Clorox at DbAccess Conference: Navigating Consumer Shifts

On Wednesday, 04 June 2025, The Clorox Company (NYSE:CLX) presented at the DbAccess 22nd Global Consumer Conference, outlining its strategic initiatives amid a challenging consumer and retail environment. CEO Linda Rendle and CFO Luke Belay discussed both opportunities and challenges, focusing on the company's resilience through its IGNITE strategy and digital transformation efforts.

Key Takeaways

• Clorox is implementing a major ERP system in the U.S., expected to cause short-term reporting disruptions but long-term efficiency gains.
• The IGNITE strategy is driving margin recovery and innovation despite macroeconomic pressures.
• Consumer behavior shifts, such as value-seeking and pantry stock usage, are affecting category performance.
• Retailers are actively managing inventory, impacting Clorox's short-term sales figures.
• Clorox is focused on disciplined capital allocation, including dividends and debt management.

Financial Results

Clorox is navigating a volatile landscape, with consumer spending shifts impacting its category trajectory. The company is aiming for a 25-50 basis points annual EBIT margin growth, supported by its IGNITE strategy and cost-saving initiatives. Despite these challenges, Clorox is maintaining strong fundamentals and expects productivity benefits from its ERP implementation in the coming years.

Operational Updates

• ERP Implementation: A new ERP system will go live in the U.S. in July, marking the first upgrade in over 25 years. This phased approach will transition manufacturing facilities over six months, with the Canada market launch providing valuable insights.
• IGNITE Strategy: Clorox's IGNITE strategy focuses on accelerating growth and transforming the company through margin recovery and innovation. The strategy has already delivered significant cost savings, with more expected.
• Category Performance: Clorox is addressing varied category performances with targeted strategies. While some segments face increased competitive pressure, others continue to grow strongly.

Future Outlook

Looking ahead, Clorox is adopting a scenario-planning approach to manage uncertainties and prioritize margin expansion. The company remains committed to brand investment and maximizing value creation from its ongoing transformation efforts. Clorox plans to return $250-300 million to shareholders this year and maintains a disciplined approach to potential acquisitions.

Q&A Highlights

• Clorox's leadership emphasized the importance of the digital transformation, stating, "We fundamentally changed our operating model... to fundamentally change the digital and data infrastructure of the company."
• The impact of retailer inventory management was discussed, with expectations of overstated fiscal year 2025 sales and understated fiscal year 2026 sales due to inventory adjustments.
• Clorox is focused on maximizing the value from its transformation investments, aiming to enhance consumer and customer experiences.

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For a detailed overview of Clorox's strategies and performance, refer to the full conference call transcript below.

Full transcript - DbAccess 22nd Global Consumer Conference:

Steve, Conference Host: Okay. Welcome, everybody, for our next session. I am thrilled to welcome back the Clorox company to our conference and to Paris. With us today, chair and chief executive officer, Linda Rendell. Welcome back, Linda.

And for the first time as chief financial officer with us today is Luke Belay. So, Luke, welcome, and thanks for joining us. Great. So we're gonna use the entirety of our time for q and a, and we'll just jump in.

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: Sounds great.

Steve, Conference Host: Good. So, Linda, we'll start with you, and I guess I've been starting most of the conversations this way just to level set. It's been a eventful start to calendar twenty five. Lots of different cross currents and really net pressures, on both the consumer and on your retail partners. So if we if we start there and just talk about maybe your assessment of consumer health broadly and how those dynamics have impacted your categories and and your your business effectively.

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: Perfect. I'll start with maybe just a little bit of an opening comment on that, and then I'll get directly to that question. As we entered our fiscal year, which started last July, we expected consumers to be under more pressure. And that meant we expected our categories to be, instead of growing two, two and a half percent, which is what we typically see, growing about zero to one. And we saw that through the first half of the year.

Beginning in February, in the middle of our q three is really when we saw another layer of changes for the consumer that I'll get into. But maybe just the good news for our business is we continue to have strong fundamentals in this environment. We'll get more into that, I'm sure, Steve, through your questions, but just wanted to provide that backdrop that largely, you know, through our fiscal year, we saw what we expected. Now what are we seeing now, and what are we seeing from the consumer, and what do we expect? There are really two layers of what we're seeing from the consumer.

The first is what I spoke about at the beginning. We expected consumers to be under more pressure, and we expected them to continue to increase their value seeking behaviors. So that can show up in a consumer buying a larger size because they wanna get a better price per use. Sometimes they can buy a smaller size because they're looking to spend less in a shopping trip in a week, and we have seen that pretty consistently over the last eighteen months, that value seeking behavior. Importantly, what we hadn't seen is consumers trading into private label in our categories or making choices to leave national brands.

