Earnings call transcript: Clorox Q4 2025 beats EPS forecasts, stock dips

Clorox Company reported its fourth-quarter and full-year 2025 earnings, showcasing a notable earnings per share (EPS) beat against forecasts. The company achieved an EPS of $2.87, significantly surpassing the expected $2.21, marking a 29.86% surprise. Revenue also exceeded expectations, coming in at $2 billion compared to the anticipated $1.94 billion. According to InvestingPro data, Clorox maintains strong profitability with a 45.08% gross margin and has consistently raised its dividend for 48 consecutive years. Despite these positive financial results, Clorox’s stock experienced a slight decline of 0.49% during aftermarket trading, closing at $126.18.

Key Takeaways

• Clorox’s Q4 EPS of $2.87 beat forecasts by 29.86%.
• Revenue reached $2 billion, exceeding expectations by 3.09%.
• Stock dipped 0.49% in aftermarket trading despite earnings beat.
• Q4 performance was impacted by ERP implementation and mixed sales results.
• FY2026 guidance suggests adjusted EPS growth of 22-25%.

Company Performance

Clorox’s overall performance in Q4 2025 was described as "mixed" by the company, with organic sales growth of 8% primarily driven by an ERP-related inventory build. However, actual organic sales were down 5%. The company’s gross margin was affected by the ERP implementation, yet Clorox maintained its market share in several key product segments.

Financial Highlights

• Revenue: $2 billion, up from the forecasted $1.94 billion.
• Earnings per share: $2.87, beating the forecast of $2.21.
• Organic sales growth: 8%, but a negative 5% when excluding ERP effects.
• Gross margin: Impacted by ERP implementation.

Earnings vs. Forecast

Clorox’s Q4 2025 EPS of $2.87 surpassed the forecasted $2.21, resulting in a 29.86% earnings surprise. This performance marks a significant improvement over previous quarters, where earnings were more closely aligned with expectations. Revenue also exceeded forecasts by 3.09%.

Market Reaction

Despite the positive earnings surprise, Clorox’s stock fell by 0.49% in aftermarket trading, closing at $126.18. This decline may reflect investor concerns over the company’s mixed sales performance and the impact of the ERP implementation on margins. InvestingPro analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report, one of 1,400+ detailed company analyses. The stock remains within its 52-week range, having reached a high of $171.37 and a low of $117.35, with a moderate beta of 0.5 indicating lower volatility compared to the broader market.

Outlook & Guidance

Looking forward, Clorox expects FY2026 adjusted EPS growth between 22% and 25%. The company anticipates sequential improvement in sales trends and is targeting a return to a 3-5% growth algorithm in future years. InvestingPro data reveals the company is trading at an attractive PEG ratio of 0.12, suggesting potential value relative to its growth prospects. With a solid return on assets of 12.53% and maintained dividend payments for 55 consecutive years, Clorox continues to demonstrate financial resilience while focusing on innovation and net revenue management to drive growth.

Executive Commentary

CEO Linda Rendle emphasized the necessity of the ERP implementation for long-term growth, despite its short-term impacts. She noted, "While I recognize the timing noise from our ERP implementation in the U.S. is not ideal, in the short term, it’s absolutely necessary for our long-term growth aspirations." Rendle also highlighted the challenging consumer environment, stating, "We continue to expect our categories to perform below what they normally do."

Risks and Challenges

• ERP Implementation: Continued impact on gross margins.
• Consumer Spending: Uncertainty and value-seeking behavior may affect sales.
• Market Environment: Sluggish category performance expected to persist.
• Innovation Dependency: Success relies on new product launches and platforms.
• Operating Margin: Achieving the targeted 18% margin may face hurdles.

Q&A

During the earnings call, analysts focused on the impacts of the ERP implementation and the volatility in sales. Questions also addressed consumer spending challenges and the company’s margin expansion strategy, with management providing detailed insights into their plans for overcoming these issues.

Full transcript - Clorox Co (CLX) Q4 2025:

Conference Operator: Good day, ladies and gentlemen, and welcome to The Clorox Company Fourth Quarter Fiscal Year twenty twenty five Earnings Release Conference Call. At this time, participants are in a listen only mode. At the conclusion of our prepared remarks, we will conduct a question and answer session. As a reminder, this call is being recorded. I would now like to introduce your host for today’s conference call, Ms.

Lisa Berhan, Vice President of Investor Relations for The Clorox Company. Ms. Berhan, you may begin your conference.

Lisa Berhan, Vice President of Investor Relations, Clorox Company: Thank you, Jen. Good afternoon, everyone, and thank you for joining us. On the call with me today are Linda Rendle, our Chair and CEO and Luc Ballet, our CFO. Please note also that our earnings release and prepared remarks are available on our website at thecloricscompany.com. In just a moment, Linda will share a few opening comments, and then we’ll

Unidentified Speaker: take your questions. During this call, we

Lisa Berhan, Vice President of Investor Relations, Clorox Company: may make forward looking statements, including about our fiscal year twenty twenty six 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 statements section, which identifies various factors that could affect such forward looking statements, which has

Unidentified Speaker: been filed with the SEC. In addition, please refer to

Lisa Berhan, Vice President of Investor Relations, Clorox Company: the non GAAP financial information section in our earnings release and the supplemental financial schedule in the Investor Relations section of our website for reconciliation of non GAAP financial measures to the most directly comparable GAAP measures. Now I’ll turn it over to Linda.

Linda Rendle, Chair and CEO, Clorox Company: Thank you for joining us today. Our Q4 and fiscal year twenty twenty five performance was mixed, with weaker than expected top line growth balanced by strong margin and earnings performance for the year. In the front half of the year, our fundamentals on consumer, category and shares played out largely in line with our expectations. In the back half, our categories slowed when macroeconomic uncertainties picked up. While this largely stabilized in Q4, it has not yet normalized.

To put the quarter in context, we executed many of the elements with excellence as we shipped higher than expected incremental orders to temporarily build retailer inventories in support of our ERP launch in The U. S. And as a reminder, our new ERP is a critical part of a strong digital foundation that enables us to better leverage data and insights to drive revenue and efficiencies. We also delivered strong gross margin and earnings in the quarter. At the same time, when consumers are stressed, the bar goes up and we didn’t deliver on all elements of our plans for value superiority on some of our businesses this quarter.

We also lapped abnormally high demand creation activities from last Q4 as we continue to rebuild shares following supply restoration from our August twenty twenty three cyber attack. This led to lower than expected sales for the quarter when we exclude the ERP retail inventory build. Looking ahead, we are clear sighted on what we need to do to win in the marketplace and deliver clearly superior experiences and value to our consumers in this environment. We see opportunity ahead as consumers continue to seek better experiences, and we will lean into this with our innovation pipeline in the back half of the year. Importantly, we’re excited to advance our transformation and begin to fully unlock the new modernized capabilities we’ve built.

While we have more work to do, I’m confident we have the right plans, capabilities and investment levels, not only to win with consumers, but also to deliver strong financial performance in fiscal year twenty twenty six and beyond. With that, Luke and I will now take your questions.

Conference Operator: Thank you, Ms. Rendle. And our first question will come from Peter Grom with UBS.

Peter Grom, Analyst, UBS: Thanks, operator, and good afternoon, everyone. I guess, just to start, I want to ask on the sales performance in the quarter. Obviously, we can see in the data and from your peers, category trends have been underwhelming. But if you back out the ERP benefit that you called out, the organic performance is a bit weaker than what we can see in the data and kind of a bit below what was contemplated in the guidance a few months back. So can you maybe just help us understand the gap between the implied performance and kind of the consumption data that we can see?

And I understand having near term visibility is difficult given all the many moving pieces, but just how did it all play out versus your expectations? Thanks.

Luke Ballet, CFO, Clorox Company: Hi, Peter. This is Luke. Why don’t I just give you the breakdown from sales performance all the way to consumptions? And then I think, Cathinda, I wanted to just offer perspective on the consumption performance. If you look at our organic sales growth was about 8% and if you back out the 13% to 14% related to the inventory retailer inventory build at the retailers, you get, as you call it about negative 5%.

