Andre Schulten:

Good morning everyone. Joining me on the call today are Jon Moeller, Chairman of the Board, President and Chief Executive Officer, and John Chevalier, Senior Vice President, Investor Relations. I will start with an overview of results for fiscal year ’24 and for the fourth quarter. Jon will add perspective on our strategic focus areas and capabilities and will close with guidance for fiscal ’25 and then take your questions. Fiscal ’24 was another very strong year. Execution of our integrated strategies enabled the company to meet or exceed going-in guidance ranges for organic sales growth, core EPS growth, cash productivity and cash return to share owners, all this despite significant market level headwinds that were largely unknown when we gave our initial outlook for the year. Organic sales growth for the fiscal year was 4%, our sixth consecutive year of 4% or better organic growth against a strong 7% comp in the prior year and in more challenging market conditions. Growth was broad-based across business units with eight of 10 product categories growing organic sales. Home care, hair care and grooming were up high single digits, oral care and feminine care up mid singles. Fabric care, family care, and personal healthcare grew low single digits. Skin and personal care and baby care were down low singles. Focus markets grew 4% for the year with North America up 5% and Europe focus markets up 8%. Greater China organic sales were down 9% versus the prior year, driven by soft market conditions and brand-specific headwinds on SK-II. Enterprise markets were up 6%, led by Latin America with 15% organic sales growth. Ecommerce sales increased 9%, now representing 18% of the total company. Our strategy focused on driving market growth continues to drive share growth for P&G. All channel market value sales in the U.S. categories in which we compete grew around 5% in fiscal ’24. P&G consumption grew ahead of our fair share of category growth, driving modest value and volume share growth for the year. We grew global aggregate value share. Thirty of 50 category country combinations held or grew share for the year. Importantly, this share growth is broad-based. Six of 10 product categories grew share globally over the past year. Core earnings per share were $6.59, up 12% for the year. Core gross margin improved 360 basis points and core operating margin increased 170 basis points. Over $2.3 billion of productivity improvements were enabled by a significant increase in investment in superior products, packages and brand communication to drive market growth. On a currency-neutral basis, core EPS was up 16% and core operating margin increased 250 basis points. Adjusted free cash flow productivity was 105%. We increased our dividend by 7% and returned over $14 billion of value to share owners, $9.3 billion in dividends, and $5 billion in share repurchase. Moving onto fourth quarter results, organic sales rounded down to 2%, volume was up 2%, solid sequential progress. Pricing was up 1% and mix was in line with prior year. Growth continues to be broad-based across categories and regions. Nine of 10 product categories grew or held organic sales in the quarter. Home care, hair care, grooming and oral care were each up high single digits, feminine care up low singles, skin and personal care, fabric care, personal health care and family care were each in line with prior year, and baby care was down mid singles. Five of seven regions grew organic sales with focus markets up 2% and enterprise markets up 2% for the quarter. Organic sales in North America grew 4% with four points of volume growth and price mix, in line with prior year. European focus markets organic sales were up 2% against a strong 12% comp in the base period. Volume was up 3%. Price mix was down a point as the region has now fully annualized prior year inflation-driven pricing. Latin America organic sales were up 8%, including high singles growth in Brazil. Of note, Argentina’s overall contribution to organic sales for the region and the company were lower than the last two quarters due to the divestiture of a portion of the business in March and a notable decline in shipment volume for the remaining categories. As was announced earlier this month, we have divested the remaining portions of our operations in Argentina. As a result, Argentina will be largely removed from our organic sales reporting in fiscal year ’25. Select P&G brands will still be available in the market through a distribution and licensing agreement with the new owner of the operations. Greater China organic sales declined 8%. Underlying market conditions have remained weak and the 6/18 key consumption period was down sharply versus prior year, just as we saw in the 11/11 Chinese New Year and Valentine’s Day shopping periods. Also, brand-specific headwinds have continued on SK-II due to its Japanese heritage. We expect general market trends and the dynamics related to SK-II to improve over time, though it will likely be another quarter or two until we return to growth. Volume trends in some Europe enterprise and Asia Pacific, Middle East, Africa countries such as Egypt, Saudi Arabia, Turkey, Indonesia, Malaysia and Russia have remained soft. We expect these headwinds to moderate or annualize over the coming periods. Global aggregate market share was down 30 basis points as we are now annualizing very strong growth in European-focused markets. Twenty-five of our top 50 category country combinations held or grew share for the quarter. On the bottom line, core earnings per share were $1.40, up 2% versus the prior year. On a currency-neutral basis, core EPS increased 6%. Core gross margin increased 140 basis points and core operating margin decreased 100 basis points. Strong productivity improvements of 250 basis points, funding a meaningful increase in marketing investment, currency-neutral core operating margin decreased 60 basis points. Adjusted free cash flow productivity was 148%. We returned nearly $4 billion of cash to share owners this quarter, over $2.4 billion in dividends, and $1.5 billion in share repurchases. In summary, we met or exceeded each of our going-in target ranges for the year

Andre Schulten:

Thank you Jon. As we enter fiscal ’25, we continue to expect the environment around us to remain volatile and challenging, from input costs, currencies, to consumers, competitors, retailers, and geopolitical dynamics. As Jon said, we’ll navigate these challenges with our dynamic integrated strategy guided by consumers every step of the way. Our going-in guidance for fiscal ’25 is consistent with our long term algorithm. On the top line, we currently expect the markets in which we compete to deliver local currency sales growth in the range of 3% to 4% for the year. Our objective is to grow organic sales modestly ahead of the underlying growth in these markets. This translates to an organic sales growth guidance range of 3% to 5% for the fiscal year - apologies, I had my mic muted. On the bottom line, our algorithm calls for mid to high single digit core earnings per share growth. Our core EPS guidance range for fiscal ’25 starts the year at 5% to 7% versus fiscal ’24 core EPS of $6.59. This guidance equates to a range of $6.91 to $7.05 per share, $6.98 up 6% at the center of the range. This outlook includes a commodity cost headwind of approximately $300 million after tax and a foreign exchange headwind of approximately $200 million after tax. Combined, foreign exchange and commodities are projected to be a headwind of $0.20 per share for fiscal ’25, or a 3 percentage point drag on core EPS growth. In addition, the prior fiscal year included benefits from several minor brand divestitures, and we expect a somewhat higher tax rate in the new fiscal year. Combined, these are an additional $0.10 to $0.12 headwind to core EPS. We expect adjusted free cash flow productivity of 90% for the year. This includes an increase in capital spending as we add capacity in several categories. We expect to pay around $10 billion in dividends and to repurchase $6 billion to $7 billion of common stock, combined a plan to return $16 billion to $17 billion of cash to share owners this fiscal year. While we are clear eyed on the challenges in the market and the work needed to continue to drive the business, fiscal ’25 guidance for top line, bottom line and cash are each consistent with our long term algorithm. A few items for you to consider as you build your quarter-to-quarter estimates. On the top line, please keep in mind that the July to September period has the most difficult comp for the year, and many of the market-level challenges we’ve noted will not fully annualize or improve materially in our estimate until the second half of the year. On the bottom line, the foreign exchange and commodity headwinds skew a bit toward the front half of the year, and the back half comps include the benefit of the tax items and minor brand divestitures I mentioned earlier. This outlook is based on current market growth rate estimates, commodity prices and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruptions, major supply chain disruptions, or store closures are not anticipated within the guidance ranges. With that, I’ll hand it back to Jon for his closing thoughts.

Operator:

[Operator instructions] Our first question will come from Bryan Spillane of Bank of America. Please go ahead.

Andre Schulten:

Morning Bryan. I’ll start and then Jon, I’m sure, will add some perspective as well. I’ll start back where we kind of started the prepared remarks. I think we delivered a year where we exceeded on that, all of our in-going guidance metrics. Now, the year wasn’t linear, as you highlight, and I’d distinguish two parts of the business. Eighty-five percent of the business is performing right in line with expectations, and right in line with what we would have expected throughout the year. We have strong growth in North America, 4% in the quarter, 4% volume growth in the quarter. Europe focus markets growing volumes at 3%, Europe enterprise markets growing volumes at 6%, LA normalizing to about 8% organic sales growth, so that’s part of the business where the trajectory is not impacted by significant external events. I think it’s moving right along. We expected the normalization and price-mix contribution, as we have talked throughout the quarters. If you look at the headwinds that we started to communicate in December, they are really still with us in--throughout the second half, and that’s what’s driving the volatility in the top line results. Those headwinds have accelerated in part, and honestly in quarter four, some of them developed late in the quarter, so when you think about China and SK-II, we’re heavily impacted by 6/18, a weaker key consumption period in China, and overall market sentiment in China has not improved throughout H2. We had highlighted that we expect the China recovery to be slow and to take time, and I think that’s playing out in the results we see in the second half. The Middle East situation has not really improved, so we continue to see developing stronger impacts on western retailers in some of these markets, and while the team has implemented many interventions, the execution in-store has been limited by some of these headwinds in the Middle East. The last element, we saw a softening in quarter four on the Argentina volumes driven by the general circumstances in the market, strong high translation pricing in Argentina, so there was a softer contribution on organic sales growth in quarter four than what we’d seen in quarter three. If you step back, though, the performance of the business and the way we set up for ’25, I think is very strong. Eighty five of the business is developing right in line with what we would have expected. We’re growing share in North America. The balance of the markets are growing volume, which is really the shift we needed to see. Our gross margin is at record levels. Our productivity is very strong. That has enabled us to remain fully invested from a media perspective and from an innovation perspective, and so going into the year, we feel all the structural elements of the business are strong. Now, what is important to understand, and we mentioned it in the prepared remarks, those headwinds that we have experienced in H2 will still be with us in H1 of this fiscal year, so we expect this year not to be linear and we have to accelerate sales growth throughout the quarters as some of these headwinds annualize and we return to growth. But overall, I think we’re well set up to deliver against the guidance metrics we just communicated.

Operator:

The next question comes from Dara Mohsenian of Morgan Stanley. Please go ahead.

Jon Moeller:

Thanks Dara. I’m going to turn it over to Andre to take us through some of the details, and then I’ll round out the answer. Go ahead, Andre.

Jon Moeller:

I would just add two or three comments. One, as Andre indicated, where you see the increase in marketing investment, that is largely in the geographies where we’re seeing the growth accompany that from a top line standpoint. As he also said, we will continue to monitor the effectiveness of that spending and will adjust either up or down accordingly. Also, I just want to make sure we all understand the return on those investments is not an overnight occurrence. We have a commercialization cycle that needs to run its course, we have consumer purchase cycles that can be annual in some cases. While our portfolio is constructed to focus on categories where the product is used daily, that doesn’t mean it’s purchased daily, and so it sometimes takes a little bit of time to evaluate and see the market response to those investments. But if you look at the last several years, it’s generally always been there, and it’s been one of the reasons for the growth over the last, call it six years as I mentioned in my remarks - plus-5, plus-6, plus-6, plus-7, plus-7, plus-4 in a more challenging environment. Like Andre, I feel good about the balance that’s implied in the guidance and in our internal plans, but it’s something we wake up every day and continue to re-evaluate and deliver in an optimal way.

Steve Powers:

Good morning guys, thank you. I was hoping that we could talk about fabric and home and baby and family specifically. It seems like those are the two segments that drove the most disconnect, at least versus external forecasts. The release cites promotional spending and at least a degree of share loss across those segments, so maybe you could just drill down further into the headline numbers, give us a bit more context of what you’re seeing, both competitively and within your own momentum, and just how we should think about both the drivers and the timing of the build back in those businesses, noting you’ve obviously got some challenging first half comparisons especially in the current quarter, but just really understanding where you expect those businesses to trend and land over the course of fiscal ’25.

Jon Moeller:

I’m just going to go in a slightly different direction here, Steve. I fully agree with Andre’s description. There are also categories and sectors that are making really strong progress, that as we annualize the few challenges within them should manifest itself more clearly than it is now, so we’ll have the benefit of those as we go through the year. What am I talking about? If you look at beauty as an example, the aggregate results are being heavily impacted by two things

Lauren Lieberman:

Great, thanks. I was wondering if you could comment a bit, because one thing that’s been absent is a discussion is the consumer broadly, so I think it could be helpful to get some perspective on the consumer environment. It feels like in U.S. and Western Europe, from what we’ve heard from other companies, things in the last month or two have kind of gotten demonstrably worse, as a general statement, so curious your perspective on that, and then also differences in channel performance and what you’re doing around that in terms of areas of particular focus or investment. Thanks.

Andre Schulten:

And the market growth rates, I think substantiate the point that Jon made. If you look at the U.S., I think the key point is over the past one, three, six, 12 months, the category volume growth in our categories is consistently 2%, so consumers are not decelerating consumption across our categories, and similarly if you look at value growth in Europe, it’s also very consistent over the same period, so as Jon said, we’re watching it, but we don’t see it in the data.

Operator:

The next question comes from Robert Ottenstein of Evercore ISI. Please go ahead.

Andre Schulten:

Hey Robert. Enterprise markets, I think in aggregate are performing strongly for the year, up 6%, last year they were up, I think 10%, so I think very strong continued growth. Latin America, as we said, is growing on the year 15% and in the most recent quarter 8%. Europe focus markets up 8% for the year. Where we see headwinds is in the Middle East, in line with what we have described, so you see our Asia-Middle East-Africa markets impacted by those Middle East headwinds, and again we expect those to be temporary. The Argentina contribution to the total number is decreasing by almost a point quarter-over-quarter, so it was only 30 basis points in the current quarter. Most importantly, we divested the Argentina business, so that effect will not matter anymore in the current year because it will be removed from the organic sales base as we move through the quarter here. In terms of assumptions, I think that’s part of the range, right? I would say we largely assume annualization. The upper end of the range would assume some level of improvement, but I think the main contribution to the midpoint of the range would be a normalization and annualization of those headwinds we were describing, including China, SK-II, the Middle East, and again Argentina coming out of the base because of the divestiture of the business.

Operator:

The next question comes from Andrea Teixeira of JP Morgan. Please go ahead.

Andre Schulten:

Hey Andrea. Yes, I mean, pricing and mix have been a positive contribution to our results for 19 years. I don’t expect this year to be different. I think it will be pricing for foreign exchange headwinds in some of the enterprise markets, which is in line with what the market generally executes. I also expect innovation base pricing and trade-up as we have a strong innovation pipeline in the year. From a promotion environment, we see stability at the moment. We have pockets of incremental promotion. We’re still operating at about 85% versus pre-COVID levels, and we see general stability, so as I said in the guidance deconstruction on the top line, roughly we see the market half price mix driven, half volume driven. I don’t expect our fiscal year numbers to be different than that, but they will look different obviously H1 versus H2 because of base period, but the general model is still the same as we executed over the last 19 years.

Filippo Falorni:

Hi, good morning everyone. I wanted to ask about the commodity outlook. Andre, you mentioned $300 million in headwind expected in fiscal ’25. Can you maybe talk about the components of the headwind, some of the key commodities including pulp, resins, and also on the transportation side, given the recent rise in ocean freight, any potential impact there? Then in terms of--I know some of the commodities, you cannot hedge, but just the level of visibility given your contracted rates on that headwind, thank you.

Operator:

The next question is from Peter Grom of UBS. Please go ahead.

Andre Schulten:

Hey Peter. Yes, the 3% to 4% is a global number. Deconstructing that by market or by region is increasingly difficult, and we somewhat rely on the total aggregate of regions to play out in that 3% to 4% range. To your question on the 85% of the business slowing, what we see is actually what we had expected, right, that those regions slow down from a market growth in the range of 5% to 8% to this 3% to 4$ range, because the price mix component is coming down and the volume component is coming up, and that stabilization is built into our assumption for the year, so we expect most of those regions to play out the same way that we’re projecting the global number, which is 3% to 4%, half of it volume, half of it price mix.

Bonnie Herzog:

Thank you, good morning. I had a question on your beauty segment. China has been a drag to your volumes for a while, as you mentioned, and we’ve been hearing about the ongoing challenges in the region. But more recently, we’re also hearing about the slowdown in the U.S. beauty market, so curious if that’s consistent with what you’re seeing, and then how should we think about the growth potential for your beauty segment this fiscal year, and is it fair to assume that these challenges could drive a further slowdown from here? Thanks.

Jon Moeller:

And obviously we play in--the majority of the spaces that we play in, in beauty are more foundational versus prestige, and I think where some of the commentary in the marketplace has been directed relative to slowdown is really not in the base segments that we play in and, as Andre said, have continued to see very strong growth in. That’s why I wanted to add to the question earlier, because I think it’s somewhat lost in the aggregate numbers, but I think it’s important both for recognition of the team but also recognition of the potential.

Chris Carey:

Hi, good morning. I know we’re later in the call, so apologies for another China question, but maybe a bit more focus. It has been sluggish for a few years, which I think is why there’s been so many questions about the effect of annualizing. You’re not the only company to see slower results in China, so I wonder if you could just maybe comment on clearly there are macro dynamics in the market versus micro parts of your portfolio which specifically need some work. SK-II has been well covered by this point, so perhaps you can speak to some other businesses that are performing in line with your expectations or not, so that we can have a bit more of a portfolio view on why the annualization should deliver the outcomes you’re expecting into the back half of the year. Sorry for another question on China, but it felt important. Thanks.