That's been pretty consistent. So we continued to see that at the beginning of this calendar year and are seeing it now. The extra layer of what we're seeing is this change in consumer confidence and a level of uncertainty that we frankly haven't seen in those two things in combination in a really long time. And so what is that doing to our businesses, and what are we seeing from a consumer perspective? Beginning in mid February, consumers began to react to what they were hearing in the marketplace from a macroeconomic perspective, particularly tariffs.

So in our space in February, we saw a change in the grocery basket, people consuming or buying more edibles, less noneedibles as a result of thinking that things from Mexico and Canada with tariffs were gonna be more expensive. That was what we saw in February. In March, we saw consumer wallet change even more as they experienced a broader range of potential tariffs. So we were seeing consumers spend more of their disposable income on things like phones and electronics and cars and other things like that. And that resulted in a change in our category trajectory from the beginning of the quarter to the end of four points.

So they ended flat, but a very big change from the beginning of the quarter to the end of the quarter. Now what we didn't see at the same time was consumers fundamentally changing their consumption behaviors at home outside of those value seeking behaviors. So they didn't stop cleaning their toilet. They didn't stop changing their cat litter box. So what we believe is happening is consumers are really prioritizing what they have in their pantry and trying to use everything that they have at home while they're making these other choices to deal with tariffs.

The question then is, when does this bounce back? You know, if you think people are bleeding through inventories, we would expect to see an uptick. If you look look at the last couple of months, these first two months of our fourth quarter, it's continued to be volatile. So our categories have been anywhere from flat to down 2%. We ended May about down a half a percentage point, and that's significant because we typically see about flat categories even in recessionary time.

So we think this consumer behavior is still happening. We think they're still bleeding through pantries. We haven't finished a purchase cycle yet in our categories, which is about ninety to one hundred days, so it's hard to say, you know, when those are gonna start to come back, but something we're watching closely. We continue to not see a trade to private label, etcetera. So what we feel confident in is we can manage this through the short term, and we have built, obviously, stronger margin capabilities, which will mean we'll still deliver a strong year of earnings performance this year despite the fact that we've seen a top line slowdown.

But in the mid to long term, we remain we remain confident. Our categories are essentials to consumers. We continue to see them want better experiences. They continue to buy innovation. Even in a time and value seeking, we can capture many of those consumers through having the right size, price pack architecture, etcetera.

But we just need to get through this period now, and we feel well equipped to do that and feel very well equipped to deal with getting back to, you know, growing when categories return back to that three to 5% level that we target.

Steve, Conference Host: Great. The the other another layer on that that we've and we've been talking about this week is around what the retailers have been doing in response to that consumer environment. There's a lot of conversation around pockets of destocking in the March. Some companies have talked about it, you know, who weren't impacted in the March, who are now being impacted in the June. What are you seeing in your categories from a retailer inventory level management?

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: Yeah. There is definitely noise in retailer inventory, and they're doing exactly what you would expect them to do. They have to manage through the situation as well. And so they're doing two things that that we've seen. Some of it is continued great smart management of trying to reduce inventories over time, and we're doing the same work.

Because certainly during COVID, there was excess inventory in the system to deal with all the volatility, so many of us have put programs in place to try to reduce that over time. So you're seeing some of that better processes, better technology coming in. And then you're seeing more day to day activity of, I don't have space in a warehouse, and so I need to reduce inventory on this. And what I would say is, to us, we're treating this as much as we can. It's noise because we're both the manufacturer and retailers are focused.

We can't have out of stocks for for consumers, and that's been a consistent principle in all of the inventory adjustments we've seen. So we did have some impact in q three, some we knew about. We had talked about that in our Kingsford business, and we saw an impact. And that other some small impacts that had happened that came up in the course of the quarter. I think that noise will continue as the environment continues, but we don't look at it as a structural change.

And anything that's structurally happening, reducing costs and inventory in the system is a good thing as long as we meet consumer needs. And we'll get we're continuing that work, and we would expect after we get through our ERP transition to continue to do that.

Steve, Conference Host: Okay. If we step back from it, do you feel your IGNITE strategy has, you know, been effective through this period? Has it has it helped Clorox navigate the environment? And if so, how?

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: Yeah. It has. And I think it will continue to do that. Really fundamentally in our strategy, we set out to do two big things, and they're complementary. We wanted to accelerate the growth rate of the company, and we wanted to transform our company to be stronger for the future.