And remember, at our last earnings, we had estimated that excluding the impact of the ERP, we were expecting to be maybe negative 3%. So that’s lower than we expected. That’s also lower than the consumption, which was about negative 3%, but the gap is the inventory destocking that we had mentioned in our last earnings. So really negative three consumption is lower. We would have expected to be in line with the category, which was slightly negative.

And the difference is really a lower share performance than anticipated.

Linda Rendle, Chair and CEO, Clorox Company: And Peter, maybe I’ll take on what we experienced in share and where we missed versus our expectation. And maybe it’d be helpful just to take a step back and put the quarter in an overall context and then talk about where we have confidence moving forward. This was a pretty dynamic quarter, and we knew it was going to be. We are lapping a quarter from last year that had very high spending and had high merchandising. And that was due to many of the activities we put in the marketplace to recover from the cyber attack we had experienced the year before.

So we knew we were lapping that and we had made a lot of decisions to adjust spending and adjust our merchandising plans. At the same time, we saw very, very dynamic consumer environment as consumers were trading up, trading into smaller sizes, moving to different retailers. And then of course, we were preparing for our ERP transition. So a lot going on. And and just quite frankly, in a few businesses, it didn’t go as we had expected to.

Some of those elements, didn’t execute as well as we could have, and things were lower than expected. On the flip side, were some businesses that went exactly as we expected. Cleaning is a great example of that where we continue to grow share. Innovation plans worked extremely well. The changes we made to merchandising played out.

And so that’s really the delta between where we thought we were going to be in Q4 and where we landed. We never liked that, but we see clear opportunities to improve moving forward and our plans for 2026 contemplate that and really begin to ramp up in the back half And we feel good about that, and and obviously, we’ll make progress over the over the next couple of quarters on that. But this really just comes down to a very, very dynamic quarter, and we didn’t all get did it we don’t didn’t get it all right, but we’re clear sighted on where we didn’t and what we need to do moving forward. The only thing I’ll note is, you know, what and really importantly for us, we look at our brands to say, was this a brand issue or was this a execution issue? And our brands continue to be incredibly healthy with consumers.

We grew household penetration in fiscal year twenty twenty five. And although we lost share in Q4, we grew share for the year. And we came off of a quarter in Q3 where we maintained share. And if you look at our consumer value metric, that remains at a high point in fiscal year twenty five. So we know it’s not our brands.

They still resonate with consumers, and, have everybody to perform, and and we’re gonna we’re gonna make sure that that execution comes through for fiscal year twenty six.

Peter Grom, Analyst, UBS: Thank you for that. And I guess maybe just to that point, you just mentioned kind of the sequential improvement. It was mentioned in the prepared remarks that consumption trends would remain sluggish but improve in the second half. Can you just unpack that a bit and kind of what drives the confidence that trends are going to improve? Is that a is that a category based assumption, or is that a reflection of some of the actions you’re taking, to drive improved share performance?

Linda Rendle, Chair and CEO, Clorox Company: Yeah. Peter, that’s it’s both. But let me focus on what we control, and and kinda walk you through it. You know, we’re really seeing in the front half of the year is continued sluggish categories, and we’ve adjusted our plans, which will take impact effect over time to address what we’re seeing in consumer behavior. So as they’re going after larger sizes, we’ve adjusted our plan to deal with that.

Lisa Berhan, Vice President of Investor Relations, Clorox Company: You’re going to see those types

Linda Rendle, Chair and CEO, Clorox Company: of activities ramp up through the front half of the year, but really take hold firmly in the back half. And then the other thing that I would mention, we have a very strong innovation plan in the back half of the year. As you might recall, we talked about in fiscal year twenty twenty five that we would be building on current platforms, innovation platforms that we had. And then beginning in 2026, we would be launching new platforms. And that really was a result of the cyber tech we experienced.

We decided to double down on what we had versus launching new, but now we’re at that point. We’ll be launching new innovation in the back half, which we’re excited about. And that will support, you know, not only category growth, which we care first and foremost about, but also we believe market share improvements. So, you know, looking at the category lens, I would say it still remains uncertain. Consumers are definitely still under stress.

We continue to expect our categories to perform below what they normally do, And we’ll see how that progresses throughout the year, but I I can’t tell you with certainty what the categories will look like. But what’s under our control will sequentially improve throughout the year.

Peter Grom, Analyst, UBS: Got it. Thanks so much. I’ll pass it on.

Linda Rendle, Chair and CEO, Clorox Company: Thanks, Peter.

Conference Operator: Our next question will come from Andrea Teixeira with JPMorgan.

Andrea Teixeira, Analyst, JPMorgan: Thank you, operator. And, first, I wanted, Linda and Luca, just to to go through the the math of getting back to the levels as you did the ERP and then the pull forward, then the impact the negative impact seems a little more outside it. Actually, not a little, probably more outsized than the benefit. I just wanna go through the math or like any other pay peer in the industry having the same impact from destocking. So in other words, the destocking that is happening as we see channel shifting to ecommerce, that is even exacerbating that impact.

Is that an additional destocking on top of the, the destocking from the ERP?

Unidentified Speaker: Got it. Why don’t why don’t

Linda Rendle, Chair and CEO, Clorox Company: I hit two things? Let me address your your more just industry destocking question, then I’ll get into the ERP, and I’m gonna pass it to Luke to walk you through, you know, how to think about q four as it relates to the ERP, from a performance perspective and then how to think about ’26, coming out of that and what what will happen in numbers because we acknowledge there is a lot of noise right now going on in that, and we’ll we’ll try to provide as much clarity as we possibly can. So first on destocking, as we talked about at the end of Q3, we did expect some destocking to continue in Q4 and largely what we saw was in line with our expectations. We saw a bit more in a couple of our businesses. We don’t look at that as a structural issue.

We look at that as more retailers continuing to do what we do, which is get better at inventory management without experiencing out of stocks. We do not have any material retailer destocking outside of the ERP, which we’ll talk about, which is a different thing in our plan for fiscal year twenty six, but we continue to watch it very, very closely. And that wasn’t the big story for Q4 and as we think about fiscal year twenty six. With that, let’s turn to the ERP, and I’ll do some framing and then again hand it

Conference Operator: to Luke. First of all, we’re

Linda Rendle, Chair and CEO, Clorox Company: on track to complete the implementation of our a p r ERP this year in The US, which is terrific. And I think it’s helpful to remind everybody that the ERP happened at the beginning of the of July, and it happens in phases throughout the year, but the big portion really went live at the July. And we are now in a stabilization phase. So I wouldn’t say we’re done, but we’re still in the ramp up phase. And to put the size with this ERP transition in context, which will connect the data that Luke will share on the actual numbers, this was not an upgrade of an ERP.

This was a complete greenfield implementation of an ERP in The US. And that’s because our current ERP or our former ERP now was twenty five years old. So we really needed to start from scratch. And that means this was incredibly complex, and it took years of planning. And, of course, these types of implementations come with exceptionally high complexity.

And, you know, if you think about what we just executed over the last, call it, eight weeks, we had to build our own prebuild and ensure that retailers have the right amount of inventory for when we shut our system down because there’s a period of time you can’t take orders, and then you have to bring the system back on. You have the nervousness of when you turn the system on and turn it off, turn it off and turn it back on. And then, of course, beginning to ramp up those processes. And the good news is most of that went exceptionally well. We experienced the normal bumpiness as we’re in the ramp up phase.

And the good news is retailers have been terrific partnering with us so that as we encounter issues, we’re able to solve them quickly and move on. But we are still in the middle of that ramp up phase here and and will be for the next few weeks, and then we’ll finish the implementation for the rest of the year. So as I hand it to Luke, just the takeaway is, you know, there is a lot of noise between fiscal year twenty five and ’26 because of the size of this implementation, and we have to make sure that we have the right inventories at the right places to ensure that this went smoothly. And that’s why I think you’re seeing more than what you might for other companies, a much bigger prebuild. And then, of course, we have to deal with that in in the year.

