The Clorox Company

Good day, ladies and gentlemen, and welcome to the Clorox Company first quarter fiscal year 2021 earnings release conference call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question and answer session. If you would like to ask a question, you may press star 1 on your touchstone pad at any time. If anyone should require assistance during the conference, please press the star 0 on your touchstone pad at any time. As a reminder, this call is being recorded. And I'd 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, Sharon. Welcome, everyone, and thank you for joining us. We certainly hope you and your family continue to remain safe and healthy in what remains a challenging environment. As usual, we have a few reminders before we go into results. We're broadcasting this call over the Internet, and a replay of the call will be available for seven days at our website, thecloroxcompany.com. Today's discussion contains forward-looking statements, including statements related to the expected or potential impact of COVID-19. These statements are based on management's current expectations but may differ from actual results or outcomes. In addition, we may refer to certain non-GAAP financial measures. Please refer to the forward-looking statement section, which identifies various factors that could affect such forward-looking statements, and the non-GAAP financial information section, which includes the table that reconciles non-GAAP financial measures to the most directly comparable GAAP measures. both of which are located at the end of today's earnings release, which has also been posted on our website and filed with the SEC. Turning to today's discussion of our results, I'll start by covering our usual top-line commentary with highlights in each of our segments. Kevin will then address our total company results as well as our FY21 outlook. Finally, Linda will offer her perspective and will close with Q&A. For the total company, Q1 sales increased 27%, reflecting about a point of benefit from the acquisition of majority interest in our joint venture in the Kingdom of Saudi Arabia, and about a point of headwinds from unfavorable foreign exchange impact. This quarter's 27% organic sales growth is supported by double-digit sales growth in 8 of our 10 businesses. I'll now go through our results by segment. In our health and wellness segment, Q1 sales were up 28%, reflecting double-digit growth in all three businesses. Our cleaning business had another quarter of double-digit growth behind continued strong demands for our disinfecting products. While we continue to make progress expanding supply, we're still not at a point where we can fully meet ongoing elevated demand. Despite those constraints, our Clorox brand continues to see increases in both household penetration and repeat rates. We've been investing behind this momentum to convert new users to lawyer consumers, and we've been seeing very strong return on our investment. On the innovation front, a bleach complexion effort is now complete. The Clorox fabric sanitizer platform and Clorox disinfecting wet mopping cloths both continue to show strong growth. On a related note, our wet mopping cloths, along with our Clorox and Clorox Centiva branded disinfecting wipes and Pine Sol Multi-Surface Cleaner, all recently received approval from the EPA for kill claims against the virus that causes COVID-19 on hard, non-porous surfaces. Our professional products business also had double-digit sales growth behind strong shipments across all of our disinfecting product lines. A key driver of growth this quarter was the Clorox Total 360 system, which uses an electrostatic technology to deliver disinfectants to large, hard-to-reach areas. To support sales and continued momentum in this business, we're bringing online new production capacity this month for the disinfectants used in these devices. We've created a dedicated out-of-home team that focuses on growth opportunities in new channels and spaces to further build on strategic alliances we've already established with Uber Technologies, United Airlines, AMC Theaters, and Cleveland Clinic. Lastly, within this segment, our vitamins, minerals, and supplements business grew sales by double digits this quarter. This strong growth was driven by shipments to replenish retail inventories, following the recent supply disruption and by shipments in support of our Renew Live brand relaunch. Our priorities this year are to continue to improve service levels in order to capture the strong consumption