Jon Moeller:

Just to round that out, the largest business for P&G in China is hair care, and we spent the last year-plus as we came out of COVID ensuring that we had very strong hair care plans. I am very pleased with the plans that we’ve put together and the execution of them on Pantene, the same on Head & Shoulders, really significantly improved propositions, significantly improved packaging, really looking strong. Andre mentioned somewhere in our discussion that we had made the choice to exit the third brand, which was Vidal Sassoon, so that should not be a source of drag going forward. We’re still working, to be candid, on the plans for Rejoice, but the net of all of that is pretty encouraging.

Kevin Grundy:

Great, thanks. Good morning everyone. A question for both of you, perhaps, just on some context for investment levels, specifically trade spending in advertising and marketing, which are clearly moving higher. Gross margin and expansion there has naturally been supportive. I know it’s not lost on you guys, you’ve seen what your key competitor in oral care is doing, advertising and marketing there was the highest as a percent of sales in at least a couple decades, we’ve seen trade spending move higher there in their North America segment. Advertising and marketing now for Procter has moved up 200 basis points this year, including a big step up of 300 basis points in the quarter, and we talked earlier on the call about [indiscernible] fabric care, so it’s kind of a big [indiscernible]. If you could offer some context here for higher investment levels broadly we’re seeing in the industry and then perhaps a push from a Procter perspective is are we satisfied with the top line payback that we’re seeing, because spending levels are moving higher and the push would be towards sales, understanding some of the idiosyncratic items in the quarter, was a little bit soft and we’re kind of guiding for growth similar to what we’ve seen historically. Thank you for all that, but context and any color would be appreciated. Thank you.

Jon Moeller:

And you know, it’s something I’ve been pushing, we’ve been pushing for some period of time. When you have a strategy that’s centered on innovation and superiority and you have in some cases relatively low levels of advertising reach, that total equation doesn’t make sense. We used to call it--David Taylor used to call it confidential superiority. We’re trying to, in an effective way and in the most efficient way we can, and I mentioned this earlier, increase reach so that more consumers are aware of our products and the benefits that they provide them. Obviously that effort at some point reaches the right level of maturity, but we’re still on the incline curve in that regard right now, which I think is entirely the right thing to do. As I mentioned earlier, it takes some time temporally for the business to respond. It does not respond overnight, again because of purchase cycles and commercialization cycles themselves, but as Andre said, take some assurance that you’ve got a former CFO in the CEO’s chair, between the two of us, we’re not interested in wasting your money.

Olivia Tong:

Great, thanks. Good morning. Just a follow-up on promotions, if you could just talk about how much is competitors catching up on innovation, driving you to spend more to stay superior, versus a response to the tougher macros and needing to make yourself competitive on price. Then more importantly, you’ve obviously done substantial innovation at the premium end. What are you doing as we think about this evolving macro in your mid tier products to remind consumers of the value proposition there? Thank you.

Jon Moeller:

If you just assume for a minute, Olivia, that we’re wrong in the ongoing discussion that we’ve had about consumers being under pressure, and our contention is that that really hasn’t manifested itself as of yet, but just assume that we’re wrong or that that changes going forward, and to your question on innovation, it becomes very important that we’re innovating in categories that are going to become--that are going to see even higher levels of demand, if in fact there’s any kind of consumer downturn. Andre mentioned Luvs. Another example--I mean, what happens if there’s a consumer downturn, people eat at home more often, they’re going out less frequently, traveling less frequently, and so categories like hand dishwashing, for example, become important, and our levels of innovation in that category, just as an example, are significant between power spray on Dawn and easy squeeze, and Andre mentioned the growth rates that we’re seeing in our dish business. Typically, and this was certainly the case in COVID, which was an extreme condition, but people use more paper products if they’re staying home more often, so things like the Charmin easy tear scallop perforation, which is driving significant levels of delight and 5% growth on the Charmin business last year, is another example of innovating, continuing to innovate in categories that are going to potentially be even more relevant in the event of a consumer downturn, and obviously just in general, that hand wash business is more of, if you will, a midtier business than the auto dish business, so there’s no discrimination in terms of our commitment to innovation.

Mark Astrachan:

Yes, thanks and good morning everybody. I wanted to ask about SK-II more broadly and just how do you see this part of today’s portfolio for P&G. You know, I guess the slower improvement in China than anticipated, but just curious if you take a look over the last, call it four or five years, it does seem like the brand has grown in totality a little bit below what I’d peg as the peer group, so I guess I’m curious why you think that is, how you weave in improving trends in China with the overall expectations for the brand on a go-forward basis, and I say all that too in the context of weakness pre-dating the wastewater release in Japan, so what is there? Is there more competition, are you doing more from an innovation standpoint to broaden the appeal for the brand? Can you move it beyond prestige skin care? Just broader strokes, again in the context of how does it fit within the portfolio, thank you.

Operator:

The next question comes from Kaumil Gajrawala of Jefferies. Please go ahead.

Andre Schulten:

Kaumil, it’s very hard to predict, obviously, by quarter or H1 versus H2. I think you’re in-going hunch is what I would share, as I think the price mix neutralization will continue through H1, and the volume component, I think is relatively stable. As I said, the market is continuing to grow at 2%, price mix has come down to about a point and a half, and I think that’s what I would expect from a market growth perspective for the front half. Our objective is, as always, to be within that range, so that’s my view; but again, that volatility can be driven by different innovation cycles, it can be driven by different promotion cycles, by channel shifts, so there is a lot of variability within that, but purely extrapolating from what we see in the market today, I think your hunch is right.

Robert Moskow:

Hi, thanks for the question. I guess the only thing not covered on this call is the Olympics. I think I’ve seen about 100 ads for Procter & Gamble products, some of them great, but I haven’t noticed an increase in merchandising activity in our Nielsen tracking data in the U.S. around it. I was just wondering, do you view the Olympic sponsorship more as a brand building exercise for consumers, or have you been getting and do you expect to get a lot of merchandising activity around it in the U.S. that we’ll be able to see in our tracking? Thanks.

Jon Moeller:

Before we let--not let, before we officially end the call, I just wanted to provide again some longer term perspectives, and I’m free to--I’m happy to discuss it at any point during the balance of the day. We have been through--the collective we, including you, have been through incredible challenges the last number of years, whether that’s COVID, whether that’s inflation, whether that’s war, political divisiveness, regulation - you name it. One of the things that I think is important to reflect on, the quarter’s important and we reflected a lot on that today, which is appropriate, but it’s also important to step back and say, how is this strategy working, not just for the quarter but for longer periods of time, as I mentioned in my remarks, pre-COVID, during COVID, post COVID, inflation, pricing, and then the big geopolitical struggles that we’re all engaged in currently. Over that six-year period, the team has added $17 billion in sales, which puts us at the 88th percentile of the S&P 500, and at the same time they’ve added $5 billion in profit, which puts us at the 93rd percentile of the S&P 500. They’ve built more than 200--I haven’t looked today, but before today, $200 billion in market cap in that six-year period, which is more value than most of our competitors, I think all but one, have created over their entire history as a company, so this is something that is working extraordinarily well. I think that’s important to reflect on as we move forward. We’re in a stronger place in terms of executing against that strategy than we’ve ever been. We’ve talked about investment in innovation, we’ve talked about raising the bar on superiority, we’ve talked about the progress that we’re making on productivity. We’ve talked about the support levels that our business has, we’ve talked about resuming volume growth in most of the major markets and doing that while building margin and simultaneously increasing our investment in these kinds of things, and I don’t see any reason in a--if we do find ourselves in a more difficult environment from a consumer economic standpoint, one of the things we talk about internally is would we change our approach if we either had confidence that things were going to get remarkably better from a consumer standpoint or remarkably worse from a consumer standpoint, would we not want to be in daily use categories where performance drives brand choice? I think that’s exactly where we’d want to be in either of those scenarios. Would we not want to be able to delight consumers and customers with superior products? I can’t imagine how that would be a good idea. Would we not want to have the productivity that enables us to fund those investments and accelerate innovation? Would we not want to have a more agile accountable organization structure? All these things to me, under any scenario, both because of the results that they deliver and because of the potential they hold to delight consumers, customers, employees, society and share owners, are the right path forward, which is why we talk about continuing to double down. I have said many times, this will not be a straight line. There are all sorts of things that affect the trend line in the business, but over periods of time, this is by far--if we just look at our history as a company, it has produced significantly positive results, and I expect that to continue. I just wanted to share that as we close out the call. Again, that is not trying to minimize some of the challenges that we’ve been discussing on the quarter and on the first half of next year. Those are real, they’re important to talk about, but I don’t think they’re controlling as we think about the mid and longer term. Have a great day, and look forward to catching up with you soon.

Operator:

That concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

Andre Schulten :

Good morning, everyone. Joining me on the call today is John Chevalier, Senior Vice President, Investor Relations. Execution of our integrated strategy drove solid sales and market share results and another quarter of strong earnings and cash results. The strong results we've delivered in the first three quarters of fiscal 2024 enable us to raise our outlook for core earnings per share and keep us on track to deliver within our fiscal year guidance ranges for organic sales growth, cash productivity, and cash return to shareowners. Specifically on the numbers, organic sales grew 3%. Volume was in line with prior year, showing sequential progress. Pricing contributed 3 points to sales growth as we continue to annualize price increases taken last fiscal year. Mix was neutral to organic sales growth, and growth across categories continues to be broad based with 8 of 10 product categories holding or growing organic sales in this quarter. Grooming organic sales grew double-digits. Home Care and Hair Care up high singles. Oral Care grew mid-single-digits. Fabric Care, Family Care, Feminine Care and Personal Health Care were up low singles. Skin and Personal Care and Baby Care organic sales were lower versus prior year. Growth was also broad based across geographies. North America, Europe and Asia Pacific focused markets and Latin America and Europe Enterprise markets are each growing organic sales. Global aggregate value share was up versus prior year with 29 of our top 50 category country combinations holding or growing share. Focus markets grew organic sales 2% for the quarter, and Enterprise Markets grew 4%. Organic sales in North America grew 3% with 3 points of volume growth. Over the last 4 quarters, volume growth in North America has been plus 2%, plus 3%, plus 4%, and now plus 3%. These results include over a point of impact from retail inventory reductions, primarily in personal healthcare. Consumer demand for P&G brands remains very strong in the U.S., with all outlet consumption value growth of 5%, all outlet value share was up 10 basis points versus prior year. U.S. volume share was up 40 basis points, reflecting continued strong volume growth ahead of the underlying market. The gap between consumer offtake of 5% compared to our U.S. sales growth of 3% reflects the aforementioned trade inventory reductions in the quarter. Europe focus markets were up 7% with 4 points of volume growth. Value share in Europe Focus markets was up 100 basis points over the past 3 months. Latin America organic sales were up 17%. Argentina is a significant contributor to this result given the pricing taken to offset the more than 400% devaluation of the Argentine peso since the start of the year. Mexico and Brazil are annualizing high base periods with organic sales growth in the 20s and 30s, and we expect will normalize back to pre-COVID levels in the mid to high single-digits. As we noted last quarter, there are some specific issues affecting other markets. Those challenges continue to impact results in the quarter. Greater China organic sales were down 10% versus prior year, progress versus the December quarter, but still impacted by weak underlying market conditions and headwinds for SK-II and other Japanese brands in the market. SK-II sales in Greater China were down around 30% for the quarter. We have seen some month to month improvement in overall Greater China sales trends, though we expect it will be another quarter or two until we return to growth. Volume trends in some of the European Enterprise and Asia Pacific, Middle East Africa countries such as Egypt, Saudi Arabia, Turkey, Indonesia and Malaysia have remained soft since the start of the heightened tensions in the Middle East. Also, shipments in Russia continue to decline, double digits given our reduced footprint and curtailed investments with consumers and retailers. Combined, the headwinds from Greater China and Asia, Middle East Africa markets were a 150 basis point impact on total company sales for the quarter. We expect these headwinds to moderate or annualize over the coming periods. Moving to the bottom line, core earnings per share were $1.52 up 11% versus prior year. On a currency neutral basis, core EPS increased 18%. Core gross margin increased 310 basis points and operating margin increased 90 basis points. Strong productivity improvement of 320 basis points enabled continued strong investment in superior products, packaging and consumer communication to drive market growth. Currency neutral core operating margin increased 220 basis points. Adjusted free cash flow productivity was 87%. We returned $3.3 billion of cash to share owners, approximately $2.3 billion in dividends and $1 billion in share repurchase. Over 3 quarters, more than $10 billion returned to shareowners in dividends and repurchases. Last week, we announced a 7% increase in our dividend, again reinforcing our commitment to return cash to share owners. This is the 68th consecutive annual dividend increase and 134th consecutive year P&G has paid a dividend. In summary, again, what continues to be a challenging and volatile operating environment, strong overall results enabling us to increase our earnings projections for the year and to maintain our guidance ranges for organic sales and cash generation, all while sustaining strong investment. It's a priority to build category consumption and to restore business growth in China and in the Middle East. Our teams continue to operate with excellence, executing the integrated strategy that has enabled strong results over the past 5 years, and that is the foundation for balanced growth and value creation. A portfolio of daily use products, many providing cleaning, health and hygiene benefits in categories where performance plays a significant role in brand choice. Ongoing commitment to and investment in irresistible superiority across the 5 vectors of products, package, brand communication, retail execution and value for each price tier where we compete. We are again raising the bar on our superiority standards to reflect the dynamic nature of this strategy. Productivity improvements in all areas of our operations to fund investments in superiority, offset cost and currency challenges, expand margins and deliver strong cash generation. An approach of constructive disruption, a willingness to change, adapt and create new trends and technologies that will shape our industry for the future. Finally, an organization that is empowered, agile and accountable. We continue to improve the execution of the integrated strategy with 4 focus areas

Lauren Lieberman:

Andre, I want to talk a little bit about market growth versus market share. So first off, if you could just I know you said volatile a few times, but just if you could give us a sense for sort of a high level expectation for global market growth over the next 12 months. And then digging in a little bit more specifically, you shared you offered comments on share performance, particularly in North America and also in Europe focus. But I was curious if you could talk maybe about market share trends or the degree you can tell in China. And maybe let's talk about it excluding SK-II because I think that's an issue unto itself. But just a sense of P&G's performance versus the China market overall. And since it's been lagging for quite a while, arguably, things that you guys are seeing, addressing, doing differently or considering doing differently to sift that trend?

Operator:

The next question comes from Steve Powers with Deutsche Bank.

Andre Schulten:

Good morning, Keith. Yes. So commodity benefits, as we've mentioned in the script and you correctly state, have been really impacting fiscal year-to-date results. Any remaining change and we see obviously the impact of oil running up a little bit and also other commodities like pulp, for example, where the supply situation is a little bit tighter are coming up. There will be some impact on the current fiscal year, but given flow through of contracts and various holding policies, I expect that to be limited. And we anticipated that within our updated guidance ranges. So no impact to the current fiscal year. Obviously, if spot prices hold, you correctly stated, it will have an impact on next year. But I do feel strongly about our ability, and I think we've proven it over the past 2 years, that with a combination of strong innovation, good reasonable pricing combined with that innovation and strong productivity, whatever comes our way, we'll be able to handle. On the productivity pipeline, I feel very good about where we are. We have now across all businesses a 3-year, what I would call, a productivity master plan, which is something that we invested a lot of energy and time on in each business to make sure that we generate enough ideas, even those that take longer to implement, specifically as we work with our retail partners and we work with our supply chains to really fundamentally improve the efficiency of some of our combined processes. We have great visibility over 3 years. The pipeline is sufficient to what we need it to be. So the part I feel really strong about is productivity. It's fully in our control, and I think the teams are doing a great job creating projects and creating visibility to a very strong pipeline over the coming years.

Andrea Teixeira:

Andre, I was hoping if you can elaborate a little bit more on the flat price mix in the U.S. in fiscal 3Q. If are you seeing any downside within your portfolio? Or is that self-inflicted as you offer, more IGM on the lower price points or anything about packing that we shouldn't be aware of and also related to that I saw you, you mentioned in your leaves about the price related volume declines in Baby Care. Is that mostly China? Is there anything you can elaborate? Or is that also the U.S? And I think to Steve's commentary about commodities and question about commodities, anything you can talk to us regarding the lag that we're going to see that coming through into fiscal '25?

Operator:

The next question is from Dara Mohsenian with Morgan Stanley.