And we've made great progress on both of those. Although growth has been lumpier given the situations we've had over the last five years, we feel like we fundamentally built stronger capabilities to deliver growth in the future. We're looking forward to a time when our categories start to rebound and we can fully recognize the growth potential. But, really, the transformation is the place I'll spend the most amount of time on, and, really, the proof point would be in the margin transformation program that we put in place as part of that. We fundamentally have or have changed and will complete a digital transformation over this period, and it is a significant digital transformation.

This is not just an ERP upgrade to the next set of software. This is building a complete data infrastructure across the company, changing the way that we do global finance, changing our ERP, putting technologies, a suite of technologies around to do that in an effort to be more efficient and more effective across a number of areas that we create value in for a company. As I mentioned, margin transformation is the place you're already seeing some of that program come to life. We lost close to 900 basis points of gross margin during the inflationary cycle, and we've been able to recover all of that through the efforts that we've put in place through pricing, through all of the mechanisms that we've had around cost savings. We delivered historic cost savings over the last two years.

We expect to deliver another year of that this year. So you're already seeing the transformation effort come to life. And what we wanna see is more of that against innovation, which we have plans to do. Innovation has gotten stronger, but we want even more of that in the coming years. And we wanna make sure that we continue to offer superior value to consumers because that's the way that we grow, and our superiority rating has increased over this last five year period significantly versus what it was prior to starting that even given several rounds of pricing and all of the activities that we took.

So we feel the strategy has been very effective. We wanna get back, though, to more consistency, Steve, coming out of these periods, and the strategy will help support it do that as we finish the transformation coming up here in the next twelve months.

Steve, Conference Host: Great. Luke, you are now a seasoned veteran two thirds of the way through your first quarter as CFO. I guess, what what have been some of your key observations and learnings just generally since stepping into that role?

Luke Belay, Chief Financial Officer, The Clorox Company: Yeah. Well, I guess maybe let me first by saying that I'm really honored to be in this role. I've been with the company for almost twenty years, so it's been a big part of my life. I love our brand. I love our people, and I really believe in our team and our strategy.

And so I'm looking to what's ahead of us. I think approaching this transition, which is now two months, as you just mentioned, I had two objectives. You know, one was really, you know, and balancing delivering both the short term

Steve, Conference Host: Yeah.

Luke Belay, Chief Financial Officer, The Clorox Company: And also thinking about delivering and building the future. Our short term, we talked about it Yep. In a very dynamic. And, you know, during this time, what you know, the focus has been really on focusing what you can control. And the good thing, though, is on a relative basis, our fundamentals are strong, and I think we're well positioned to finish the fiscal year with another year of strong earnings.

So medium term, coming in with a new fresh set of eyes, so to speak, I feel generally good about the opportunities for the company, and it has to do with what Linda just mentioned, where we just undertook a pretty significant transformation behind the scene over the last few years. One, you know, we fundamentally changed our operating model, and, you know, we're now in year four of a five year journey to fundamentally change the digital and data infrastructure of the company. And so that really creates an interesting foundation for us to fundamentally modernize our capability and strengthening our competitive advantage. And the thing coming into the role is some of it already paid dividend, but we're really just starting, you know, scaling some of those capabilities. And so, you know, I can see a lot of places where we can unlock additional top line growth or, you know, margin expansion, and I think Linda just talked about it.

And then the other thing I'd mention is I think we can improve our predictability and consistency of results, and I think it's very important in the current, you know, volatile and uncertain environment. And I certainly think a lot of the digital transformation and the tools we're putting in place would should help us do that. Okay.

Steve, Conference Host: Very good. There's a a very large ERP go live coming, so well timed.

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: He's he's been working on this for years, so it's it's it's really good timing. Yes. So,

Steve, Conference Host: I guess, just talk to us as we get closer and closer to that to that switch. Just, you know, your your level of confidence and some of the preparations you're you've taken to ensure that that goes smoothly.

Luke Belay, Chief Financial Officer, The Clorox Company: Yeah. Maybe just background for some of you that might not be as familiar with us. We're going live with a new ERP in our U. S. Markets in July, which is the beginning of next fiscal year.

And we haven't upgraded our ERP in over twenty five years, so it's a pretty significant undertaking. So, obviously, our goal is, you know, going to be to execute this transition with excellence and make sure that the con our consumers and customers have a seamless experience. Now we all know ERP transition are a very complex undertaking, and they're fraught with risk. And so we, you know, we we took a very thoughtful approach in managing those risks, and I think we have very strong plans. And maybe let me share a few things that gives us confidence.

First is the fact that many of our peers have already gone through an ERP transition. So well, you know, we're not necessarily proud to be, you know, kind of last to the game. That gives us a lot of benefits. And we've been working very capable consultant. I've been working with many of those peers, and we've been embedding learnings from their past launches, from their past mistakes in our plans.

