, it has gone up to 3 percentage. In some period, it has gone up to 5 percentage as well. Whereas for the sourcing that we have done from the last 12 months or so, we have seen that month 5 has almost become 0 now and month 8, which used to be as high as 4 to 5 percentage, that has been gone down to 1 percentage only. And month 12, which has reached to 7 percentage has now been gone down to 4 percentage.

So with these factual things and seeing the improvement in the fresh flow, seeing the improvement in the Stage 3, the entire calls have been taken, which I have just explained.

Then there's one more thing we also compare if we take -- then what is my ECL versus IRAC of the company. As far as the RBI classification and following the RBI norms, IRAC norms, the company needs to have an impairment of INR 72.93 crores as against still we are holding an impairment of INR 120.91 crores, which is INR 47 crores in excess from the IRAC norm. And we want to keep it unless we see a further growth in next -- further improvement in the NPA in next 12 to 18 months from now onwards.

The securitized pool of the company remained at INR 554.34 crores, whereas the non-securitized pool, which is the own portfolio, it stood at INR 2,824 crores. When I say securitized, it is basically contribution through PPTC only. And DI is a very small portion, which is INR 2.72 crores

The ARCs which company had done 2 years back, now 2.5 years back, that is performing extremely well. We have been able to bring it down, our first ARC, by 72 percentage. And second ARC, which we have done in September 2024, we have been able to bring it down by 40 percentage. Because of the calls that we have taken last year by doing this ARC, we have been able to bring our GNPA down. And as I said during those calls that we want to attract more of PSU funding from the banks. The results are there in the entire financial year of last year, we have taken INR 435 crores from the bank, where in the first 9 months, we have taken INR 740 crores from banks only. So therefore, the relying on the higher cost funds from the market has gone down. That has also helped us in bringing the overall cost of funds for us.

Now in this quarter, one more thing, we have closed the green bond also, GuarantCo. That transaction has also happened. That has also been shared in my investor slides as well, wherein we have taken a contribution from Axis Bank INR 150 crores, another contribution wherein we are closely working with another investor plus capital so that we'll be able to close this deal in next month itself. So that is something which is INR 300 crores of fund that has been provided for a period of 6 years. So on a vintage of 3 years of my portfolio, the churning will happen 2x.

Talking about the shareholding pattern of the company, the promoter stood strong till now. They are at 63.33 percentage. The retails standing at 26.31 percentage and remaining is contributed by the corporates.

Additional facilities, which the company has borrowed in this quarter, stood at INR 437.44 crores with an ROA of 8.82 percentage. That INR 437 crores has a breakup of short term of INR 55 crores and long term of INR 382 crores. So by -- during this year, we -- and we always compare from quarter-to-quarter only, and this is a comparison which I want to say for quarter 2 and 3, whereas if you see the changes in the new NCD raised by the company, the rate has been gone down by 0.53 percentage. In my new CPs, which have been raised by us from quarter 2 to quarter 3, it has -- the overall rate has been brought down by 0.60 percentage. The PTCs have been brought down by 0.4 percentage, whereas working capital demand loan from the bank in Q2, that has been brought down by 0.06 percentage. And in Q3, it has been brought down by 0.13 percentage.

On the fixed deposit side of the company, the company has made a remarkable growth in Q3 as compared to Q2, wherein the growth stood at 243 percentage. We have raised INR 25.81 crores from the fixed deposit of the company, taking the total book at INR 67.28 crores with the aim to close at more than INR 100 crores by the end of this financial year.

Talking about the structured liquidity and the ALM that has been filed by us to RBI, we can clearly say that there is no cumulative mismatch as of now. The liquidity of the company remains firm, wherein we are always reporting an LCR of the requirement from the RBI is 100 percentage. We are hovering around somewhere around 115 to 125 percentage, which is a very, very good sign. The term sheets and the sanction on hand will -- has already provided us enough strength to say that we'll be able to maintain this LCR for the next 2 quarters as well. So now -- and then the overall investments in the overall yield, which the company does in terms of my PTC investment, SLR investment, the fixed deposits that we have with the bank, we are carrying an overall yield of 7 percentage. In quarter 2, wherein I had a borrowing cost on my ROI at 9.66 percentage, in quarter 3, I'm reporting this as 8.82 percentage, which is a very significant change, a drop. And the XR of 10.30 percentage has been reported at 10.09 percentage. It is also a very significant drop.

With this, I would like to hand over the call to Shweta to take the questions. Thank you so much.

[Operator Instructions] Your first question is from the line of Amit Mehendale from Global Capital.

My first question is on loan book. Sir, how do you see loan book in FY '27 and '28? And also, there was a discussion last time on 2% ROA on the last call. So how do you see that? Do you see you hitting ROA of 2% in next year?

Sir, do you want to take loan book question first?

Yes. Okay. I'll take the loan book question. So this year, we should end up closer to INR 4,000 crores as against our initial estimate of close to INR 4,500 crores, and we've kept it lower because after seeing the Q1 numbers on slippages, we brought in a lot of changes in our underwriting policies. And some of the locations which were deemed as higher risk, we put some curbs there. And that is what Ramandeep had explained that the average LTV has gone down from about 86% to about 79%. So those are -- all of those are part of the credit intervention.

But having done that and seen the results on the existing portfolio and how the new portfolio that has been created this year has behaved, we are confident to go along with the growth path. So the earlier guidance that we had given as a part of our strategic objective is to become a INR 10,000 crore AUM company by 2028.

We are not revising our guidance. So according to that, we will calibrate our -- so next month, when we go into our budget session, we will build our budgets around that number so that we don't miss that 2028 mark of INR 10,000 crores. So that's the broad guidance. This year, we should close with around INR 2,500 crores of disbursement. And next year onwards, we should look at anything close to INR 4,000 crores as additional incremental disbursement. Raman, you can take the question on ROA.

Second thing, okay, thank you so much for asking this question. So as I said in last quarter also, which I missed saying when I was initially speaking to you, I have also said one more thing in last quarter that we'll be doing a DA, right? And that was also a part of the plan, which we wanted to execute in Q3.

Two reasons stopped us. Number one, the portfolio growth has to come. Now we know that overall portfolio because our partnership is not growing and doing a DA at the same time, the growth will not come, number one. Number two, the deals that we wanted to do, we wanted to do a fairly large ticket wherein the overall cost of the company has to go down. So that is the reason all those trends which I have shown, okay, my Stage 3 asset trend in month 5 to month 12 is going down. That is all helping me in securing a deal now. So with that, the overall costing of the company can also be saved.

So we have tried that, but the deal size and the rate of the deal has not matched as well. So in this quarter, we want to do that. This will help us in bringing up my overall ROA for the closing year. Second thing on the next year, then what will happen is based on my Q3 results, wherein I have seen the slippages improvement, I'm expecting the same slippages to continue, right? And sorry, I'm expecting some same slippages between 0.65 will become -- either will stay 0.65 or lower, but the overall denominator will grow. So which means the total NPA and the GNPA of the company would be much lower. So those numbers also we have received internally. We are just working on it, how it will look like.

With this trend, I am expecting a good ROA for the upcoming year as well. But most importantly for us that how we close this FY. So based on all the workings that we are having, we are trying to close one transaction of DA with a good NPA numbers at the end of next 2 months. So we are -- we people will be able to communicate the exact ROA numbers, which will be close to at the end of next quarter call. That's how we are going to go in the upcoming financial year.

Sir, if I may look at the quarterly numbers, if your NII, for example, Q3 is about INR 74 crores and OpEx is about INR 58 crores, so if I do basic math, it leaves us with about INR 60 crores a year. And if I take a steady-state 2% provisioning on the loan book, that also gives me about INR 60 crores. So I don't know how you're calculating, but I don't see any number anywhere close to 2%. And maybe you can correct my numbers, quarterly numbers, that will help.

Yes, yes. So I'm just opening that file only now. So when you say NII for this quarter, you have seen INR 74 crores, wait a minute. I am just opening that. Yes. So NII...

[indiscernible] [So CapEx is about 58 ].

Yes, you're right. Sir, 2 things will contribute to this NII, which I have also tried and shown there, but I will explain during -- with the maths only here. The incremental ROAs, I am at 20.42 percentage, which I have said in my call. And my incremental ROA has become 22.79 percentage. So that ROA is something which is contributing towards the top line. Number two, my cost of funds are going down. And number three, the impairment cost, which is -- which you have taken at 2 percentage, I am, as of now, is 1.25 percentage on the entire book. And this is what we want to continue with the same. So with that, I'm expecting good numbers because when you see that your overall top line will increase by 2 percentage, on a business of around INR 2,600 crores, which is a basic average business, when you take the 2 percentage growth, the INR 52 crores would be additional on that, right? And when you see that 0.50 -- 0.50 cost -- 0.50 percentage of your cost of funds will also will go down. And that is evident from the trend that we are seeing right now, right.

We are expecting a good number, like even if we raise, say, INR 1,300 crores for next year, on that, we -- 0.50 percentage would come around. If I'm not wrong, it would come around INR 7 crores to INR 8 crores as a contribution towards -- from the finance cost as well. So this is what we are expecting. And I hope I'm able to answer some bit of your question.

So just to clarify, so 2% on the entire book, you're expecting yield to go up.

Yes, yes. So entire new book. I'll tell you, I'll tell you. So next year would be a beta on the 2 percentage of the book that has been created for 16 months, 12 months for next year and 4 months for this year, okay? So the average yield was 12.5.

So as you are disbursing now currently for this quarter, the new disbursements are at 2% higher yield. Is that correct?

Yes, yes. Yes, yes, yes.

Okay. I think that's great. My second question is, which is also a follow-up on this is that 1.2% assumptions, I'm not sure how sacrosanct this is because if you look at -- we're adding INR 40 crores as an NPA addition. And I don't see much recovery as well. So any color on how you are taking 1.2%? Also, if I look at steady state for many years, at least it is 1.5%, 1.6%, if not 2%.

Yes, I'll tell you. So we have taken 1.25 percentage as my cost towards the impairment. So why I have taken them? So there are 2 parts to it. Number one is how my Stage 3 NPA will behave. So when we say that earlier, it used to, at month 5, month 8, it used to flow at 2 to 4 percentage, now it is at 1 percentage, right? So that is something which is -- which will help us.

Number two, from the yearly -- from the -- since inception, when I -- as I also said in the call, we have also built a model with that what sort of LGD that the company is operating since inception till now. So there are recoveries, much recoveries from the NPA that we are seeing. How those recoveries are coming, even if you see that the portfolio that we have sold to ARC 3 years back. Now from that 76%, recovery has also came. I mean this is the fastest-moving ARC portfolio, which you will also appreciate that fact.

The portfolio which we have sold 2 years back to ARC, on that, also 40% recovery has also come, right? So it is just like wherein we -- if we are able to trace the HIP customer or if we are able to repossess that vehicle and all, so therefore, the chances of taking recoveries from those customers [ multifolds ] at the same time.

So therefore, I am expecting on the old book, yes, whatever happened in Q1 and Q2, wherein we have to provide impairment expense at a higher cost. On that, slowly, the recovery will start coming. And that hit, we have already taken in the account. So when that hit will we have already taken, that impairment expense will get reversed over a period of time, and that is how we have seen in the past as well.