Andre Schulten:

On the volume side, look, I think the effects that we described that are holding us back in the current quarter, the inventory effect in the U.S. of 2 points, which is a point on a global basis, I don't expect that to hold. So I expect the U.S. to continue to grow in terms of volume beyond the 3% that we're seeing in the current quarter. I expect some of the negative headwinds in China, the Middle East and SK-II hopefully will improve sequentially. But in aggregate, I fully expect the markets to continue to recover, shift more towards volume growth as we've seen consistently over the recent periods. And since we're growing or holding volume share in most geographies that will also flow into our results. So sequential progress on volumes, many open questions still, but I expect the line to point upwards. On marketing spend, you're right. We continue to invest in reach frequency with strong quality of communication across the markets. We are very diligent in pre ROI analysis and very diligent in post event analysis to ensure that we understand whether the spending is effective. And if you look at the results, I would argue it is. The strongest combinations of great product innovation with a very sharp consumer insight translated into a great copy drives strong results. So if you look, for example, at our Skin and Personal Care business, Old Spice and Secret total body deodorant, great consumer insight, great product, great packaging, strong communication, and the business is growing 11% in North America. If you look at our home care portfolio, those are categories that are expandable. Swiffer PowerMop, for example, getting new users to use Febreze plug-ins, those marketing investments grow the market, and they grow our share within the market. So expandable categories is a big investment area for us. So we continue to drive high levels of discipline. We will not spend if there's no ROI. And you're right, we're watching the same and asking the same question to ensure that we remain on the right side of that line.

Bryan Spillane :

Maybe, Andre, just to pick up on that last point. I guess if we think about year-to-date and I guess as it translates to the full year in the base, we have some headwinds that shouldn't recur, right? The weakness in Corporate Chemicals, the destock that you just mentioned, SK-II, I guess being more negative than overall market in China for the reasons we know. So I guess as we kind of think about next year, right, and confidence in being able to be in line with long-term organic sales targets. Does the comps make it easier? Should we be thinking about the macro environment maybe not being supportive? Just try to put some context around the organic sales growth this quarter, which decelerated from the last quarter and just is there anything we should be thinking about as we move we start thinking about our models for next year?

Operator:

The next question is from Bonnie Herzog with Goldman Sachs.

Andre Schulten:

We did not reiterate the top end of the range, but we reiterated the range. And that means 5% is still possible. Is it probable? I don't know. Probably more 50-50 than it was before. So the range is valid. I wouldn't point today at the top end of the range. On the SG&A line, we continue to invest in marketing as we discussed in previous question, and we really saw an increase in our marketing spend of about 14% year-over-year. That's the main driver. It's offset by productivity on the SG&A line, but really I would point to continued investment, productive investments to drive market growth and push out our innovation and that's the main driver of the SG&A increase that you're seeing.

Olivia Tong:

My question is about mix, which flattened out this quarter after about a year and a half of improvement. So, clearly, you guys have been adamant that we're not seeing trade down. But, as you look at this, how much of that is trade up is just harder to do now? You've obviously done you've been very successful all of late with Powerwash and EZ-Squeeze and Paws, etcetera, etcetera. So is that becoming harder? And could you talk about mix expectations over perhaps the next 12 months?

Operator:

The next question comes from Chris Carey with Wells Fargo Securities.

Andre Schulten:

Thanks, Chris. I think you gave the answer on the organic sales line. It's exactly that. I think Argentina, as we said, peso requires a little less pricing. That's an impact on organic sales, and the business is also smaller and responding maybe more aggressively to the pricing. So that is one building block. The other building block, I think is the biggest one is really the U.S. inventory reduction. So as I think about the step up that we need to see in order to be within that 4% to 5% range, we assume that that inventory reduction is a one timer, and that's what we expect in the guidance range. The elasticity in general is not changing. I think we've done and you see it in the results, I think the teams have done a very good job of making sure that we maintain a healthy value equation for our retail partners and our consumers with strong innovation, with pricing, only pricing where necessary, balancing pricing with strong productivity. So I do feel overall the business is responding very favorably even after we had to take the pricing that we took. The volume is coming up as we would have expected both in the market and for P&G. And in our biggest geographies, we're growing volume share consistently. So I do feel overall the elasticity is doing well. Baby is a very elastic category. And especially, as I mentioned, if we've not been able to consistently innovate across all tiers. And that actually is a confirmation of the model. So where we've not been able to push the innovation out and hold the full level of superiority as we took pricing, the consumer is responding. And we know the answer to that, which is push the innovation that we know how to do and communicate as a priority, and I'm confident that we'll recover the elasticity here. I don't see a broader issue. Actually, I see a lot of upside with the strength of the innovation pipeline going into next year.

Callum Elliott:

I wanted to come back please to Andrea's question on trade down. I think, Andre, you had pointed to the stable private label market share as a sign that there is no trade down. And I want to push back on that a bit. I think we all know that the consumers under the most pressure at the moment are the low income consumers, many of whom were probably already using private label products in the first place. And so my question is, is it not possible that volume reductions and cutbacks amongst the low income cohorts sort of who were already using private label a year ago are offsetting the trade down impacts and sort of masking that trade down in that flat market share number that you're talking about. And that could also explain why category growth has weakened so much. And I guess just to add to the question, I'm surprised that the private label market share is the metric that you're pointing to justify lack of trade down. And I'm just wondering, do you not track consumers longitudinally over time to measure trade down and what consumers are doing? And is private label market share really the best metric that we have to track this?

Operator:

The next question comes from Filippo Falorni with Citi.

Andre Schulten:

Yes. Hi, Filippo. You're right. We hope U.S. market growth continues in the high 4s, low 5s, and I think the trend line is pointing in that direction. And unless we see any major inventory reduction, I would expect us to continue to trend in that same direction. We are driving market growth in most of our categories in the U.S., and that should mathematically then result in stable to increasing shares both on the volume and value side. And that's certainly the objective the team has on all the U.S. businesses. The laundry recall, it was a very limited recall on a packaging defect on 1 SKU on Tight PODS. Out of an abundance of caution, the team decided to recall the product. It's no impact or very limited impact actually on the quarter or the fiscal year. And again, that product itself is safe, so no issue with the product. It was a small packaging defect, but in any case, the team decided to go ahead and recall. We're very excited about the EVO innovation. The fiber spinning innovation has been one of our core developments, so seeing it in market is exciting, but it's very early. So we run these test markets to validate product market fit, validate the commercial execution, validate everything from packaging color to packaging sizes. And it'll take us a few months before we have anything of substance. But yes, the innovation is very exciting, but it will take time before it has an impact on overall laundry growth in the U.S.

Robert Ottenstein:

Two follow ups. First, can you talk a little bit more about Europe, very strong market and your results have been extremely strong. So perhaps what's driving the strength of the market, your market share gains? And is this something that you think can flow through into 2025? And then second, kind of coming back on China, there's been significant channel shifts that we're noticing certainly in the beauty area. It's 50% to 60% online with TikTok being half of that. So kind of number 1, wondering to what extent you're adapting to that and are prepared to adapt to that shift? And then second, for the non-beauty business, do you also see the online business moving to TikTok as well? And maybe talk about your share online and off line in those categories, the main categories in China?

Operator:

The next question comes from Peter Grom with UBS.

Andre Schulten:

Okay. Good morning, Peter. Yes, the foreign exchange held was an interesting one because the $400 million reduction, as we said, was all related to Argentina. And we had assumed in the previous guidance that whatever exposure is generated in Argentina will have to be offset with pricing within the fiscal year in Argentina. So as the assumption changes and the business size reduces, the net outcome to the P&L is very limited. So yes, we saw a technical reduction because of the improving peso and the lower size or smaller size of the business. The net effect to the P&L will be very limited because of the underlying assumption we made from the very beginning that we would offset that impact of FX via pricing in the market. SK-II in China is, I think bottoming out in terms of the shipment pattern. As we said, we are about 30% down in the quarter. It's very encouraging to see some positive signs in terms of consumer sentiment as the team continues to innovate. The team drives very strong communication on the core benefit space of the SK-II proposition focusing on PITERA as a core ingredient and reason to believe. We are leveraging continue to leveraging the core consumer in China, very loyal to the brand, to amplify that messaging and it's starting to resonate. So we see positive signs. It will take time until that translates into shipments though. I think retailers are sitting on a little bit of stock, and I think they will be hesitant to order until they see good signs of consumption increases. So I would caution, I don't expect this to be a fast recovery. This will take some time. Maybe last point on SK-II. Outside of China, the business is doing very well. We're growing double digits in Japan, so I think the fundamental proposition is healthy. We just have to sort through this period in China. And again, we're pointing, I think, in the right direction, but it will take time.

Nik Modi:

Just a few, kind of housekeeping items. Andre, just wanted to confirm that the destocking in the U.S. was isolated to the consumer health business. And then the other 2 questions I had, what the Tide EVO, the technology that you've developed, would that be applicable to other brands and, other cleaning solutions within the P&G portfolio? And then just the final thing is, I think there's a lot of the theme I'm hearing is broadly from speaking to investors along this call is the delta between obviously how P&G is performing and how the how everyone else is performing. And, you know, I think the competition that that you're dealing with, I think, generally are struggling, for volume growth. So as you think about guidance, you know, how much have you contemplated a step up in competitive spend? Right? I understand the fact that you guys have the momentum and you're gaining share and the innovation is working. But I just wanted to get an understanding of kind of how measured your guidance is in relation to potential competitive response.

Operator:

The next question comes from Kaumil Gajrawala with Jefferies.

Andre Schulten:

Yes. Kaumil, the main driver here is the profile of some of the tailwinds and headwinds. I don't expect a major step up in spend quarter over quarter. I think we will sustain good investment levels. And again, as I said, we will be ROI driven, so it's up to the teams. But I don't expect a step up as the main explanation of why Q4 looks different in terms of EPS growth. The main driver is a lot of the commodity help has been booked in the front half of the year. And if anything, there's a little commodity herd coming in Q4. As we talked, oil potentially as reflected in diesel rates and maybe some of the pulp impact will hit this fiscal year. And then the foreign exchange rate, so forget about Argentina. I think we've discussed that. But the balance of the foreign exchange rate will mostly hit in the second half, and that's heavily in quarter four. And then the last element is just base period. So Q4 last year was very strong because of a different profile. This profile looks a little bit different for the reasons I explained. But don't expect a material change in spend behavior. It's really more of the macro drivers that impact the profile.

Mark Astrachan:

One follow-up on SK-II. Last quarter, you talked about your research suggesting that brand sentiment was improving. I didn't hear that. I guess, is that still the case? You're still doing more work on what's going on, I guess, specific to what's happening in China? And then more broadly, reinvestment has just been considerable this year, obviously, because gross margin has expanded, at least in part because gross margin has expanded so much and allows you to do that. As you think about the setup from here, commodities unknown, but probably not as big of a tailwind, net, net and pricing clearly not as big of a tailwind as it's been. So as you go into next year and you presumably have a little less gross margin to play with, how do you think about what the reinvestment levels look like? And then what is the contribution? I mean, I know it's a squishy question, but how much contribution do you think you've had from 300 plus basis points of reinvestment back in the business to drive share, volume, value, etcetera? Thank you.

Operator:

Today's final question comes from Brett Cooper with Consumer Edge Research.

Andre Schulten:

Look, I think if more of our competitors adopt a market constructive strategy and innovate and spend in that way, that's good for everyone. And if you look at the category development globally, there's still so much opportunity to grow even in the most developed markets to grow category penetration in places like fabric enhancers. So that is a big opportunity in many of the markets where we play. The category development index is index 30 or maybe slightly higher. So there's plenty of opportunity to be market constructive, so that's a good thing. We are constantly looking at our superiority and our innovation. That's inherent in the strategy of irresistible superiority. So we've talked about resetting the bar. We've done that with exactly that in mind, what will it take for us to continue to be market constructive, win consumers for the next 5 years instead of just looking back at the success we had over the past 5 years. So that is part of the growth model and part of how the organization operates.

Operator:

This concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.

Andre Schulten:

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

Andre Schulten:

Thanks Jon. As I mentioned, we expect the environment around us to continue to be volatile and challenging from input costs to currencies to consumer, retailer and geopolitical dynamics. However, our strong first half results enable us to raise or maintain key guidance metrics for the year. We're maintaining our guidance range for organic sales growth of 4% to 5% for the fiscal year. This outlook includes a normalization in underlying market growth rates that we began to see in our second quarter results as the market lapsed the last waves of cost recovery pricing. For P&G, we expect the pricing contribution to topline growth to reduce by an additional 1 to 2 points in the back half of the year. We will continue to price for new innovations when warranted and to mitigate FX impacts. On the bottom line enabled by very strong earnings growth in the first half of the year, we're raising our outlook for fiscal '24 core earnings per share from a range of 6% to 9% to a range of 8% to 9% growth versus last fiscal year. This guidance implies slower bottom-line growth in the second half. As we highlighted last quarter, the second half of the fiscal year will see less pricing benefit as we annualize more prior year increases. We will also see less commodity cost benefit in the second half. Wage and benefit inflation continues throughout the supply chain and in our direct costs, and FX headwinds will increase versus the first half of the fiscal year. As I mentioned, we continue to expect organic sales and core EPS growth toward the upper end of the renewed guidance ranges. We estimate commodities will be a tailwind of around $800 million after tax in fiscal '24 based on current spot prices. This is consistent with the outlook we provided last quarter. We continue to expect foreign exchange will be a headwind of approximately $1 billion after tax for the fiscal year. The vast majority of this impact is driven by Argentina, and is heavily skewed towards the back half of the year. This outlook is based on a forecast for continued significant devaluation of the Argentine Peso, which we expect to largely offset with appropriate price increases. We now expect higher net interest expense of approximately $100 million after tax versus prior year. General inflation and higher wage and benefit costs weakness are also earnings headwinds for the year. We expect adjusted free cash flow productivity of 90%. We expect to pay more than $9 billion in dividends and to repurchase $5 billion to $6 billion in common stock, combined a plan to return $14 billion to $15 billion of cash to share owners this fiscal year. This outlook is based on current market growth rate estimates, commodity prices and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruptions or major production stoppages are not anticipated within the guidance ranges. Finally, we'll be closely watching the more volatile regions we mentioned earlier, including the health of the China market, and we'll be keeping close watch on competitive dynamics to ensure P&G brands remain superior value for consumers and retailers. Now, I'll hand it back to Jon for closing thoughts.

Operator:

[Operator Instructions] Our first question will come from Dara Mohsenian of Morgan Stanley. Please go ahead.

Andre Schulten:

Yes, morning Dara, let me start and Jon will add. On the top line, if you look at the first half, we are right in line with what we're projecting for the year, an average of 5%, and we obviously then expect about 5% for the back half. We see volatility, as you had pointed out in some geographies that we mentioned in the script. I think the core point though is the core geography, 75% of the sales are performing very well. We continue to see acceleration in volume growth in North America with 4% volume growth, 5% sales growth. Europe is very strong. Latin America very strong. We continue to see volume acceleration in most places. So that gives us confidence that that projects well for the second half of the year. We also expect some of the volatility that we experienced in quarter two to disappear or at least improve in the second half. The SK-II sentiment is improving based on our consumer research in China, and we are continuing to drive innovation, equity investment and really relying on our most loyal and passionate user base to help amplify that messaging, which is working well. So, we expect the effects to improve year-over-year - quarter over quarter. From an enterprise market standpoint, we also view the pricing impacts that are impacting some of the markets like Turkey to disappear over time, as pricing in the market is established, competitive pricing catches up and then the impact of the tensions in the Middle East certainly hopefully will improve as well. So very strong continued performance on the core markets, which are 75% of the sales, and we expect somewhat improving trends and stabilization in the other 25%. On the EPS side, very strong performance in the front half, 17% in quarter one, 16% in quarter two, sets us up well for the upper end of their guidance range, which is reflected in the tightening of their guidance. However, to keep in mind, we see a reversal of a number of effects that have supported the half one results. We saw the majority of the commodity help flow through in the first half, and this is part of the improvement in quarter two EPS. We see the flow through happening faster than we would have anticipated in some instances, so that leaves less of a contribution for the second half. We also have the majority of the foreign exchange hurt in the second half, about 75% of FX hurt of the billion dollars will hit the second half. As we indicated, the majority of that is Argentina, so we will try to offset via appropriate pricing. Nevertheless, the growth impact is tilted towards the back half. Price mix contribution will ease. We saw still significant contribution in the first half, that will lower by 1 point to 2 points in the back half, which also has an impact on EPS growth. And lastly, we continue to see wage inflation in our own operation as well as in our supply chain flowing through. Now, that being said, if everything goes well, could there be upside? Sure. But we believe that guidance is appropriately reflecting the potential variability here. So those are the core drivers. Jon, any perspective?

Operator:

The next question comes from Bryan Spillane of Bank of America. Please go ahead.

Andre Schulten:

Hi, Bryan. No, what I was talking was the full year expectation. So again, we reiterate the range of four to five, but we see the possibility and strong probability that we'll be able to deliver towards the upper end of that range for the fiscal year.

Lauren Lieberman:

Great, thanks. Good morning. So, with the very sizable gross margin delivery this quarter and the outlook for the full year, there's a ton of reinvestment going back into P&L, right. And this quarter you called out the specifics, but I think know that's pretty well implied for the second half as well. So, I was just curious if you could talk a little bit about incremental areas of reinvestment because the basis points are big and the dollars are even bigger. And so, I don't know, like, it might sound ridiculous, but it gets to a point where you start to worry externally, is there an excessive amount of reinvestment? So, I'd love it, Jon, if you could talk through your perspective on that, on making sure there's not money effectively being spent less efficiently in the P&L simply because you have that much flexibility. Thanks.