And we've also been, you know, working pretty closely with our retail partners, which had a lot of really good suggestions. So that's one. Two, added pilots a market. We launched the new ERP in our Canada market last summer, and the launch was actually very, you know, very well. There was no significant disruptions, but we got a lot of learnings that we're embedding in our launch.

And the other thing is we also already moved all our global finance reporting and planning to the new ERP. So we've been live since January, which allows us to really focus on the operational side in July. And then third and last, we have you know, we're building pretty significant excess inventory at the retailers in our own network to really act as a contingency and mitigate any risk of out of stocks. So net, we feel like we have a a pretty robust plan, and so far, everything has been, you know, going going as planned. I'm looking trying to knock on wood somewhere.

But so that's good. Now that's really managing the short term. Once we passed implementation and stabilization, we're quite excited Yeah. About, you know, adding a new ERP because it's gonna fundamentally modernize the backbone of our operations. Now just that in itself means, you know, a lot more opportunity for productivity in supply chain and working capital and in admin.

But it also means that we now have a new data and tech foundations to take more advantage of those capabilities that I were just talking about. Right? And so whether it's net revenue management, which, you know, requires a lot of, you know, data, And we feel you know, we're really excited about what we're doing in net revenue managements or whether it's, you know, personalizations. That those capabilities are now amplified with the new ERP. And so net, you know, going forward, we're really excited of what it might do for us over the next few years.

Steve, Conference Host: Do those benefits start to accrue in year one, or is it more of a builds year two, three, and beyond?

Luke Belay, Chief Financial Officer, The Clorox Company: It's more of a build. As you can imagine so first, when we're saying going live in July Mhmm. We will change the the order fulfillment and order management in July, but we're actually gonna move our manufacturing facilities in a phase period of six months. So if you really think about the six months in the first six months of next fiscal year, it's really a transition, and then there'll be a stabilization. And after that, you can work in optimization.

And the way to think about it is you would have a new data and tech stack that you need to fundamentally change your process, change your talent to really get the benefit. And so most likely, we'll see most of the productivity is in fiscal twenty seven and fiscal twenty eight.

Steve, Conference Host: Okay. Good. This is where I really subtly asked about '26. I'm just Wait. That's the subtle transition to ask about something you're not gonna answer.

But but as we think about I think a lot of investors are are trying to to to kind of piece it together. You've got a lot of volatility that you're managing kinda exiting '25 in the operating environment. There's the ERP implementation on top of that, and then you're also closing out this this five year transformation. So as you approach '26 planning, how how what kind of the strategic framework you're taking into that those planning sessions, number one? And to the extent that there are financial considerations you can you can kind of throw out there for us to to keep in mind, that'd be great as well.

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: It's a really important question, actually. And I'm gonna start with some framing, but I think it's really important that Luke walk you through the noise that the ERP creates and how to think about that because it's really important. So that's probably the most important part of the answer. But just starting with the framing, you know, as we approach 26, given there's so much volatility and change, we are approaching this in a scenario planning way, which we have frankly done a lot of over the last five years. We have a range of scenarios that we're looking at from consumer health to macroeconomic uncertainties, and what we'll come out within '26 will, of course, will be based off of a scenario that we pick, and we'll give everybody what the assumptions that underlie that are and then what we think the range of option or outcomes could be on that, and that will inform the range.

So that's you know, as we're just heading into planning, that's the approach, obviously, that we're taking. And we're focused on a number of things, continuing to ensure that we deliver on the margin improvement that we have seen because that has been fuel for our business. And while we have returned our gross margin back to the levels it was pre pandemic, given all the loss, we still have work to do on EBIT margin, and we wanna continue to make progress there. From a top line perspective, we need to be focused and are focused on delivering superior experiences. So we have a good innovation program that we will launch in 'twenty six behind our brands.

We want to continue to invest strongly in our brands, working with retail partners to ensure that we have the right programs. And we want to make sure that we're capturing those consumers as they continue that value seeking behavior. We don't know what to what degree that will be, but we feel confident in our ability to do that. We have scenario plans around that. So our approach very much is understanding that we don't know exactly what the year is gonna look like, but we are confident in our ability with the tools that we have to ensure that we are giving those experiences to consumers, maximizing value creation, continuing the work on margin, and then also making sure that we're being very clear, and I'll turn it to Luke now, on the noise that exists.

Because, structurally, the ERP has known we're gonna execute it. We intend to execute it with excellence, but there's a lot of noise, and we'll come out of it, like Luke said, stronger. But think it's really important to understand the impacts that we'll have. So I'll pass it to you, Luke, to walk them that.