And, again, it is just noise between years and nothing structural. But I’ll hand it over to Luke to walk that to walk through the the different timeline.

Luke Ballet, CFO, Clorox Company: Yeah. Thanks, Linda. Yeah. Maybe I’ll put you know, let me offer a couple of comments on what happened in q four because it was a little different than our expectations. And once I do that, just, you know, let me work you through the impact of the early ERP shipments to the outlook.

So the retailer inventory build ended up being much higher than we anticipated. If you remember, we had anticipated that the retailers would order between one 1.5 of inventory and that was equivalent to about two to three points of annual growth. Now, initial discussion with retail partners in the spring, they all indicated about one point five weeks and based on the learnings from the pilots we did in Canada, also based on some benchmarking we have done versus prior implementation, we expected actual orders to be a little lower than their commitments. Well, most other ended up ordering more, not less than their commitments. In fact, actually many retailers order the maximum allowed.

I think it speaks volume of their past experience with those type of transitions and the risk involved for those transitions. So we ended up shipping about two weeks of inventory, which is equivalent to 3.5 to 4%. Now why do we have a range? We do have a very robust tracking process in place, but as probably there’s still an element of triangulations. Probably as many of you know, several of our customers have an algorithm based ordering system, which make it challenging to separate all the pre buy orders and regular orders.

So we expect that we will have a better perspective and a point estimates sometimes after the inventory drawdown. And we appreciate that this creates even more complexity. The last thing I mentioned on Q4 is that the gross margin impact was higher than what we had anticipated. We had anticipated a fairly minor impact on margin, about 50 basis points for the quarter and about 10 basis points for the year. And there were two drivers.

First, we expected the benefits from operating leverage from the higher shipments. And second, we were actually planning to incur incremental expenses like external warehousing as we build up our own internal inventory. And so the reason the gross margin impact is higher about 50 basis points for the full year and 150 basis points for the quarter is twofold. One, the higher shipment created higher operating leverage. And second, because we ended up shipping a lot more than we anticipated, we did not build inventory internal.

And so we did not incur the expenses that we had planned. So that just gives you a little bit of perspective and kind of bridge the actual impact of the ERP in Q4 relative to our past to the expectation that we had set. Now looking at the impact of the ERP on the outlook. And again, we appreciate that this is both material and complex. And so maybe what I’ll do is, first, let’s step back and let me describe a little bit what happened in the transition because I think that provide the right context to understand what happened from a timing standpoint.

So as we transition in a new system at the July, essentially we had a blackout period where, for about a week we were not able to process orders. And after that, just as Linda mentioned, you stop processing orders, but you ramp up and you do so progressively. So retailers knew that they will not be able to receive product for a period of time in July. And as a result, they really essentially ordered about two weeks of July orders in June and temporarily build their inventory for that period of time. So really when you look at our sales, June sales were higher than what they would have been if there have been no transition and July sales are lower than what they would have been if they were in the transitions.

And so because those two weeks of inventory are worth about 3.5 to four points of annual sales, fiscal year twenty twenty five sales are higher by 3.5% to 4% and fiscal year twenty twenty six sales are lower by 3.5 to four points. And when you look at the P and L, the same thing happened in margin and EPS. So maybe the last thing I mentioned is that from a phasing standpoint, there’s really two quarters in fiscal year twenty twenty six where the year over year growth is going be impacted. That’d the first quarter. As I just mentioned, the absolute dollars in sales are lower because we’re missing two weeks of sales.

And that impact would be about negative 14% to 15%. But then you look also at the fourth quarter because you will be lapping a quarter prior year that add two additional Weak Up Sets. And so those are like the two quarters that the impact in the guidance. So how that helps frame a little bit the year over year impact, which gets pretty material and complex. The main thing to remember is it is transitory.

And just when you start looking in aggregate, we’re looking at 7.8 of organic sales, 100 basis point of margin and 22% to 25% of adjusted EPS growth. And when you exclude that essentially our outlook assume minus 1% to plus 2% organic growth, gross margin being flat to 50 basis points and adjusted EPS growing 2% to 4%.

Andrea Teixeira, Analyst, JPMorgan: That’s super helpful. I just wanted to figure like the 7% to 8% volume impact is greater than the positive 3% to four. That’s why in ’20 in fiscal twenty five. That’s very simplistic to say, but just to to feel how the impact is bigger this year, this upcoming fiscal against what the benefit was in fiscal twenty five.

Linda Rendle, Chair and CEO, Clorox Company: Andrea, I think what what it is is you you just have a higher base than ’25, and so you have to take that out, and then you have the reversal. And that’s why it’s not double the impact. It’s simply the math between years. That’s right.

Andrea Teixeira, Analyst, JPMorgan: Great. I’ll pass it on. Thank you very much for both.

Linda Rendle, Chair and CEO, Clorox Company: Thank you.

Conference Operator: We’ll move next to Filippo Folorni with Citigroup.

Filippo Folorni, Analyst, Citigroup: Hey. Good afternoon, everyone. So maybe just starting with the top line guidance, excluding the ERP cycling impact, the negative 1% to positive two that Luke you just mentioned on an underlying basis. Can you talk to us a little bit about what category growth are you assuming within that guidance from an organic sales standpoint? And then also from a promotional level, we’ve seen a lot of your categories being very promotional, some from your competitors, some some of your action in cat litter.

How do you think the promotional environment will play out in fiscal twenty twenty six? Thank you.

Luke Ballet, CFO, Clorox Company: Yes. Thanks, Filippo. Yes. Let me provide a little perspective on the organic sales growth range and I believe I can just provide a little more on the promotion. So we have a fairly wide range and this is really a reflection that we continue to assume that external environment remains volatile and challenging.

So we continue to expect that consumer will continue to display value seeking behaviors. We continue to expect competitive activity to remain at a heightened level and we continue to expect also cost and tariff environment to remain uncertain. So as I look at the organic sales growth range, it might be easier to talk about what we assume for the middle and then just talk a little bit about the high end and low end. For the middle of the range and the midpoint of our estimates, we essentially assuming The U. S.

Category would be stabilized, but not yet normalized. And so essentially growing at an average of 0% to 1%. Now we could and may see numbers outside that range in any specific months because of the volatility. From a share standpoint, we assumed a continued pressure in the front half and as Linda mentioned, just improving sequentially and especially in the back half. We’re clearly not satisfied with our current performance in the back half of fiscal year twenty twenty five, but we feel really good about our plan in fiscal year twenty twenty six.

We have strong innovation plans and strong net revenue management plan as well in the back half. Now maybe two more comments on the range. I would say volume growth would be fairly close to organic sales growth. We expect price mix to be maybe negative 1% or slightly better, which is an improvement of what we’ve seen this year. And while we continue to expect to see some headwinds from consumer seeking value behavior, channel shifting and promotions that will be generally offset partially offset by strong net revenue management initiatives.

And again, as I mentioned, a lot of them are in the back half. So from a phasing standpoint, it’s if you look at the front half, it’s probably we expect negative low single digits and and then in the back half, probably low single positive low single digits. So that’s for the range. As far as promotions, I’ll pass it on to Linda.

Linda Rendle, Chair and CEO, Clorox Company: Yeah. We’ve seen largely the promotional environment fairly rational, and we’re not seeing significantly elevated levels in aggregate. There are a couple of pockets where we’re seeing more competitive activity, particularly in our trash business as well as cat litter, where we’re continuing to see some pretty high promotional levels and some very deep discounting. But, you know, that is pretty consistent with what we’ve seen over the last several months, and we do expect that to continue for fiscal year twenty six. So largely a rational promotional environment with a couple of pockets in cat litter and trash that we would expect to continue to be more competitive.