Lauren Lieberman:

Well, that's kind of what I'm getting at, right? Yes.

Andre Schulten:

Yes. And maybe just to add, we just talked with our team actually about being very granular about the assessment of the ROI. So, we don't have good investments, cover for bad investments. So really go down to the country level, to the brand level, to the channel level when we assess whether we are getting a payout on the investments. But the majority of the spend, as Jon said, is really focused on driving market growth. When you think about the opportunity on FE, for example, we've created 100% of the market growth in North America on FE, and it's still the biggest opportunity the team has in order to continue to accelerate both our own growth in a constructive way and the market given the low penetration FE has - Fabric Enhancers. Oran-B, another example, a power Oral-B was launched - Oral-B iO10 and we're also expanding distribution of Oral-B iO3, 4 and 5. We've led 70% of global market growth with those launches. So, communicating the benefit and driving penetration is a huge opportunity. So be assured we look at ROI very carefully. And again, market growth continues to be the main area of focus when we invest incrementally.

Rob Ottenstein:

Terrific. Thank you very much. I was wondering if you could go into a little bit more detail on the state of the consumer in your two most important markets, the U.S. and China, how consumer demand developed through the quarter and into January? And when you talk about China, if you could also touch upon travel retail and maybe what SK-II was on a greater China basis, including travel retail as well. Thank you.

Jon Moeller:

Robert, as Andre suggested, I'll just provide a little bit of additional color on China. Having spent a fair amount of my career involved in that market and having just spent almost a full week there, in digesting the Q2 numbers, the P&G numbers in China, you have to think about a couple things. One is SK-II, which, just for clarity for everybody, is really driven by an anti-Japanese brand sentiment which Andre described. Our opening remarks that's related to the release of wastewater from the Fukushima nuclear facility, and we've had not identical but similar consumer sentiment dynamics in the past as relates to this brand and as relates to the relationship between those two countries. And it has always resolved itself with SK-II moving to higher heights. So, if you look at the decline in China on the quarter, on our business, I don't know the exact number, but basically think of it as 50% of that being the dynamic I just described and 50% of it being the market dynamics. The second thing that Andre referred to is important to understand as well. The heaviest purchase period historically in China was in November. I'm talking years past. And that was always a little bit disconcerting for us because a disproportionate amount of product moved during Double Eleven. It filled consumer pantries. It filled some retailer pantries, inventories and warehouses. It often moved at heavily discounted prices. The amount of movement during that period this year was much lower. And as Andre said, we view that as a good thing. And it's a temporary impact, a quarterly impact, a Q2 impact on the indices, but it moves us into a healthier position. If you think about the medium to longer term, Andre mentioned the expected addition of 200 million middle income consumers to China's population, that's very encouraging. Also, I mentioned I was in homes, I was in stores, I was with our retail partners. They remain encouraged about the future of China. I was talking to our organization at the end of the trip, our organization in China, and I told them I had never seen as much alignment in the market between our intentions and our strategy, our retailers intention and their strategy and the government's intention and their strategy, all focused on what's being referred to as quality market growth. As Andre suggested, that's a very good thing for us. We can play very effectively and help with that agenda, help society on a parallel path. And so, you put all that together, and I agree with Andre, and I said it earlier, I think the growth potential here remains intact. There are some specific items that exacerbate the trend that you're seeing on the quarter, but I expect this will continue to be a source of both growth and value creation for P&G. Sorry for the long answer, but I think it's important.

Steve Powers:

Thanks, and good morning. At the risk of provoking another long answer, I guess what struck me this morning is just the confidence and front footedness, if that's a word, in both of your comments this morning, and I think, Jon, your strategic perspective struck me as particularly assertive. I say that in the context on the outside, I think faced with some of the market challenges, you've called out China, the Middle east, etc., this quarter, concerns grow that P&G is likely to be thrown off course or maybe getting complacent. And I guess my question is, why is that wrong? And what to you are the keys to keeping the organization's eye on the ball, focused, grounded and executing on all those strategic pillars that you went through.

Operator:

The next question comes from Filippo Falorni of Citi. Please go ahead.

Jon Moeller:

I apologize. I honestly don't operate at that level of data aggregation. So, I don't have the answer with any degree of specificity, but I know the impact was there. I know it's a good thing for us long term, and apologize, but I'm just going to leave it there.

Chris Carey:

Hi, good morning. The U.S. volume growth improvement is very constructive. It's quite a bit better than what we can see in the U.S. Nielsen data, for example. I know the data is far from perfect, but I wonder if you could just help characterize whether you have any non-track channel boosts or in general talk about some of the specifics of what has really driven this volume improvement over the past five quarters. And I think maybe just connected to that if you could. There's a lot of debate right now across consumer staples around just what does drive volume improvement, whether that's promotional activity or increased advertising or just the lapping of pricing. And I find it interesting today that this dynamic of sequential volume growth, and I wonder if you can just maybe talk about in general why this seems to be happening, what you're doing to drive this, or whether this is just the natural evolution of markets post substantial pricing. So, thanks so much for that.

Jon Moeller:

And I'll just pile on. I agree with everything that Andre said. So just a couple more examples to show you again the breadth of the innovation that's been commercialized currently. He talked about Olay very exciting innovation in our hair care business as well. An example, Head & Shoulders BARE, which is a more efficacious anti-dandruff offering with the Bare minimum number of ingredients, nine to be exact. In an eco-friendly package, 45% less plastic. And it's one of the drivers of growth, particularly in North America on the Head & Shoulders brand which is up 8% fiscal year-to-date. Another example in a different category, Swiffer PowerMop, which is driving that business up 11% fiscal year-to-date and has built both volume and value of share at about 1.5 level so that's... And back to Steve's question on complacency, this is what we need to keep doing and that's why we talk about the best path forward being doubling down on exactly these things. They do drive market, they do drive volume, they do drive sales and they do it profitably.

Andrea Teixeira:

Thank you. Good morning. So I wanted to go back to that 4% volume growth commentary in the U.S. and 3% in the EU focus markets. And despite the tough comparison for the cold and flu season, it seems that you had market share gains in laundry and some other key categories. So can you comment on how you exited the quarter, for the cold and flu season in the U.S. and in Europe? And separately, have you - it seems that you secured more distribution in the balance of this fiscal year. So any comment on that? And a clarification on China, you said that you're confident that the growth will resume to the mid-single-digit level. I'm assuming that's not a comment for this fiscal year. But as you commented out, Jon, in terms of like the Head & Shoulder and I know hair care is a big category there and you're comping easy comps in hair. So I was wondering if you can elaborate a little bit more than SK-II in particular? Thank you.

Andre Schulten:

So on the other two questions on PHC, Andrea look the business is obviously very, very strong past for your average growth rate of 13%. So, the underlying strength of the business is very healthy. We see an impact of the core cost season. The season is still above average, but it's below a record season last year and it's developing a little bit slower in the current profile, which means there could be some upside coming - as time goes by. Last year Vicks was 28% in the same quarter, so you can see the high base that we mentioned in the prepared remarks.

Andre Schulten:

Right, we're contributing. There we go. Just last point on PHC, if you look at the share development in every treatment area that we cover in PHC, we're up in share. In every treatment area, we're up in organic sales across regions. So again, it's purely a seasonal element. On distribution, Andrea, I won't give you an answer other than obviously driving innovation, driving incremental sales for our retail partners, driving category growth helps with their desire to have our brands present on their shelves.

Peter Grom:

Thanks, operator, and good morning, everyone. So, I know you maintained your commodity outlook this morning, but just given the first half performance, the outlook does not embed as much of a tailwind from here, which you alluded to Andre, but can you maybe just unpack what you're seeing across your key cost buckets? Where are things getting better? Where are things getting worse? And maybe just based on current spot rates, how should we think about the phasing? Would you expect deflation in both 3Q and 4Q, or is there any potential for cost to become a headwind as we exit the year? Thanks.

Operator:

The next question comes from Jason English of Goldman Sachs. Please go ahead.

Andre Schulten:

So the volume - we don't see a transitory effect on the volume side Jason, good morning first of all. So the base, there is always some base volatility if you know in terms of inventories, in terms of our ability to ship, but there is no material impact that I would call out that would have to be taken into account, if you look at the U.S. volume results. So nothing there. The SK-II improvement again, I want to pace expectations, but the improvement is really in the consumer sentiment that we're seeing, where we had very high social media coverage in quarter one, leading to negative sentiment and negative top-of-mind awareness of the brand, that is now dying down and honestly most consumers have gone back, to a neutral position, open to SK-II. And so, what we're doing is really doubling down with innovation and doubling down with communication on the efficacy, the quality of the product, the quality of the brand and leveraging the most loyal and passionate consumer group to help us make the case for SK-II, which we believe will help us improve run rates in the second half. The market dynamics, we continue to see bumpy, even over the next quarters improving, but there will be volatility there.

Operator:

The next question comes from Callum Elliott of Bernstein. Please go ahead.

Jon Moeller:

Yes, these decisions are not taken lightly. A couple of points. One is where we're moving to an import model, which will be the case in Nigeria. We maintain an option on the future of those brands in those markets. We're just choosing to operate in a way that's - that frankly is viable. You get into some tough situations in some of these markets with currency controls with pricing controls with the ability to dividend money out of these markets. And at some point, you run into a set of conditions that just make it impossible operate. You can't get - you can't source dollars as an example, in order to purchase the ingredients and raw materials, you need to manufacture your products. And so, we've come to a decision when those situations present themselves to be pragmatic to be value creative and to flow resources to bigger opportunities that present more near-term opportunity, while in some cases, maintaining our optionality on the long-term. Andre, I don't know if you want to add anything to that.

Jon Moeller:

By the way, as a prior CFO would have had no hope of explaining that to you as Andre Schulten is the current CFO just did.

Operator:

The next question comes from Olivia Tong of Raymond James. Please go ahead.

Jon Moeller:

You want to talk competitive promotion, Andre, and then I'll talk to customers.

Jon Moeller:

The whole idea, just building on Andre's last point there, is to create business not take business. And that works out well for us. It works out well for the categories that we compete in and it works out well for our retail partners. And that is really the focus of the existing interchange with our retail partners. It was number one, two and three supply as we've solidified our supply chains. The conversation moves very quickly to how do we work together to grow markets. That's a win-win-win proposition, a win for them, a win for us, a win for consumers. And of course, adding a fourth win for shareowners. So that's the state of play. And I experienced that in Europe, I experienced - I was in Europe as before Christmas. As you know, I was just in China, that was the nature of the conversation there, and it's clearly the nature of the conversation here in the U.S.

Mark Astrachan:

Thanks, and good morning, everybody. I wanted to go back to China for a brief time, I guess, on this call. The last quarter, you guys had talked about a portfolio structure examination. I guess I'm curious whether there's - any update on that, or what even does that mean? And maybe specifically, any underlying changes in consumer attitude towards beauty as a category including what is perceived to be relevant by brand, or efficacy. And also sort of related to that, it just seems a bit more of a fickle category more trendy category than some of the others that you were in? And I guess I'm specifically talking in China as opposed to globally, so you could sort of parse out that, I guess, if you want. But any thoughts on maintaining a presence in a category that has more subjective sort of usage than some of your other categories on everyday usage? Thanks.

Operator:

Our final question will come from Edward Lewis of Redburn Atlantic. Please go ahead.

Andre Schulten:

Look, I think the execution of the strategy in Europe is really behind the strength of the results. The team has done a fantastic job in combining the price increases that needed to be taken to recover the commodity cost increases with very strong innovation that delights the consumer at the time when they see higher pricing materialize on the shelf. And that's really behind the benign volume impact as we took the pricing and behind the acceleration of volume growth now that pricing is established in the market. We've done that. A few examples. Jon mentioned Ariel, I mentioned Ariel as well, but Ariel parts in a more sustainable packaging launched with the price increase that we needed to take has been building organic sales by up to 20% or higher. So the results are really a combination of strong innovation, pricing and therefore, maintaining consumers coming into the franchise and trading up not different from the U.S.

Operator:

That concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

Andre Schulten:

Good morning, everyone. Joining me on the call today is John Chevalier, Senior Vice President, Investor Relations. This fiscal year, Jon Moeller, Chairman, President and CEO, will join the mid-year and year-end calls and I'll be leading the Q1 and Q3 calls. Execution of our integrated strategy draws strong results in the July to September quarter. Broad-based organic sales growth across categories and regions, global aggregate market share growth, strong productivity savings enabling increased investment in superiority of our brands while also delivering very strong earnings growth. These strong first quarter results put us on track to deliver towards the higher end of our fiscal year guidance ranges for organic sales growth and core earnings per share, and continued strong cash productivity and cash return to share owners. So moving to first quarter numbers, organic sales grew 7%. Pricing added 7 points to sales growth, and mixed contributed 1 point. Volume rounded down to a decline of 1 point with overall modest volume growth outside greater China. Top-line growth was broad-based across business units with each of our 10 product categories growing organic sales. Home care grew low teens, personal healthcare was up double digits, feminine care, oral care, fabric care, hair care and grooming, each grew high single digits. Baby care and family care were up mid-singles, skin and personal care grew low singles. Growth was also broad-based across geographies, with five of seven regions growing organic sales. Focus markets grew 6% for the quarter, organic sales in the US were up 7% and Europe focus markets were up 15%. Greater China organic sales were down 6% versus prior year. Underlying market growth is soft and choppy as consumer confidence remains weak. SK-II was down low teens in Greater China due to soft market conditions and a temporary reduction in social retail merchandising. Enterprise markets were up 13%, with Latin America up 19%, and Europe enterprise markets up 15%. Shipment volume in the US grew 3% again this quarter and we returned to volume growth in Europe focus markets. Mexico, Brazil and India, some of our largest enterprise markets, continue to deliver volume growth. These gains largely offset volume declines in the Greater China, Asia Pacific and European enterprise regions primarily driven by underlying market contraction. Global aggregate value share was up 40 basis points versus prior year, with 32 of our top 50 category country combinations holding or growing share. In the US, all outlet value share was up 50 basis points versus prior year with seven of 10 categories holding or growing value share in the quarter. US volume share was up 60 basis points, reflecting 3% volume growth. Value share in European focus markets was up 40 basis points over the past three months. Moving to the bottom line, core earnings per share were $1.83, up 17% versus prior year. On a currency-neutral basis, core EPS increased 21%. Core operating margin increased 240 basis points, as 460 basis points of gross margin expansion were partially offset by increased marketing investments, wage and benefit inflation, and foreign exchange impacts on SG&A. Currency-neutral core operating margin increased 340 basis points. Productivity improvements were a 210 basis point help to the quarter. Adjusted free cash for productivity was 97%. We returned $3.8 billion of cash to share owners, approximately $2.3 billion in dividends, and $1.5 billion in share repurchase. In summary, against what continues to be a challenging and volatile operating environment, a very good start to the fiscal year across top-line, bottom line, and cash. Our team continues to operate with excellence, executing the integrated strategy that has enabled strong results over the past five years, and that is the foundation for balanced growth and value creation. A portfolio of daily use products, many providing cleaning, health, and hygiene benefits in categories where performance plays a significant role in brand choice. Ongoing commitment to and investment in irresistible superiority across the five vectors of product, package, brand communication, retail execution, and value across each price tier we compete. We are again raising the bar on our superiority standards to reflect the dynamic nature of this strategy. Productivity improvement in all areas of our operations to fund investments in superiority, offset cost and currency challenges, expand margins and deliver strong cash generation. An approach of constructive disruption, a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future, especially important in the volatile environment we're in. Finally an organization that is more empowered, agile, and accountable. We continue to improve the execution of the integrated strategy with four focus areas, supply chain 3.0, digital acumen, environmental sustainability, and the employee value equation. These are not new or separate strategies. They are necessary elements in continuing to build superiority, reduce costs to enable investment and value creation, and to further strengthen our organization. Our strategic choices on portfolio, superiority, productivity, constructive disruption and organization reinforce and build on each other. When executed well, they grow markets which in turn grow share, sales and profit. We continue to believe that the best path forward to deliver sustainable top and bottom-line growth is to double down on these integrated strategies, starting with a commitment to deliver irresistibly superior propositions to consumers and retail partners fueled by productivity. Moving to guidance. As I mentioned, we expect the environment around us to continue to be volatile and challenging from input costs, to currencies, to consumer and geopolitical dynamics. We attempt to reflect these realities in our guidance ranges. Based on current spot prices, we estimate commodities will be a tailwind of around $800 million after tax in fiscal ‘24. This is consistent with the outlook we provided in July. However, within this estimate, there have been several moving parts. We've seen incremental relief on some commodities like pulp, which have been offset by higher costs than other commodities such as fuel. Foreign exchange rates have moved sharply against us, and we now expect a headwind of approximately $1 billion after tax, an incremental $600 million impact since our initial guidance for the year. In addition to these impacts, we are also facing higher inflation in wages and benefits, and we expect higher year-on-year net interest expense of approximately $200 million after tax. As we are just one quarter into the fiscal year, we are maintaining our guidance ranges for organic sales, core EPS growth, cash productivity, and cash return to share owners, with each solidly on track after a very strong first quarter. Guidance for organic sales is growth of 4% to 5% for the fiscal year. The range includes a normalization in underlying market growth rate that is likely to occur through calendar year ‘24 as the market laps the last wave of cost recovery pricing and as market volumes return to growth. For P&G, we expect 3 to 4 points less pricing benefit in each of the next two quarters compared to our first quarter results. On the bottom line, our outlook for fiscal ‘24 core earnings per share is 6% to 9% growth versus last fiscal year. We're holding the range despite the incremental $600 million after-tax headwind from foreign exchange. With now a 7-point EPS impact from FX, this outlook translates to 13% to 16% core EPS growth on a constant-currency basis. We continue to forecast adjusted free cash flow productivity of 90%. We expect to pay more than $9 billion in dividends and to repurchase $5 billion to $6 billion in common stock, combined a plan to return $14 billion to $15 billion of cash to shareowners this fiscal year. This outlook is based on current market growth rate estimates, commodity prices, and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruptions, or major production stoppages are not anticipated within the guidance ranges. As you consider the cadence of earnings for the year, keep in mind that the back half of the year will see less pricing benefit as we progressively annualize prior year increases. We should also see less commodity benefit as we move through the year. Labor inflation continues throughout the supply chain and [in our] (ph) costs. FX headwinds will increase versus quarter one. Also with a strong start to the year, we'll be reinvesting to further strengthen our plans and to maintain strong momentum. Finally, we'll be closely watching the health of the China market and the balance of regions, energy costs are rising as we head into fall and winter, household saving levels have reduced, especially in Europe. Slower economic growth, higher energy costs and higher interest rates for longer have an impact on consumer confidence. To conclude, while we expect volatile consumer and market dynamics to continue, we remain confident in our strategy and the results that it delivers. We are focused on driving growth in our categories and we are committed to delivering balanced top and bottom-line growth and value creation for our share owners. With that, we'll be happy to take your questions.

