Procter & Gamble Company (The)

Good morning and welcome to Procter & Gamble's quarter-end conference call. Today's event is being recorded for replay. This discussion will include a number of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q, and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. As required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its investor relations website www.pginvestor.com a full reconciliation of non-GAAP financial measures. Now I will turn the call over to P&G's Chief Financial Officer, Andre Scholten.

Good morning, everyone. Joining me on the call today are John Moeller, Chairman of the Board, President and Chief Executive Officer, and John Chevalier, Senior Vice President, Investor Relations. I'll start with an overview of results for the October to December quarter. John will add perspective on our recent results and strategic focus areas and capabilities. We'll close with guidance for fiscal 24 and then take your questions. October to December was another strong quarter. Execution of our integrated strategy drove solid sales and market share results and another quarter of strong margin progress delivering strong earnings and cash results for the quarter. The strong results we've delivered in the first half of fiscal 24 enable us to raise our outlook for core earnings per share and keep us on track to deliver within our fiscal year guidance ranges for organic sales growth, cash productivity, and cash return to share owners. We continue to see the upper range on organic sales and core EPS as likely outcome for fiscal 23-24. So moving to second quarter numbers, organic sales grew 4%. Volume rounded down to a decline of one point as continued volume acceleration in North America and Europe focus markets was offset by softer shipments in Greater China, Eastern Europe, and Middle East Africa regions due to local issues in select markets. Pricing contributed four points to sales growth consistent with the guidance we provided. Mix was neutral to organic sales growth. Growth across categories continues to be broad-based, with eight of 10 product categories holding or growing organic sales this quarter. Home care, hair care, and grooming grew sales high single digits. Fabric care, family care, feminine care, and oral care were up mid-single digits. Baby care was in line with prior year, Personal health care was down low singles against a very tough comp and a late developing cold and flu season this year. Skin and personal care was down mid-singles due to SK2 in China. Growth was also broad-based across geographies with North America, Europe, Asia-Pacific focus markets, and Latin America and Europe enterprise markets each growing organic sales. Focus markets grew 3% for the quarter and enterprise markets grew 7%. Organic sales in North America grew 5% with four points of volume growth. Over the last five quarters, volume growth in North America has been minus three, flat, then 2% growth, plus 3%, and now plus 4%. Strong acceleration well ahead of the underlying market trends. Europe-focused markets were up 7% with three points of volume growth. As expected, both regions saw a step down in pricing contribution to sales growth, as a large portion of price increases from last year have annualized. Importantly, volume accelerated in both regions to partially offset the pricing impact. Latin America delivered another very strong quarter with 17 percent organic sales growth. Continued strong results in these regions. There are some targeted issues affecting other markets. Greater China organic sales were down minus 15 percent versus prior year, Underlying market growth was down mid to high single digits as consumer confidence weakened further. The SK2 brand in Greater China was down 34% due to soft market conditions and a temporary headwind for Japanese brands in the market. Our consumer research indicates SK2 brand sentiment is improving and we expect to see sequential improvement in the back half. Underlying market trends have softened in some Europe enterprise and Asia Pacific, Middle East, Africa countries such as Egypt, Saudi Arabia, and Turkey following multiple rounds of pricing to offset inflation and due to heightened tensions in the Middle East. Global aggregate value share was up 40 basis points versus prior year with 28 of our top 50 category country combinations holding or growing share. In the U.S., all-outlet value share was up 20 basis points versus prior year. U.S. volume share was up 50 basis points, reflecting strong volume growth. Value share in European focus markets was up 90 basis points over the past three months. In summary, North America, Europe focus markets, Asia Pacific focus markets, and Latin America, which combined represent three-quarters of company sales, delivered over 6% of organic sales growth in quarter two with three points of volume growth and three points of price mix. These same markets grew 9% in quarter one with around two points of volume growth and seven points of price mix. Continued strong organic sales growth with accelerating volume growth to mitigate the anticipated annualization of pricing consistent with our guidance. The balanced 25% of company sales, including Greater China, Eastern Europe, and Middle East Africa, were impacted by local market issues we described. Quarter 2 organic sales for this group were down 5 points versus prior year. We expect most of these effects in these regions to be temporary or annualizing, as K2 consumption is sequentially improving. We continue to expect China market growth to improve and over time return to mid-singles, and we expect market pressures in the Middle East and Turkey to ease over time. Moving to the bottom line, core earnings per share were $1.84, up 16% versus prior year. On a currency-neutral basis, core EPS increased 18%. Core operating margin increased 400 basis points as 520 basis points of gross margin expansion were partially offset by increased marketing investments, wage and benefit inflation, and foreign exchange impact in SG&A. Currency neutral cooperating margin increased 470 basis points. Productivity improvements were very strong, 340 basis points held to the quarter. Adjusted fee cash flow productivity was 95 percent. We returned $3.3 billion of cash to share owners, approximately $2.3 billion in dividends, and $1 billion in share repurchase. In summary, against what continues to be a challenging and volatile operating environment, strong overall progress in the first half of the year, keeping us on track for our fiscal year guidance ranges. Now I'll pass it over to John for his perspective.