As we think about this in our approach, what we’ve really thought about for fiscal year twenty six is continuing to pull all levels levers of superiority in our plan. And we believe that’s the right way, to drive categories. We wanna make sure that we continue to drive profitable growth. So of course, merchandising will be an important part of our plan to remind people that we have new innovation to ensure that we capture them during periods like back to school and cold and flu. But we really want to make sure that we’re leveraging our claims and advertising and we’ll continue to spend strongly next year focusing on innovation, communicating value, ensuring that we have the right promotional activity going on in the categories, etcetera.

So that’s what you’re going to see from us is that continued focus on ensuring that we have superiority across our brands and across all the elements that we control. And we will deal with those categories where it’s a bit more promotional, but we want to make sure that we are continuing to preserve good profitable category growth.

Filippo Folorni, Analyst, Citigroup: Great. Thank you. And maybe a quick follow-up. On the tariff front, what are your expectations in terms of tariff impact for fiscal twenty six?

Luke Ballet, CFO, Clorox Company: Yes. We expect higher cost from tariffs to be around $40,000,000 Now this is based on tariffs announced as of today and of course assumed and also assume USMCA exemption for some of the imports that we have from Canada and Mexico. Now we expect to offset the impact through a broad range of mitigating actions, where that includes sourcing change, sometimes reformulations, productivity improvements, but that will also include some level of strategic pricing. Although, I would say it’s fairly targeted in surgical and generally very modest in magnitude. Now, as you know, the situation continues to be very fluid and dynamic and so the exposure could change and we’re staying very close to it.

Filippo Folorni, Analyst, Citigroup: Great. Thanks guys. I’ll pass it on.

Conference Operator: And we’ll move next to Anna Lazul with Bank of America.

Unidentified Speaker: Hi. Good afternoon, everyone. Thank you for the question. Was wondering if you could clarify hi, Linda. I was wondering if you could clarify on your expectations for an improvement in the back half of the year.

Was wondering if this is based on your expectations for improving underlying consumption given innovation or also an assumption in an improving consumer environment. And then I wanted to follow-up on the promotion question just to better understand the dynamics around trade promotion. You did mention in your prepared remarks unfavorable timing, but given the consumer environment, was wondering if this makes sense to be continuing with promotion if you are seeing unfavorable mix. And basically, where do you expect these promotional dollars are best allocated in your portfolio? Do you expect to cut down on promotion if this is unproductive and not meaningfully lifting a more challenging consumer landscape?

Thank you.

Linda Rendle, Chair and CEO, Clorox Company: Yeah. Well, on the back half, we really do expect what we control to be the main driver of what we will experience from the back half improving. That includes things like innovation that we talked about, and we, again, are launching some new platforms and continuing to expand on existing platforms we have in the company. Very excited about the innovation plans for the back half and they have good spending behind them. As well as Luke mentioned, from a net revenue management perspective, we start to see many of the benefits flowing through in the back half of the year.

And so we expect the fundamentals, our execution and of course the things that drive value in our categories over time like innovation and good net revenue management to take hold mostly in the back half and that’s why we see the improvement. At this point, we are not predicting a significant change to the consumer environment. We expect our categories to be about flat to one ish, you know, sluggish, but that’s very difficult to predict quarter to quarter, moment to moment. And we’re really focused on re reinvigorating our categories through, you know, good advertising spends, pulling all the levels of superiority, including innovation. And then that leads to your point on promotion.

And, you know, we’ve always felt that promotion is a very strategic activity, in in the way that we view it. It is a great way to remind consumers and at times when they have a life event going on. For example, I’m getting ready to send one of my kids to college, and I’m thinking about all those things they need and consumers have the same attitude. And we help them during that back to school period to maybe see products they haven’t seen before, remind them that their kids are gonna need access to fresh water and and and a Brita pitcher, helping them to stay well when they’re staying up all night to do cork disinfecting wipes, those types of things. That promotion is very strategic, and helps bring in new consumers and remind current consumers to stock up when they need you for those events.

It also allows us to introduce innovation. So in the back half, you would expect us to use promotion to introduce the new innovations that we have to the consumer and put it in a place where they can easily find it in the store, particularly because many of our categories, people are not going to spend ten minutes in front of the shelf shopping, and that’s why promotion is so effective to get them to see new items, quickly in the store. That being said, because the consumer is so dynamic, we are absolutely being dynamic with our promotional spend. And I’ll highlight that’s one of the things we didn’t execute as well as we could have in Q4. As consumers are buying smaller sizes, we need to adjust our promotions to ensure that we are giving them the right options and promotions.

So those are the things Anna, you’ll see us do throughout the year is ensuring that we have the right promotions at the right place on the right items to ensure that we communicate value and superiority to our consumers. What I don’t anticipate though is using promotion as a way to differentiate reinvigorate the category. We don’t want to put spending in there that that isn’t good and efficient. We wanna use it strategically, and and we see that mainly in our categories. Again, it’s fairly rational.

That’s what we’re seeing from competitors, and we think that’s the right way to go our categories given most of the volume for our businesses is done off shelf and not on promotion. We wanna continue to use it that way. That being said, it’s very dynamic right now. And if that changes, we’ll adjust our plans. But it is an important tool for us, and we feel like we have the right mix of it in for fiscal year twenty six and have a good line of sight to what we expect to happen in the categories and how we can drive them.

Unidentified Speaker: Great. Thanks so much. Very helpful. And just one follow-up on on private label. I know you mentioned you haven’t seen a significant change overall, but we are seeing some uptick in certain categories like wipes, for example.

Are you seeing this starting on your end? Or is this, you know, maybe certain household income tiers or retail channels that we’re seeing just a greater penetration of private label starting to uptick here? Thanks.

Linda Rendle, Chair and CEO, Clorox Company: Yeah. In aggregate, we’re not seeing any material shift to private label. The one exception we did call out was Glad, and that mainly has to do with retailer assortment as, consumers are moving into channels like Bob, etcetera. That’s having more of an impact on our Glad business. But in aggregate, we’re not seeing it.

There are some nuances. If you look quarter to quarter, you’re right on wipes. We’ve seen a little more private label in wipes. But if you look at our wipes business, we grew very strongly, including our new Sentiva wipes that were four times the rate of our growth. And so we, at this point, again, are not worried about private label expansion based on what we’ve seen, but we’re watching it very closely.

We’re adjusting our plans to make sure we have the right sizes, that people aren’t forced to make a trade into a a private label item because they have a lot of pocket. We’re doing all of that work to make sure that we can capture the consumer along the entire value cycle. But for now, we feel confident in our brands and the fact that consumers continue to remain in our portfolio and that we give them the options to do that through sizing and and price pack architecture.

Unidentified Speaker: Great. Thanks so much. Very helpful.

Linda Rendle, Chair and CEO, Clorox Company: Thank you.

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

Bonnie Herzog, Analyst, Goldman Sachs: All right. Thank you. Hi, everyone. I just had a quick follow-up question on the ERP transition. Was there a greater build in certain businesses or segments versus others?

And then I did want to ask about Kingsford. Linda, you mentioned the pressure on the business or at least it was called out in the prepared remarks in your quarter, but sounds like trends improved in July and you’re optimistic for the rest of the summer. So could you maybe talk about how Kingsford is positioned to win and maybe touch on some of your innovation and activation plans and essentially how you’re also thinking about the price gaps within or with the rest of the charcoal category? Thank you.

Linda Rendle, Chair and CEO, Clorox Company: Yeah. Starting with the ERP, Bonnie, no material difference between businesses that I would call out. You know, the only thing you might have noticed in the press release would be that we do have some export business. So there was a lower impact for international simply because the size of the export business isn’t, corresponding to the size of what we would ship. But on all the rest of the businesses, there’s nothing material to call out in terms of the differences in the segments, etcetera.

Particularly for Kingsford, we did call out that was a business where the execution just didn’t meet our expectations for the quarter, and there was a lot going on. I think you all know there was some pretty, terrible weather, in q four for Memorial Day. But frankly, came down to us not executing to the degree we know we can. And we must execute on Kingsford in the key holidays. And that’s what happened in Memorial Day.