Steve Powers:

Thanks. Good morning, Andre. I guess just picking up on your comments on organic growth over the balance of the year, maybe you could talk a little bit more about how you're thinking about the progression of price versus volume versus mix over the remainder of the year. And then I'm curious as to whether your approach to balancing those various drivers differs at all between your focus markets, particularly the US and the enterprise markets where you're experiencing more of the currency headwinds? Thank you.

Operator:

Next question comes from Dara Mohsenian of Morgan Stanley. Please go ahead.

Andre Schulten:

Good morning, Dara. When you look at the total market, it's very consistent with previous periods. You still see average market growth of around 6% to 7%. And you see still the price component being a significant driver. Volumes are stabilizing at a global level. Minus a point to flat, depending on the geography. You look at the only exception being Greater China. So the price component and the price rollover is consistent period-over-period. So no differentiation there from a competitive standpoint, at least not that we see it. Promotion continues to be -- promotion levels and other indicator continue to be below pre-COVID levels. In the US, for example, volumes sold on deal is now at about 29%. Overall promotion level is still [indexed 80] (ph) versus pre-COVID. In Europe, we also see promotions still down and actually sequentially decreasing. Now it's a different dynamic by market, obviously, but when we aggregate up, it looks like over the past few quarters, promotion activity is actually still decreasing. And that makes sense. If you look at the relatively little or small help to commodity costs, we see about $800 million after-tax help offset by about $1 billion of foreign exchange. And recall, we're coming from two years, which combined have an impact of $7 billion of headwinds. So I think everybody is still recovering so the current pricing dynamic makes sense. We have not experienced retailer pushback beyond normal discussions on how to maximize value for their shoppers and for consumers overall. And again, our model of driving innovation and therefore, superiority and sales, while we price and create value for retailers and shoppers seems to be resonating. On the volume side, we feel very good about where we are in the trajectory of volume growth. Again, excluding China, we're already seeing volume growth of 20 basis points, sequential improvement in -- versus the prior quarters, which we would have expected. And again, that's in the context of 7% pricing still flowing into the market. We expect volumes will continue to grow. US strong. As we said, Europe, strong. Latin America and India are strong. So we continue to see us progressing on that trajectory.

Operator:

The next question comes from Rob Ottenstein of Evercore ISI. Please go ahead.

Andre Schulten:

Thanks, Rob. Good morning. I think we said all along that we don't expect the China recovery to be quick, extensive or linear. And I think that's playing out. The business health in China is really all driven by market dynamics right now. So total market volume continues to be down. It has been down over the past few quarters between 7% and 9%. Value is down around 5% over the past few quarters, and that's the market I'm describing. So we're operating within a market that is still contracting post-COVID reopening. That said, we do believe that China continues to be an attractive place for us to do business. We've been there for 30 years. We have a very strong organization on the ground, R&D capability, supply chain capability and commercial capability. The Chinese consumer is a demanding consumer. The Chinese retail environment is a demanding retail environment and that generally plays to our strength. So we believe that, a, we can play a value-creating role in China, and we expect the Chinese market to return to mid-single-digit growth here over the coming periods. If you just look at the consumer structures, middle-income consumers, we have about 450 million, we estimate in China today. That will grow probably north of 700 million over the next five years. So there is a class of consumers that we believe are attractive for our businesses. And therefore, we believe that our business in China can create significant value over the next few years and we'll continue to remain invested.

Lauren Lieberman:

Great. Thanks. Good morning. You've mentioned a return to volume growth in European focus markets, which is great to see, and obviously, market shares have generally held up well. But we started to see some pickup in private label share trends across Europe. You mentioned the European consumer being under pressure. So just kind of curious maybe some more broad thoughts there on Europe on market share trends that you're seeing more real time versus what's kind of already transpired in the reported results, more the go-forward look on European shares and volume trends? Thanks.

Operator:

The next question comes from Bryan Spillane of Bank of America. Please go ahead.

Andre Schulten:

Good morning, Bryan. If you look at the first quarter, I think the -- we are encouraged by the combination of factors here on the consumption side. Again, volume -- return to volume growth outside of China, we expect the China to be choppy as we said all along. But even with China down, we've been able to grow 7% and that certainly has been encouraging to us. And the depth and breadth of that growth, both across value and volume outside of China is really encouraging us and giving us confidence that the model will continue to drive results that point to the upper end of the guidance ranges. On the reinvestment side, we will continue to look for opportunities to invest when the return of that investment is attractive. It won't be driven by availability of funds. It will be driven by ability to create an attractive return. Our first priority, as you can imagine, in this current environment is to invest in ideas that drive market growth. So investing in products, investing in innovation that is driving new jobs to be done, investing in media spending that is driving household penetration, investing in communication to the consumer that drives usage in the right way to drive better delight for the consumer will be key. A couple of examples. Ninjamas in bedwetters was a sleepy category. We entered a couple of years ago. The category is growing 7%. We were able to drive 60% of that growth, which is six times our fair share. Those are great examples where we can continue to invest, drive growth for the business, drive growth for our retailers and create value for shareholders. We continue to see opportunities in media as we get sharper and sharper on our targeting across media around the world and our [capabilities are scaled] (ph). The ROI gets better. So we'll continue to drive up reach. We continue to drive up frequency. And again, that is a core driver for us to drive household penetration, drive trial, which will turn into loyalty and repeat. The last bucket I will give you is investing in supply, resilience and productivity. Our supply chain resilience, we see as a core competitive advantage for our retail partners and for ourselves. So we'll continue to ensure that our capacity to demand ratio is where we want it to be. And investing in productivity, we believe, has a high payout and is critical for us to continue the investment in superiority, which is part of the business model. So those are the headlines, but be reassured, we'll do it on a very disciplined basis with return on investment as the top priority.

Andrea Teixeira:

Thank you. Good morning. Andre, your comments about volume, I would like to drill down a little bit. You mentioned China. I believe you are still looking to a mid-single-digit growth and obviously, I understand the choppiness of the market. And you had SK-II down in the low teens. So I'm assuming for that to happen, you're expecting SK-II to gradually improve or lap easier comps as we go through the balance of the year. And then when you mentioned -- like doing the math when you said pricing, as we decompose your guidance, right, the 4% to 5% organic total company, you mentioned expect sequential 3% to 4% decline in the benefit of pricing, right? So it was a good 7%, so you would be implying to us 3% to 4% in the next two quarters. So with that being said, it implies in the next two quarters, some sort of improvement in volume, right, or at least some sort of inflection. So I was trying to figure that out in the context of what you said about China and what you said about total company, basically what it regresses to -- regresses to an improvement in China? Is that what we should be thinking?

Operator:

The next question comes from Olivia Tong of Raymond James. Please go ahead.

Andre Schulten:

Yeah. Thanks, Olivia. Good morning. Look, the consumer continues to be remarkably resilient. As we said in the US, the consumption levels are actually stable. Our volume share and our value share are growing. And that's true in Europe and in most parts of the world. And I interpret that as our portfolio doing exactly the job that it's supposed to do. And building a portfolio that is grounded in superiority in daily use categories that are nondiscretionary, I think, is serving us extremely well. We're able to add value, bring value to the consumer. And we are doing that in every tier, not just in the premium tier, but in the mid-tier and in value tiers across the world, which allows us to serve the consumer even as their spending preferences might change. Now, we haven't seen a significant change in their preference yet. If anything, consumers that are choosing P&G products continue to trade up within our portfolio. But you can see our ability to grow in markets even when we see private label shares expand. And so we don't expect a significant change in that profile. And we believe we are well set up to grow even if the consumer feels a bit of -- more of a pinch here going into the fall or winter season. The main intervention for us continues to be investing in innovation and continue to invest in media support to communicate the strength and the value that our brands can provide. We don't see a significant need to drive price promotion. Our focus, if we promote, if we look for in-store support is really to drive regimen. So we view it as a strategic tool to drive either trial or habit formation, i.e., regimen steps added to the laundry regime or the hair care regime, for example, because that drives incremental consumption, it drives growth for our retail partners and for us. In many cases, our innovation is strong enough to get in-store support, and that's really what we're after. When the product in and of itself generates enough traffic and consumption so retailers want to support it, that's the golden grade we’re after.

Chris Carey:

Hi, good morning. I was wondering if you could expand on two categories, which have been important for volume growth and seemingly should be important ahead. Just first on laundry. We've seen an improvement, a reacceleration in trend. Can you just expand on what's driving that and the durability? And then second, in personal healthcare, I believe that was an important driver of volume growth for the quarter. Can you just expand on what exactly was driving that in the quarter and if you think those trends are also sustainable go forward? So I'm just trying to get a sense of some of the volume durability that we saw in the quarter go forward, specifically in the context of potentially some volatility out of China likely to persist. Thanks so much.

Operator:

The next question comes from Filippo Falorni of Citi. Please go ahead.

Andre Schulten:

Good morning, Filippo. Yeah, when we talked about the cadence of earnings, I think it's important to understand the drivers of the gross margin expansion we saw in quarter one. And we expect some normalization of gross margin. We were certainly benefiting from a high price contribution in quarter one. And as we said, that price contribution will ease over the coming quarters. The biggest part of the commodity help, about 33% of the $800 million after-tax commodity help has materialized in quarter one. So that's a positive to gross margin relative to the balance of the year. And the foreign exchange rate headwinds will accelerate over the coming quarters. On the other hand, we will accelerate and continue to drive strong productivity. We will continue to drive trade-up and innovation. And we continue to drive every other element of productivity, not only in gross margin, but across the P&L and the balance sheet. But I want you to take away that the gross margin expansion in quarter one is very strong, but we have headwinds going into the balance of the year.

Peter Grom:

Thanks, operator. And good morning, Andre. Hope you are doing well. So I wanted to ask specifically on Latin America, 19% growth in the quarter, very strong. And you may have alluded to this, but are you already seeing a return to volume growth in the region? And then just thinking through the performance in the quarter, can you maybe just unpack what you're seeing in terms of broader category performance versus how much of this growth is a function of share gains? Thanks.

Operator:

The next question comes from Mark Astrachan of Stifel. Please go ahead.

Andre Schulten:

Yep. Good morning, Mark. Look, I really don't have any more insights on the China recovery timing. You see the volatility in the market that will directly correlate with consumer confidence, income levels and therefore, recovery timing. I think we're hoping for faster, but we're prepared for longer would be my answer here. On the gross margin versus marketing spending side, we're -- when I say we're ROI driven, I really mean we are ROI driven. So there's no direct correlation between availability of funds and investment levels. If we continue to see strong response to the marketing spend, increases that we deliver in quarter one, I think there's a strong incentive for us to continue that level of investment. I also expect that our gross margin expansion and our overall growth contribution availability will continue to enable us to drive strong innovation and drive strong support of those innovations. That's part of the business model. That's why, again, it has to be a combination of driving very strong productivity to reinvest in superiority, to grow markets, and we have to keep that cycle spinning.

Edward Lewis:

Yes, thanks very much. Another strong quarter in the US, seeing both volume and value growth. Just looking back at 2020 where you were dealing with obviously a lot of COVID headwinds, you were talking about growing about 4% to 6% as a sustainable rate of growth in the US. In light of all that's gone on in the past few years and seeing where we are in the US at the moment with the consumer, are you still comfortable with that range over the longer term?

Operator:

There are no further questions at this time.

Operator:

That concludes today's conference. Thank you for your participation, and you may now disconnect. Have a great day.

Andre Schulten:

With me today are Jon Moeller, Chairman of the Board, President and Chief Executive Officer, and John Chevalier, Senior Vice President, Investor Relations. I’ll start with an overview of results for fiscal year ’23 and the fourth quarter. Jon will add perspective on our strategic focus areas and capabilities and will close with guidance for fiscal ’24 and then take your questions. Fiscal ’23 was another very strong year. Execution of our integrated strategy continues to yield broad-based strong sales growth across categories and regions, strong earnings in the face of significant cost headwinds, and continued strong return on cash to P&G shareholders. Organic sales for the fiscal year grew 7%, our second consecutive year of 7% organic sales growth and fifth consecutive year of 5% or better organic growth starting fiscal 2019 - 5%, 6%, 6%, 7% and 7%. Growth was broad-based across business units with all 10 of our product categories growing organic sales. Personal healthcare grew mid-teens, feminine care grew double digits, fabric care, home care and hair care up high single digits, skin and personal care, baby care, family care and grooming each grew mid singles. Oral care grew low single digits. Focus markets were up 5% for the year and we delivered strong results in our largest and most profitable market, the United States, with organic sales growing 6% on top of a strong 8% growth comp in the base period. Greater China organic sales were down low single digits versus the prior year, with trends improving in the back half as the market continues to slowly recover. Enterprise markets were up 15% led by Latin America with 24% organic sales growth. Ecommerce sales increased 7%, now representing 17% of total company. Our strategy focused on driving market growth is in turn driving share growth for P&G. All channel market value sales in the U.S. categories in which we compete grew approximately 7% in fiscal ’23. P&G consumption grew ahead of fair share of category growth, driving modest value share growth and volume share up 50 basis points for the year. We held global aggregate market share. Twenty-nine of our top 50 category-country combinations held or grew share for the year. Importantly, this share growth is broad-based. Seven of 10 product categories grew share globally over the past year. Core earnings per share were $5.90, up 2% for the year despite a 24 percentage point earnings growth headwind, or $1.38 from share from higher material costs and foreign exchange. On a currency neutral basis, core EPS was up 11%. Adjusted free cash flow productivity was 95%. We increased our dividend by 3% and returned over $16 billion of value to share owners, $9 billion in dividends and $7.4 billion in share repurchase. Moving to the April to June quarter, organic sales grew 8%. We have now delivered seven consecutive quarters with 5% or better organic sales growth. Pricing contributed seven points to organic sales growth, mix was up 2 points, volume declined one point, improving sequentially versus the March quarter, as expected. These strong company results are grounded in broad-based category and geographic strength. Each of our 10 product categories grew organic sales in the quarter. Skin and personal care, personal healthcare, home care, feminine care, and family care, five of our 10 categories, each grew double digits. Baby care, hair care and grooming grew high singles, fabric care grew mid singles, and oral care was up low single digits. Each of our seven regions grew organic sales with focus markets up 7% and enterprise markets up 13% for the quarter. Organic sales in the U.S. grew 6%. Importantly, this includes 3 points of volume growth, a return to positive volume in our largest market for the first time in five quarters. Greater China organic sales grew 4%. We continue to see sequential market recovery, but as expected at a slow pace. European focused market organic sales were up 12% despite volume pressure from wider pricing gaps. In enterprise markets, Latin America led the growth with organic sales up 22%. Global aggregate market share increased 10 basis points. Twenty nine of our top 50 category-country combinations held or grew share for the quarter. On the bottom line, core earnings per share were $1.37, up 13% versus the prior year. On a currency neutral basis, core EPS increased 22%. Core operating margin increased 190 basis points as benefits from strong sales growth and productivity improvements more than offset higher material cost, foreign exchange headwinds, wage and benefit inflation, and reinvestment in higher media reach and frequency. Currency neutral operating margin increased 310 basis points. Adjusted free cash flow productivity was 136%. We returned approximately $2.3 billion of cash to share owners in the quarter. In summary, we met or exceeded each of our going-in target ranges for the year

Andre Schulten:

Thank you Jon. As we’ve said in each guidance outlook for the past three years and as Jon indicated, we will undoubtedly experience more volatility in the fiscal year ahead, and while supply chains and input costs have become more stable as we enter fiscal ’24, the challenges we face are multi-faceted

Operator:

[Operator instructions] Our first question will come from Bryan Spillane of Bank of America. Please go ahead.