trend, execute the Renew Live brand relaunch with excellence, and deliver consumer-meaningful innovation. Turning to the household segment, Q1 sales were up 39% with growth in all three businesses. Grilling sales more than doubled this quarter due mainly to strong consumption behind grilling occasions and increased household penetration. Sales growth this quarter was also driven partly by customer replenishment of inventory. We've been very pleased to see the strong turnaround of this business reflected in our continued share growth, strong collaboration with the retailers, and successful entry into the pellet category, with our Kingsford pellets continuing to build distribution and share. With recent increases in grilling occasions in new households, including millennials, we're optimistic about the prospects of this business and will invest behind this momentum to drive long-term profitable category growth. Glass sales were up by double digits in Q1, behind ongoing strong demands for our products as consumers continue to spend more time at home. We're building on this momentum with a consistent stream of innovation, including our new Glad ForceFlex with Clorox trash bags, which launch in September. This product eliminates food and bacterial odor throughout the trash bag and has already earned more than 1,000 five-star ratings online from consumers. Our Glad ForceFlex trash bags with unique fragrances and colors, which launch in Q3, also continue to perform well and are among top-selling new items at major retailers. Cat litter sales grew in Q1, driven mainly by strong online shipments and innovation, supported by higher advertising investments. We're encouraged by our return to share growth in Fresh Step behind the continued strong performance of Fresh Step Clean Pots innovation platform and the strong start of Fresh Step with Gain original scented litter with the power of Febreze. In our lifestyle segment, Q1 sales increased 17% with double-digit growth in two of three businesses. Rooted sales were up by double digits for the third consecutive quarter. The growth is driven mainly by continued strong consumption, especially in larger size systems and long-last systems and filters. Sales growth was also driven partly by customer replenishment of inventory, an effort our team has been very focused on. Household penetration for Brita continues to grow, which gives us more reason to invest further. We'll be introducing a new and improved Long Life Plus filter that allows water to flow faster and captures more contaminants, along with a new pitcher. The food business also saw double-digit sales growth behind ongoing strong consumption of our Hidden Valley Ranch products, which continues to benefit from more at-home eating occasions. This is another business where we're seeing household penetration growth. We will continue to invest in innovation and are encouraged to see a strong start to our new Hidden Valley Ranch secret sauce dressing. Finally, Burt's Bees sales decreased this quarter. As the business continued to be impacted by lower store traffic, especially in parts of the store where Burt's Bees products are typically found. We've since accelerated our online strategy and strengthened our presence in the fast-growing cough and cold category with the launch of a new line of rescue balm with turmeric. While we expect the category-wide challenges to persist in the short term, we have strong confidence in the Burt's Bees brand and its long-term growth prospects, supported by a robust innovation platform. Now turning to international. Q1 sales grew 18%, driven by ongoing elevated demand for our products, disinfecting products, and essential household products across nearly every geography. Organic sales grew 17%, reflecting about nine points of benefit from the Saudi JV acquisition, and about eight points of unfavorable foreign currency headwind. Our international business has very strong momentum, and we're looking to build on that through investments that accelerate our Ignite strategy. Increasing the stake in our Saudi JV is just an example of that. Another example is the international expansion of our Clorox disinfecting wipes, which are now being supported by a dedicated supply chain separate from that in the U.S. This will allow us to better meet ongoing elevated demand in our existing international markets where we currently offer wipes, and to launch this Consumer Preferred Forum into new geographies. Now, I'll turn it over to Kevin, who will discuss Q1 performance as well as our updated outlook for FY21.