I would add to what Raman has said. When you are talking about a steady-state impairment, you are only considering 2-wheeler as a portfolio. But if you look at our incremental portfolio, we are adding more from the other businesses where the delinquency, per se, is much lower than the 2-wheelers. So if 2-wheeler at 30-plus at an industry level, it's about 7.6% to 7%. These products have a delinquency of less than 3%, okay? So the incremental book that we are building are on a -- and that was precisely the reason why we wanted to diversify into multiproduct and products which are much safer from a lending perspective.

So that book is increasing, and obviously, that will result in lower impairment and lower slippages going forward. So that will add. Secondly, after the corporate agency license that we've already started billing insurance income as a steady-state stream of income, and plus the fact that we've also added roadside assist as an additional product for cross-sell, all this cross-sell will also add to our top line revenue.

Right. I have one quick suggestion before I end. It will, I think, help if the management commentary at the beginning is limited to 10, 15 minutes so that each many participants get opportunity to ask questions. Typically, all of us, all the analysts look at the PowerPoint before attending the call. So maybe just a suggestion from my end, and that's it from my end.

The next question is from the line of Rohan Mandora from Equirus.

So I just wanted to understand, when you're talking about INR 4,000 crores of disbursements next year, current run rate is around INR 600-odd crores. So like what are -- what will lead to a step-up in the disbursement run rate to almost INR 1,000 crores quarterly? And 3Q being a good quarter where vehicle sales were good, why did we not see an uptick in the disbursement run rate in 3Q?

Okay. I will take that question. So we had a steady disbursement of -- so last year, if you look at, we disbursed INR 2,900 crores. This year, because of -- as I mentioned, we had done a policy correction and it took some time to stabilize, we will end up with about INR 2,500 crores of disbursement.

With the market expected to grow at around 10%, this number is imminently possible. I don't see that as a huge jump from the current levels. And these numbers are easily achievable. In fact, we were heading towards that number this year till we put on the brakes in Q2. Otherwise, that number wouldn't have been a challenge at all.

Addition of new products, which are at a much higher ticket size. So our principal product used to be 2-wheeler for a long time, which had an average ticket size of INR 85,000. Our car loan average ticket size is closer to INR 5 lakhs, CV is around INR 8 lakhs. And CE that we have recently introduced has an average ticket size of closer to INR 15 lakhs. So the higher ticket size products and the portfolio growing there will naturally help us increase our disbursement numbers.

Right. Sir, ticket size angle is right, distribution on the connect, how can you originate these incremental loans? Some color around that? And specifically also on the policy correction part that you said, if you can touch upon what were the specific measures that you took?

Okay. So we did 2 things broadly. One was a location risk scorecard, which is -- we've categorized locations into high risk, low risk, medium risk, severe risk, et cetera. And based on that, then we also work with CIBIL to build a customer level scorecard. So CIBIL gave us a color coding of every customer instead of just giving a point-in-time score of 750, 700, whatever, CIBIL looks at the 36-month track on the bureau and is able to color code the customer into a green, yellow, orange and red category. Green is very low risk, yellow is medium risk, orange being high risk and red being severe risk. We outright reject the red categories. And on the green, yellow and orange, we marry that with the location scorecard, where green across the board will get certain LTV, certain rates and all that, whereas an orange will vary with the risk of the location per se. So if an orange customer in a low-risk location comes, maybe we are -- we tend to give them a higher LTV and a lower rate, whereas orange in a high-risk location, we'll give a much lower LTV. We -- the gate criteria gets increased significantly so that only the good customer who genuinely want to come on board will come on board and not anybody who just wants to try their luck. So that's what we've done on the credit side.

Sure. And sir, you also alluded to 50% of the new originations are new-to-credit customers.

50%.

I just want to understand like in terms of your filtration criteria, like other than, say, the location or the cohort from where he's coming, like one, what is the profile of these customers that is a sweet spot for us? And secondly, like are there any customer-specific parameters that we look into while underwriting these customers? And how has been the portfolio behavior of NTC versus existing customers -- existing new-to-credit customers in the last 2, 3 years?

Okay. So one more change that we have done other than the ones that I've already spoken about is that we used to have some 90-plus schemes. And any particular customer taking opting for one scheme, irrespective of the location, irrespective of the customer profile, we will get the same LTV, same rate, et cetera, across the country. That was our previous model. Now we have reduced these schemes only into 3 categories: income, asset and no income.

So income customer is one who has a credible income source who is able to show an income document, and based on that, we do the underwriting. An asset customer is somebody who has an own house proof, which we verify with an online document, which can be verified online. So here, it is not considerably enhancing the credit profile of the customer. However, we know that the customer is contactable because he will not run away. He has his own house, which is worth some amount, which is much, much higher than the loan that we are giving. And therefore, he's not going to run away. He is contactable. And therefore, at some stage, at an eventuality, we will be able to either do a settlement with the customer or do a repossession so on and so forth.

And the NIP is the riskier segment where we have consciously reduced our LTVs to ensure that only the right profile who has some equity to give will get onboarded. When the customer has -- in this business, the biggest part is about how much the equity customer is willing to put. If the equity is very low, the interest in servicing the loan becomes lower. But if equity is substantial, one, we don't incur a loss if we have to finally take a call or reposition. And two, the customer, since he has an equity put in, he also ensures that even if there is a slight default, he continues to pay the loan and close the loan. I hope that answers.

Yes. And lastly, we have seen a 10% Q-on-Q drop in PCR versus historical trend of 60%. So any specific thought process here?

I think Raman had explained, we did a complete redo of our ECL model and was done by one of the big 4s. And they looked at last 8-year data and looked at our LGD, it was coming to only 34%. So when that was at 34%, we didn't see a reason to keep PCR at such a high level, and that was a conscious call that we discussed internally and with the Board and finally decided to take that call to bring it down to 50%.

Incrementally we maintain around 50%.

Yes, yes, yes.

The next question is from the line of Vinod Krishna from Avendus Wealth.

Am I audible?

Yes.

Yes, yes, you're audible.

Sir, if you can -- because you -- although you are getting into new loan products, its percentage is still small. So when you say in 2 years, you're going to FY '27, '28, you're going to go to INR 10,000 crores or INR 8,000 crores, do you think really that kind of a step-up can happen in non-2-wheeler loan, sir?

The step-up can. This market is very big, okay? So actually, we have not even scratched the surface of the opportunity. These products, we wanted to see how it is going to shape up in the first year. So we went in a very, very calibrated manner. So the credit policies were kept very strict. So if you see this year across the industry on CV, passenger cars and 2-wheeler, there was an uptick in the incremental delinquencies, but our delinquencies on these products are sub-1%. And that is because we kept the gate criteria very, very strict.

So now that we have some comfort, our RC pendencies are in these products are the lowest in the industry. So all of those structural things which is required for this business to grow are currently in place. The credit team is in place. The business teams are in place. The SBUs are clearly verticalized. There is a separate P&L being monitored. The business heads are accountable for the P&L. So those structures which is required to scale up or basically to say a foundation has been clearly laid. Now how much high the superstructure has to be built is up to us because the foundation is pretty strong. So -- and the market is huge. So both these factors put together, we don't see a challenge in scaling up these businesses.

And if you see in the last con call, you have guided INR 800 crores on the conservative side, but we have still only disbursed INR 600 crores. Any reasons? And how do you see about your year-end guidance of reaching INR 4,000 crores?

Okay. So thanks for asking that. So 2 things. So if you look at our last year quarter 3, we did INR 842 crores. And based on that, our estimate was that. But in that co-lending was INR 243 crores. This year, in this INR 624 crores, the co-lending is only INR 40 crores.

So somewhere this year, we took a conscious call for 2 reasons. One, if you look at our leverage, we are already at 4.8%. We had to conserve our capital, and we didn't want to do it at a low-yielding product which was co-lending. Two, our co-lending partners are not able to match up with the FLDG requirement. And therefore, we said, no, no, I didn't -- this is not the right way to go ahead. So we curtailed that business, and that is what has impacted. So it was a very, very calculated call. We could have gone beyond INR 800 crores by increasing the co-lending share, but we decided not to do that. It was a conscious call in the interest of the investors and the company.

So what would be the revised disbursement for Q4, sir? What do you think we'll end up at?

We want to -- without taking any co-lending, we want to restrict it to INR 600 crores for Q4.

But next year, you will go to around INR 1,000 [indiscernible]?

Start scaling up from -- yes. So obviously, not from Q1. So the INR 600 crores can go to, say, the INR 750 crores, INR 800 crores in Q1. But then Q3 is the biggest. So next year, Q3, we will really go hammer and pumps. That's the plan. And by this time, all these new products like construction equipment, used 2-wheelers would have stabilized, the teams would have stabilized and then we will be able to scale up.

So any ROA targets that you can give for next 1, 2 years, sir? And how you will reach there?

Raman, will you take that question?

Yes, yes, I'll take that question. So guidance for this year, as I said in the last question as well, we want to see how the Q4 turns up for us. If we see a good number in Q4, both in the kind of sourcing and most importantly, the NPA of the company is going down. Obviously, the -- I am -- right now for 1 quarter, I have to provide for an impairment of INR 15 crores to INR 18 crores. If that we are able to save, then I will be able to save around -- for 4 quarters, I'll be able to do INR 60 crores, INR 62 crores from that expense only. That is something which will decide that where we are in terms of that.

See -- so in Q3, we have seen a good glimpse of my NPA going down. In Q4, I'm expecting the same number. If that's going to happen, then obviously, that 1 percentage, 1.5 percentage, which I am right now focusing on my impairment, that will get released, and that will be something which would be a bare minimum, number one.

Number two, I have also told that my incremental ROA is going up. So therefore, I am expecting a good contribution of 2 percentage on the entire book of 15 to 16 months in the next year. And number three, my cost of funds, which is going down that we have seen in this year, the first 9 months, I'm expecting the same trend to continue for the next 12 to 18 months. So with taking all these 3 crucial parameters for the entire business, so we can analyze the ROA at our end that yet it's going to be good only. I will not commit one number at this point of time, but at Q4, I will be having a good view on the ROA for the next year as well.

Just a follow-up question on this, my last question. Sir, if you see in the last 8 years, we have not gone -- not able to keep up our guidance and especially on the underwriting part. So can we say now that we have done the repair work in terms of our underwriting collections, partnerships and whatever technology, and you're confident that at least 3% ROE will come at INR 10,000 crores? Or are there anything more that you have to do in terms of teams and if you can -- because we have not got our guidance right in a big way.

I missed your question. Last 8 years, what?

The last 8 years, if you see the track record, we have not -- we have changed our -- of late, post-COVID, especially we have changed our underwriting. We have put a new tech, new teams. So because we are not getting our guidance right, so are we like very sure that -- have we done all the things that we have to do to make sure that the INR 10,000 crore journey will be much smoother than what we had in last 6, 7 years?

So I don't know about the last 8 years a bit because last to last year, we were at INR 2,000 crores. And today, we are at INR 3,400 crores. And on the AUM, last year, we had committed INR 3,000 crores as our exit AUM, and we met that exit AUM. This year, we had committed a little over INR 4,000 crores, but we've curtailed a bit to reach closer to our INR 4,000 crore AUM. So I don't know -- yes, ROA, there's been -- see, we are a largely 2-wheeler player. And you know what happened in the, what do you call, microfinance segment and the sector, there was a spillover. So these are all kind of black swan events which you can't predict. But broadly on our numbers in terms of delivery, we've been able to meet up with our delivery numbers. So I don't completely agree there on the fact that last 8 years have not met our numbers. Yes, there are blips which come because of these kind of events, and we are strong enough to -- and or resilient enough to live through those. [indiscernible] comfortable time and still come out strong. So I think that's the strength of the company.