Luke Belay, Chief Financial Officer, The Clorox Company: Yeah. So as you mentioned, there's gonna be a lot of noise in both fiscal year twenty five and '26 associated with the RP transition. And let me try to frame that a little bit. So, again, as I mentioned, we're going live with the new RP in July, and one of the things we're doing to ensure a solid transition is that we're building inventory at the retailers' level. And for perspective, we hold on average about four weeks of inventory at our retailers for, you know, for our portfolio, and we're going to build about one and a half week on inventory.

So pretty material and significant. Now from an operational standpoint, we feel great about this because, essentially, this is, you know, this is really create a buffer and, you know, protect us from any out of stock, which would be really structurally impactful. From a financial reporting standpoint, it creates a lot of noise. So that retailer inventory build represent two to 3% of annual sales. Mhmm.

And so as retailers are gonna build their inventory in May, June, fiscal year '20 '5 organic sales growth is gonna be overstated by two to 3%, meaning that it's gonna be higher than the underlying consumption of retail sales. Inversely, in August, retailers are gonna start decreasing their inventory and normalized, So that means that our fiscal year twenty six sales will be understated by two to 3%, meaning lower than the underlying retail sales. So year over year, you're gonna go from overstated fiscal year twenty five to understated fiscal year twenty six. And so the impact of the ERP year over year would be anywhere from negative 4% to negative 6%. And that's what you will have to add to whatever is the underlying performance of the company.

So a lot of noise. Now as Linda mentioned, this is just temporary. There's nothing structural about this.

Steve, Conference Host: Yes.

Luke Belay, Chief Financial Officer, The Clorox Company: And so what we're really focusing is the underlying performance of the company. And, of course, as we provide our guidance, we'll make sure that we provide as much transparency and clarity so everyone has a really good understanding of what is the underlying performance during this period. And, of course, fiscal year twenty seven, consumption, retail sales, and our sales

Steve, Conference Host: will Back to normal.

Luke Belay, Chief Financial Officer, The Clorox Company: Back to normal.

Steve, Conference Host: Yes.

Luke Belay, Chief Financial Officer, The Clorox Company: Hopefully, with, you know, some productivity savings from the app. Yes.

Steve, Conference Host: Yeah. It's probably intuitively obvious, but just to be clear, the first quarter, you have the reversal of the fourth quarter, and then the fourth quarter will be a difficult comparison as well.

Luke Belay, Chief Financial Officer, The Clorox Company: That's right. And so the this that's an important point, Steve. So I I mentioned the impact in fiscal year, and I mentioned it in sales. That's true before EPS as well. And where you see the most noise would be in the first quarter of next fiscal year.

Mhmm. Because we would have the, you know, the decrease in in retail inventory and in the fourth quarter of next year because we will comp the, you know, the inventory build in fiscal year twenty five.

Steve, Conference Host: Very good. Okay. If we pivot back to the business, but go down a a layer and focus on some of your your your your categories and brands, there's been a lot of focus, I think, firstly, on categories like trash bags and litter and charcoal where we've varying varying forms, but we've seen elevated levels of pricing and promotion and competitive pressures. If we take a snapshot today, how would you assess where we are? What what's the trend line?

And, you know, how does that influence sort of your planning for next year?

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: In aggregate, if you look at our categories, we expected the promotional activity to return to normalized levels, so kind of pre COVID levels, and we've seen that. And in aggregate, you know, we haven't seen a material change overall in our portfolio. But as you know, in household in particular, we've seen some more competitive activity, and I'll walk them through because they're nuanced. Each one's a little bit different. Maybe starting with litter, which has the most amount of nuance.

We had a cyberattack in 2023, and cat litter was one of the categories we had a higher impact as a result of that. And you can imagine why, but I'll be able give you a little color for those of you who haven't heard this before. If you have a cat, I don't know how many of you have a cat, and you rely on them using a litter box, and you wanna transition them to a new litter because the litter they use fresh up, which was ours, was out of stock, that can be a little traumatic for the pet parent. It can be a little traumatic for the cat. In addition, a lot of our business for that online is subscription businesses.

So if you're not available, what ends up happening is the sort of retailers automatically sub another brand in. So we had a lot of work to do coming back from the cyber attack to restore our distribution and restore our share. Part of the noise in the litter category is that we started promoting a bit higher in order to get those consumers back, and then the category started promoting more, which is not a surprise. And we've seen that. I wouldn't say anything is out of the realm of what we would consider normal, but it's pretty competitive right now.

Mhmm. The great news in litter, though, is it is one of strongest growers still. So you even despite all of the impacts that we've seen from the consumer in the last few months, it continues to be positive. It's decelerated, but positive category grower. So it has great fundamentals.