Andre Schulten:

Yes, good morning Bryan. I’ll start. Look, our strategy is to grow categories, and that is the same strategy we’ll execute in fiscal ’24, and that means growing categories across volume and value. I think we take great comfort in the U.S. results, where we already see volume growth in quarter four of 3%, which is half of the growth we saw in the quarter of 6% in terms of sales. Driving volume and value category growth, in our mind, is best done via innovation and by driving superiority across the five vectors that we have defined

Operator:

The next question comes from Steve Powers of Deutsche Bank. Please go ahead.

Andre Schulten:

Morning Steve. Yes, we’re very pleased that we were able to guide back to algorithm for fiscal ’24, and as it comes to incremental investment, should we see more momentum or more help from a commodity perspective, the principle we will apply is return on investment, so a very simple principle. We’re not guided by money being available, we’re guided by what is the best path forward to create sustainable value for our shareholders. We have plenty of opportunity to invest partially in the direction that we mentioned before. You saw media spending, for example, ticking up in quarter four, partially because that’s profiled with innovation and retail events, but as we further develop our ability to target more effectively and efficiently in the media space, we generally see a higher return on investment on every incremental dollar that we spend, so we will carefully push in that direction because we believe that more awareness on stronger innovation and superior products will drive the market and therefore will drive our growth in a constructive way. We also have plenty of opportunity to improve our service levels. As Jon said, we’re adding capacity and we’ll invest and continue to invest in our ability to serve our retail partners even more effectively than we have done in the past, and then we have plenty of opportunity to invest in future productivity. Supply chain 3.0, our digital capabilities, all of those follow the same principles - are they returning reasonable--are they giving us a reasonable return on investment. If they do, we will try to invest; if they don’t, we let the money flow through to earnings.

Operator:

The next question comes from Dara Mohsenian of Morgan Stanley. Please go ahead.

Andre Schulten:

Let me start. I’m sure Jon will add. I’ll start by saying we’re very pleased with our market share performance. We are holding global aggregate volume share and value share in the light of very strong pricing contribution to the P&L, which is a great outcome. As Jon mentioned, we see sequential progress in terms of volumes in the market and in our performance, which is the critical outcome as we enter fiscal ’24. When you look at the U.S., we continue to drive value share growth of 20 basis points and volume share growth of 50 basis points in the most recent reading, and when you look at our European share, our focus market shares, they’ve turned positive in the past one and two months in European focused markets. All of those things give us great confidence that the strategy of driving superiority and providing value to consumers via innovation at the time when we price is working. Our vertical portfolio across value tiers and across price points in the markets is working, so we’ll continue to double down in that direction. From a U.S. share perspective, we see some trading into private label. Private label shares in aggregate are actually flat in the U.S. at about 16%, so not really growing sequentially, but if you compare versus previous quarter, as we have mentioned before, there is some volatility especially in family care, some in baby care where we would expect as private label and smaller brands return to the shelf, some of those record shares will decrease, and that’s partially what we’re seeing. But structurally, the business is in a very good place and we think we are well positioned to continue our journey on driving market growth and thereby expanding our share premium, which by the way included in our guidance where we said the market is going to grow 4% and we’re going to grow ahead of the market.

Operator:

The next question comes from Lauren Lieberman of Barclays. Please go ahead.

Andre Schulten:

Morning Lauren. Look, SKU simplification is a category opportunity, and it’s a category opportunity globally across the categories that we operate in. It’s a reality that a very small--that the bottom 25% of SKUs in the categories we operate in deliver a very small contribution to absolute retail sales, so as we think about even better serving our consumers and even better serving our retail partners, it is a logical part of an optimization program to find a better, more efficient shelf. The appealing part for us is the data that we have, based on images of our customers’ shelves in terms of POS data, and the algorithms we have developed to analyze the combination of those two give us great insight on what the right shelf set-up should be and which SKUs we should really focus on with our retail partners to maximize overall sales throughput, and that’s the opportunity we’re going after. It is a program that runs across all categories and it’s a program that runs across all regions. It will be ongoing as we reset shelves and discuss future innovation with our retail partners, and it is part of our program with our retail partners to drive efficiencies and part of our own productivity efforts, because as you can imagine, reducing SKUs in a very complex manufacturing environment frees up capacity and frees up cost, so it’s a multi-benefit space but we’ll take our time to ensure that we do it the right way. There is no standard simple way to do this, so it requires a lot of analysis and a lot of planning with our retail partners to do it right.

Operator:

The next question comes from Nik Modi of RBC Capital Markets. Please go ahead.

Jon Moeller:

China, as Andre said in our prepared remarks, continues to recover, not at a significantly rapid pace but steadily, so our business in that country was up 4% in the last quarter and that’s a big improvement from where it was in the first half of the year. There are--you know, there continue to be consumer confidence challenges driven by many factors in China, but again improving month on month. There are some fundamental underlying economic challenges, if you look for example at the employment rates of people in their 20s. It’s very low right now--sorry, the unemployment rate is high, the employment rate is low, unemployment of as much as 20%, so there’s a combination of things, but as always, I hold out great hope for China and our business in it. As I said, we’re beginning to recover nicely as we speak. On the supply chain, several things happened as we rebalanced supply and demand. One is, and we’ve talked about this before, we’re able to focus more energy and effort, refocus more energy and effort on productivity, so that’s a significant benefit and that’s included in our assumptions on the guidance. It also makes it easier to get line time to innovate. We have a very strong innovation program that we’re executing currently and obviously expect--as part of our model, we expect to do that going forward. Our track record--to the point of how do you get things on shelf, our track record speaks for itself, so one of the innovations that Andre was talking about earlier, if you just look at hand dishwashing in the United States and Europe, Down Power Wash and Dawn easy squeeze bottle, those two innovations together drove 17% growth in that business last year, up 1.5 share points in the U.S., up, I think the number is 1.1 share points in Europe, and we’re just getting started with the potential there. But that kind of track record behind innovation makes us a very compelling partner to our retail partners, and that specific example, as you would expect with those kind of numbers, had a significant impact on market growth, which is also of primary importance for them. They don’t really, as you know, don’t really care or aren’t benefited by our share growth unless it is driven by market growth which they benefit from. I think we’re in good shape. When we have great ideas, when we can increase consumer and shopper delight, we’ll be fully present.

Robert Ottenstein:

Great, thank you very much. Jon, you mentioned, I think in your introductory remarks, that your ecommerce business is now about 17% of total, which has probably doubled in three or four years. Can you maybe kind of stand back and reflect on what that means for your business overall, and maybe concentrating on the U.S., how does that change your relationship with brick and mortar? Has it had an impact on your shelf space in brick and mortar? How has it changed your supply chains, what added complexity it’s given to you, and how has it changed your overall discussion with retailers? I know there’s a lot there, but what are the key things and takeaways that we should get about what’s been a pretty big transformation in terms of channels over the last three or four years? Thank you.

Andre Schulten:

The only thing I’d add is many of the initiatives we talked about are designed to benefit an omni environment, so both online as well as the physical store. When you think about SKU productivity, it’s absolutely critical when you try to fulfill an online business from shelf because you need the holding power. When you think about supply chain services, our ability to fulfill on behalf of our retail partners directly from our DCs is a significant advantage if you’re in an online environment, but also an opportunity for any brick and mortar retailer. All of those programs are basically channel agnostic - they serve any format within our markets.

Andrea Teixeira:

Thank you, good morning. I have one for Jon and one for Andre. Jon, on the U.S. volume recovery, are you seeing more of a need to defend the entry level pricing with promo? I know I don’t want to sound as if I don’t appreciate all that you said about several initiatives on--not only initiatives, real market share gains in innovation, but I’m just thinking of the private label and value brands you discussed. Do you feel comfortable with your price architecture as it stands now, and do you think that also related to the fabric and fem care basic capacity increase, so you’re now on shelf and you can be more tactical in some price points? Then Andre, on the cost side for fiscal ’24, I think that you’re calling a net benefit of $100 million in your net commodities plus FX and plus logistics. I understand that you used the spot prices, and to the extent numbers come in better than that, would you see more of a need to reinvest or potentially flow through some of the savings into the bottom line? Thank you.

Jon Moeller:

As relates to opening price points, that’s a very fair question and something that we’re always evaluating, as you would expect. But there are several tools that we have available to us to ensure that we’re providing good value to consumers for whom price becomes a challenge. We have pack size, ensuring that we have pack sizes that are accommodated within their cash outlay capacity. Making sure that we have offerings that are right for the channels that consumers typically go to when they come under economic pressure. Ensuring that whether it’s on the package, whether it’s on the shelf, whether it’s in advertising, we’re clearly communicating the value that those offerings provide, and I think you’ll see us going to the utilization of those tools much more frequently to fully delight and satisfy that shopper than we will simply price.

Callum Elliott:

Hi, thanks for the question. I wanted to drill a little bit more into reinvestment, please, and from a different angle. My question really is about retail media spend. We’ve seen a lot of hype, if I can put it that way, about the potential of retail media from the retailers themselves, and in particular the potential for CPG retail media spend to be incremental for the retailers. My question is, can you talk a bit about retail media spend from your perspective, who’s responsible for it within your business - is it the brand teams or your customers teams, and is there a risk that this really will need to be incremental spend or is it just shifting from shopper marketing dollars and legacy media channels? Thank you.

Jon Moeller:

I like generally the concept of retailer media managed in just the way that Andre described, because I just generally believe that the majority of brand choice is made in a retail environment. If we can bring that all together, it offers significant opportunity. I think less brand choice is made sitting on a couch or even driving in a car on the way to a retail establishment. The same is true for online. We’re very carefully evaluating this opportunity, but it will be done in a context that Andre described.

Olivia Tong:

Great, thank you very much. Two questions, first on cost savings. That obviously improved materially as the year progressed, so do you feel like this is a sustainable improvement from here, or to what extent does this perhaps reflect an elevated level after last year’s was a little bit depressed? My second question is just realizing [indiscernible] strong innovation and that’s led to a greater consumer willingness to stay with your premium brands. You alluded--you just talked about Dawn, for example, and that’s obviously driven your ability to grow the category even when consumer are trading down to private label in certain instances, so perhaps you can talk about your innovation plans for fiscal ’24, how they compare to years past. Thank you.

Operator:

The next question comes from Peter Grom of UBS. Please go ahead.

Andre Schulten:

Morning Peter. Look, I’ll leave it we’re starting--just starting to recover a lot of the gross margin that was impacted by the commodity cost inflation. Obviously our objective is to continue to recover and get back to pre-COVID levels and then grow from there. Our algorithm requires with mid single digit top line growth, mid to high single digit EPS growth requires somewhere between 20 and 60 basis points of operating margin expansion, and a part of that will have to come from gross margin expansion because, as we said, we strive to continue to invest in the business across innovation, across communication to drive superiority. I won’t give you detailed guidance, but we’re still on the path to recovering back to pre-COVID levels.

Filippo Falorni:

Hey, good morning everyone. Just a clarification on your organic sales growth guidance. You mentioned you expected global markets to grow 4% with modest growth in volume. Can you break down what are you expectations for your volume assumptions for ’24, and even just in terms of cadence, could we see, given the strong improvement that you saw in Q4, some volume growth at a total company level even in the first half of the year, or do you think it’s more of second half in terms of volume growth for P&G? Thank you.

Operator:

The next question comes from Chris Carey of Wells Fargo Securities. Please go ahead.

Andre Schulten:

Got it. Yes, Chris, on free cash flow, I’ll just tell you our capital allocation priorities haven’t changed. We’ll fully fund the business. We will pay the dividend, we will do M&A where it makes sense, and then we will return cash via share repurchase. Just keep in mind, we had two years where operating income was severely limited because of the recovery of commodity cost increase and foreign exchange, so that explains, I think, a little bit of that share repurchase number being a little bit lower. If you look at the average, we’re still returning $14 billion to $15 billion to share owners, which is right in line with what we’ve been doing over previous years. On SK-II, 20% growth in the quarter looks great on the headline. Just keep in mind, we’re building that off of a very weak base period with Shanghai lockdowns, so I wouldn’t want you to extrapolate that straight into fiscal ’24. I think most importantly, the team is doing a great job in putting SK-II on a solid footing both from a channel perspective, making sure that the pricing across different channels - travel retail, l domestic travel retail and domestic markets, is in a sustainable place. They are investing in the core equity of the brand with a new campaign, and they are building retail support and trial. All of those things, I believe, are a good indicator of where we’re headed, and early signs within China, for example, are very strong, positive consumer reviews and initially positive share growth, so we’re headed in the right direction but probably not quite at the clip you saw in quarter four.

Mark Astrachan:

Yes, thanks, and good morning everyone. I actually ironically wanted to ask about SK-II, but more in a portfolio construct view. How do you think about prestige beauty fitting into your portfolio? I think it’s been a question for years in terms of just go to market and synergies with the rest of the beauty business. You’ve obviously done some selective M&A, not necessarily co-selling that with SK-II in certain businesses and markets, so I guess as you take a step back and look at the volatility, obviously it’s partly COVID related, over the last three, four years there’s been volatility there, markets improving but some signs that the go-to-market that existed three years ago, four years ago pre-COVID is shifting in terms of how you sell those products, so are the same synergies in going to market there today versus where you were a few years ago? Are you still getting the same synergies in terms of flow through to technology through using [indiscernible], and then related to all of that, how do you think about that current portfolio today? Does it need to be bigger, does it need to be shifted a bit in categories, or are you content with where you are? Longwinded question, but all sort of related to SK-II. Thanks.

Operator:

The final question comes from Bill Chappell of Truist Securities. Please go ahead.

Andre Schulten:

Yes, look - if you look at the grooming business, I would first tell you the last two quarters have been very strong quarters. The Braun business, so the more appliance side of the business had been annualized a very strong base period during the pandemic as more and more folks have brought some of these jobs in-house versus going to barber shops or beauty salons, and obviously that had a very high base so we’re annualizing that base. On the core grooming side when you think about male blades and razors, female hair removal or beard care, I think the business has done a fantastic job in expanding the jobs to be done that we cover, and driving honestly market growth across each of those segments, and that will continue. In terms of future outlook, we feel very good about the business recovering already in the second half, mainly from the mainly from the Braun strong base period, and I think the plan for current fiscal year are strong.

Andre Schulten:

Thanks everyone.

Andre Schulten:

Good morning, everyone. Joining me on the call today are Jon Mueller, Chairman of the Board, President and Chief Executive Officer; and John Chevalier, Senior Vice President, Investor Relations. Execution of our integrated strategies drove strong results in the January to March quarter. Organic sales grew across all 10 categories in -- and in six out of seven regions. Global aggregate market share is holding steady, productivity savings are accelerating and enabling sustained investment in the superiority of our brands. In-market execution across all five vectors of superiority is strong and consistent

Lauren Lieberman:

Great. Thanks. Good morning, everyone. I wanted to talk a bit about productivity, because over the last, I guess, two-and-a-half, three years during the pandemic and all the global supply chain challenges, productivity was something that understandably took a back seat. And then, this quarter really seen this significant change in what you've been able to realize. So, I was curious if there is -- if we should be thinking about productivity of something where there's, like, a catch up, where there's sort of projects that have been on the list, things you were able to get at, so that productivity could run at an elevated rate going forward? And it's also interesting I think in the context of marketing, how you've been so consistent in investing throughout? There's actually no catch-up on the marketing piece. No need to accelerate reinvestment per se, but maybe some, again, acceleration on the productivity side. So, I'd be curious to hear about that. Thanks.

Jon Moeller:

I agree.

Bryan Spillane:

Thanks, operator. Good morning, everyone. I actually had just one clarification and then a question. The clarification, the $125 million of, I guess, incremental interest expense, can you just give us a little bit more color on that? And again, is that something we need to kind of contemplate in our models as even we look past the fourth quarter? So, I guess, is net interest expense going up?

Jon Moeller:

And just one piece of perspective there, Bryan. This is Jon. We've understandably, because it's been the primary driver of cost increases, focused our discussion on commodities. But that's not the only cost increase that we're seeing. We've just talked about interest expense. Andre mentioned in his prepared remarks, wages and benefits, which continue to increase. So, I would just encourage us all to gain confidence from what's happened here, but to realize that there are still, as Andre said, many headwinds that we're working against and we'll continue to work against as we move forward through next fiscal year.

Dara Mohsenian:

Hey guys, can you hear me?