We had slightly less merchandising and not necessarily on the right sizes as we shifted our plan. And so the good news is we adjusted our plan for July 4 and we saw improvement in the plan and we’re seeing the trend on share moved in the right direction. Bonnie, I don’t think this is an issue of our price gap versus private label, our value versus private label. All that remains what it was before. This was really just execution and we are adjusting our plan to ensure that we do that.

An example would be as we can see consumers want some smaller sizes for those who just want to have one or two grilling occasions, we are doing that to ensure that they have a smaller size and we’re able to do that. And we’re not just offering them a very large size for them to stock up on when they don’t have that out of pocket. Those are the types of adjustments that we’re making, for Labor Day coming up here in a month. But don’t feel like this has anything to do with our value equation between us and private label. It really just was execution.

Bonnie Herzog, Analyst, Goldman Sachs: Okay. Thank you. I’ll pass it on.

Unidentified Speaker: Thank you.

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

Kevin Grundy, Analyst, BNP Paribas: Hi, everyone.

Lisa Berhan, Vice President of Investor Relations, Clorox Company: Hi, Chris.

Luke Ballet, CFO, Clorox Company: Hi, Chris.

Lisa Berhan, Vice President of Investor Relations, Clorox Company0: I think when, you know, we on this side are confronted with these sorts of situations where there’s, swings and sales from one year to the next, and it should you know, there’s a lot of volatility in the numbers, and it’s really just a search for, I suppose, the true north. And I guess in that context, right, Luke gave, you know, some figures for how he sees the you all see the underlying business for fiscal twenty six. But, certainly, I think as early as it is, we’ll we’ll all be, I suppose, looking over the horizon at fiscal twenty seven for when we can assess the business perhaps a bit more clearly, at least from a, high level perspective. Right? So it with with that kind of as a foundation, how are you thinking about what this business should be delivering over a medium term horizon from a top line perspective?

The 3% to 5% is a long debated target. Many of your peers have category growth plus ambitions that give some flexibility for category. Do you continue to see room in your gross margin given ERP and some of the mix shifts? Do you still see S and A savings as longer term objectives? I know it’s a big question, but I think, at least for us personally here, it would be helpful to kind of understand how you see more you know, the the medium term and whether, you know, some of these debates, you know, the markets had, have evolved your own thinking.

Thanks so much.

Linda Rendle, Chair and CEO, Clorox Company: Thanks, Chris. You know, first, I just wanna acknowledge, it’s never easy to go through these types of transitions, and and we wanna provide real clarity on on the shift because we know that it’s difficult to do that. But I also wanna emphasize how absolutely necessary, unfortunately, this noise is, to do exactly what you talked about, Chris, which is get back to a place where we’re delivering that accelerated profitable growth, as a stronger company moving forward. And so I just appreciate everyone’s patience as we go through this. And, you know, we’re we’re frankly excited about what’s ahead of us because of this transformation.

And what it does unlock is our ability to accelerate revenue, having the access to data and insights that we’ve never had before, being able to move as fast as consumers do, seeing end to end to ensure that we’re able to remove waste in new ways that we haven’t done before, are all of the reasons we’re going through this pain now to get to the other side and build a stronger company that does this more consistently. And I I know it’s hard and the noise to get all that, but I I want you to hear how excited we are and I am as a company to do that. That being said, it is, you know, a year where we have volatility. And it’s also as we’ve acknowledged, and I think everybody’s acknowledging right now, it’s a tough consumer environment. So unfortunately, our categories are lower growth.

Of course, it’s incumbent upon us to reinvigorate that category growth and we intend to do that through innovation and through good spending, which we have in our plan. And then of course, we want to win share over that period of time. And very, very importantly, we have built a capability and a flywheel behind our margin improvement to fund that type of activity. And we feel very confident in our ability to do that going forward. And that’s reflected in the plan in fiscal year twenty six as Luke talked about it, if you exclude that variability that the ERP is driving.

So maybe fast forward ahead. Of course, we’re not providing fiscal year twenty seven guidance or beyond that, and I I know you all know that. But, you know, just if I take a step back, how do we get back to that three to five? You know, obviously, we need categories to come back to what we thought they would be. And, you know, that was in the two, two and a half range.

We also continue to see good performance and better than company average from our international and professional business, and we would expect both of those over time to add a point. In addition, we would expect some share growth. And you’ll see that through the innovation capabilities that really start to take off in the back half of the year through net revenue management, which is really just ramping up. And I wanna acknowledge we’ve been talking about these capabilities for a while. It takes a while to build them.

But if I remind you, you know, we talked about this with margin transformation back when we had a significant inflationary cycle on our business, and we showed that would these capabilities can do. And we’ve been able to restore that margin and and continue to show expansion. So we have the same confidence in these other capabilities we built. Given the cyber attack, they’re a little bit delayed in the value creation, but you really start to see them come through in the fiscal year 2016 plan, and we would expect to continue in 2027 and beyond. So that’s what we’re looking forward to.

We remain confident in our ability to deliver our financial algorithm. We’re gonna have to get those categories back to what they were, and then we feel confident in the capabilities we’re building. We have to execute them, and we intend to do that. And we know this year is a year of a lot of noise, and we just appreciate everyone’s patience as we go through it. And we’ll continue throughout fiscal year twenty six to show you those signs that we’re seeing of the things that we are building and how they’re taking hold.

And then, of course, you know, when we get closer to ’27, we’ll talk about what that

Lisa Berhan, Vice President of Investor Relations, Clorox Company0: Okay. Thanks, Linda. That was a long question. I dare not ask another one. Thank you for the insights.

Linda Rendle, Chair and CEO, Clorox Company: Thanks, Chris.

Conference Operator: Our next question will come from Kwame Gajrawala with Jefferies.

Linda Rendle, Chair and CEO, Clorox Company: Kwame, are you there?

Lisa Berhan, Vice President of Investor Relations, Clorox Company1: I’m here. Sorry about that. I wanted to talk a little bit about the or dig in a little bit more on the consumer in that, you know, we’re hearing from yourselves and other household goods companies on a weak consumer, but we’re also hearing the opposite from a lot of other industries and retailers and banks and things like that. So have you been able to dig into what it might be that’s specific to household goods or and personal care that where the consumer seems to be a lot more, I guess, value seeking or sensitive or pressured than than perhaps they are in some other sectors?

Linda Rendle, Chair and CEO, Clorox Company: Yeah. I think it’s helpful to start and take a a step back on the consumer in aggregate. And and we’ve talked about this a bit over the last couple of quarters and and what’s really unique and and going on. If you take a step back and look at consumers overall, if you look at jobs, if you look at income inflation, if you look at the broader fundamentals, you know, yeah, you see some strength in the consumer. And that was, I think, what made people very optimistic heading into this period that we would start to see improvements in places where it was a bit weaker.

But the dynamic that’s going on, and I would highlight one word, is uncertainty. And maybe I’d add volatility to that, is that there’s so many things uncertain right now for consumers, as they see macroeconomic policy, trade, other things coming into light, that they are making trade off based on the information that they have at the moment. And that information, to be fair, has changed pretty rapidly over the last number of months. And we talked about a little bit of this in the last quarter, you know, at the beginning or at the February through March, we saw people making purchases of goods they thought were coming from Mexico and Canada, for example, to get ahead of tariffs. We saw an influx of spending into edibles versus non edibles.

People were really trying to be sharp on their spending in these stores in order to make sure that they could kind of deal with the uncertainty that they had in their wallet because consumers have one wallet at the end of the day. At the same time that you see this value seeking and you see this uncertainty behavior from consumers, interestingly, you also see this really you maybe accentuated trend right now on convenience and experiences. Consumers are still buying things and experiences they like. You know, you’re still seeing them do things outside their home, go out to eat, etcetera, which might not be rational at this moment, but you can see how consumers are starting to shape those expenses. We’re seeing that in our categories.