Thank you, Lisa, and thank you, everyone, for joining us today. I sincerely hope you and your families are well. I'm pleased with our very strong start to the fiscal year, reflecting broad-based strength across our portfolio with double-digit volume, sales, and profit growth in each of our reporting segments. Additionally, each reporting segment delivered gross margin expansion, contributing to our eighth consecutive quarter of gross margin expansion for the company. As you saw in our press release, we raised our fiscal year 21 outlook, given the strength of our Q1 results and our expectations for higher top-line growth over the balance of the fiscal year. Turning to our first quarter results, first quarter sales were up 27%, driven by 22 points of organic volume growth and five points of favorable price mix. Sales results also included one point of growth from acquiring majority control of our Saudi joint venture, offset by one point of FX headwinds. On an organic basis, sales grew 27%. Gross margin for the quarter increased 400 basis points to 48%, compared to 44% in the year-ago quarter. First quarter gross margin included the benefit of strong volume growth, as well as 170 basis points of cost savings and 150 basis points of favorable mix. These factors were partially offset by 300 basis points of higher manufacturing and logistics costs, which were similar to last quarter, included temporary COVID-19 spending. Selling and administrative expenses as a percentage of sales came in at 12%, compared to 14% in the year-ago quarter. primarily from increased operating leverage. Advertising and sales promotion investment levels as a percentage of sales came in at about 9%, equal to the year-ago quarter, with spending for our U.S. retail business coming in at 11% of sales. Importantly, this represented about a 30% increase in advertising support this quarter compared to the year-ago period, reflecting stronger investments to support our ambition to accelerate long-term profitable growth. Our first quarter effective tax rate was 21%, compared to 22% in the year-ago quarter, primarily driven by the impact of our increased ownership of our Saudi joint venture. Net of all these factors, we delivered diluted net earnings per share of $3.22 versus $1.59 in the year-ago quarter, an increase of 103%. Excluding the contribution from our Saudi joint venture acquisition, Q1 dilute EPS grew 66%. As you also saw in our press release, Q1 net cash provided by operations was $383 million versus $271 million in the year-ago quarter, an increase of 41%. Our strong cash flow was due to profitable sales growth, partially offset by higher employee incentive compensations payments, made in the first quarter, which were related to our fiscal year 20 performance. Turning to our fiscal year outlook, we now anticipate fiscal year sales to grow between 5% to 9%, reflecting our strong Q1 results as well as our raised expectations for the balance of the fiscal year, including double-digit growth in Q2. And, as we noted last quarter, we continue to anticipate deceleration in the back half of fiscal year 21 as we lap double-digit growth in the same period in fiscal year 20, when we saw the initial spike in COVID-19. Importantly, we continue to assume our back-cash sales results will be significantly stronger relative to pre-pandemic sales levels. We also continue to anticipate about one point of contribution from our Saudi joint venture, offset by one point of foreign exchange headwinds. On an organic sales basis, our outlook assumes 5% to 9% growth. We expect fiscal year gross margin to be about flat, reflecting the benefit of strong cost savings and higher sales, offset by rising commodity and transportation costs, as well as temporary costs related to COVID-19. For perspective, we expect gross margin expansion in the front half, followed by a contraction over the balance of the fiscal year, as we allow gross margin expansion of 250 basis points delivered in the back half of fiscal year 20. driven by strong operating leverage from robust shipment growth during the initial phase of the pandemic. We continue to expect fiscal year selling and administrative expenses to be about 14% of sales, as we continue to invest aggressively in long-term growth initiatives. Additionally, we continue to anticipate fiscal year advertising spending to be about 11% of sales, spending closer to 10% in the front half of the year and 12% in the back half, in support of our robust innovation program. We now expect our fiscal year tax rate to be between 21 to 22%. Out of these factors, we now expect fiscal year 21 diluted EPS to increase between 5 to 8%, or $7.70 to $7.95, reflecting our assumption for stronger top line performance partially offset by a rising cost environment. As we shared last quarter, our fiscal year diluted EPS outlook continues to include a contribution of 45 to 53 cents from our increased stake in our Saudi Arabia joint venture, primarily driven by a one-time non-cash gain. Excluding the impact of the Saudi acquisition, our fifth-year diluted EPS reflects strong investments behind the robust momentum we're seeing broadly in our portfolio. We're engaging new consumers, supporting back-up innovation plans, and expanding our portfolio into new channels and markets. all in support of our ambition to accelerate long-term profitable growth. In closing, I'm pleased with our very strong start to fiscal year 21, behind-the-scenes top and bottom-line performance across our reporting segments. This provides a strong foundation for our continued momentum, which we plan to drive through aggressive investments in our IGNITE strategy in support of creating long-term shareholder value. And with that, I'll turn it over to Linda.