It's very attractive to play in, and we continue to expect it'll be noisy for a while as we continue to rebuild our share. We've made good progress. We have more work to do. Feel great about our innovation pipeline. But I would put this in the case of, you know, this is a reaction to a pretty material change in the environment, and and it's a competitive category, and and we feel good about the progress.

And and we think what we're seeing in the market is is reasonable. Glad is a little bit different. Glad is more tends to go in cycles. We compete in trash and food bags. I'll focus on trash.

That's the biggest portion of the business. It's us, another branded player, and private label. And this tends to be a category because it is very impacted by commodity prices, particularly resin, that when we see increases or decreases in resin, that can result in behavior. But, also, when we see difficult economic times, one of the levers that people pull is price promotion. And so that's what we've seen in the category.

Price promotion went up at the beginning of this fiscal year and has continued to be elevated. We've put a bit more price promotion in place to deal with that, although we wanna make sure we're balancing that with maintaining profitability. We've lost a little bit of share, but we look at this as a pretty standard cycle in the trash category that happens, and we are well equipped to manage through it. We have a great innovation pipeline. Innovation continues to do very well with the consumer.

They continue to trade up in in trash bags. It's also one of the categories that had the least amount of impact over the last few months because it's truly essential. You have to throw away your trash, you use up trash bags at a pretty normalized rate. And we would expect over time, you know, price promotion to normalize. We're watching it really carefully, but, again, I would attribute that more to a normal cycle in trash bags.

Steve, Conference Host: Yep.

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: And then in our grilling business, we have the brand Kingsford. We primarily compete with private label and some other smaller brands. That's actually been a category that's done quite well. Girl penetration is up. We were growing share consistently in q three.

There were weather issues in q three and some timing on inventory that was noisy, but overall, pretty good about that business and its ability to grow, and we're just seeing again that's more of a weather and a timing issue for q three, and we would expect hopefully, you know, we'll see what happens for for weather coming up here for major holidays, particularly in The US, but feel good about the fundamentals of that and our ability to continue to grow. Okay.

Steve, Conference Host: Good. And then Hidden Valley, which we're talking about before for the event, that that that's a business that historically has been very strong for Clorox, really, for years. It it too has softened. And, I guess, what's your what's your diagnosis there, and what needs to be done to kick start growth?

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: Yeah. This is a really interesting one. One of the most impacted categories over the last several months of that consumer behavior I talked about around switching was the salad dressing category. And, Steve, you're right. That's been a category that's grown low to mid single digits consistently for years.

And we have grown share almost every single quarter for many, many years on that business. And the good news is we continue to grow share, so our Hidden Valley franchise is very healthy. But the category took a significant turn. We saw it as low as down 5% during that time. And, again, we think it's as consumers were adjusting their basket, it has since rebounded to a better level than that but still is depressed.

And we feel good over the long term, but I think this is just the result of consumers making different choices. One interesting dynamic is we saw a number of consumers buy our very smallest size during this period. So they didn't wanna go without their Hidden Valley Ranch, but they were really making sure that they could make those other purchases, and we would expect that category to rebound over time. And and from our case, we have a terrific innovation program. We've launched seven new flavors.

In this first half, we have partnerships with a number of restaurant partners. We're doing with Taco Bell. We're doing with one now in the retail space with DiGiorno and Hot Pockets that's going very well. Consumers love Hidden Valley Ranch on those things, so partnerships with those brands are terrific. And again, we continue to grow share.

So feel very good about the business over the long term, but certainly one of the most impacted, surprisingly impacted businesses over the last several months.

Steve, Conference Host: On a, you know, more positively framed question, are there are there pockets of the business where you see, you know, better momentum that you can carry forward or or the the foundations of better momentum that you can kinda lean into and that can help lead the portfolio back to a more algorithmic growth?

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: Yeah. I mean, we spoke about litter. We wanna get more of that growth. It's very attractive, a strong grower, and we will. We're making progress there.

But I'll call out another couple. And maybe one to focus on, which is our actual largest business, is our cleaning business. That business is comprised of liquid bleach, which is in a, you know, compacted form that can be diluted, used in laundry and home care, and then we compete in a number of home care segments. We compete in the professional space in the cleaning business, and then actually it's a global business for us. So we have it in countries all around the world.

That has been a very consistent and strong growth for a company for a number of years. It is very attractive from a margin perspective. I mean, we cover the whole consumer kind of gamut. So if they want the best price per use, they can use one of our dilutables. We have a brand called Pine Sol that's done very well, or they can use our jug form of bleach up to the most premium occasion, which is a Clorox disinfecting wipe, which is the highest cost per use but very, very convenient and easy for consumers to use.