No, no, sir. My point is if you see black swans are happening at much more frequency than can be called black swan. So are we ready in terms of the systems and processes that -- that's my question.

We are ready, and we will continue to invest in all the right technology, all the right platforms. That's -- at a group level, the decision is very clear. So we will be up the curve on all the new interventions that come in at various points in time.

The next question is from the line of Tejas Khandelwal from Equity.

Am I audible?

Yes, you're audible.

Yes. So sir, I've been tracking the company for many quarters now. And asset quality pressure has been building consistently. And in every earnings call, each time I have asked about it, the response has been very confident that things are under control, Ds are going to happen and our profits will come and whatnot. And sir, even in the last quarter, the guidance which you had given about INR 60 crores PAT for second half, that was very unrealistic. And this Q3 result is very disappointing because, sir, without that big provision release of INR 20 crores, the result would have looked very horrible.

And sir, on the growth side, with -- while the 2-wheeler sector showed very massive numbers this quarter, but our advances grew just 3% quarter-on-quarter. And if you look at disbursements, so those are down by 26% year-on-year. So sir, honestly, we feel very misled by the repeated optimism that has not matched the numbers. So I have one question that are we going to keep getting the same unrealistic positive commentary? Or can we expect a more realistic outlook from here?

I will take on the growth part. Thanks for putting this question. Very clearly, since there was a deterioration in our credit quality, as any company which is wise would have taken the call, we have also taken a call to calibrate our disbursement. It was not meaningful to continue with the same pace of growth without putting some checks and balances in place, and that is what we have done. So therefore, it has seen an impact on our overall numbers. And that is also a result of why our ROAs have also gone down. One of the commentary that we had given last time is about we will be able to close a DA, which as our CFO clarified that the DA transaction did not happen because our overall AUM did not grow to the extent that we had anticipated or we curtailed the growth. We had to take a call not to do that DA transaction.

But we -- all the structural part, we have put in place, and we continue to believe that we are on the right trajectory. There could be some shortfall on a quarter-on-quarter basis. But overall, we remain committed to the broad numbers of growth and ROA that we are giving to our investors. And we will ensure that -- like as I said, on the previous gentleman who had asked the question said that 8 years we've missed. So that is not the case from INR 2,000 crores to INR 3,400 crores, we have grown in the span of 1 year and 9 months. And so that's been, I think, a very significant achievement for a company which was only a 2-wheeler loan company.

Now we have expanded. So multiple areas that we have given a commitment on, we've been able to deliver. Number one, diversification, which is on -- from a 2-wheeler loan company to today a multiproduct company. Number two, on a geographic expansion, which was a very, very Kerala-, Karnataka-centric business model to a pan-India presence. Number three, on AUM growth, which we've shown that we've almost grown by 50% last year. This year also, we'll end up on an AUM growth of closer to, I think, 30%, 35%, which will still be better than the industry.

Yes. On the impairment part is the only place where I think we have missed the budget. So I tend to disagree with you on that because I think -- but for that impairment part which we have -- which actually pulled us down. And that is a very, very critical because of which we had to curtail many other things on the periphery. But other than that, I think we have been very, very conscious on the commentary that we give on the commitments that we give, and we try to meet up those numbers. And it's a very, very genuine effort towards meeting those numbers.

That much I can assure you. We can have blips based on certain sectoral issues and things like that. But on the commitment part, we stand very, very strongly committed. The group stands very, very strongly committed. And as a group, we are a group which has whole a lot of credibility, and we will continue to keep those credibility intact. The current management is completely committed towards keeping the integrity and the credibility of the group, and we will not fail the investors. That's a very, very strong and firm commitment from our side.

However, we may have those blips, which are -- some of them are way beyond our control. Some of them are in our control, but maybe we could have done better. So those things happen in business, and I fully accept as the person in charge of the management, I accept the shortfalls, and I'm willing to correct that. However, I don't agree on the fact that we have not met any of the commitments where I have a complete disconnect on that. I hope I'm able to answer your question.

Yes, sir. One of the few commitments which you have made is on the growth side. So I agree that the AUM is growing, and our top line is growing. But sir, this is profitless growth and I think which is not for the shareholders because the company has shown a very...

Which I agree, which I agree. But then see, you are not giving time to the management also. So for instance, we were trying to fix multiple things, okay? So we've been fixing many of those things. Some of the places we have slipped, and I admit that. But you have to give some time to the management because we've been able to show growth in so many areas like diversification of geography, diversification of product, increase of AUM, then you have to believe in us saying that, yes, we will be able to show the last mile also on the profitability, and we are fully committed to that. Yes, yes, when you are trying to fix too many things together, there will be 1 or 2 things which may slip, and I take full accountability of that, and we are committed towards that.

Yes, that I agree. But sir, since last many quarters, sir, you have spent so much on technology and restructuring your underwriting framework, still your NPAs have gone from 2.2% to 3.6% just year-on-year net NPAs. And without that write-off, sir, the gross NPAs would have also looked very bad.

So I agree again with you there. So I think one and the only factor which we have gone wrong is the curtailment of NPA. And again, as you say, technology is not something that you deploy today and you see the results tomorrow. It takes some amount of time for the technology and the scorecards to work and the machine to learn and then give us guidance on what is the future. So that's a work in progress, and I can assure you that's a very, very genuine work in progress.

This is the only thing, if I have to agree to that. The only thing that we have missed on curtailing is the NPA cycle, which I had told in our previous calls also, it was not just about of technology or something. We also had problem with people. There were people in -- we expanded in the North, but we did not get people or we have higher attrition in the north. And therefore, North is where -- if you look at my stand-alone portfolio in South, it's extremely good. It's one of the best in the industry. I think it's comparable to a private sector bank also. That's the reason because there, we already had a collection setup. But in the north that the slippages happened, it hit us very hard and it hit us very fast also, which we took some time to go back and work on. But then everything that is required to be done has been done and we will continue to do. So that's the commitment from the side of the management.

Okay. Okay, sir. And the other expenses part, which other expenses has reached INR 28 crores this quarter. So where can this stop? I mean, where can we expect this to settle at on quarterly basis?

Raman, do you want to take that?

Yes, I'll take that. So if you compare the quarter versus quarter, yes, you might see that other expenses has gone up. And wherein the other expense is basically towards the function of that what all we are investing towards all the technology, towards my software, wherein the expansion side of it has already been stopped now, wherein whatever we wanted to incur for the expansion side, that has already been done. We are very conscious now whatever -- even for a single rupee that we have to do for towards the expansion, towards the tech or whatever we have to do. So that is something we are keeping in mind right from the start of this financial year as we suffered a loss in Q1. And now we know that whatever we will be spending on the other expense side also, that is something wherein we'll be -- we are answerable to each and everything on that. So this is something we are expecting that these kind of expenses are not growing that much. If they are growing, then they would be having a direct impact on the sourcing or top line. This is what we are expecting from it. And we have started taking a view of -- started taking a review on it as well.

Okay. And sir, what growth can we expect in 4-wheeler and CV segment in FY '27?

So our focus area is on the 4-wheeler and CV. We should, next year, try to close INR 1,000 crores plus disbursement on both these products put together. And there, the runoff is very, very slow because the AUM is just building. So as of now, whatever I disburse is closer to what I add on the AUM in these 2 products. So it should be in that range.

Okay, sir. So those questions from my side. And sir, I just hope that you do some changes in your underwriting space because the company has shown very poor underwriting. So...

Pardon?

No, I'm saying that I just hope you do some changes in your underwriting space because the NPAs are rising like anything.

Yes, yes. We are doing that. We have already done that also. So you will see the results in the coming quarters on that.

Thank you. Ladies and gentlemen, due to time constraint, that was the last question for today. I now hand the conference over to the management for closing comments. Thank you, and over to the management.

Yes. Thank you very much all of you for coming on the call. And as I have mentioned before also, you continue to challenge us in terms of your questions, and we stay committed to the commitments that we are making. As I said before, we have been able to surmount many of the challenges that we have, and we have fixed a lot of those things. And I think one area that we still need to fix is the collection efficiency and the NPA bit, which we are putting all efforts to do that. And I want to assure all the investors on behalf of the management that you will see results on that in the quarters to come. Thank you so much for your continued support and patronage, and we really appreciate that. Thank you.

Thank you very much. On behalf of Elara Securities India Private Limited, that concludes this conference. Thank you all for joining us today, and you may now disconnect your lines.

Thank you.

Hello, everyone. I'm Dara Mohsenian, Morgan Stanley's household products and beverage analyst. Just before we get started, a quick disclosure. Please see the Morgan Stanley research website at www.morganstanley.com for important research disclosures and contact your Morgan Stanley representative if you have any questions.

With that out of the way, I'm very pleased to welcome Clorox back to our conference. With us here today is Luc Bellet, Clorox' Executive Vice President and CFO. Thanks so much for being here today.

So maybe we can start just with the fact that it's been a really tough U.S. consumer environment in the household product space, probably appropriate to start more short term here. Just what are you seeing from a category growth standpoint, particularly in the U.S. and in terms of consumer behavior?

Well, yes, it's clearly a very challenging environment for the consumer. We see a consumer under stress. And we've been seeing -- I think they're reacting a lot to the volatility and uncertainty in environment. And we've seen typically value-seeking behavior for just the past few quarters. I mean stretching usage, also changing their shopping behavior to favor either low opening price points or just shifting and moving to channel like e-comm and club and purchasing larger sized products. So we've been seeing this behavior for a while now, and we expect it to continue for most of the fiscal year.

Now what does it mean from a category standpoint? Typically, our categories historically have been growing 2% to 2.5%. And in periods when the consumer have been stressed, like, for example, the last recessions, we've seen a contraction of a couple of points and category on average for the portfolio growing 0% to 1%. Now that varies by business, but that's a good average. And that's the U.S. retail business. Our international and pro business tend to grow a little faster than that.

And so that's what we assume for the year. And so far, it's been playing out in line with these assumptions. We were close to flat in the first quarter. This quarter, we're a little more on the higher end of that range, and we expect it to continue move between that range, but we think it's a good assumption for now for the remaining of the year. Now like everyone else, we're staying very close to the consumer. But so far, we think it's a good assumption.

Okay. Great. And then maybe we can shift to the competitive front. We've seen promotion pick up in the U.S. in a number of categories. As you look at your key categories, how intense is that activity anything surprising from your perspective?

Yes. I would say on aggregates, the promotional environment has been fairly rational from competitors. Now there are pockets and businesses where it's been a little heightened, and we talked about this in the past. We -- some of our businesses like Glad Trash or Lidl have seen a heightened competitive activity. And we expect this to continue, and we feel like we have the right plan to address it. But in aggregate, it's been fairly rational. And in the level of spend that we're seeing are in line with what we would expect.

Now our first quarter, which we just wrapped up, tend to be the highest quarter from a merchandising event. So it was a little higher than what we had in the fourth quarter, but that's just driven by the merchandising we're doing rated to back-to-school, which is maybe important to remind that we really see promotion less as a price level, but more as a strategic lever. So a lot of our promotion and not to be priced in nature, but more high-quality future and display that we use either for peak period on the north side, they can be back to school. They would be the holiday season for Burt's and the Kingsford grill season and then bringing back people in the category and of course, for innovation, right, to drive awareness and trial. But again, to date, it's fairly rational. We'll stay close to it as well and see if it evolves.