Dara Mohsenian:

So, on the gross margin side, you were up significantly year-over-year in the quarter for the first time in a couple of years. Obviously, some nice sequential progress with the outsized cost savings and the strong pricing, but also your full year commodity assumptions and freight assumptions are a bit better than they were previously. So, just wanted to get a sense if we start to see this sustained improving gross margin environment, what's your perspective on the bias to sort of reinvest that upside back into marketing versus let it drop to the bottom-line? This quarter, obviously, with the magnitude of gross profit upside, you could do both. But just want to get a sense on how you think about that going forward? And if I can slip in a second part, are you comfortable you're getting a strong ROI on the higher ad spend? Presumably, obviously, you did this quarter, but how do you think about that going forward and sort of ROI on any spend that may be opportune or incremental to what you originally expected?

Jon Moeller:

Just building on Andre's points, which I fully agree with, I want to come back to this notion of balance and our commitment to it. Some of you have heard me talk about this probably many times, but it's worth repeating, so you understand how we're thinking about things. We have a chart that we use with the leadership team every time we gather, which shows what you would have to believe to deliver top total share shareholder return, which is our objective entirely through the top-line or entirely through the bottom-line. And to do it entirely through the top-line, you'd have to assume that we can grow 8% from an organic sales standpoint each and every quarter, which is in our view unrealistic. If you try to do it entirely through the bottom-line, you'd have to assume that you could expand margins 180 basis points per year. So five years, 10 margin points in a highly competitive industry where it's taken us 187 years to build 22 margin points, equally unlikely. So, we are very committed to driving both top-line and bottom-line. It's the only way we see to get home. I have a trite little saying that we use on occasion, which is "Top-line with no bottom-line, a waste of time. Bottom-line with no top-line, just a matter of time." We're going to continue to operate in that vein. And if we're successful, you'll see top-line growth driven by proper levels of investment and bottom-line growth and margin expansion -- modest margin expansion. One last thing on the point of advertising rate of return, or ROI, in addition to what Andre was talking about, we simply have, though maybe hard to believe, a lot of low-hanging fruit that's out there. We have many categories where we are not at our target levels of reach. And that's a very high ROI activity when we can reduce wasted frequency, reinvest that into expanded reach, very good things happen. As you've seen, by the way, not just this quarter, but for the last four years. And there's no reason to change that approach at this point in time.

Steve Powers:

Hey, thanks, and good morning. So, overall volume this quarter came in roughly in line at least with our expectations, but both price and mix delivered upside, which I think implies just better structural elasticity than we were expecting. And I guess the question is, as you balance everything, just your relative confidence that, that can continue? On the one hand, you have some tailwinds for sure as China comes back and service levels seem to be improving, your reinvestment rate is admirable as we've been talking about. But there's obviously uncertainties out there. And so, I guess, maybe just a little bit of perspective on your overall confidence and where that confidence is more versus less elevated?

Operator:

The next question comes from Kevin Grundy of Jefferies. Please go ahead.

Jon Moeller:

Hey, Kevin. This is Jon. I'll hand it over to Andre to give some more numerical perspective. But I thought it might help just to share briefly the trip that myself and a large contention of our leadership team were able to make to China in the last three weeks. We spent more than a week there. It was wonderful to reconnect with our organizations, who are doing a tremendous job. We spent time in consumer homes. We spent time with our retail partner leaders in their stores and in their offices. And of course, we spent time with various government authorities. And without getting into all the details, the bottom-line conclusion was a very positive one, and much more than I was expecting even, and I'm kind of a China fan having worked there many years ago and having lived there. So, my expectation has already started high and those were exceeded. Having said that, and we talked about this on the last call, this is not going to be a vertical restart. And there will be a number of twists and turns, including some of the ones that you've mentioned along the way. As Andre said in his prepared remarks, we expect China to continue to contribute at a meaningful level over the middle- to long-term. But everything looks reasonably positive and constructive. Andre, do you have any other perspective on that?

Operator:

The next question comes from Robert Ottenstein of Evercore ISI. Please go ahead.

Andre Schulten:

Good morning, Robert. On the gross margin and sales connection here from mix perspective, the effect that you're seeing here is product mix. So, consumers when they come into our P&G portfolio, tend to trade up into higher-value items. We've seen that actually consistently over the past quarters. So that -- as they trade up into higher unit sales, that's a positive impact from a mix perspective on the top-line. But those higher unit sales items also have higher unit profit, but the gross margin in percentage is slightly lower for some of them. When you think about adult incontinence, for example, when you think about fabric care, single unit dose versus liquid detergent, gross margin percentage lower, unit sales higher, unit profit higher. So, it's a positive effect both from the top-line and the bottom-line standpoint, but the percentage mix is lower. U.S. consumer, I think is holding up well. As we said, any indication that we see on our business is that the consumer is still choosing P&G brands. We are growing volume share in a market that is still down on volume. We are growing absolute volume. So, 90 basis points value share goes, 40 basis points value share goes fairly consistently across periods. We also see private label shares stable at 16%, really no movement here over the past one, three, six, nine months, which is a good indication that we don't see any material trade down. Now we're watching this very closely. And we believe that a lot of that is again driven by our very intentional strategy to drive superiority. We continue to invest in innovation. We'll continue to invest in product packaging innovation. We're increasing, as Jon said, communication frequency and reach where we see a good payout and return. Continue to work with our retail partners to ensure that the presentation of our brands online and in-store is as good as it can be. Last element I would call out is we are stable in terms of supply and on-shelf availability, which is also helping our overall position in the market. So, stable, I think is the characterization, but we're watching carefully.

Operator:

The next question comes from Peter Grom of UBS. Please go ahead.

Andre Schulten:

Good morning, Peter. Freight is relatively stable at this point in time, as we've mentioned in the prepared remarks. We expect our freight and transportation and warehousing costs to be roughly in line with prior year. And I think that is a reflection of a more balanced capacity situation with a driver to load ratio returning to, I think, more historical norms. Again, given fuel prices and all other dynamics, I wouldn't expect any major change going forward, but we're at least stable. From a commodity basket standpoint, we continue to see a mixed bag. We have some help in resin-based commodities. We have some help in pulp, though that is moderated by mill shutdowns for maintenance, both planned and unplanned. But on the other side, all our high--energy usage materials, when you think about caustic soda, when you think about ammonia, all of those are increased in pricing. So, the moderation is really limited and it's not consistent across the basket. So, $100 million after tax is the only thing we're seeing at this point in time. We also continue to see upstream in the supply chain. Our suppliers continue to try to recover their input cost increases, their labor inflation, and that continues to be a discussion that is ongoing. I think as we mentioned in CAGNY, some of those contracts roll over 12 months, 18 months. So, there's -- these headwinds and these discussions will continue to be with us. Overall, we're expecting, as we always do, spot rates will hold on, that's what's based and underlying our planning for next year and our guidance for this year.

Andrea Teixeira:

Thank you. Good morning. So, how should we think about the upside in Beauty? And both you Jon and Andre spoke briefly about travel retail being an upside in Asia. How should we be thinking also on the other side, lapping the triple pandemic and the respiratory benefit you had in healthcare? It seems you could benefit from digestive recently, but how should we be thinking about the other segments? And as we -- just a clarification. As we put in the embedded organic in the fourth quarter is a 4%. But it seems as if you are -- as Andre commented, the exit rate on your volume is potentially flat, bear in mind, of course, the potential risking in Europe. But should we be thinking more of a better quality in terms of the delivery in organic, so even though it would be a 300 basis points deceleration on a sequential basis, you'd still have better volumes, maybe flattish to maybe only slightly down and a 4% price component in there? Thank you so much.

Andrea Teixeira:

Hi, Andre.

Jon Moeller:

Yes. One thing to remember too is that we've just taken pricing in both the U.S. and Europe. And I don't think that the data for the current quarter reflects a potential volume impact from some of that pricing. So, I would be looking at volume recovery -- volume to slowly improve over time, but it won't happen overnight.

Filippo Falorni:

Hey, good morning everyone. Thanks for the question. Jon, clearly you've gone through a lot of transformation over the past five, six years that the company bought from a portfolio standpoint, organizational standpoint, superiority. Can you help us understand how you think internally these changes can help you navigate a potentially weaker consumer environment if what we're seeing in Europe were to extend into the U.S. and some other parts of the world? Thank you.

Operator:

The next question comes from Olivia Tong of Raymond James. Please go ahead.

Andre Schulten:

Good morning, Olivia. The most recent round of pricing have gone into effect just in February and March across -- and I'm calling out across Europe and U.S., because [those are somewhat] (ph) visible. So, it's hard for us, as Jon said, to determine what the outgoing elasticities are at this point in time. What I can tell you is that elasticities remain stable, remain favorable. And I think it is also a function of continued investment. It is a function of continued innovation. Every price increase or most price increases are connected to innovation, meaningful innovation for the consumer, that also guarantees retail support. They are linked to strong value communication. We've talked about Ariel Coldwater, Tide Coldwater, Charmin rollback, Olay value communication. And that is meaningful for consumers as they come under pressure. Many of our categories are categories where a consumer doesn't want a risk failure. You don't want to wash your clothes twice and you certainly don't want to deal with a diaper failure. So, all of that I think is helping us to maintain favorable elasticities across the board. The most important insight for us is -- and that's what you see us do in Q3, we need to continue that investment. We need to look for opportunities where our value is exposed, and I'll call out Europe as an example because of private label pricing at a lower pace than the branded competitive set. It is critically important that we maintain that investment level to maintain the value equation. Where we see pricing lapping or I think where we have the strongest portfolio and the strongest execution in terms of innovation and superiority, we see favorable results, and the U.S. is a good example of that. Excellent in market execution by the team compared with a truly strong portfolio and strong innovation is delivering both relatively strong results to the balance of market, but also driving market growth recovery.

Chris Carey:

Hi. Good morning. Can you just talk about your playbook in Europe? You've noted European private label is delaying price increases a number of times on this call. We've heard similar commentary from others in Staples. If price gaps in private label remain wide, do you simply accept that new level? Or you need -- do you need to do something about it to be a bit more offensive to close the gap? And I guess I say that in the context of Europe, of course, but also as a -- bit of a litmus test for price competition that could play out globally in month and quarters ahead, and just how you think about managing through that type of dynamic? Thanks so much.

Jon Moeller:

I couldn't agree more. And frankly, while Andre rightly points to a difficult consumer environment, if you look at our results thus far in Europe, they're very encouraging, not just in the last quarter, but through last fiscal year as well. We're achieving growth rates in Europe that are higher than we've seen in a long time. And so, now is not the time to back off. It's time to move forward and strengthen the execution, just as Andre described. That doesn't mean we have our heads in the sand. We've made several adjustments to price gaps, not just versus private label, but versus branded competition as we've gone through this period of pricing, and we need to continue to be sensitive to that. But first and foremost, we need to delight consumers and customers with the offerings that we're bringing to market and go from there.

Jason English:

Hey, good morning, folks. Thanks for just letting me in, and congrats on strong results. A couple of quick questions. So, first on pricing. Can you give us some more quantification on perhaps breadth than magnitude? And when you blend it all together, what sort of order of magnitude should we expect at consolidated level in terms of organic sales contribution going forward? And then, secondly, SG&A, love to see the reinvestment back in the business. But really sharp sequential change both in terms of year-on-year for overall SG&A and just sequential dollar step up. Can you unpack a bit more kind of where the money is? What's -- where the extra investment is going?

Jon Moeller:

I would just add one thing. It's our category leaders that determine the level of investment that we're making at any point in time. And prior to this quarter, just as you go back in time, there were more situations where we weren't able to fully supply demand. And, obviously, those are situations that you -- you continue to invest in mental awareness and --- but not spike that investment, because you can't supply it. And as we get into an increasingly better supply environment as we did in the last quarter, you resume a level of spending now that you can fully support it. So that's a part of the dynamic in addition to the dynamic that Andre described.

Mark Astrachan:

Yes, thanks, and good morning everyone. Wanted to ask sort of related two-part question more about U.S., but I suppose you could talk globally if relevant. How sticky do you think this strategy of irresistible superiority is in terms of volumes? Obviously, we see that you're gaining share if you look at the U.S. So, you're effectively trading consumers to higher-value products that work better than peer sets, right? So, it would suggest then there's a stickiness here that perhaps didn't exist in kind of prior cycles. So, I'd be curious how you think about that and how it flows through from a volume standpoint going forward? And related to that on just the volumes, what's your best guess as to why volumes are down from a consumer standpoint? Is the pantry destocking, unloading? Does that imply that they're potentially as reloading at a later time if and when consumer sentiment improves? Thanks.

Operator:

The next question comes from Nik Modi of RBC Capital Markets. Please go ahead.

Jon Moeller:

Yeah. You can imagine with what many of them have been through. There's a bit of a whiplash aspect to -- for three years, I was told that going outside was dangerous. And now I'm being encouraged to reemerge. I'm living probably in a relatively small dwelling, many times with multi-generations, and I don't want to negatively impact my family. So, there is a degree of hesitance and questioning. On the same time, there's an overwhelming feeling, at least as I experienced it, of liberation, of hope. And I was in Beijing one sunny Saturday afternoon, and the streets were packed. It was absolutely wonderful and joyous. So, I continue to hold on and believe in the mid- and long-term opportunities that China presents us with. It's certainly -- plus 2 is a lot better than a negative number that we had in the last couple of quarters. So there is clear improvement. But I think it'll be a little bit choppy. And all it will take is a little bit of nervousness to stop the reacceleration of the growth. But I would -- my takeaway, Nik, is a positive one, but with near-term caution.

Edward Lewis:

Yes. Thanks very much. I guess, I'll just cover a little bit of ground, but I'd be interested just on the enterprise market performance. Just looking in particular at Latin America, I think you said Andre somewhat 30% growth this quarter. And I think that'd be an acceleration around 20% in the first half. Assuming there's a healthy element of price behind that, but I'd just be interested here what's driving this improved performance in that region.

Jon Moeller:

Yes. Just for perspective, in our two largest markets in Latin America, Brazil and Mexico, as Andre is saying, we're seeing volumes high single digit. So, I don't want you to take away that all of the sales growth, as Andre has already said is pricing. It's a healthy combination. And I also need to give a nod to the team in Latin America who's just doing a fantastic job. Listen, I want to close-up with just a couple of comments and reflections. And the first relates to what we've been through and what I think it portends for the future. And then, I'll come in and talk a little bit more about the quarter that we just completed. But if we had a conversation three or four years ago, and you told me, "Look, here's what's going to happen. We're going to have this thing called a global pandemic. People are going to die. Borders are going to be closed. You aren't going to be able to get to your largest markets and they aren't going to be able to get to you. You're going to have difficulty getting your colleagues into manufacturing facilities, innovation centers, sales offices. But don't worry, that's not all. We'll have the largest land war in Europe since World War II. The combination of foreign exchange and commodity cost inflation is going to wipe out half your earnings. You're going to see dramatic channel shift in some of your largest markets in terms of where consumers are doing their shopping. And when all that's over, you're going to find that it's difficult to get people to come back to work. How do you think you're going to do?" And my answer to that three or four years ago would be that, "Wow, do you think you can grow top-line, bottom-line, deliver cash and return that to shareholders through all that?" Without taking you through the details, what you know very well, that's exactly what this team has done. Over the four years that ended last fiscal year, they created $13 billion in incremental sales, $5 billion in incremental profit. Now, if you bring that forward and look at what happened, what they accomplished in the last quarter, broad based sales growth, sequential progress in shipment volume, value share, volume share, return to gross margin expansion, strong productivity savings, at the same time healthy reinvestments in the top-line and advancing our level of superiority a margin of difference, in-market growth, in-household penetration, if those are the kinds of things our investors want to see, they're there in spades in the quarter that we just delivered. Last point, I promise, but we've talked several times, both Andre and I, about the challenges ahead, and they're real. We will continue trying our level best to do -- to serve consumers, customers, each other, society and clearly shareowners. But it's going to be, just as it has been, a bit choppy. And we're taking a long-term approach here. And if there are choices that are right for the long-term that cause bottom-line difficulty in the near--term, we're going to make those choices. And we'll talk more about that as we approach guidance for next year. But if you're thinking across mid and longer periods of time, I think we've got a great setup here, a great strategy, a great set of capabilities that should enable us to serve all those constituents that I mentioned very effectively. But we're thinking about that in years, not quarters. Thank you very much.

Operator:

That concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.

Andre Schulten :

Good morning. Joining me on the call today are Jon Moeller, Chairman of the Board, President and Chief Executive Officer; and John Chevalier, Senior Vice President, Investor Relations. We're going to keep our prepared remarks brief and then turn straight to your questions. Execution of our integrated strategies continued to yield good results in the October to December quarter, growing organic sales in nine of 10 categories, holding global aggregate market share, continued productivity savings, improving supply efficiency, sustained investment and superiority of our brands across all five vectors

Dara Mohsenian :

So just a couple of questions on the full year guidance. Obviously, you didn't change the earnings guidance despite FX and commodities each being a little less negative than you originally thought. Is that more sort of making up for some of the sequential moves that we saw in Q1? Is it more you assuming reinvestment in the back half? Or is there something else in the back half? Just help us understand the reasoning there. And basically, the same question on top line. I don't want to get into a 10-part question, but there's a bunch of sort of back and forth here. You raised the low end of the full year org sales range, but Q2 decelerated a bit versus Q1, the back half in theory implies a deceleration and volumes were a little weaker in the quarter. So maybe just taking a step back, how do you feel about the business in terms of looking at retail takeaway in fiscal Q2 and thoughts on the back half of the year?