Thanks, Andre, and good morning, everyone. I'll start by underscoring a few points Andre made in his discussion of the top-line trends. Overall continued strong top-line progress. 22nd consecutive quarter of 4% or better organic sales growth, volume acceleration in key markets, increases in aggregate market shares. This, despite several notable headwinds, which should be temporary, tensions in the Middle East will hopefully ease. Enterprise market volume impacts following price increases are usually temporary. While we can't talk specifics of future pricing in any market, more stable foreign exchange, and commodity costs will ideally reduce the need for additional large price increases. I spent six days in China with the team two weeks ago. I met with consumers in their homes, with retail CEOs, with our team, and with several government officials. In my view, the long-term China opportunity remains intact. The near term is likely to present some challenges. We'll see what happens with the global cough cold season as a soft start to the season either reverses or eventually annualizes. No guarantee of immediate bounce back in any of these, but reason to believe they will improve over time. In addition to continued aggregate top line progress, a very strong bottom line. Mid-teens core earnings per share growth two quarters in a row while increasing investments in innovation, brand building, and market growth. Our team continues to execute our strategy with excellence, enabling strong results over each of the past five years, pre-COVID, during COVID, and through a historic inflationary and pricing cycle. I want to thank them both for what they delivered and for what they're working to continue to accomplish. Our integrated strategy is unchanged. A focused portfolio of products and daily use categories where performance drives brand choice. The portfolio is performing, delivering broad-based growth across nearly all categories and most geographies for several years. The announcements we made in December to change our go-to-market approach in Argentina and Nigeria will further sharpen our focus and strengthen our value creation potential, a good example of the dynamic nature of our strategy and our desire to aggressively allocate resources to where they create the most shareowner value. Next strategy element, ongoing commitment to an investment in irresistible superiority through innovation across the five vectors of product, package, brand communication, retail execution, and value holistically defined. Leveraging that superiority to grow markets and our share in them to jointly create value with retail partners. The plans across the businesses are broader and stronger than at any time in the recent past as each team works to increase their margin of superiority and consumer delight. Superior innovations that are driven by deep consumer insights communicated to consumers with more effective and efficient marketing programs executed in stores and online in conjunction with retailer strategies to grow categories and our brands. Price to deliver superior value across each price tier where we compete. Smooth Tear Charmin Ultra Soft with scalloped edge perforations, a great example of Consumer Insights driving innovation to improve the in-use experience. Consumer response to the new product has been overwhelmingly positive and is driving word-of-mouth recommendations in social media. Gillette's superior propositions, like the Gillette Labs Razor with an exfoliating bar that removes dirt and debris before the blades, continue to drive growth in the global grooming category. Gillette Labs has reached shares greater than 20% in markets like Spain and France, and is building momentum in the U.S. and China. The global grooming category is on track for a billion dollars of retail sales growth this fiscal year, with Gillette driving two-thirds of the increase, well ahead of our global share. Superior innovations like Dawn Power Wash and Dawn Easy Squeeze in the U.S., and ferry power spray and ferry max in Europe are disproportionately driving market growth and hand dishwashing, with value share in the U.S. approaching 67 percent, nearly 50 percent across Europe-focused markets. Third strategy element, productivity. Improvement in all of our operations to fund investments in innovation, brand building, and market growth, to mitigate cost and currency challenges, and to expand margins and generate cash. We're re-accelerating productivity back to pre-COVID levels with