Okay. And as you look forward, now that we're moving past the ERP transition, what are the key strategies in place to try to reinvigorate organic sales growth in your portfolio? And as you think about doing that, is it more about executing the playbook you have in place? Is it more about tweaking the playbook and some of the different strategies might require a higher level of spend? How do you think about that?

Yes. I think it's maybe both of what you just mentioned. For sure, it is about executing like the integrated demand plans that we have and the strategy. And of course, you want to be thoughtful and balanced as you think about demand investments. You want to balance the urgency of defending your market share with the discipline of growing the category and profitability over time.

But on the playbook, I think -- I guess now that we have finally passed the implementation of the ERP and passed stabilizations, I think we're in a good place to -- we have a strong, I think a strong playbook in the back half of the year and then our outlook contemplates some improvement in the back half of the year. And so it's just a matter of really executing those. And I think we -- the playbook is pretty rich. We feel like we have a broad slate of innovations across categories and also in type of innovation. Some are like expansion on existing innovation platform. Others are like new platform and adjacencies. And also a lot of, I would say, good work from an RGM standpoint and price pack architecture, which is important, getting really sharp on price point in this environment. So it's really just about executing that playbook.

And I think the other thing is to continue doing the great work we've been doing on margin. We feel good about the holistic margin management efforts that we have. We feel like we have a strong pipeline, and it's important because, one, it protects the margin and profitability but also give us capacity to invest if needed.

Right. Okay. And as we look at your market share, we've seen a lot of volatility in recent years. Generally, there's been some share loss, if you look at versus pre-COVID periods. It's been different by category, obviously, just as you look at underlying brand equity strength, whatever tracking metrics you use, surveys, et cetera, what are consumers telling you about the strength of your brands as we try and parse through some of this volatility?

Yes. So I guess first thing is, yes, we're certainly not satisfied what we had from a market share standpoint, and we talked about our plans to improve it in the back half of the year. But if you look at the fundamentals of the brand, they're actually quite strong. Household penetration has been [ our most ] brand has been really stable and some brands like the Clorox mega brand is actually growing. If you look at different equity metrics, including value metrics, we are generally at or above where we were pre COVID. So what it tells us is that the brands are healthy. They resonate with the consumer. And so it's really about taking advantage of that and putting the right demand creation plans behind it. And that's what we intend to do in the back half of the year.

Okay. And could you talk specifically about strategies from a market share standpoint? It's probably similar to what you outlined in the back half of the year. But just looking out long term, as we look out over the next few years, what do you think are the key levers you're looking to pull internally to drive improved market share performance?

Yes. I mean, the goal has always been, first and foremost, to drive value, superior value for the consumer. And we define -- we have framework is around 5 vectors. This product package, place, which is really where -- being at where the customer shop virtually and physically, proposition, which is really the brand and the brand building exercise and in price. And so as we look at driving -- the goal is to drive security across the 5 vectors. We expect this would drive normally the category growth, but also allows us to grow slightly above that from a market share standpoint.

And then the levers to impact those are the ones we've been talking about. First and foremost, it's always been about innovation. This is what really drew, have been growing profitably in the categories for a long time. The new capabilities we're ramping up around RGM certainly are going to be a driver over the next year or two. I think there's a lot of opportunity and low-hanging fruits. And it's a lot of -- and then the brand building is also very important. I think one of -- we launched a new campaign in cleaning, which has been about shifting the view of cleaning being a chore to something that makes you feel good. And there's a lot of humor in it and it's just -- it's leveraging neuroscience and it's really resonating with consumer and then with -- especially with new consumers.

And it's important to remember, it's not always about the innovations, but the brand building. And so that idea of bringing a little joy in cleaning is now showing up in some of the products. So we're launching a new scent in wipes that's much more fresh and very different than the old scent because the old scent tended to remind people of the pandemic, and I was bringing them down as an example. Or we stop -- in printing on the substrate of wipes, some fun words like [ who who and joy ]. And this is just the integration of the brand building and the innovation that can make a difference.

So those are the levers. It's always been about innovation, brand building and of course, leveraging capabilities like RGM.

Right. Great. And the 5 vectors you mentioned, where do you think you're executing best? Where do you think you need more work? Obviously, you're looking to have all 5 hit at once, and that's where you really get the benefits from give us a report card on those 5 vectors.

Yes, I think it really depends by businesses. And just so you know, each business is actually measured themselves across all 5 vectors. And the goal is to be clearly superior on at least the majority of them.

I'll take two examples, one where I think we're actually doing very well across 5 vectors and cleaning business is one of those. And it's been really resilient. If you look at Market share is above where we were pre cyber. We actually see good momentum even within the challenging environment, category and share have been growing and we feel good about what's coming in the next few years. And I mentioned it, this is one place where the product superiority is really making a difference. The -- both the placement, I think we're growing with winning retailers and the proposition and the brand proposition in the brand building is very strong.

There's still some work, I think we can do on price pack architectures. If you kind of look at the cleaning portfolio, it's still relatively simple. You have the same bottle of sprays in most channels and in the same kind of wipes. So I think there's some structural benefit do there.

On the other hand, one business where we -- we mentioned that we clearly weren't Superior has been the litter business, right? It's -- it went through -- it's probably the one that was the most impacted by cyber. We had supply issues. It took us a while to get back to full service and let them on full distribution. And during this time, competition didn't stand still. They kept improving. And so I think this is one where we feel we have a really good plan across the 5 Ps to actually improve.

Some of it is innovation and really on the product. But there's a lot of great work being done on packaging, claims, something on brand and campaign and positioning. So the plan we have in the back half is actually fairly holistic, and we have a phase plan. There will be first phase that's happening in the back half of this fiscal year, and then we have another phase coming in the next fiscal year.

Okay. And how do you think about the recovery phase for cat litter over time? Is it more big bang innovation? Does it play out gradually over...

No, I think it would be -- what we'll have in the back half will be a series of, I would say, singles that together, will make a difference. And then I think we have more significant and more aggressive innovations after that.

Okay. That's helpful. Maybe we could touch on Glad. We've seen a bit more promotional environment there from a category standpoint. Just can you touch on your competitiveness within the segment, category trends and your plans to drive that business from here?

So yes, we saw heightened competitive activity now for a couple of quarters. And for background, this is a category where we've seen competitive activity ebb and flow. We're being very balanced and disciplined as how we're dealing with it. As context, there's limited expandable consumption in this category. So you have to be careful to not over promote because you could really drive a lot of dollars out of the category. So it's a balance. There's places where we made surgical investment on some SKUs and that's making a difference. And there's others where we're willing to be patient and take a little bit of share loss until we actually just address this with more meaningful innovations and improvement. And we have some coming in the pipeline. In the meantime, we also completely revamped our marketing communication, and we have a new campaign coming that seems to be very resonating with consumer and that should also help.

Okay. Charcoal, we had a better summer peak season this year after prior pressure. How sustainable is the improvement you saw in that business? You've made some changes in terms of the way you managed the brand in the last couple of years. So give us an update on the outlook there as we head into next summer.

Yes. We actually feel quite good about the next summer plans. There's -- a lot of it has to do with our merchandising plans, some have been optimized based on some learning from last summer, so we'll have to lap that. And there's also some incremental merchandising that we're doing, taking advantage of big events like the World Cup or just even the 250th anniversaries of the U.S. And so there's a lot of opportunities to take advantage of this. We have a little bit of innovation as well. So right now, it looks -- it's gearing up to be a good and solid season for us.

Okay. And we've spent a lot of time so far discussing the difficult industry environment we're in. Just as the CFO, I'd love to hear how you think about balancing, trying to reinvest to drive sales, but also in a difficult environment, maybe the ROI isn't as strong, and it's not breaking through as much with consumers. How do you think about that balance in the context of this CPG environment?

Yes. I think we kind of touched on it as we were talking about some of those businesses in -- maybe like stepping back and seeing what's always true, whether it's in this environment or not? I mean, again, the way we create value is by driving superior proposition for the consumer. And that's how we can strengthen our brand over time, that going to strengthen our competitive advantage and really grow the categories. And the way we do that is taking brands people love and then just adding and leveraging them through capabilities. So in a way, a lot of the investment that we made over the past few years were intended to really strengthen those capabilities and then strengthen the work that we do with the brand. In an environment like this one, if anything the bar goes higher in terms of superiority, and we've seen it, right? We just talked about a business like Lidl that kind of fell behind a little bit and you're really feeling it a lot more.

And so I think what's changed is what's a little different is -- and Linda alluded to this, I think, in one of our last earnings call is, I think the speed and agility to which we need to make adjustment is higher in that environment like. And so on one hand, as we had to deal with the ERP transition implementation, that adds to the things that we have to juggle. On the other end is now that we pass this, like the modernized capability that we're ramping up actually help us just do that. And I think we pointed to the example of charcoal where we didn't adjust our plants fast enough and we felt it in Q4 and we're able to just recover in during Q1.

So I think what we do is -- remains the same, and it's all about -- and we talked about those drivers around innovation, brand building, and it's more critical than ever. I think the intensity agility to which you sharpen and address your plan needs to be elevated in a period like this.

Okay. And if you guys consider -- I mean, if we go back to the fiscal Q4 call, Linda talked about one of your sharpened focus in a number of areas. Have you sort of considered broader type of reset where you put a significant amount of investment behind the business. I know we've talked about there are some ways you can do it without spending a lot, but I'm just curious for if we think about sort of a broader reset within this environment, and we've seen a lot of restructurings throughout the group. So just how are you thinking about managing the business within this environment?

Yes. I mean right now, I think where we said we made a lot of investment over the last few years. And we -- they stop bearing fruit, but there's still a lot more work to do. And so I think that's where our focus is, is really just ramping up those capabilities and getting the -- both the value, the growth accelerations and then the benefit from those investments as soon as possible. And so that's really the focus and of course, delivering with excellence the plan that we have in place.

Right. And the benefits from the work you've done in recent years, spending on IT, restructuring, how do you think about those benefits layering in over the next few years here?

Yes. Some of -- we started digital transmission about 4 years ago. So -- and essentially, there was 3 pillars, right? One was to fundamentally rebuild the data infrastructure of the company, which can be very important as you think about leveraging technology like AI and so on. Second was making a suite, an investment in a suite of technology and marketing personalization is one of the things we really invested in, created a -- a pretty sophisticated database to collect information by consumers as well as database to manage a lot of content. And so some of those investments, like marketing personalization, have already yielded a lot of benefits, both on the top and the bottom.

And the last part of the digital transformation was really the ERP, right, because it's the most complex and then the riskiest. So this would just finish the implementation. We're still very much in stabilization, right? So when you turn it on. Right now, we're not seeing just value yet. You have to actually fundamentally optimize and reinvent some of your processes. And so what we said is it will take us -- we're going to stabilize in '26, and then in '27 and '28, we start getting the benefit of the ERP investments, both on the top and bottom line.

And how significant are those benefits? How should we think about it? And does it give you more flexibility to reinvest? Does it drop to the bottom line? How do you think about it?

Yes. I think the way we think about -- it's one more significant contributor to, I think, our margin management efforts. And I think if you end up -- they will be fairly material over the next few years, and I think it just strengthened the pipeline and strengthened our level of confidence in our ability to deliver our margin goal, which is expanding 25 to 50 basis points on an annual basis.