We’re seeing, significant move to convenience. So our wipes business, which might be counterintuitive, is growing very strong right now. The trade up to our business, Sentiva, which is a highly experiential fragrance cleaning line, we saw 40% growth in Sentiva this year. So we’re seeing all these dynamics of consumers having to manage this uncertainty, which is meaning they’re moving their dollars in their wallet across different places, and they’re doing it very, very dynamically. In aggregate, they’re pretty healthy.

And that’s why we have confidence over the long term. This is gonna work out because we are in essential goods. At some point, will run out of pantry inventory. You know, we don’t see at home behaviors changing that much, in terms of the amount of cleaning or the the times they’re changing their litter box. But they’re definitely dealing with a lot of uncertainty right now.

And that’s why we’re so focused on ensuring superiority. And I’ll tell you, in times that are tough, superiority matters more than ever. And every element has to come together to ensure that we’re conveying superiority to that consumer. And that’s what we are laser focused on right now with our categories, with our brands to ensure we’re doing that. That’s what our innovation is focused on.

But I think, Komal, that’s the difference you’re seeing in where there are some places where you’re seeing a more healthy consumer. And I would I would say they’re not unhealthy in our categories. They’re under stress is the way I would describe it. And, again, that’s due to that uncertainty. But given the strength of our brands, the strength of our plans, you know, I’m confident that we’ll control what we can this year to deal with that and and hope to reinvigorate category growth so we see stronger numbers in our categories moving forward.

Lisa Berhan, Vice President of Investor Relations, Clorox Company1: Okay. Got it. That’s useful. Thank you.

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

Lisa Berhan, Vice President of Investor Relations, Clorox Company2: Great. Thanks. Good afternoon. I wanted to ask you about the efforts that you’re making in fiscal in the next fiscal year to improve your value superiority, talked about innovation in the second half, talked about more promotion potentially. If you could talk about also the flexibility you have either on promotion and other brand support if necessary to really sort of drive home that message.

And then maybe if you could step back and just talk about, you know, some of the major drivers of the weakness beyond, obviously, the consumer environment, you know, because some of this is trade down, but perhaps, you know, how much of an impact is the the product not lineup needs some improvement, your channeling category exposure, and and where you’re over indexed versus under indexed, and just a mix of your categories, that would be helpful. Thank you.

Linda Rendle, Chair and CEO, Clorox Company: Sure, Lydia. So superiority is fundamental to how we went in our categories over the long term. And as you noticed, incredibly important that our our 26 plans improve that superiority. And there are places that we’re starting from a very strong place. And if you look at our categories overall, our consumer value metric were 60% superior, which is higher than it was even pre pandemic.

And we’ve continued to maintain that even through the tough times of the last few years. And so what we wanna do is in those categories where we already have Herculean Good Superior, we want to continue to raise the bar. And we will do that through new innovations, through continued good claims work, through making packages work better for consumers, not just what’s in the package, to ensure their shopping experience is as simple as it possibly can be and being assorted wherever they are. And we have pretty good assortment now, but those are things that we wanna make sure we’re really tight on. All of the right locations have the right sizes, that things are available on e commerce as we see ecommerce accelerate.

And those are the things, the sharpening that we do every single day on that businesses on on our businesses. And the places that are starting from a place of superiority, we wanna be driving the narrative and changing what superior means. We wanna set the bar. And then there are some places where we don’t have the superiority. And I think, Catheter, it’s very fair to say that’s a place where we need to improve our superiority.

You’ve seen us, you know, have to go through what we did on fiber. We lost some of our consumers. We got that distribution back. We’ve gotten a lot of consumers back. But we fell behind in that period.

And we’ve talked about that that’s why it’s taking some time to get it back. And that’s a place where we’re laser focused on getting back to a place in security we feel good about. The good news is we have those plans to do that this year. And as we move through the year, we’ll see that improve really culminating in the back half. But those are the places that we’re focused on maintaining a Superior and setting the bar in categories we’re already leading and then getting back to a place where we are superior in places that we’re not.

And I think cat litter is is the best example of that. And then on your flexibility question, this is about the flywheel that I spoke about a little bit in my earlier answer. We built a flywheel where we’re we’re generating good savings that we can reinvest back in our business, and we feel really good about our ability to do that. And so we do have the financial flexibility if we need to adjust our plan to put more spending in, to adjust our spending. And of course, with our ERP implementation and our full digital transformation, we have more visibility into the data to be able to make those changes more real time.

And so those things will go hand in hand, but we feel we have the right investment level for next year. And, we’ll adjust that if we need to and certainly have, you know, built that flywheel to have the the flexibility to do that next year or in the future.

Lisa Berhan, Vice President of Investor Relations, Clorox Company2: Got it. That’s helpful. And then just following up on gross margin for fiscal twenty twenty six, you’re still looking for something in the flat to plus 50 ex ERP despite the top line challenges. So can you talk about your level of confidence here in potentially driving continued expansion and just the key drivers there? Because you’re already back to peak levels now, and you don’t have a ton, but you do have some exposure to tariffs.

It sounds like there’s going be more promotion next year. So I’m just trying to think about the tailwinds that get you to the flat to 50 when we know the headwinds that could be appearing?

Luke Ballet, CFO, Clorox Company: Yes, sure. Thank you. I’ll take that on. Well, you’ll notice that we provided a fairly wide range excluding the impact of the ARPU of it basically being flat to 50 basis points. And that’s acknowledging there’s a lot of uncertainty in the cost environment in the first place.

But I mentioned the current assumptions for tariff. We’ll have to see how that evolves. But in terms of general supply chain inflations, we’ll probably expect between 80 to $90,000,000 of headwinds. So you’re right, with the tariffs, this is slightly higher than what we’d normally experience. Having said that, just talked about it.

We’ve been ramping up for the past two to three years our margin transformation and holistic margin management effort, I should say. And we really still have a pretty strong pipeline. And so I think we feel generally good about offsetting the current cost assumptions. We’ll have to stay close to it, especially with tariffs. And the good news is, while again, the ERP creates a lot of effort, complexity and noise from a reporting standpoint, once we’re stabilized, this will provide another source of productivity for years to come.

So but in general, I think right now, albeit staying close to what happened from a tariff standpoint, we generally feel good about our ability to deliver our guidance.

Linda Rendle, Chair and CEO, Clorox Company: Understood. Thank you.

Conference Operator: We’ll move next to Kevin Grundy with BNP Paribas.

Kevin Grundy, Analyst, BNP Paribas: Great. Thanks. Good afternoon, everyone. I also wanted to maybe pull out a little bit away from the quarter and ask a longer term question, kind of along the lines of Chris Carey’s question, but further down the P and L. So, Luke, this may be for you, Linda as well.

So I think know, the way I understand it, you know, some of the ERP benefits here, the the idea is to get to around an 18% operating margin. There is some noise, obviously. This year, there’ll be noise again in ’26. I think the expectation is you’re probably around a 16% or so operating margin this year all in, including the noise from the ERP and the deleverage associated with it. So the the question is, I I think the target is to get to 18% with some of the benefits that ERP is going to afford you.

So I fully appreciate everyone on the call does the amount of volatility over the next three months, let alone, you know, the next three years. But I’m really curious when you guys are putting together the plan, how quickly you think you can get to that 18% before you kind of get back to sort of like a normal 25 to 50 basis points sort of cadence? And I’m also curious too, Linda, for you, if this gives you any pause, like what you thought was potentially going to flow through. Now it just seems like there’s more necessity for investment, up and down the P and L, whether this is artificial intelligence, supply chain, the market share is not what you want it to be, etcetera. So what you thought was potentially going to flow through, we can all agree getting the top line going is what’s going to drive the most value for shareholders.

So how you’re thinking about that? So sorry, know that was verbose and a bit rambling, but I hope you get the gist and I’d love your thoughts. Thank you very much.

