Andrea Teixeira: Thank you. I’ll pass it on.
Operator: And our next question will come from Peter Grom with UBS.
Peter Grom: Thanks, operator, and good afternoon, everyone. So I wanted to ask on the organic revenue growth trajectory. Can you maybe just help us understand how you are thinking about volume versus price in the back half of the year. Linda, you mentioned you expect volume to be a stronger contributor to your performance, does that assume a return to growth or just kind of less of a drag versus what we’ve seen prior to the disruption. And then just on the pricing as well, particularly as you now lapped the US pricing but are taking incremental pricing related to Argentina. Thanks.
Kevin Jacobsen: Sure. Hi, Peter. As it relates to organic sales growth and transitioning from the front half to the back half, you have to think about what the changes are, as it relates to volume, we expect to see improving volume trends in the back half of the year. That’s a combination of both continue to recover from a cyber-event as well as now that we’ve lapped pricing, we’d expect to see improving volume. If you look at the front half, our volume was down high single-digits and so we would certainly expect to see those improving volume trends as we go forward. And then in addition to price mix we’ve now as I said lapped our US pricing in December, the last of the four rounds we took. And so US will be contributing much less, in fact very little impact to favorable price mix.
But we have now leaned into Argentina in November and December we took double-digit price increases both months. And so you will still continue to see positive price mix in the back half of the year in-spite of increased trade spending. So I’d say overall improving volume trends from the front half of the year. Price-mix being a little lower than the front half because we’ve lapped US pricing, but still fairly strong for us, and that’s how we get to an expectation that we’ll be growing for the full year low-single digits, and that means the back half would be a bit stronger than where we land in the front half in terms of organic sales growth.
Peter Grom: Got it. And that’s really helpful . And then I guess just, Kevin on the 42% exit rate, I think, I may be reading too much into this, but are you simply just trying to provide some color on the second half phasing, or are you trying to signal how we should be thinking about the gross margin recapture opportunity looking out to fiscal ’25.
Kevin Jacobsen: Yes, it’s more about phasing in the back half. Just want to make sure we’re highlighting folks for that all that pricing in Argentina to take effect, it will probably be the fourth quarter or it’s fully in market. So I’d I expect my fourth quarter gross margin to be a bit stronger than third quarter. But having said that, as you know, Peter, Linda and I remain committed to rebuilding gross margins back to the level we had before the, what I described as you know the super cycle of inflation. Good progress last year. We intend to make more progress this year, but the work is not done. And I fully expect going into ’25, we’ll continue to expand margins. But importantly we’ll do that while we continue to invest to grow the top line and continue to advance our strategic initiatives. So we continue to focus on all three. But as it relates to margin I expect to make solid progress this year and I expect that to continue as we go into ’25.
Peter Grom: Thanks so much. I’ll pass it on.
Kevin Jacobsen: Thanks, Peter.
Operator: And we’ll move next to Anna Lizzul with Bank of America.
Anna Lizzul: Hi. Good afternoon. Thanks very much for the question. I wanted to ask on the outlook in the prepared remarks, you mentioned expecting a modest slowdown in category growth rates in the back half of the fiscal year. Are there any particular categories where you expect an outsized impact versus categories that you think are more resilient.
Linda Rendle: Sure. This assumption on a modest slowdown in categories is one consistent with what we provided as an original outlook to fiscal year ’24, as we saw the consumer come under more pressure, and we originally had the assumption of a mild recession which we are no longer assuming, but still assuming that consumer is going to be under more pressure given all the factors in the macro-economy. And so that’s consistent with that. And if you look at our categories, given they’re all mostly household essential categories, we would expect no large difference in those categories. We might see little nuances here and there, but on average, we expect all of them to be slightly slower. And that’s consistent with what we’ve seen in the past in times like this. But I wouldn’t call out anything in particular that would be a wide variance to that assumption.
Anna Lizzul: Thanks for that. And just a follow-up on the organic sales question earlier on the Lifestyle segment in fiscal Q2, we saw a negative price mix. Can you just tell us what is driving that and should we expect to see negative price mix in the back half of the year on this? Thanks.
Kevin Jacobsen: Sure. As it relates to Lifestyle that was in our Burt’s Bees business, we do quite a bit of holiday gift packing and merchandising in the second quarter on that business, and so you have increased promotional activity. And so that was specific to the second quarter. And you may see that occasionally based on merchandising plans as we go forward.
Anna Lizzul: Great. Thank you.
Operator: And our next question will come from Dara Mohsenian with Morgan Stanley.
Dara Mohsenian: Hey guys. Just maybe looking beyond fiscal ’24, I think the tailing question today is probably the earnings outlook as we look out to fiscal ’25. I know obviously you won’t comment on that directly, but maybe just looking at a couple line items. First, Linda from a top line standpoint, obviously, a lot of moving parts. Are you pretty comfortable now that longer term retailer relationships have not been impacted from a systems issue? Do you have a line of sight to eventually regaining full distribution to Andrea’s question understanding the job’s not done, but do you think you have that line of sight? And also maybe just an update on the competitive environment near term, are there any pricing or promotional concerns that have cropped up from competitors recently, given some of the volatility that might linger as we look out over the next year or two? And how you think about that?
Linda Rendle: Sure, thanks for the questions, Dara. So, obviously, as you said, we won’t provide any perspective on fiscal year ’25, but the thing is that you’ve outlined are important as we think about closing out this year. And then, of course, the future of our continued commitment to grow top line while rebuilding margins. And what we see from a top line perspective is very strong brands. And I think I’d highlight again what I called out around brand superiority. Even in the out-of-stock issue that we experienced and cyber, we maintained our brand superiority ratings, which is significantly higher than it was pre-pandemic. So our brands continue to remain strong and we feel great about the investments we have in the back half, both increasing our advertising and sales promotion levels and we’re going to spend about 11% this year.
We continue to expect that. And we do expect trade promotion to increase as Kevin highlighted earlier. And innovation plans. We’ve also spoken about the fact that during the cyber incident we walled those resources off and so our innovation plans remain on track and we expect innovation across every major brand at Clorox. And we’ll continue to invest in those plans. So I feel great about the brand’s health going into this. From a category perspective, as we said, we expect to see some moderation in category growth. We tend to fare well in times when the consumers stretched because we offer value superiority. And in fact we’re seeing in many cases, people still trading into premium segments of our business, we’re seeing that in wipes, we’re seeing that in premium litter, we’re seeing that in our food business and across many others.