Okay. And you've had strong productivity over a long period of time. So just as you think about productivity going forward, a, base business, can you keep up the level of productivity savings; B, what are the key buckets from here? And so, how does AI play into that and give you more opportunities from a cost standpoint.

Well, I think the headline is, again, our goals is like -- we intend to grow EBIT margin, 25 to 50 basis points. And generally, we feel confident in our ability to do that. And it's -- and that would be net of any reinvestment that we make in the business.

I think you mentioned some of the levers, one is our cost savings program, which has organically evolved to what we call holistic margin management. We always had a really robust and disciplined cost-saving program, but we brought new -- we made some investments, brought external talents and bring capabilities like design to value, RGM and all those have actually expanded the contribution and it's working for us. We had record level of cost savings in the past two years, and we probably have one of the strongest pipeline I've seen.

So that's the base. Then there's the ERP. We just -- that adds and contributes to this. As you can imagine, having an ERP that was 20, 25 years old. They created a lot of operational inefficiencies. You had a lot of silo processes so now you have ability to see data real time across the supply chain. So that creates a lot of benefit on supply chain, from plant scheduling to waste management, to logistic optimization and inventory management. And so we'll see this over the next couple of years. It also creates some opportunity from an automation standpoint. And so we'll see some benefit on the SG&A from there.

And then there's other drivers that are now start opening up and one that we mentioned in the past is Global Business Services. This is another place where we probably were behind our peers and didn't leverage it as much. Part of it is because we had a fairly old data and technology infrastructure. It was hard to just take care of those -- take advantage of those global business services, but we're now going to accelerate the path and to take advantage of this. And so that creates more benefit, especially on the SG&A line.

So kind of look at there's 3 levels together that gives you a good road map. And so we feel good about the pipeline. And just right now, we'll have to see what happened with the cost environment when in general, over the next few years, we feel like high degree of confidence in our ability to deliver the margin goals.

Okay. And maybe we can shift to fiscal '26 guidance. Your guidance does imply a return to low single-digit organic sales growth in the second half of the fiscal year. We talked about earlier some of the drivers behind that. What's your level of confidence there just given it's been a difficult industry environment in recent periods? Scanner data is kind of lingered a bit weaker here, some of that's related to ERP over the last few months of the transition there. So just give us an update on sort of level of visibility for the back half. And then also, you mentioned some of the margin drivers and productivity and holistic margin management. So do you think you have some margin flex to sort of cover top line volatility, you've pointed to the low end of the full year earnings range. But do you think you have a pretty good visibility there with some of the margin drivers?

Yes. So if you look at our guideline and outlook, expect for the current quarter expectation was organic growth to decline in low single digits. And then as we look at the back half, we expect organic growth to grow in the low single digits, excluding the ERP transition. From a category standpoint, we talked about it, we still expect category to be below historical but stable around flat to 1% and so that means that we expect, on average, U.S. retail business to grow slightly ahead of that. And so implying modest share gains as you look at the back half from aggregate.

The levers are the ones we talked about. We feel really good about our innovation plans. We have also a series -- we talked about places where we've been sharpening execution, like charcoal merchandising. There's also some good change and gain that we're doing on distribution and assortments and also some innovations on revenue RGMs. And we talked about how it all comes together in a business like Lidl. So there's just a lot of drivers coming together, they all contribute. The other thing is we will be lapping a period of headwinds that we had from competitive activities. So that's -- right now, the plans are like progressing as expected. Selling and conversations with the customers are progressing as expected. So continue to feel good about our plans. Of course, that's U.S. return. We still expect the professional business and international business to continue being outsized growth drivers in the back half.

And then from a margin standpoint, we -- on what we can control, which is the holistic margin management efforts, we feel good about the progress in the pipeline. We're obviously staying very close to the cost environment which has -- and especially what may or might not happen from a tariff standpoint. And so we'll have -- that will remain to be seen. But on what we can control, I think we're making good progress.

Okay. And then innovation. You've talked a lot about innovation that's part of driving acceleration in the back half of the year and obviously, an important part of the long-term strategy. Can you talk about how your innovation process has changed in recent years? And what's driving this greater pipeline of activity. And as we look at the back half and maybe out to fiscal '27, is it the amount of innovation? Is it the big bang nature of innovation? What's actually driving this acceleration?

Yes. I think over the past few years, the intent was always to accelerate the contribution of innovations. And some of it had been just doing a bigger focus on platforms, a bigger focus on unmet needs. So that has been in place for a few years. Of course, it's been -- we have to deal with the disruptions associated with cyber and the happy transitions. But beyond that, we've really been also focusing on accelerating the what we call a discovery process and our early pipeline.

And this is where some of the investment we made on the digital front have been really helping. You were talking about AI, but that's one place where actually AI has been meaningful in terms of increasing the contributions of bringing better ID faster. If you think about what AI can do, and we've been leveraging AI to analyze a lot of data, whether it's on social, a lot of data on consumer review and feedback. It's actually really great in identifying patterns, finding unmet needs or potential improvements. And so that has been a real contributor. If we look at the -- if we look right now at what I call our discovery pipeline, which is like the emerging project. It's probably the strongest it's been in a very long time. So we feel good about the innovation that we are launching in the back half, but we also feel good about the pipeline that's supporting potential future years.

Right. Great. And you've completed a lot of hard work in recent years in terms of the investment in technology, restructuring ERP. As you look going forward out longer term, what are you most excited about from a growth standpoint as you think about top line growth for the portfolio, whether it be brands, categories, geographies, however you think about it?

Yes, I mean, a few things. First, you mentioned, we completed a lot of work. And so looking forward to reaping the benefits of those capabilities. Some of it is new ways of working that we just talked about, better leveraging technologies real, right? We talked about -- and especially with the advent of AI, getting all the hard work be done on creating a really robust data infrastructure will be really helpful.

I'll give you an example. We've been on the journey of personalization, made great progress. 60% of our marketing is now personalized, and we've done that by really investing in technology, but investing in new process and new teams. And then generative AI come. And so you -- over the last few years, you kind of moved from doing one national campaign day to maybe targeting 10, 20 different customer groups. And now you can leverage the same data in the same process and because you have the infrastructure and able to just do hyperpersonalizations. To the point where we think in a couple of years, we'll be able to really do one-to-one marketing. That's exciting because we got the -- we basically achieved what we wanted to do with personalization, but because we build that infrastructure, we're able to fully leverage it beyond what we expected. And I think the same will happen on some of the investment we made on supply chain and so on. So that's one.

Two, continue to feel really good about some businesses like cleaning. And it's -- I think this is a place where we continue to see it's performing very well, and we continue to see a lot of opportunities to grow. And keep in mind, the cleaning growth is also fueling what we're seeing in Pro and international because it's a big part of the portfolio. And then there's businesses that we have more in turnaround mode that we actually feel really good about the future. Lidl is a good example of them.

Can you give us an update on professional and international and the growth opportunities in those businesses?

Yes. International -- so international, for context, was a drag to the top line, just the prior strategy period. And what was happening is we had a pretty significant part of our portfolio that was in Latin America. In-country business performance was quite good, but you had to deal with a lot of headwinds from a currency and others. And so we had a very deliberate strategy to reduce the volatility and then strengthen the growth rate of international. And we did this through many different moves. One was the divestiture of Argentina, another was the acquisitions, the majority stake in the Middle East. And we placed also very targeted bets, including business like premium Lidl in Europe and in Asia that and then really taking advantage of like the pipeline and the great work we're doing on cleaning. I was talking about the Clean Feels Good campaign that's in the U.S., we're able to reap and reapply that in international.

So net, over the strategic period, international has been contributed an outsized contributor to growth, kind of growing mid-single digits. And as I look at the opportunity for the future, we expect this to continue.

Pro was an outsized contributor to growth. There was always plenty of opportunity. And a lot of it is really driving -- leveraging all these affecting capabilities. This is a lot of like technical cells that we're doing in health care setting and. Others. Then went boom and bust during COVID and after COVID. And so now that things settle down a little bit. We continue to start seeing really steady growth and great and promising plans as we look at the future.

Great. That's helpful. Looking at the M&A environment, Clearly, there have been some challenges from an industry standpoint. There may be more assets out there available in theory. How important is M&A in your strategic lens as you look out over the next few years. And on the other side of that also, are you comfortable that the brands you have in your portfolio are a good fit? Or is there room maybe for some pairing of the portfolio over time?

Yes. Maybe the M&A front, in -- first, job 1, 2 and 3 is managing and driving the cost, so that's always going to be the priority. But M&A is a strategic lever. And we -- the only thing is you have to find the right asset at the right price, right? And so just to be clear, while we haven't done transactions, we have been continuing to evaluating assets, and we are very active in doing so, right? We're obviously not having anything to share today. But just -- this is something we've been very active. The problem is there's no problem, it's just you end up saying no a lot because you have to find, again, finding the right asset at the right valuation can be challenging. So the good news is we have financial flexibility. We have strong balance sheets and we'll continue to evaluate opportunities, but we're also going to continue to be disciplined and only move if you can find the right asset at the right price.

On divestitures, we -- of course, at this point, we like our portfolio as it is. We have a pretty disciplined process where we reevaluate our portfolio on an annual basis and we work with our Board. And this is a process that kind of led to the divestiture of both BMS and Argentina. But right now, again, we like our portfolio as it is.

Okay. And on the M&A front, some more bolt-on opportunities you're generally looking at? Are you thinking about larger opportunities? And what's most important in terms of strategic and financial criteria as you look at potential...

Yes. Yes. I mean right now, mainly we've been looking at bolt-on. We just -- I think the way we atticulated, we'd love to bring a new growth runway within the portfolio. Our criteria have been pretty consistent. So we would want something that's accretive from a gross margin standpoint, generally leading brands in mid-sized categories, and of course, something that can leverage our capabilities. So it would be either an existing category, adjacent categories or categories that meet a similar criteria.

Geographically, we're open. But given that we have a lot of scale to leverage in the U.S., it's likely that there would be a pretty big U.S. presence. So that's how we think about it.

Okay. And we've seen multiples compress in the CPG industry. So maybe let's take a step back and talk about capital allocation in general and just -- or share repurchase is something that's becoming a greater priority. Do you look more at stock price and ROI? Or is it more a consistent sort of balance sheet strategy and you're not as opportune necessarily on that front? How do you tie share repurchases and the broader capital allocation?

Yes. So maybe -- two things. First, from a capital allocation, our priorities have always been pretty consistent. One, you want to go and invest on in the core business, both organically and inorganically; second, continue to support in the dividend, we have a long track record of doing so.

Of course, third, we want to manage our debt leverage, and we have a pretty healthy balance sheet right now. We'll be on the low end of our debt leverage goal, which is 2 to 2.5x EBITDA. And we think it's the right place to be right now given the environment and also gives us flexibility if we wanted to make an investment. And then after that, returning the excess cash to the shareholders.

Now we've been pretty active. We written about $300 million last year. For perspective, my dividend is about $600 million. So we're about half as much as what we've done in dividends. And we've written about another $130 million in the first quarter, and it will continue to be active in the market.

So I think we're very principal, but we might be a little opportunistic in the timing and the executions, but it's always going to be a fourth priority.

Okay. Great. Well, with that, we're out of time. So we appreciate very much you being here. Thanks for coming here.

Thank you, Dara. Thanks, everyone.