So we've been able to regardless of economic times, we can trade them within that portfolio. We have consistently grown share over the last several years through all of what's gone on. And if you look at what happened during COVID, we took significant pricing after COVID, three rounds of pricing in that business, and our volume is still higher than it was pre COVID. So that gives you the idea. You usually have a significant volume impact from pricing, but that business is materially bigger.

And we feel great about it. That's an area we'll continue to grow. It has one of the strongest equities in our portfolio, which is the Clorox equity. That grew household penetration significantly over the last year, and has been a real star. So that will be one we continue to invest in on the professional side, which delivers accretive growth to the company internationally, which is accretive to the company and then, of course, in The U.

S, retail business, which is performing strong. The category was impacted in this period, so it decelerated, but it was still one of our stronger growers from a category perspective if you looked across our portfolio. It's a great example of one where we wanna continue to lean in. And then I would, you know, call out other ones where they have strong fundamentals. You you mentioned Hidden Valley.

As much as it's going through times right now, it is a very strong or very attractive financially. And we have other businesses we wanna get more out of. Burt's Bees is a great example where we think innovation and and good marketing can play a stronger role in ensuring that innovation works in that. We've had some bumpiness given the last few years. We had a supply issue with a plant fire from a third party.

We had the cyber disruption, but that's another one that we wanna get back on track from a growth perspective and feel good about the the category dynamics.

Steve, Conference Host: Great. Linda had mentioned margins as a key, you know, source of of of recent past success for for Clorox, and it definitely has been. Luke, what what is your perspective kinda looking through the the noise we talked about, just sort of the the the trend line on margins? Because it's been both a gross margin story, but also, you know, points of leverage on the s g and a line as well. So so we think about the the medium term, just the the runway you see on mark from a margin perspective.

Luke Belay, Chief Financial Officer, The Clorox Company: Yeah. What just as a reminder, our goal is to grow on average annual EBIT margin by 25 to 50 basis points. And as you mentioned, we we had a pretty strong performance in the past two years. I think we had 10, you know, 10 consecutive quarters of gross margin expansion. And, generally, we feel actually pretty strongly about our ability to expand margin over the next few years.

Now there's always, you know, some controllable and some uncontrollable, so we'll see what happen on the cost environment. But on why we can control, we feel like we have one of the strongest pipeline that we had in a very long time. And there's a few things. One, a few years ago, we shifted from what what had been a very robust cost savings program to a more holistic margin management, adding new capabilities like design to value, net revenue management. A lot of it's empowered by, you know, new data and tech investments, and this has been really working for us.

So we just had you know, last two years were two record level of cost savings, and, you know, this year is gonna be another extremely strong year. And then, you know, the pipeline is actually looking quite strong as we continue to just really scaling those capabilities across all businesses. And then you add to that the ERP. Now we talked about it. It's probably gonna take, you know, another year or so before we start seeing some of the productivity, but we see a lot of opportunity from a productivity standpoint in our supply chain, in our working capital, and, of course, in SG and A.

Right? And SG and A is there's a few things going on. There's the fact that, you know, we will reduce labor, you know, just empowered by more automation, and we'll also be able to further expand our global business services because we now we would have essentially a global data platform, which we didn't have in the past. So between those two level, we think that, you know, we'll see some some productivity benefit in SG and again, probably starting most of it playing in '27 and '28. So net, I think as I look at the next few years, feel like we have a pretty strong pipeline and and and runway for us to, you know, to continue expand margin going forward.

Steve, Conference Host: K. And from that falls cash, I assume?

Luke Belay, Chief Financial Officer, The Clorox Company: It's all about cash. You're talking to so, yeah, you know, we have a pretty attractive business model that generates strong cash flow and, you know, and and and pretty high return on invested capital. Now our goal our stated goal is to generate free cash flow between 1113% of sales. Mhmm. And we've we've been meeting that goal pretty consistently until fiscal year twenty two when we had a margin decline, and and we've been rebounding since then.

This year, we're gonna meet that goal. And, actually, there's if I exclude the impact of the RP transition, which is really a tax from a working capital standpoint, we'll be slightly above that range. Okay. And I think going forward, feel very confident in our ability to continue delivering at that level. There's a few things going on.

One, first, all the comments that I mentioned in our confidence in managing margin expansion, but also a lot of great work we're doing on the balance sheet. You know? We don't talk about it often, but we, you know, we took about $450,000,000 of working capital out of the balance sheet over the past few years. And now with the new ERP, we feel like we have, you know, more opportunity to continue optimize the balance sheet. So all in all, feel really good about, you know, free cash flow.

Steve, Conference Host: Good.

Luke Belay, Chief Financial Officer, The Clorox Company: And then maybe talking about capital allocation.