an objective for gross savings and cost of goods of up to $1.5 billion before tax. Visibility to more savings opportunity is increasing, enabled by platform programs with global application across categories like supply chain 3.0. We're working in a new way with retailers on the totality of the supply chain end-to-end versus simply trying to optimize each piece. One example, using data and machine learning algorithms to optimize truck scheduling to minimize idle time for drivers. We're also using AI tools to optimize fill rates and for dynamic routing and sourcing optimization. Two to $300 million of savings opportunity across these areas. We have line of sight to savings from improved marketing productivity. More efficiency and greater effectiveness avoiding excess frequency and reducing waste while increasing reach. We're taking targeted steps to reduce overhead as we digitize more of our operations. The team has delivered strong cost savings in the first half of the year and plans to build on this momentum. Next, constructive disruption of ourselves and our industry, a willingness to change, adapt, and create new trends, technologies, and capabilities that will shape the future of our industry and extend our competitive advantage. We continue to be a constructive disruptor of brand building, in-housing more of the media planning and placement activity using our proprietary tools and consumer data to increase effectiveness and efficiency of our communication. We're disrupting traditional lab-based innovation models to dramatically increase the speed and breadth of discovery. Last but clearly not least, we've designed and continue to refine an empowered, agile, and accountable organization model, also an increasingly diverse organization, enabling us to better serve an increasingly diverse set of consumers. So strong progress across all strategic pillars with significant opportunity ahead of us. No reason to stand still, as illustrated by the four focus areas we've outlined previously. Supply Chain 3.0 is delivering productivity, as we just talked. We're also driving improved capacity planning, greater supply agility, flexibility, data transparency, scale, and resilience, all the way up and down the supply chain, inclusive of our retail partners. All of this is driving higher quality, increased supply assurance, and higher on-shelf availability of our products, and of course, better cash and cost structures. These programs improve superiority with consumers and further strengthen what is already the top-ranked supply chain by our retail partners and third-party industry surveys. Environmental sustainability, superior propositions for consumers, customers, and share owners that are sustainable. Driving sales and profitability while reducing the footprint of our operations, enabling consumers to reduce their footprint. and innovating to deliver cross-industry solutions for some of our most pressing challenges. A good example is the four-chamber Aerial Platinum Pods innovation that we launched in a new cardboard package, extending our superiority advantage in product performance while improving sustainability by enabling great wash results even in cold water, already contributing to a two-degree Celsius reduction in wash temperatures in Europe against a five-degree target, also extending packaging superiority with a more attractive and more sustainable cardboard box. Digital acumen, leveraging data and digitization to delight consumers, streamline the supply chain, increase quality, drive productivity, all driving share owner value. Fourth, the superior value equation for all employees, inclusive of all genders, races, ethnicities, sexual orientations, ages, and abilities for all roles to ensure we continue to attract, retain, and develop the best talent and our best position to serve all consumers. These four focus areas are not new and separate strategies. They simply strengthen our ability to execute the strategy. Our strategic choices on portfolio, superiority, productivity, constructive disruption, and organization reinforce and build on each other. We continue to believe that there is merit in doubling down on this integrated strategy, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners fueled by productivity. We remain as confident as ever in our strategy and our ability to drive market growth and to deliver balanced growth and value creation to delight consumers, customers, employees, society, and shareholders. Now back to Andre for guidance.