Good day, ladies and gentlemen, and welcome to The Clorox Company First Quarter Fiscal Year 2026 Earnings Release Conference Call. [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 Luc Bellet, our CFO. Please note that our earnings release and prepared remarks are available on our website at thecloroxcompany.com. 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 year 2026 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 statements section, which identifies various factors that could affect such forward-looking statements, which have been filed with the SEC. In addition, please refer to the non-GAAP financial information section in our earnings release and the supplemental financial schedule in the Investor Relations section of our website for a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures. Now I'll turn it over to Linda.

Thank you for joining us today. In Q1, we reached a major milestone in our transformation journey with the successful launch of our new ERP system in the U.S. This foundational step has strengthened our digital backbone and unlocks new value streams for our company. Launching the ERP was a significant undertaking. And while the transition presented some challenges, our team's resilience and adaptability allowed us to navigate them effectively, and we're already seeing the benefits ramp up across our operations. As we move forward, we've incorporated the realities of the implementation into our latest outlook and made the necessary adjustments to strengthen our plan for the remainder of the year. Importantly, as we move past these temporary challenges, we are fully focused on our demand creation plan to deliver superior value to our consumers and reinvigorate category growth. With that, Luc and I are happy to take your questions.

[Operator Instructions]. And our first question today will come from Peter Grom with UBS.

So I just wanted to touch on the organic sales cadence, and I get there are a lot of moving pieces. But just was hoping to get some perspective on the second quarter as well as the balance of the year. So just first, can you just help us understand what you're including or embedding from a category growth perspective? And then second, you touched on returning to kind of sales growth or consumption growth in the back half as a result of the strong demand creation plan. So can you maybe just unpack that a bit more? And just what drives the confidence that trends will inflect versus what we're seeing today?

Thanks, Peter. This is Luc. I can take that. So I think when we look at the phasing for the full year outlook, it might be easier to just exclude the impact of the ERP in both Q1 and Q4. And if you do so, organic sales growth in the front half would be in negative low single digits and organic sales growth in the back half would be positive low single digits. The assumptions around the category remain the same. We assume that our U.S. retail category remain muted, kind of on average, growing 0% to 1%, still below historical average. And so the improvement in the back half is really driven by improvement in consumption driven by improvement in market share.

And there's 2 main levers here. The first one is that we are launching a few major innovations in some key businesses. In some cases, we are actually launching new platform in other expanding existing platform. I think we talked about it last quarter. We're excited about our innovation plans in the back half, and we have strong demand plans in place. And then the second thing is we are lapping some pretty negative trends that started in the back half of last fiscal year. And that's for U.S. retail and outside U.S. retail, we feel really good about the momentum of both the international and the professional business in the back half. Now Q2, low single -- you asked the question about Q2. So front half will be low single digits, and we expect Q2 to be in the low single digits, mostly largely expect a continuation of the U.S. retail consumption trends that we've seen in the first quarter. That as well as about a point of headwinds from the timing of early shipments in the first quarter.

Okay. That's super helpful. And just maybe more specifically on 2Q, just on that consumption point, the decline you're expecting. Can you maybe just be more specific on what you've seen through October and how you see kind of consumption trending from here? Is it more or less what we've seen through the majority of 1Q? Or do you see any -- are you embedding any sort of improvement from here?

Yes, Peter, there are some dynamics in October that would be helpful to cover because there's definitely a difference if you're looking at the data between the first half of October and the second half. So first half is marked by a lap of what we saw last year with some storms, hurricanes as well as port issues. And although they weren't very material to the quarter last year, they do create a year-over-year comparison issue. So you could see we were down fairly significantly in consumption in the first 2 weeks, which we expected. Now you've seen in the third and fourth week of October, that's rebounded significantly back to what we expected, and you can see consumption down low single digits in MULO. So that would be the dynamic I would expect is that current rate that we've seen over the last 2 weeks to continue for the remainder of the quarter. But outside of that, we don't have any material things that you should focus on outside of what we provided in the outlook.

And our next question will come from Andrea Teixeira with JPMorgan.

I was hoping if you can touch a little bit on the environment for promotions. I mean I understand you mentioned in the prepared remarks that you continue to see consumers being cautious and value seeking, but hoping to see how the competitive environment unfolds and unfolded through the back half of October to Peter's question. And then if you can also comment on the price pack architecture that you're looking to do for this innovation that is coming in the back half of the year. Should we see you becoming more, I would say, meeting where the consumer is at in terms of like price points? Anything to add there? Or in general, what's embedded in your price -- in the price algorithm for the organic sales growth in the second half?

Andrea, I'll start with your first one on the environment. So we're seeing the environment largely in line with what we had expected when we started the year and a continuation of what we saw in the back half of last year. As you noted, the consumer continues to be under stress, definitely reacting to the level of volatility and uncertainty that's out there, and we're seeing that in their shopping behaviors. So while in aggregate, the entire consumer wallet has been fairly stable, the changes within that wallet have been quite significant and varying week-to-week and quarter-to-quarter.

What that's meant for our categories is we've seen a generally more competitive environment, although I would say it varies business-to-business, category-by-category and what we're seeing in the specific competitive responses. We have seen increased promotions, for example, in the trash business and Cat Litter business, not different than we would have expected given the dynamics of those 2 categories. We've seen some price changes, both things that looked like promotional price changes turning permanent as well as some minor price increases. And so again, it varies by category. But I would say, on average, the competitive environment seems pretty rational right now. If you look at the overall promotional spending, again, in some categories, it was up, but in aggregate across our categories, not that material.

And so what we are just responding to and continuing to watch very closely is, will there be a change in the consumer environment that makes people become more competitive, put more money in the system, et cetera. We've seen retailers do some additional support on private label, although it hasn't yielded any private label share results as of last quarter. So those are the things we're watching carefully. But again, it still remains a fairly rational environment, but I think people getting very sharp on value depending on what matters to them and their portfolio and the category that we compete in. There are a couple of places maybe that I would just call out that I think are -- we're watching really carefully, and one of them is food. In average -- on average, the food category at large has been challenged.

And specifically, when we look at the food category that we're in with salad dressing, that category has been declining low single digits and very variable. We've made adjustments to our plan. I think you saw in the prepared remarks that large and small sizes in that business are working really well. But that's a good example of a place, Andrea, we'll be using price pack architecture fully to ensure that we're capturing the consumer wherever they are and offering them a Hidden Valley offering that is right for if they want to get the very best value per ounce or if they can't afford to get that large size and they just need something in their pantry that's going to get them through the next few meals. I'd also note on the price pack architecture for the new innovation, similar to what you saw in the prepared remarks, that's how we've approached all of these programs.

So we've talked about we have some innovation coming in litter. That will definitely have components of price pack architecture built into it, thinking about what are the right price points we need to be at, et cetera, as well all the innovations that we launched in the back half. Our teams have those tools now embedded in our innovation process, and they're using them to ensure that we capture the full spectrum at launch, and we can talk more about those when those innovations launch in the back half.

That's helpful. And if I can squeeze in one for Luc on the gross margin side. I understand that, obviously, there was a lot of operational deleverage. But you also mentioned commodities coming in, I think, slightly better, if I'm not mistaken. Anything to add to that in terms of like your flexibility to perhaps get into a better range than guided. I understand some of these ranges will go into the low end, but I was curious to see what has changed from a cost perspective that would inform you to be at the low end.

Sure, Andrea. Maybe let me just speak first about what we're seeing from an inflation in general, both commodity and supply chain and then talk about the different puts and takes as we look at the gross margin drivers for the full year outlook. So we -- if I look at overall inflation, we expect it to continue to remain moderate, I would say, for the year, but we did mention it's slightly more favorable than our prior estimate in July. If you remember, at the beginning of the year, we assumed that input cost and inflation would increase a little under $90 million for the full year with about half coming from commodities and half coming from supply chain, both manufacturing and logistics.

Our latest projection assumed that input cost and inflation would increase about $70 million. So about $20 million more favorable. And again, about half of that is coming commodities and half of that is coming from the rest of the supply chain. Now we also have to contend with tariff. And right now, our estimates on tariff is remain the same. It's about a headwind of $40 million for the year. So looking at all of it together, this is about $110 million or about $20 million more favorable than what we thought at the beginning of the year. Now there's a few other puts and takes as we look at the gross margins for the full year. One, we did have to incur additional expenses during the first quarter to deal with the disruptions on the demand fulfillment related to the ERP ramp-up being a little slower than expected.

So that's incremental expenses that offset some of the benefits. And then second, we're -- as the teams are finalizing and optimizing their demand creation plans for the innovation in the back half, we increased a little bit both trade spending and advertising. So the trade spending is also putting a little more pressure. So at this point, it's a little more towards the lower end of the range. But keep in mind, it's -- we expect to have like more movement going through the year. What's important is we generally feel good about our ability to meet our gross margin outlook. And if I may say, if I look at the back half of the year, you should see pretty robust gross margin expansion in both Q3 and Q4.

And we will move next to Kaumil Gajrawala with Jefferies.

I want digging in just a little bit on maybe your report card because there's so many moving parts with ERP and shipments and all of that. When you're making adjustments for it, how do you feel about your market shares? Are they trending in a direction that you prefer the opposite? So it's a little hard to read given everything that's going on. I'm curious where you are. And layer, I guess, on top of that, you sort of hinted at a few things on more demand-creating activities. Do you have the all clear from an infrastructure perspective to go and pursue them? And if so, maybe just some more details on what it is and how much you expect it to contribute?

Yes. Maybe what I can do, Kaumil, is just unpack a little bit what was the underlying performance of the first quarter because there was so much noise. So let me start there. And then maybe Linda can provide a little more perspective on the performance in the market. So if we look at Q1 organic sales, excluding the impact of the LRP, the ERP, sorry, we declined about 3 points. And even within this 3 points, there was a few things happening. One, there was one favorable point of timing, which is really just the timing shift between Q2 and Q1 related to some early shipments for merchandising in the second quarter.

But we also had the impact of the out of stock, which impacted both our market share and maybe to a certain extent, some categories in some businesses, and that was about 3 points of headwinds. So again, if you unpack the negative -- the decline of 3 points in the first quarter and exclude those 2 levers, like the underlying performance was about negative 1, right? So that gives you some context and also kind of just fairly consistent with what we signaled around the front half being in the negative low single digits.

[indiscernible] go head.

Yes, yes, go ahead.I was just going to ask you to.

Perfect. So on share and just how that translates to the market, unfortunately, with the ramp-up that we had on our ERP, it did cause us to lose more market share than we had anticipated. And you saw that primarily impact August in a material way. We saw September a bit better and again, in October continues that trend. But we can't say we're satisfied with that. We intend to grow market share over the long term. And so we are laser-focused on that as we head into Q2 and the back half of the year. And that's why you're seeing us continue to refine and tune our plans, which we feel good about in the back half. We feel great about the innovation that we have, feel good about the spending levels we have.

And I think what that also connects to is the other parts of the scorecard that will make up share and give us confidence in our ability to grow share again in the back half, and that's household penetration, which remains stable. In fact, if you look at our biggest mega brands, that's up in household penetration, the Clorox brand and up fairly significantly. Our consumer value metric remains higher, significantly higher than it was pre-COVID. And again, we have all of the right spending and tools and innovation in that plan to drive market share performance. So while I'm not satisfied right now, I feel like we have the right plans to get that turned around and the fundamentals of our business remain very strong.