Luke Ballet, CFO, Clorox Company: Yeah. Maybe I, you know, I can take a first pass as we look at the p and l. I mean, you’re right. There’s so much volatility, and you have, you know, sales that, are higher than they should have been in base year or lower than they should have been. But I would say we’re pretty much close to that target of 18%.

That has been mainly driven by the fact that we are now fully rebuild our gross margin beyond where they were actually at when we had 18% EBIT margin. Now the goal is going to be and I think once the noise settle down, we are pretty confident that we’ll be essentially there by next year. And then the goal would be to continue improving 25 to 50 basis points. And of course, that can come from different places from the P and L. We’re going to continue being extremely focused on driving the gross margin because that really creates the fuel for the strategic investments both from a brand and capability standpoint as you mentioned.

And then we have to acknowledge that our current selling and admin is higher than we’d expected. And this year again, it’s cropped by the one time the last year of one time investment associated with ERP transitions, but we it doesn’t include any of the productivity that we expect from the RP. And so that would be another source going forward. So that’s as we think about the P and L over the next year or two. But essentially, we where we want to be from an EBIT margin once the noise settle down and we feel like we have between the gross margin and between the work we’re doing on SG and A, we feel like we have the fuel to continue expanding its margin going forward as well as reinvest in the business.

Linda Rendle, Chair and CEO, Clorox Company: And I’ll just emphasize that point that Luke just made, Kevin, to the question that you’ve asked to me. That’s exactly why we’ve made these investments. We made investments in solidifying our supply chain coming out of COVID and ensuring that we had you know, more protection as we saw dynamic events happening, and that has served us really, really well. We invested significantly in this transformation for both our our digital transformation and new processes and tools for our team. I mean, that includes AI.

So we’ve already put investments in AI in this plan. We’re using it today, both generative AI and AI across how we plan, etcetera. And we’ll continue to invest in our business over time, but that’s at more of a normal rate like we normally would over time. You see the capital investments that we make in the company year after year to ensure we’re improving our supply chain. And, of course, we make those same investments in technology.

This was just a big reset given we hadn’t had a technology upgrade in in so many years. You know, twenty five years our our ERP was in place. So that being said, I feel I feel confident in our ability to get the value from these investments, and that is what our team is laser focused on just like we were in getting those margins back from a gross margin perspective. And you saw that we’ve done that and exceeded that target. We’re doing the same to make sure we realize that benefit EBIT margin and then the same to extract the revenue and the productivity benefits moving forward.

And we see that again as a virtuous cycle and we feel confident in our ability to do that. So I believe we have the right investments. We’ve got 11% of advertising and sales promotion next year. We have healthy promotional levels. We have healthy investments our different businesses.

We’re getting better and better at at using those. And, you know, we have industry leading return on investment from an advertising perspective, and we continue to expect our team to improve that. So I feel like we do have the right plan, the right level of investment, and we’ve created that flywheel. And, again, to your point, it’s a bit noisy right now as we get through that other side, but remain confident in this transformation and this ability to ensure that we deliver profitable accelerated growth moving forward.

Kevin Grundy, Analyst, BNP Paribas: That’s great. Thank you both very much. I appreciate the thoughts. Good luck.

Conference Operator: Thanks, Kevin. Thanks, Kevin. Our next question will come from Javier Escalante with Evercore ISI.

Lisa Berhan, Vice President of Investor Relations, Clorox Company3: Hi, good afternoon everyone. I guess a question first for Luke. Could you help us understand why price mix in the quarter got so negative. I understand that you guys are not promoting. Is this channel package?

And then I have a follow-up for Linda.

Luke Ballet, CFO, Clorox Company: Hi Javier, you’re right. It was abnormally high. Price mix was about negative four points in the quarter and we did add some one time item that increased trade spending for the quarter. We have a normal process at the end of our fourth quarter to really evaluate trade spending accrual and trade promotion that took place throughout the year. And we added adjustment and that was really one time in nature.

I think if you exclude this price mix would have been about minus 2% and that’s generally about the average that we’ve seen throughout the year. And as I mentioned, going forward, we expect it to be about minus 1%.

Lisa Berhan, Vice President of Investor Relations, Clorox Company3: And particularly in household wide it was down 6%. Is that which of the businesses saw such a negative price mix?

Luke Ballet, CFO, Clorox Company: Yes. We have this is driven by significant merchandising events that we didn’t took place in the prior period. So the year over year was impacted by that. That’s an additional two points for the segment. Sure.

I got it.

Lisa Berhan, Vice President of Investor Relations, Clorox Company3: So Linda, more kind of like a bigger picture question. I understand the the promotionality and the value seeking behavior, and these are transient. These are not structural. But the two categories where problems reoccur are categories and there are two. One is Glad and the other is Pet Leader is categories where you have value brands.

And I understand that the impetus is behind innovation, but have you considered a price realignment so you stabilize market share? And if not, why not?

Linda Rendle, Chair and CEO, Clorox Company: Javier, you’re right that we’ve we’ve spent a lot of time over the last year talking about cat litter and Glad. Those are two very, you know, competitive categories and different dynamics going on. Just so everybody is on the same page, primarily, we compete in very premium segments in both of those categories. Our Fresh Step brand is a premium in cat litter as well as Glad. We play in in the premium tier, and we’ve leveraged innovation for a number of years to to grow in both of those categories.

What I would just call out, you know, just frankly on cat litter, our security is not where it needs to be. So this is not about price in my opinion. This is about ensuring that we have better innovation, that we execute that better end market, that we get our price pack architecture right, etcetera, and we absolutely have plans to do that. And, of course, you know, I will acknowledge that was one of the businesses most, hit by the cyber attack because of the behaviors that are unique to cat litter owners. But I felt confident in our ability to do that over time, confident in our ability to to command a premium over time.

But you’ll see our plans in in this year start to take hold and and realize that. And then in Glad, you know, the way that we have created value in a category where consumers are, you know, generating more trash is getting more value out of every single trash bag, and that’s by offering them a better experience. And and trash is a can be a pretty terrible experience if it smells in your house or if you take it out in the bag rips. And we have launched innovation after innovation platform to strengthen the bag, to make it a better experience, to add some visual to life, and we know that’s worked for consumers. For example, we launched and we talked about this in the last few quarters, our Bahama Bliss line, that’s done very well.

We’ve been expanding that, and we continue to see opportunities to do that. We need to make sure now, given how competitive this category is, that those elements work even harder, Javier, than they have in the past when you’re faced with competition that is doing deep discounting. And we wanna make sure that we continue to drive profitable category growth through innovation that helps consumers, have better experiences in categories like these, and that remains true today. You know, as I noted, we’re seeing consumers continue to value that. They’re willing to pay a premium.

They’re willing to trade up if you offer them that, and that’s where you’ll continue to see us sharpen on both Glad and Cat Litter and, frankly, across the rest of our portfolio, our superiority to ensure that we can continue to win in in two very competitive categories.

Conference Operator: And we’ll move to our next question. This will come from Robert Moskow with TD Cowen.

Lisa Berhan, Vice President of Investor Relations, Clorox Company4: Hi, thank you. Luke and Linda, I wanted to ask about $0.35 of spending on digital capabilities that you exclude from your adjusted earnings this year, dollars 0.68 in fiscal twenty twenty five. I assume that this will eventually get down to zero, I think, in fiscal twenty twenty seven when you’re done with your projects. But I think you might agree that the digitization and things like AI are a moving target. And you’re probably gonna have to keep investing your in your capabilities and adjusting to an ever changing world just to keep up.

So to what makes this spend so unique that that there’s an endpoint to it and and it doesn’t we don’t end up having to think about another investment, you know, a year or two and a half from now? Thank you.

Linda Rendle, Chair and CEO, Clorox Company: Yeah, Robert. You’re absolutely correct that, you know, every business including ours will need to invest over time to ensure that they have modern capabilities, modern technologies, and we definitely intend to do that moving forward. But I would consider that to be normal course of business. And we have spending that we have in our plant every year behind capital spending as well as operating expense dollars that are to invest back in our business in all sorts of technologies that might be improving technologies in a manufacturing plant, that can be implementing different AI technologies, etcetera. And we do view that as more normal course of business and and accounted for in in how we think about the overall algorithm for the company.

