The Clorox Company

Good day, ladies and gentlemen, and welcome to the Clorox Company fourth quarter fiscal year 2026 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 one on your touchstone pad at any time. If anyone should require assistance during the conference, please press the star zero on your touchstone pad at any time. 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 outcome. 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, 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 on 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 areas 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.

Thank you, Ms. Rendle. Ladies and gentlemen, if you have a question, please press star one on your touchstone telephone. And our first question comes from Peter Grom with UBS.

Great, thank you. Good afternoon, everyone. Hope you're doing well. Two questions that are 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 and the flat to up slightly organic sales outlook.

Hi, Peter. I'll start. So what we reference 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, etc. 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 rates much stronger Food, GLAAD, HomeCare 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 a organic growth perspective.

Great, thank you. And I guess just to that point, so you're expecting a slower start to the year. You know, it sounds like a continuation of the current consumption trends, as well as some of the timing related, you know, impacts from grilling 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?

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 at 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 improvements. So consumption sequentially improved with a stronger exit rate getting back to flat consumption in Q4. Shares sequentially improved. Our exit rate in June was nearly flat. If you look at our category share results, Distribution continued to improve. Merchandising continued 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.

Great. Thank you so much. I'll pass it on.

Thanks, Peter. Our next question will come from Filippo Filorni with Citi.

Hi. Good afternoon, everyone. 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've 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. Thank you.

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 close to flat, we're down a tenth 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. We're at eight consecutive quarters of share growth in home care. We continue to see strong share growth in our pro and international businesses. and then really importantly, we saw market share turnarounds in GLAAD behind our reinvestment in superiority across a number of levers. And so we saw trash 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 of 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 grilling 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 US. And then for July 4th, 185 million Americans were under heat advisory, and almost 150 daily city temperature highs were broken during July 4th weekend. We saw less grilling 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 won't 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'll start in March of next year.

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

Sure, Filippo. We expect fiscal year 27 inflation to be above $200 million. So for perspective, it's about more than the overall historical range, which has been in the $75 to $200 million. Now, clearly, the current geopolitical backdrop continues to create volatility across energy, commodity, and supply chain markets. So Outlook assumes an average for Brent crude oil at about $90 per barrel. But importantly, it's not just energy or commodity stories. While commodities remain a significant driver, we are also seeing inflation across broader areas of supply chain, including supplier costs, ocean freight, trucking costs, and other logistic related expenses. 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.

Thank you both.

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

Thank you, everyone. So I wanted to go back to the impact of Goju and also kind of a clarification on the promo environment. On Goju, obviously we can calculate how much the impact was on a like-for-like basis or the 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 and the prepared remarks has been going well. but obviously it's during the phase of integration. And then clarification on the promo is like how we should be thinking about the iterations 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.

Sure, Andrea. I'll start with GOJO and I'll pass it to Luke 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. Of course, I'll note it's 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 it 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 Q4 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.

Yeah, so I think from a financial standpoint, most of it will be in the adjustment except the fourth quarter where we start, you know, the growth in Gojo would start impacting the organic sales growth and it will be an outsized growth contributor. And it's just a quarter, so it's fairly small for the career. Going forward though, we fully expect, you know, this business to continue are 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, our expectation for the business would be mid-to-high single digits for a few years as we realize those synergies. And since we're talking about financials, maybe just two more comments. Linda mentioned the business is actually performing well and a little ahead of their plans. 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 strong 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 Chlorox Company. So legacy. When you look at a pro forma of the business required on the gross margin standpoint, there's about, you know, alpha point of delusions. And then there's SG&A would be about, you know, make the post acquisition about less than a point higher than what it was. And then advertising is about a point lower than what it was. So just keep that in mind as you look at the different lines on the P&L for 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 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.

Thank you.

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

Hi, good afternoon. Thank you so much for the question. 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 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 plans for innovation and different pack sizes across the portfolio? Thanks so much.

Hi, 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 and 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, you know, 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 record, you can see the exact way that we'll approach this moving forward, although nothing to comment on at the moment. And then, you know, as you look at just the challenging challenges categories. You know, I think there's two things to know, 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 number one and number two 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 two 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 five 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 will see in the plan that we just finished in 26 is we made some of those investments. Glad Trash and Hidden Value are two great examples and those are playing out in share growth. As we head into fiscal year 27, we're also going 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 GLAAD 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. You know, between COVID and supply chain disruptions and the cyber attack, we've been very operationally focused as a company getting back the basics. You know, when you lose distribution after cyber, you have to get that distribution back. Your competition has, in many cases, had a six-month head start on you on innovation because they haven't been focusing on that. And so job one 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 one that I would say continues to have a hangover. Given the operational challenges on that business, given the amount that was on e-commerce, etc., 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, etc., 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.