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

So maybe following up on Kaumil's question. Just on the second half, Linda, you mentioned a lot of the improvement is based on the innovation plans that you have for the second half of the year. Can you give us a little bit more color on what categories the innovation is going, what's differentiated? -- kind of what gives you that confidence that innovation will work? And then maybe you can give us specifically drill down a little bit more on trash bag and Cat Litter. Those continue to remain 2 of the most challenged categories, and you mentioned increased promotional activity. So maybe just a review on the plans on those 2 particular categories as well.

Sure, Filippo. -- innovation, maybe I'll talk about some of the ones that we just launched that are in market now and that we have the ability to speak a bit more about -- in glad, we're continuing to build on the very successful scent platform that we have. You've heard us talk about Bahama Bliss, which was the last big scent that we had released, and we're following that with a foul scent, which we think will do very well for Glad and continue to attract that consumer that's looking for that extra piece of treat at home given what they're going through.

In Brita, we are actively modernizing our pitchers with new colors. We're also ensuring that we're doing price pack architecture there to ensure we're capturing consumers who can't afford to buy a larger pitcher at the moment. So we've launched some smaller sizes for both pitchers and filters, and that gives consumers a reason to not turn away from a Brita pitcher. On Birts, we've expanded a very successful platform. We launched a boosted bomb a while back, and we're increasing the footprint of that and launching that into body. And we just launched innovations, including lotion, a butter and moisturizing, they're quite delightful, and I think the consumers are really going to like them. So those just came out, and we're feeling good about those.

We will have additional innovations. And the way I would think about it, Filippo, is that we will have innovations across all of our major brands this year. And so you'll see those coming in the back half. Some of these innovations are brand-new spaces for us in terms of what we are going after from a consumer perspective and what problems we're trying to solve for them. And then some of them build again on existing capabilities that we already have. And I know you can understand that I can't get into exactly where those are right now. But I think the key takeaway is innovation across all major brands. I feel really good about the innovation that we launched in Q1, very good about the back half. We have the right spending. And I think they are the right mix between continuing to improve the base and bringing new-to-world innovations that are superior value to consumers and that we think we can create years and years of value from.

Great. And maybe just on fresh bags and later, we've seen continued pressure from a market share standpoint. So maybe can you give us a sense of your assessment of those categories and how sustained this promotional environment can remain in those categories?

Yes. On both of those categories, they're largely what we expected to see, which is very competitive, more promotional activity, continued innovation, and we're seeing about in line with what we expected to see in both of those. Of course, Q1 was impacted by our implementation of the ERP. So we saw a bit more share decline than we had expected. But obviously, once we're back in stock and we, for the most part, are now, we've begun to see those shares rebound. But both of those continue to be marked by higher-than-normal competitive activity, and we see that in pricing. We see that in additional promotional spending.

And what we're trying to balance in both categories and particularly in trash would be the long-term value creation aspects of this. We do not want to get into a place where we're destroying value in the category because we just don't see people create a lot more trash when a trash bag is more discounted. And what we're trying to do is ensure that we preserve the right to grow this category through innovation and better consumer ideas and experiences. And so we're being very choiceful. There are places where we have increased our investment in Glad. We're being very surgical about that. And there are places where we're willing to lose a bit of share in the short term in service of that long-term objective. So that's what we think we're getting the balance right on now. We're going to watch it really carefully in Q2 and the back half. We want to execute our innovation with excellence. But I would say that category is very much what we expected to see.

Litter, of course, in a place where the category is growing and we're not getting our fair share of that, that's highly disappointing to all of us. We feel good about the plans we have on Litter in the back half. We'll talk more about those in our next call. But we will go after all of the things that we think aren't working quite right for us in Litter right now. And we're hopeful that, that will show a marked turnaround in the back half once we get that implementation in market.

And our next question will come from Chris Carey with Wells Fargo.

My first question is just around the -- like spending plans for the back half. I'm mostly curious how these have evolved since you started the year? And what I'm specifically interested in is, are we talking about you have these great innovations, you'll be leaning in more and you're basically funding that with the incremental cost savings that you're getting from more favorable commodities? Or are you looking at the broader suite of activities and thinking that you can drive greater outcomes beyond even those innovations? And just is there a way you're thinking about it between promotional activity and advertising? And I have a follow-up.

I'll start, Chris. So yes, on the spending plans for the back half, we started the year, we felt very good about them to begin with. We have pretty sophisticated tools that allow us to put money where we know we're going to get a good return. You've heard us a lot of talk about the personalization engine that we've built that allows us to target consumers in a way that gets some messaging that's driving very good ROIs, and we have one of the leading ROI in the industry from an advertising perspective. So we already felt strongly about our plans heading into the back half.

What we took an opportunity to do is as consumers are adjusting their behaviors, we've adjusted our plans to sharpen that spending in the back half. I'll give you some examples. Some of it is innovation as we've gotten clearer on what distribution looks like and what retailers plan to do, we've made adjustments in spending on retail media. We've made adjustments in spending in advertising or how we might do a promotional kickoff in a retailer. Those are the things the teams have done. In addition, I'll give you an example in Kingsford, we saw that many consumers are doing exactly what they are in other categories from a value perspective. They're either trading up to larger sizes or they're looking for an opening price point.

So for really the first time in July 4 and Labor Day, we had much more merchandising on smaller sizes and larger sizes. It actually grew household penetration as a result of that plan and that we adjusted that spending based on the learnings we had from Memorial Day, where we talked about the merchandising plan did not go as we had anticipated and we didn't execute to the degree we wanted to, we made those adjustments in July 4 and Labor Day and are taking those forward as we look at the back half of the year. So it's across a number of things, Chris. We're using the tools that we have, the consumer understanding that we're getting and making real-time adjustments with retailers to try to capture as much of the change as we possibly can.

And because we feel very confident about our ability to deliver strong returns on that advertising, we feel confident about the choices that we've made. And frankly, we'll probably continue to make adjustments as we learn more. And our business units are fully empowered to do that, and they're watching the consumer carefully, and we'll make adjustments if they need to, to support innovations or the base.

Okay. One follow-up. We've seen an increase in portfolio actions, I guess, if we can call them at a number of companies across consumer staples to respond or maybe adjust to different demand backdrops. I'm conscious you have a fairly diverse portfolio, a very clean balance sheet. You've called out certain categories that have been more volatile than what you wanted. Perhaps there are others where you want to play more in. So just in this environment with the balance sheet you have and the volatility we're seeing, can you give us maybe a sense of how you're thinking about the concept of portfolio and what you're really trying to accomplish with your own and how you think about maybe any future evolution?

Sure, Chris. First, I think the most important principle we have is we always take a long-term focus when it comes to our portfolio. And so there's certainly a lot of things going on right now, some of which is just noise and temporary and some of which we'll see, does it turn more permanent? Is there a change in the consumer environment that we need to account for or any company needs to account for. But we're staying very disciplined in taking a long-term portfolio focus. And that plays itself out in 2 very important ways. The first and the most important is that we strengthen our core and that we take the brands that we have that are in the vast majority of U.S. households and in households all around the world, and we offer better value to consumers.

We invest in those brands, and we get to the place where we're pretty consistently growing market share, growing household penetration, et cetera. And we've seen moments of that over the last several years, and it's certainly been choppy given the external environment and some of the challenges we've had on our own. But that's our #1 focus, and I feel better than I have in a long time around the innovation plans that we have and the ability for those to continue to grow our market share and household penetration over the long term. We have plenty of opportunities in our core business to get better and sharper and deliver profitable growth. Of course, the second component of that is actively with our Board all the time looking at our portfolio to ensure that we have the right portfolio moving forward.

And you've seen us make a few moves, albeit on the smaller side, but very important. We divested our business in Argentina, which had driven the vast majority of the currency volatility we had experienced as well as divesting the business for vitamins, minerals and supplements, which unfortunately did not contribute what we had anticipated it would in a series of the 2 acquisitions that we made, and that is delivering real results every day in the portfolio. And we are always looking with our Board at all options for our portfolio, whether that be tuck-ins, continuing to expand on categories that we play in today or looking, of course, at more transformational things just as you would expect us to with our Board. But we will remain disciplined. The good news is we do have a strong balance sheet. So if there is something that we think is attractive from a shareholder perspective, we have the ability to act on it. But we want to make sure that we are taking a long-term view always and not chasing some short-term temporary disruption and setting ourselves up for good long-term shareholder returns.

Our next question will come from Anna Lizzul with Bank of America.

Just wanted to ask, we're hearing from peers in the space that there's some destocking here from certain retailers. And I suppose with the ERP transition, you're not as exposed to that right now, but I was wondering if you can comment on this inventory trend. And as we see a retailer shift to club and online from consumers, I was wondering how you're looking to increase your exposure here. You mentioned in the past that Glad was a brand that had significant competition from the club channel. And any innovation you can mention with this in mind in terms of your offerings to have these retailers pick up new products and new pack sizes.

Sure. And on destocking, you're right to assume that our ERP would, of course, have the opposite effect because we were rebuilding inventories with retailers as we got through that period. So largely, we're not seeing any material destocking behavior impacting results. And largely, what we continue to see from retailers is they're doing the good structural work you would want to reduce inventories across the value chain. And that's good for everybody over the long term, but we don't see anything in the short term. And again, that could change as retailers' plans change that are impacting our business. And we have largely recovered our inventories from the period during the ERP implementation disruption.

But again, at this point, we're not seeing anything material that we would call out for this quarter or for the remainder of the year. On the club business, we have a very strong club business across many of our businesses, and we do focus on specific innovation for the club member and shopper, just like we do for the grocery channel and for the dollar channel and for e-commerce. We're looking to combine the moment of truth with what the product offering needs to be. And so we work very closely with our club customers and others to ensure that we're getting the right member value for them. And we've been doing that for many, many years, which means we have very strong positions in club now. You're right that we've called out Glad as being a place where we have less of a position in club.

We continue to work on opportunities there to ensure that we're providing the right value and potentially unlock different distribution opportunities. But for now, what we're focused on is ensuring consumers who want a large count of trash bags can get them in other places. So obviously, we have very strong distribution across other channels that also sell large sizes, and so we're focused on that and focused on the club customers where we have good distribution. But I think I feel very good largely about where we are in club and our ability to specifically target innovation that provides great member value.

Okay. And just one follow-up on private label. While the overall share is more muted in terms of growth, we're still seeing some increases in categories like wipes. So I'm curious for your thoughts here relative to private label share and the increase that we're seeing versus on the branded side.

Yes. So in aggregate, we have not seen private label make any material inroads in aggregate. But there are a couple of categories we call it. I actually wouldn't call it wipes as being one of the categories that we have concern about or are watching carefully. But actually Brita is one that we're watching carefully right now. We've seen some consumers trade down to private label filters and smaller sizes. And so we have reacted with ensuring that we have the right lineup of pitchers and filters and making sure that we're having the right value there.

But that's one place we're watching very carefully. We've seen this behavior in the past when consumers are under stress. They may make a substitution here and there for a lower-priced private label filter, but that's a place that we've been watching pretty carefully. And then I would say in Bleach would be the other place that we're watching very carefully. Generally, our cleaning portfolio is doing very, very well, particularly against private label, and we're seeing consumers across the whole value spectrum, all the way from dilutables up to wipes. Looking for that premium experience.

We continue to see good overall share performance in Home Care. Obviously, it was impacted by the out-of-stocks that we had in Q1, but we're seeing that bounce back. But Bleach is a place we're watching carefully. We've seen a bit of private label uptick. We feel like we have good Bleach plans in the back half, and that's a place where we have targeted strengthening the plan in the back half. But those are 2 categories that we're watching very carefully and watching particularly lower-income consumers to see what their behaviors are and adjusting our plans to make sure that we have an offering from Clorox that meets their needs.