Steve, Conference Host: I was Yes.

Luke Belay, Chief Financial Officer, The Clorox Company: I'm just

Steve, Conference Host: Doing my job for me.

Luke Belay, Chief Financial Officer, The Clorox Company: Well, I figured that's where we're going next. Listen. You know, our capital allocation priorities have been really consistent over the years, and we don't expect them to change. First and foremost, I think we wanna invest, you know, in in our Cobb and base business. This is where we can strengthen our competitive advantage, really drive profitable growth, and then really generate, you know, the best return for our shareholders.

And then after that, we'll continue supporting the dividend. We have a really long track record of consecutive annual increase. Then third, manage, you know, our debt leverage. Our target is to have a debt to EBITDA ratio between two and two and a half. We've been on the lower end.

We think it's prudent, you know, given given the current environment. And after that, you know, we've done any we're committed to return any excess cash to the shareholders. So this year, our plan was to return 250 to 300,000,000, and we probably be on the high end of that, if not slightly higher by the time we finish the year.

Steve, Conference Host: K. From a from a portfolio optimization perspective, Clorox has done divestments over the past few years to, you know, mitigate volatility and also enhance growth by subtraction, essentially. On the on the acquisition side, it's it's been quiet outside of the Saudi JV majority acquisition. What's the what's the stance and the perspective on on portfolio curation, you know, kind of over the medium term and the appetite for m and a?

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: You know, we are always evaluating this, of course, as a management team and with our board. And we really like the portfolio that we have and our ability to take the capabilities that we have and apply that. But given that, we would love to have another growth runway. And, you know, we've we've been looking at that, and the thing we demand is strong returns. And we wanna make sure that whatever business that we acquire really fits with the capability model that we have.

And that could come in the form of a tuck into a business that we own today in a category that we really like or could be a new growth runway. There was something that we felt like the innovation and brand building capabilities, our margin transformation capability really applied well to that business, and we could deliver growth or cost synergies. It's a difficult time right now. It's been a difficult time off and on over the last five years on that work given what's just going on and all the uncertainty now, but we still you know, we're looking. We're very disciplined about it.

But the job number one, two, and three is ensuring that our core we're getting more out of that core and our portfolio, as Luke said, from our capital allocation strategy, that should be clear. And we think there's room on our own portfolio right now to get stronger growth and stronger returns, and that's what we're focused on, at the same time being focused on what does the future look like and ensuring that we're doing that work. So we're very open to it, but we'll be disciplined.

Steve, Conference Host: Got it. If we in closing, we have a couple minutes left. If we look through '26 into '27, '20 '8, we're and we're envisioning what is possible in '29 and '30, and we're all back here talking about all the great successes that Clorox has had over that time, what what are some of the the the one, two, or three most major accomplishments you wanna be able to report back?

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: You know, as a team, we really set out in this strategy period, and and particularly as we got through COVID, to build a stronger company that delivered stronger growth profitably. And I feel like we've done a tremendous set of efforts to do that, and we're starting to see those play out. Really, the goal as we move forward is to maximize the value creation coming out of the transformation that we put in place. We wanna get as the much as much as we can out of the digital transformation we've invested in. Of course, have to execute the press with excellence to do that.

We intend to. But we see so many opportunities because we've taken a more difficult road on this to really fundamentally transform the company's data infrastructure, all the technologies, how we work, the capabilities, and we are laser focused on driving value in each one of those transformation efforts that we've done. As Luke said, you know, we quietly kinda did the operating model. We talked about it as a savings. We changed the way the company operates, and we need to really operationalize that.

So what should that result in? And, hopefully, what we can look back with in pride in 2030 when you and I have this conversation on stage would be faster growth. And we really wanna get more out of innovation and our brands through driving superior experiences, and we think we put all the capabilities in place to continue to do that. Continuing to drive margin performance that allows us to invest in our business and, of course, deliver great returns for shareholders. Luke mentioned the dividend is very important to us, so hopefully, we'll be sitting, staying on stage, and our commitment to the dividend remains strong, and we deliver returns for shareholders.

But really now, this focus is on delivering stronger growth more consistently, and we look back on that and say we've built just a stronger company with better capabilities that really delivers more value for us our shareholders.

Steve, Conference Host: Great. And with that, the clock hits zero.

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: Zero. Perfect.

Steve, Conference Host: Perfect. Thank you, Linda. Thank you, Luke. Thank you, everybody, for joining us. Until next time.

Linda Rendle, Chair and Chief Executive Officer, The Clorox Company: Thanks, Steve. Thanks, everyone.

Luke Belay, Chief Financial Officer, The Clorox Company: Thank you.

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