Great, thanks so much for all the detail Linda, very helpful.

Thanks Anna.

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

Thank you. Hi, everyone. I just had a quick question first on your EPS guidance. I guess I'm wondering why your range is, I guess, you know, relatively wide versus the tight guidance range on sales and the specific 42% gross margin guide. You know, 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. I mean, at the end of the day, there's a lot of moving parts, especially with the transitory element on ERP. But if you look at the fact that we are comping a lower than usual incentive comp in the base year, and if you remove all those, essentially the main impact on the EPS is the lower gross margin. And what it is about 42, it actually, you know, 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, thanks for that. 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. Thank you.

Sure, Bonnie. I would consider ex-GOJO where we're spending over 11% of sales as we have in the past number of years where we increased it from 10%. to continue. And so the 10 reflects Gojo'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 slew, 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 want it to mirror the business plan. but it should look largely like other years have in the past.

All right, thank you.

Thanks, Bonnie. Thanks, Bonnie.

Our next question comes from Robert Moscow with TD Cowen.

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

Yeah, thanks, Robert. Yeah, nice to start seeing 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're 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'll see the 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 you know you can have just your supply chain being much more reactive and in some case proactive to some change in demand signal so we're starting this you know integrated business planning thought and we also see a lot of efficiency or like we we have some initial inefficiencies that we'll be lapping but some efficiencies you know demand fulfillment and in order to cash functions and then later we you know 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, with now fairly automated. And I think I mentioned this, one 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?

Yeah, 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 range. And then we definitely included that lapping in gross margin guidance.

Okay, thank you.

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

Great, thanks. Good afternoon, everyone. Hi, Kevin. For me, first one, hey, Luke. First one 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 in 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-up. 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 pre-up capital flexibility for more reinvestment elsewhere. Thanks.

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 continues to generate strong free cash flows. In fiscal year 27, we expect another year of strong cash flow generations 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 costed 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 not only some strong cash flows in line with 11% to 13%, but very stable cash flow because of their install base. And beyond that, the way we structure 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 boards, 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. But of course, we continue to evaluate this over time.

Very good. Thanks, Luc. 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 Procter question. It's a Church and Dwight 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 that there's something more secular going on in some of these categories and particularly those where you play, where private label is high, you know, so whether this is going to be trash bags, whether this is going to be bleach, whether this is going to be litter, etc. 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. Thank you for all that.

Yeah, 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. That's playing out in many of our categories today. I think, you know, 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 10 times higher than what we had normally experienced. And we took four 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, etc., So I think, you know, from our perspective, we just look at our toolbox because pricing is only one 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. GLAAD is a good example given its commodity exposure to resin. We are taking a regular price increase 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. We'll 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 types of business.

Okay. Very good. Thank you, Bob.

Thanks.

and we'll move next to Kumul Gajarwala with Jefferies.

Hey everybody, thank you. 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.

Hi, Cole Milne. I'll tackle that. So first, you know, 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've looked across every line of investment across the P&L and balance sheet to say, do we have the right level of spending to support superiority in the categories we compete? 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, now 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 reinvest 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 just following up on that a little bit on value seeking or superiority is you know 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 you know a larger percentage of your portfolio may be offsides 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 of 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?

Yeah, 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'll 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 GLAAD. GLAAD was not just pricing work that we did in large car trash. We also improved our innovation plans. We improved the proposition through better marketing campaign behind don't get mad, get GLAAD. and so feel very good about the comprehensive nature of what we tackled and then to your 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 though we'll watch the category carefully, I feel very good about the plans that the food team has in store for 27. I would say largely we're on a place where we are going to continue to improve superiority, etc. The one I would call out that is early work in progress is Litter. We have made improvements across the full range of superiority, so 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, Komel, 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.

Got it. Thank you. Our next question will come from Chris Carey with Wells Fargo.

For the questions. The first question I wanted to ask just Linda is, I suppose a bit of a personal professional update, you know, Clorox has announced that it will be looking for, you know, a new CEO. You have been very transparent about, you know, you'll be running the business for us as long as is needed. And so can you just tell us, you know, how is that process going? What are the sorts of skill sets you're looking for? Do you have any updated view on timeline? We just, you know, love to get a little bit more context, you know, 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 my personal health challenges. The good news is I continue to do well. I'm cancer free and feeling well and continue to execute 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 firm. They have done that. And I can say that the search is progressing as expected against the timeline 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, you know, 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. I personally am 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. Thank you. And we're certainly sending you many well wishes. And then, you know, just from a fundamental perspective, I just had two 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 prospects for pricing. You said strategic pricing several times, including on GLAAD. What's the level of pricing that we should be thinking about when it comes to 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 security warrants it, where we feel we have more exposure, but being very disciplined about that. And the one 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? Perhaps you think it'll do better over the course of the year, but is that the construct for the outlook? That's correct, Chris.