What’s so unique about, what you just spoke about and the fact that we’ve been excluding this is this is kind of a once in a generation, reset of our technology platform. We hadn’t, upgraded our ERP in twenty five years, and the corresponding set of technologies that go around that needed to be upgraded as well. We’re talking things like just having a warehouse management system, you know, some basic things that are in the industry. And so what we chose to do is to do a big project to do that all at once and to maximize the value and, of course, the resources that we have to put that could be doing other things in our company are having to do this implementation. And that’s why it’s one time in nature because it really is less about just upgrading the normal course of things that we’ll do from here on out, and it’s about, I’ll call it, a once in a generation reset.

And moving forward, again, you would expect to see that in our normal capital spending, in our normal OpEx dollars. And if there was ever anything that we needed to to do one time, of course, we’ve raised the visibility to that, but we believe we have the right spending in place to be able to deal with that technology transformation over time.

Conference Operator: Okay. Thank you. Thank you. Our next question comes from Lauren Lieberman with Barclays.

Lisa Berhan, Vice President of Investor Relations, Clorox Company5: Hey, thanks so much. I just had two quick questions. The first is that the advertising spend this quarter was down dramatically in dollars, the lowest level of spend since the 2019. So just curious if you could comment on that. That was a big swing factor in the quarter.

And I know you’re talking about it going back up as a percentage of sales next year, but just overall, it’s surprising to see the advertising that low. And the other thing was earlier the question on drivers of gross margin next year, I guess this year now. I think the Glad JV was coming to an end, so it was just in January, I believe. So just curious what kind of benefit that should look like to gross margins. Thanks.

Unidentified Speaker: Yes. Sure.

Linda Rendle, Chair and CEO, Clorox Company: On the advertising spend in Q4, maybe just put this in context, we obviously don’t provide guidance at a quarterly level on advertising. We are lapping a very large spend of advertising from last Q4, which of course was about returning shared growth to our business post cyber. So we knew we had that lap. But if you kind of take a step back and look, we said we spent about 11% for the year. We spent 11% in the front half.

We spent 11% in the back half and we expect to spend about 11% next year. So it’s really just noise between quarters, Lauren, and not something that’s an indication of our investment in the business.

Luke Ballet, CFO, Clorox Company: Yeah. Yeah. I’ll talk about that. Maybe I understand the advertising, there’s a little bit of upticks too because your revenue is essentially 13% or 14% higher. So if you were and of course, the shipments, you know, were not concerned.

So really if you just adjust for that, I think you’re about 10%, which is within the normal variability between quarters. So on Glad, yes, I mean, as we talked, we’re going to be exceeding our contractual agreements that we have with P G this coming January, right? And so essentially we will repurchase 20% of the P and G currently own and we probably finance that through a mix of cash and borrowing. So there’s probably two impacts that I was mentioning. The first one is the impact on the P and L that you alluded to Lauren.

Under the current agreement, pay P and G about 20 of our cash flow every quarter. And that’s generally charged through the cost of goods sold. So of course when we buy back their interest, we will no longer pay that 20%. And for perspective that will present about 50 basis points of gross margin annually. Now given that we will exceed the agreement at the January, the impact for ’26 is probably around 20 to 25 basis points.

And there’s another one time there’s another impact that we’ll keep an eye on is potential one time EPS impact of the acquisitions because right now we’re making a very simple assumptions that the acquisition price will be in line with our current estimated value on the balance sheet. So if the purchase price was to be different, higher, lower that would create a one time impact on EPS.

Lisa Berhan, Vice President of Investor Relations, Clorox Company5: Okay, great. Thanks so much.

Lisa Berhan, Vice President of Investor Relations, Clorox Company: Thanks Lauren.

Conference Operator: And your next question comes from Steve Powers with Deutsche Bank.

Lisa Berhan, Vice President of Investor Relations, Clorox Company6: Hey, thanks. I guess two quick ones for me too. Obviously, a long way to go before we get to the end of the year, but just to net everything that we’ve been talking about so far just confirm your base case thinking, I guess, is there any way, any reason why from where we sit today that we shouldn’t be thinking about kind of the midpoint of your normalized earnings exiting the year at around $7 or maybe slightly higher if I just take the midpoint of this year’s headline EPS guidance range and add back $0.9 or so for the ERP shift. Is that is there any reason why that’s not the right way to kind of think through the noise and and and come up with a kind of a normalized base?

Luke Ballet, CFO, Clorox Company: That’s exactly right, Steve. You know, that’s the simplest thing to do. Of course, there’s a range because he acknowledged all the noise that, you know, is related to the RP and, of course, on the uncertainty in the environment. But, you know, right now our best thinking is a bit.

Lisa Berhan, Vice President of Investor Relations, Clorox Company6: All right. Perfect. Perfect. And then on the ERP transition, clearly a number of benefits that I know you’re excited about given that you’re effectively leaping for the IT capabilities of the company by a couple of decades. So that’s exciting.

But I guess, is there any potential risk of transition from an offsetting standpoint. I’m thinking, I guess, in some kind of structural period of essentially what would translate into like a destocking headwind on your top line as retailers take advantage of your theoretically better capabilities, better agility, better service levels and essentially run Clorox at a leaner level of trade inventory, which as we transition would would be a headwind on your revenue. Is that is there any consideration that we should be thinking about there as we think through the the transition?

Linda Rendle, Chair and CEO, Clorox Company: Interesting question, Steve. The way I would look at this is no. And the reason why is this doesn’t fundamentally change any retailer processes. You know, this is not about them improving. They’re doing that work all the time to ensure that they are, like we are, managing our inventories.

Now on our end, it absolutely gives us the ability to better manage inventories, have better line of sight to where things are in our network and move them most cost efficiently. But there’s no structural reason why our ERP should translate into a different posture from retailers on their inventories with us. We already have to do that stuff manually on our side. So it’s really just a cost that we get to remove over time. They still they don’t because we are on an old version of ERP in the past, they didn’t give us more inventory in their system in order to account for that.

It’s just that we had to work harder and cost us more on the back end to ensure that we could meet their expectations. So I don’t see that as a structural risk moving forward. What I am excited about though is what you highlighted, which is our ability to do things like manage inventory over time and better manage trade trade spend and advertising and have better line of sight to end to end cost and and places that we can drive savings. And those are the structural things that we are excited about.

Lisa Berhan, Vice President of Investor Relations, Clorox Company6: Yep. Yep. Okay. Thank you very much. Appreciate it.

Unidentified Speaker: Thanks, Steve. And this

Conference Operator: concludes the question and answer session. Miss Rendle, I would now like to turn the program back to you.

Lisa Berhan, Vice President of Investor Relations, Clorox Company: Thanks, Jen. As we close-up today’s call, I’d like to note that this

Linda Rendle, Chair and CEO, Clorox Company: is a big moment for our transformation as we lay the foundation for a stronger future and unlock new value streams. While I recognize the timing noise from our ERP implementation in The U. S. Is not ideal, in the short term, it’s absolutely necessary for our long term growth aspirations. The costs are winding down and the benefits are just ramping up as this new digital foundation and operating model will help us continue to reimagine work, scale our digital tools and move faster as an organization for years to come.

I’m excited for the future, and I’m confident we’re taking all the right steps as we advance our IGNITE Strategy. Our fiscal year twenty six plan lays a strong foundation for new scalable innovation platforms as we work to reinvigorate category growth and deliver solid margin and earnings growth. Through it all, we are transforming Clorox into a stronger company poised to deliver more consistent profitable growth and enhance long term shareholder value. Thank you for your time and questions. We look forward to updating you on our continued progress.

Conference Operator: And this concludes today’s conference call. Thank you for attending. The host has ended this call. Goodbye.

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