And our next question will come from Bonnie Herzog with Goldman Sachs.

I wanted to circle back on your guidance, the organic sales growth guidance of the declines that are expected of negative 5% to 9% -- just hoping for a little bit more color on the puts and takes of that. You highlighted your current expectations are to be at the lower end of the range. But just curious if the high end of this range is achievable? And if so, what would the drivers of that be? And then just a quick clarification of the inventory unwind. Was there maybe a greater unwind than you expected in any areas of your business?

Yes. Thanks, Bonnie. I can take that. First, on your last question, I think we generally feel good about our inventory positioning at the end of the first quarter. So that you probably noticed we refined the estimate of the incremental shipment associated with the IP transitions from a range of 7 to 8 points of negative sales headwind in fiscal year '26 to a point estimate of 7.5 -- and just the background there, I think we talked about it last quarter, but we had a pretty robust tracking process in place to track those incremental orders, but there's also an element of triangulation. As you probably know, some of our customers have algorithm-based ordering systems. And so we really needed to wait for the end of the first quarter to kind of finalize those estimates. So again, feel good about the current retailer inventory position at the end of the Q1, and we feel also good about the -- now having finalized the estimate of the ERP transition.

Having said that, maybe when we look at -- looking at the outlook for the organic sales growth range, I think a few things that's worth mentioning. One, we're still early in the year. And second, it's a pretty wide range in that given the environment, -- and that was -- the breadth of the range was a deliberate choice because it allows us to really remain agile and realistic as we navigate the market dynamic and external environment during the year. So it is a wide range. So when you look at the higher end of the range, having said that, it's fair to say that we would need everything to hit on the -- all assumptions to hit on the high end for us to meet the higher end, and it would be a pretty robust sales in the back half. So that means category growth will be on the higher end of our estimates, either 1 point on average for U.S. retail or higher. Second, we would have a great execution on innovation and demand creation plan. And then third, of course, that assumes no supply or extraneous issues coming up as we continue through the year. So yes, that's what we need to be true.

We'll move next to Olivia Tong with Raymond James.

First, you mentioned in your prepared remarks that category growth rates have stabilized even if they're lower than historical. What are you seeing that underlies your confidence in that stabilization? Because many of your peers seem concerned that things could get worse through basically first half of calendar '26. And I think you mentioned flat to plus 1 category growth at the moment. Are you expecting that to get better as time progresses? Or is it more about your innovation and other actions that are driving that share -- driving some share opportunity to continue the stabilization?

Olivia. On the category growth piece, we've been talking for a while about the stress that the consumer is under and have been calling muted category growth rates for quite a while. And basically, what we have seen, which we've estimated 0 to 1 -- it's been in that range for a number of quarters. Now it's been on the higher end of that range, and then it's been on the lower end. And if you look at this quarter, it was on the lower end if you exclude beauty, which we don't have a very big business in. We obviously compete in burs, but that's relatively small. Category growth was about flat.

Now to be fair, we were out of stock in some places. And so how much of that is attributed getting to that lower end of the range to us. Regardless, it wasn't the situation that we would have hoped for. And we could have expected category to be a little bit better than that and maybe more in line with what we had seen in the previous 2 quarters. So our confidence that, that will continue as we're in essential categories. We fuel people's everyday lives. They need to clean their house. They need to take care of their pets. They need to take out the trash. And so that's why we feel there's been a floor on the categories that we compete in, keeping them in that range. And in addition to that, just as you call out, Olivia, we feel very good about our back half plans.

And of course, our #1 focus is reinvigorating category growth. And then two, our focus is on growing share in those categories through better ideas and better execution. So that being said, we're watching the consumer carefully because there's a lot of things going on right now, many of which are still playing out and are uncertain. And that can mean the consumer would react differently. But again, given the dynamics that we know today, what we see is the most likely scenario and how consumers have been responding over the last number of quarters, we feel pretty good about that category estimate of 0 to 1.

Got it. And then just on the ERP, could you just talk about how the organization is adjusting to all these changes? Do you expect any disruption to extend beyond Q2 other than obviously, the comp issues in Q4 that you've got to deal with. But just thinking about the organization and what's the next step after this and whether you're expecting any big pull forward, pushbacks, et cetera, for the remainder of the year?

Perfect. Yes. On the ERP, we're through the hard part is the way that I would put it. We did the heavy lifting in Q1, and we had one additional implementation that happened later in the quarter that went without a note. We have another smaller implementation happening coming up here. And again, we would expect based on what we've seen that, that would be of no consequence either. And so now the entire company is focused on using that new ERP to drive value and then getting laser-focused on reinvigorating category growth and executing the plans that we have for Q2 and beyond.

I think generally, we're all really excited. We've been waiting for this moment for a long time. This unlocks so many things for us to be able to do when it comes to creating superior value for consumers, faster insights, faster ability to react when consumers have changing behaviors, the ability to see end-to-end in our supply chain, which will just make us better at reacting to what's going on from retailers and consumers.

And of course, on the savings side, there's a lot to be had here from an efficiency perspective. That ability to see end-to-end allows us to remain -- take costs out. It fuels our ability to do net revenue management and all the tools that we've talked about over the last couple of years. So generally, the organization is very optimistic and laser-focused on now that we've gotten through this period, it is time to put that to work and time to ensure that we are reinvigorating categories and giving consumers the very best value we can at the moment they need it more than ever.

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

I just wanted to just confirm, given the issues related to ERP in first quarter, are your customer fill rates now back to normal? Or are you still like a little bit below normal in your second quarter? And then secondly, I had a question on price/mix. There's 3 straight quarters now with price/mix negative and a lot of commentary on the call about competitive pressures, value-seeking behavior across many categories at once. So is there a path for price/mix to inflect positively? Or is this going to be kind of like a negative environment, albeit modest while working through this value-seeking environment?

Thanks, Robert. I'll take the first one, and then I'll pass it over to Luc for price/mix. So on Q2 order fulfillment, we are back with retailers able to fill the orders that they need, and we have largely rebuilt inventories nearly everywhere. On the margins, there are some small things that we're continuing to work out. Professional is a good example of that, where just given the distribution network, it's taking a little bit longer than the average to fully rebuild inventories.

But yes, with -- from a customer perspective, they're experiencing more of a normal Clorox, and we're able to get back to the type of fill rates that they expect from us.

And on price/mix, Robert, you're right. We -- last year, we actually saw about 2 points of price mix -- negative price mix. And this was really -- a lot of it was really driven by the value-seeking behaviors from consumers and channel shifting as well altogether, along with some incremental promotions as we both normalize promotion and saw increased competitive activity. This year outlook contemplates still a headwind, but lesser about a point. And really, essentially, it's the continuation of value-seeking behavior and channel shifting.

Promotions are like fairly stable year-over-year. And then we're actually seeing some benefits from some of the net revenue management activities that were taking place, but not fully offsetting the headwinds of the value-seeking behavior and channel shifting. Now it'd be about a point for the year. It was about a point for the first quarter. It might move quarter-by-quarter, but I think we're seeing good momentum, and then we'll have to see where we're at after next year.

And our next question will come from Kevin Grundy with BNP Paribas.

Question probably for Luc, but Linda, I'd like to get your thoughts as well. So it's kind of twofold. Number one, on run rate EPS, how we should still be thinking about that, but then sort of relative to adequacy of investment levels. So Luc, I think you said before, we should be thinking about adding back the entirety of the ERP transition and EPS now seems like it's going to be the low end of the range, like a $5.95 number, and then we just sort of gross that up for the ERP transition as we're thinking about sort of run rate going forward.

And I want to kind of take your temperature on whether you both still feel comfortable with that thinking. And I ask in the context that your market share is not where you'd like it to be. Promo is ramping. It seems like the cost of business is moving higher. A lot of categories are slower. So do you still feel comfortable with that sort of thinking? And I guess the question really gets to, as you're thinking about the investment factors that may potentially hold back that kind of thinking for investors, and that is that the entirety of the $0.90 should be thought about in sort of base earnings? Or is there a potential here that investment levels need to move higher in the current environment? So love to get your thoughts there on that.

Sure, Kevin. I'll start. The way that we look at this, the year outside of the fact that we had a blip in the implementation on order fulfillment is largely playing out as we expected. We're seeing the consumer largely in line with what we expected, categories largely in line, competitive activity, largely in line. Our execution, largely in line. We are seeing some nuances by category, which is typical in a portfolio like ours where we play in so many different categories.

But I would say the environment, the competitiveness, the consumer generally what we thought it would be. And so nothing has changed in our confidence in our ability to navigate that environment to deliver the performance that we expect of ourselves. And then, of course, as we come out of this, to accelerate all of the things that we know will add value like innovation, continuing to invest sharply and deeply in our brands, which we are this year. And we feel like we have the right investment level given everything, all the factors that we spoke about -- so generally, we see the world very much like we saw the world the last time we talked about this.

And the change is that we -- from a quarter perspective, we trued up our outlook to account for the fact that we had a blip in our implementation. But largely, all the other stuff remains true. What we're watching really carefully, Kevin, is when can we and others reinvigorate category growth. And that's what we aim to do in the back half. And can we get our categories growing back to the 2%, 2.5% range we're used to seeing.

Even if they don't, and this is a prolonged period, we still see the opportunity for our brands to play a leading role in the categories and deliver good value creation and earnings for our shareholders, albeit even if it's at a lower top line growth number. But it's too early to call that yet. We're focused on '26 and making progress in Q2 and the back half. But I would say nothing has changed in our thinking or confidence in our ability to come out of this year and continue to deliver good earnings performance for our shareholders.

And Kevin, on the earnings run rate, your understanding is correct. We would see the $0.90 being added to wherever we finish this year as a starting point to next year. And again, as a reminder, we essentially ended up shifting 2 weeks of sales out of fiscal year '26 into fiscal year '25. So the absolute sales dollars and EPS dollars in fiscal year '26 are understated. And as you lap that, you will see a step-up in fiscal year '25.

And this concludes the question-and-answer session. Ms. Rendle, I would now like to turn the program back to you.

Thanks, Jen. As we wrap up today's call, I want to emphasize that our team is actively navigating a rapidly changing consumer environment. We recognize that consumers are facing ongoing challenges with spending habits shifting quickly across all income levels. While we anticipated many of these changes, new patterns continue to emerge, and we're closely monitoring these developments. By leveraging more real-time insights, we are adapting our strategies with agility and focus to meet evolving consumer needs.

Our portfolio of trusted brands with strong consumer value, loyalty and stable household penetration will help to reinvigorate category growth and enable us to recover market share. Looking ahead to the second half of the year, we have a robust pipeline of innovation supported by significant demand creation investments. We are laser-focused on continuing to deliver and enhance superior value experiences with our brands for consumers in a time they need it more than ever. Our strong holistic margin management program enables us to reinvest in our brands, balancing immediate actions with a long-term perspective to ensure their ongoing health and success.

To support our focus on delivering superior value with speed, our new ERP system gives us real-time visibility, enhances demand planning and enables faster execution. With the majority of the implementation complete, our focus is on rebuilding growth momentum. The choices we're making today are shaping a stronger, more resilient Clorox, setting the stage for sustained growth and stakeholder value in the years ahead. Thank you for your time and questions. We look forward to sharing our continued progress in the quarters to come.

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