You have a few things going on. The net, this is how it will play out.

Okay, thank you.

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

Hello, everyone. 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 puts you around 300 basis points of negative. So if you can dimension the offsets, basically the mix or savings or pricing, what have you, that will be very helpful. And whether that take, why is it doesn't risk the recovery in market share that you mentioned on GLAAD? Thank you.

Yeah, sure, Javier, I can take it. So, yes, as you just mentioned, inflation of $200 million would be, you know, 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 lever, right? And we actually feel very good about the strength of our cost savings pipeline. And pricing would be another lever, strategic pricing, but 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 in 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, it seems kind of like antagonistic kind of goals because you talk about value seeking behavior and the two categories that you flag are bags and cat litter. and those what you see there is that you have value brands actually gaining share and basically the investments that you talk about at least from this kind of 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 you know have your confidence in terms of This is not going to come at the expense of the share recovery that you mentioned. Thank you.

Yeah, I think it's really important that we're balancing those two 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 GladTrash. I think it's a great example. GladTrash 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 today 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, it's 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 but we're heading in the right direction.

Thank you, very helpful.

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

Great, thanks. 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 and 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? Thank you.

Sure. If you don't mind, I'm going to go a little bit out of order. I'll just start with the simple one up front, 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. You know, it doesn't tend to change the way that consumers consume or how retailers approach our brands and 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 by 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 TDPs. And I think that moves nicely into your question on retailer relationships, Olivia, because the reality is 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 a gentrified 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 improve their growth rates in e-commerce. And that will continue to be a focus for the company in 27. We have relatively strong share positions e-commerce, but there are places where we're undershared and we will make progress this year in 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 category advisors 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 it feels 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 Steven Powers with Deutsche Bank.

Great, thanks so much.

Maybe can we just, as you mentioned in the preparing marks, there's been a lot of work done on FreshSTEP 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 and what your expectations are in terms of the progress, the progression from here.

Yeah, thanks, Steve. You know, 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 in? Is it easy to procure? And then, of course, is it 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 one 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 had too much dust. So we reduced the dusting in our product. We changed our focus on some of the categories where we hadn'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've 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 an 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 shelved exactly right, making claim changes where we're 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 set we have here who continue to make strides and we fell behind in security 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 superiority 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.

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

Yeah, 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.

Okay, very good. Thank you for that. I appreciate it.

Thanks, Steve.

We'll move next to Lauren Lieberman with Barclays.

Great. Thanks so much. Just a quick one. I know we've covered a lot of ground. SG&A drivers, I know you mentioned the incentive comp reset and then sort of a structural increase from GOJO, but just, Luke, how should we think about comparable level of SG&A going forward? And then also, I apologize if I missed it, but if there's been any conversation on beginnings of 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. That's another area we talked about is being subject to help with the new ERP. Thanks.

Yeah, thanks, Laura. There's a lot going on in the SG&A line, so let me unpack it a little bit. First and foremost, the 16% of sales includes about 40 basis points of negative impact from Gojo transaction-related costs. So excluding that, you're about 15.5. Now, as I mentioned, Gojo has a higher level of SG&A, and so that adds about a point also. And so excluding this, You get pretty close to, you know, where we finish the year. But keep in mind this year, 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. And there's two things. One, you know, 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 RP and further expansion in global business services will start taking place maybe starting late this year, but 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 are actually making progress in SG&E next year.

Okay, and that productivity statement, sorry, that was specific to SG&A, not gross margins and 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?

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

Okay, great. And then actually just one last modeling thing. Interest expense for 2027, I'm guessing that's north of $200 million, is that right?

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

All right, great. Thank you so much. Thanks, Lauren.

Thank you, Lauren.

Our next question comes from Nick Mody with RBC Capital Markets.

Thank you. This is Clark for Nick Mody. 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? Thank you.

Sure. Hi, Clark. You know, it was an exciting moment, I think, for everyone around the world at 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 given It 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 quarterfinals, 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 attention on social media as we talked 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 on 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 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.

Thank you very much.

Thank you. We'll move next to Priya Origupta with Barclays Capital.

Great. Thank you so much for the question. I was just wondering if you could address how you plan to think

Priya?

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

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.

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

Great. Thank you so much.

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 Purell brand into our portfolio and creating new opportunities to serve consumers and professional customers with 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.