Jon Moeller :

Dara, this is Jon. I would just add a couple of pieces of perspective at a macro level. The world seems to want everything to be better as do I. That's really not reality though. There's an incredible amount of uncertainty that remains. None of us, I think, globally really understand what the recovery rate in China is going to be as an example. And nobody really understands what the new policies and practices are going to mean in terms of consumer confidence in that context. You have the war in Eastern Europe. You have the highest inflation rates in 40 years. You have continued volatility in both the currency markets and the commodity markets. And importantly, that currency exposure for us is not a simple dollar exposure. There's a lot of cross rate exposures within that, which I realize makes it difficult to penetrate. But for example, the cross rate between the British pound and the euro has a significant impact on our bottom line. So all that put together, while I'm extremely happy with the progress the organization is making I'm extremely confident that the strategy that we have is the right one that's going to continue to serve us well. It's just not an easy time to be taking up guidance to the top range of possibility.

Lauren Lieberman :

You covered a lot in that answer. So I'm going to switch gears a little bit and maybe talk about capacity investments. I think one of the big drag to gross margin this quarter was this capacity investments. I know there have been some particular areas like Fem Care, Oral is a big focus. So if you could talk a little bit maybe about anything -- Fem Care, beyond Fem Care where you're putting incremental capacity in to what degree you expect that to remain a drag to profitability over the next couple of quarters? Or is it a multiple year dynamic? Because that would also speak to some pretty healthy expectations around longer-term volume trends. And I think that's particularly relevant also as we look a little bit beyond the next quarter or two.

Jon Moeller :

Yes. Just one quick clarification there. The $40 billion that Andre is referring to is a annualized run rate number. So it was $10 billion in the quarter, which translates to $40 billion, [Indiscernible] 4, just so people don't get too carried away.

Jon Moeller:

Lauren, the point that you made and the point Andre made, there's a lot of upside here as we bring this capacity online. We indicated we're not meeting full demand in some of the protection segments. We have opportunity, as you said, across the board. So we're investing pretty significantly. I think as he said and you've said the bigger impact will be in our ability to accelerate the top line. It should not be a significant bottom line drag.

Bryan Spillane :

I just -- I had one clarification and one question. The clarification, just I think in response to Dara's question, you cited 3-point hit the volume from basically Russia and shipping behind consumption. So if we add that back, organic sales would have been closer to an 8 versus a 5. I just want to make sure that, that was the way we should be thinking about it?

Bryan Spillane :

Okay. And then as we look into the back half of the year, I guess, just if you could comment on two things. One is, has anything changed in terms of your view of the macro setup? So just as the operating environment the same, better or worse than what you were expecting? And then also, just would we expect maybe to rebuild some of the inventory, the under shipment that occurred in the second quarter or the first half, would we get any of that back in the second half?

Jon Moeller :

And just a little bit of color on the inventory piece, which has been accurately described a couple of times here. This is a fairly simple dynamic that's occurring. When there is supply volatility and uncertainty, it causes retailers to build higher inventory levels. When there's demand volatility, it does the same. So we've been through a period where inventories have been a little bit higher than normal in some of our retail channels. Supply assurance is increasing, demand volatility is decreasing. So those inventories are understandably being brought down. And so Bryan, I don't expect that there's a significant swing here quarter-to-quarter. I think this is the system normalizing itself.

Operator:

The next question comes from Stephen Powers of Deutsche Bank.

Andre Schulten :

I would characterize our current media spending and support spending for our brands as sufficient, which we are paying a lot of attention with each of the businesses. John pays a lot of attention with each of the businesses to ensure that is the case. And sufficiency is defined as sufficient reach, sufficient frequency. It's not defined as dollars spent. So again, I want to come back to the fact that, yes, we view the current business as fully funded, sufficiently funded in order to continue growing our brands, their top-of-mind awareness and their equity. When we reinvest because there is a positive return in the short term, and we can further strengthen our brands or specific innovation that is out there. In the most recent quarter, for example, we've increased quarter-over-quarter, our total ad spend by $140 million. And that is a function of innovation timing. It's also a function of merchandising support and core timing advertising with that retailer support. So we -- you see us adhere to that principle of fully supporting our brands if there are opportunities to create short-term ROI, will continue to double down.

Andre Schulten :

Yes. And if you look at L.A., 21% growth, for example, so that will be the top end of the growth and fairly consistent here. So enterprise markets continue to deliver very strong results. Last point maybe on the media investment. The synergies we're able to create are a real and not insignificant. So if you look at Baby Care, for example, that business has grown 10% last year. They have completely shifted the way they run their media. They've increased reach by 20%, increased top-of-mind awareness by 26%. All of that while they saved 15% of their media spend. So the equation here really allows for sufficiency at lower cost.

Operator:

The next question comes from Olivia Tong of Raymond James.

Andre Schulten :

Hey, Olivia. The -- let me start with elasticities. The overall view has not changed. We continue to see more favorable elasticities than we would have expected on historical data pretty much everywhere, but Europe focused markets. And you can see with 10% pricing flowing through. And when you strip out the non-consumption-related volume effect, a 3% reduction in volume, that is a very benign elasticity that we're seeing in aggregate and allows us to hold volume share and value share as the pricing flows through. So we feel good about, again, the strategy, doing what we wanted to do and the execution being very diligent in each of the markets. Europe is the one place where elasticities have returned to what we would have expected more on historical data, and that is driven by the increased pressure on the consumer. We're also seeing a little bit of price lag here. So private label, for example, is pricing slower in Europe, and that increases temporarily the price gap versus private label. Nothing we didn't plan on, but that explains part of the higher elasticities. In terms of peak pricing, you're right, many of the large price increases get left this fiscal year. But that doesn't mean that we're not putting more pricing in the market. So for example, we have a number of price increases that go into effect in February. So there's two components here. One where lapping price increases were executed last year, but we're also still passing through some of the cost pressures via incremental pricing around the world.

Chris Carey :

I just wanted to come back to Steve's question on investment priorities. If I take your fiscal year outlook, you're clearly implying better margins in the back half of the year. But if I just walk through a gross margin bridge of what perhaps makes sense, it does seem to imply you'll need to see leverage on the SG&A line in the back half of the year to drive margin expansion potentially notable SG&A leverage despite sales decelerating. So again, if you could just help me frame overall SG&A and whether you think you'll be ending the year with appropriate levels of spending? Or if you expect investments to maybe grow progressively over the next 12 to 18 months as, for example, your capacity continues to improve, as Jon just said.

Operator:

The next question comes from Kaumil Gajrawala of Credit Suisse.

Andre Schulten :

Yes, Kaumil. The environment continues to be constructive. We don't see much change in retailer conversations. It's focused on how do we best play the role that we need to play as a category leader in many of the markets by combining pricing with innovation, executing pricing in a way that consumers can appropriately choose from different price points, different value tiers. And how that plays out at retail shelf, both virtual and physical shelves in the best possible way, so we can help them grow their category grow foot traffic, et cetera. Those are really the majority of the conversations I would characterize this quarter or next quarter as any different than the previous quarters, where really it's about how do we do this, when is the best time to execute. It's not should we or must we take pricing. I think everybody still understands that we are recovering costs after we recover as much as we can with productivity.

Operator:

The next question comes from Robert Ottenstein of Evercore ISI.

Andre Schulten :

Yes. Robert, on the volume side, I think the Russia effect will be with us for one more quarter before we annualize. And on the inventory side, as we said before, we believe this was a onetime adjustment. I wouldn't expect this to come back immediately. I wouldn't expect a significant further reduction in inventory. When we look at the U.S., for example, where we have good data in terms of retailer days on hand, we believe we are at pre-COVID levels, which is about the level that we've proven to operate reliably with our retail partners. So I would expect that to be a one-timer with potentially some help coming in back over the next few quarters. The volume share dynamic in the U.S. is driven largely by Fabric Care coming back into supply. We have talked in the fourth quarter of last fiscal year and also in the first quarter of this fiscal year, that we had some supply constraints on our Fabric Care business that we had to address. We also reinstated merchandising support in the U.S. We've reinstated media support and that is playing out in volume share accelerating on the Fabric Care business. The other dynamic is family care sequentially improving from a volume share standpoint where we have seen a very high base when private label was in less supply and didn't have merchandising in the July to December period of last calendar year. That is being annualized. So those two will continue, hopefully, to be a tailwind to our share position in the U.S. But as John said, it's hard to predict and look around the corner here, there are many, many variables that we don't control, but those two businesses explain the strength and hopefully, should have more upside going forward.

Operator:

The next question comes from Peter Grom of UBS.

Andre Schulten :

Peter, it really varies period-over-period, month-over-month. We've seen pulp was holding relatively steady. It has come down a little bit now on different grades. Propylene, polyethylene has come down a little bit. But it's really broad based and it's changing month over month, week or week. In general, what we're seeing is -- as you would have known, the supply situation is easing a little bit, and that's obviously helping the market dynamic, both on commodities as well as on transportation and warehousing. There's no guarantee that, that will continue. We don't know what China reopening will do to the commodity market. That's a significant variable that nobody really understands at this point, I would argue. So we're watching this closely, and we continue to forecast based on what we know today, which is spot prices. I think the other dynamic we can't forget is that our suppliers are still working through their input cost inflation, their labor inflation, their energy cost inflation. So there are two opposing forces here. One is the desire of our suppliers as contracts roll over to pass that through to us. And the other one is input costs easing in the short term. So we have to take both into account when we think about our ability to pass through cost helps.

Andrea Teixeira :

I have a clarification and a question. Andre, in your response about the destocking that should be over in the next quarter, is that also applicable for China? And how are you seeing China consumption rebounding as you exit the port and obviously, with the reopening? And if I can squeeze up your question, can you comment on how you're preparing your portfolio in Europe for potential recession? As you called out, things may -- and the bills -- energy bills may be kicking up now as we enter your third quarter fiscal.

Operator:

The next question comes from Kevin Grundy of Jefferies.

Andre Schulten :

Yes. And I would characterize, obviously, the Russia element will be with us, and that's real. I think the market growth has been around 5% to 6% with a negative volume component and a very positive price component. I would expect that in the midterm to moderate to 3% to 4% overall growth and still have a negative volume component with offset by strong pricing that we continue to flow through the market. If you look at overall market size over the past three months, that has been the case, and that's where we expect it to be going forward. And that's pretty much in line with how we model the balance of the balance of the fiscal year. Our job here is to be ahead of that. And that's why we're investing that we will continue to double down on the priority investments everywhere. Jon, I don't know if you have anything to add.

Operator:

The next question comes from Mark Astrachan of Stifel.

Andre Schulten :

Mark, I wouldn't expect the U.S. to fundamentally change. If you look back over the past six months, private label shares in the U.S. have been relatively steady. We've seen 20 basis points to 30 basis points of increase in private label share, which is a metric we're watching closely. But if you look at sequential share, absolute shares of private label, it continues to hover around 16%, past three, six and even 12 months. So there hasn't been a significant shift in consumer behavior in terms of trade down. I think the way that our pricing was executed with great support in innovation and great support in terms of marketing spend has helped. Our strategy isn't shifting. I don't see the market shifting significantly. All of that with a caveat that who knows what the next six months are going to bring. But if past behavior over the last six months, nine months is any indication, I think the consumer is relatively steady in the U.S., which gives us great confidence. It's our biggest market. We do well, expanding volume share, as I said, and hopefully have a bit more upside here as Family Care and Fabric Care continue to gain momentum.

Operator:

The next question comes from Callum Elliott of Bernstein.

Andre Schulten :

I believe that we believe that we're just at the beginning actually of our productivity curve. And it's driven by two things. I think Baby Care was one of the -- U.S. Baby Care was one of the more aggressive ones and one of the more obvious ones when you think about the consumer target, it's very narrow, right? You're looking for households with babies and diapering age. So going from mass TV where you have a lot of ways to hitting that target, which is about 3% to 4% of the population, provided the most obvious opportunity to drive synergies here. But we've learned also in other businesses, the opposite works. When you think about Fabric Care, everybody is doing laundry. So you've got a very wide target that you need to reach. And the Fabric Care team in the U.S. has brought their media planning and buying in-house, developing proprietary algorithms to better place ads during the TV programming, for example, and that in and of itself has allowed $65 million of savings in one year, while increasing frequency. So both models work and both models are still not everywhere. So we've got two examples in the U.S. There are many categories in the U.S. that are still building their own approach to drive these synergies and there's the whole world outside of the U.S., which is still building on the capabilities that we are developing. So we see this as a area of continued investment in terms of our own capabilities with a great ability to drive productivity for years to come.

Chris Pitcher :

Apologies for carrying on the inventories question. But Jon, you mentioned you were looking at a normalization. But in the Investor Day, you showed obviously a significant improvement in your supply chain efficiency. Do you think you're in the position over the next couple of years where U.S. retailers could operate at even lower inventories and improving your relationship with them is working capital part of the conversation that you have with them in sort of helping form share of shelf. And then thank you for the color on the international business. Could you share with how fast your Indian business grew in the period because it looks like the India consumer there is recovering and whether you're seeing a sustained double-digit recovery there as well?

Andre Schulten :

Yes, sure. The India business continues to accelerate. We saw Q1 growing 12% organic sales; Q2, 13%. And India is a good example of those capabilities that we were just talking about actually rolling out and being very effective. So the digital infrastructure we've been able -- the team has been able to create in India is quite impressive and that's contributing to our ability to drive disproportionate growth there, both from a sales capability standpoint and from a media capability standpoint.

Jason English :

Congrats on that sales milestone and the market share progression this quarter. I've got -- I'm going to cheat and like many, jam a few questions into one. So first, what geographies are you taking the majority of the incremental pricing in? Second, you're signaling more reinvestment on the com as supply improves, what shape do you expect it to take, i.e., product, advertising promo, et cetera? And lastly, I don't know if I should read much into this, but you've made substantially more references to volume share rather than value share this quarter. Does this reflect a shift in prioritization and focus for you?

Jon Moeller :

Yes. There's one exception to that, I agree totally as it relates to pricing related to commodities. But there are some markets, of course, where currencies are devaluating massively.

Jon Moeller :

And there is where you see our highest amount of pricing, take Argentina, Turkey, the usual suspects.

Jon Moeller :

Just for clarity on this point, though, I am not interested in volume share at the expense of value share. Volume share is a way to deliver value share. So at least we not be clear, it's both that are important, not a shift in emphasis between one or the other. The other reason that I wanted to make sure that we talked a little bit about volume is that it's a natural concern when we're taking this pricing as to how your volume is holding up and how -- particularly how is your volume share holding up. So we just wanted to be transparent on how we're seeing it, which is very attractive so far.

Jonathan Feeney :

I want to ask a simple question that's really complicated. When you look -- when you talk -- at the time you gave us the initial commodity guidance for the fiscal year '23, rough numbers U.S.-based spot costs for freight and energy composite for your company, you're down something like 9% since then. And you have lowered your expectation for commodity inflation. Simple question is, can you -- are your experience costs for this quarter below their peak? Like I see the year-over-year was 380 basis points of cost push headwind to gross margin versus 510 last quarter. So there's a -- can you confirm there's been a sequential step down? And secondly, could you -- in what quarter would we expect costs to no longer be a headwind like be all in the base? Would that be the June quarter, the September quarter? Or is that just impossible to say? I know there's a lot to unpack with cross-currency exposure and things that I don't see in U.S.-based spot. But it does seem like your costs are down from their peak.

Jon Moeller :

Yes. And just one additional piece of detail on that. It's not that they're slow. It's that we have contracts that cover, as Andre said earlier, cover a period of time. And in many cases, prices are fixed for a period of time. And then it's time to enter into a new contract. And that's what's going to continue to happen for the foreseeable future, not forever. But that's why it's difficult to look at, and I know you acknowledge this, look at U.S. spot prices as the holistic indicator of the direction of things such as not -- that's not sufficient.

Operator:

That concludes today's conference. Thank you for your participation, and you may now disconnect. Have a great day.

Andre Schulten:

Good morning, everyone. Joining me on the call today are Jon Moeller, Chairman of the Board, President and Chief Executive Officer; and John Chevalier, Senior Vice President, Investor Relations. We're going to keep our prepared remarks brief and then turn straight to your questions. Execution of our integrated strategies continued to yield good results in the July to September quarter and provides a solid start to the fiscal year. We're growing organic sales in all 10 categories, holding global aggregate market share, accelerating productivity savings, and improving supply sufficiency. Together, this progress enables us to maintain guidance ranges for organic sales growth, core EPS growth, free cash flow productivity and cash return to shareowners. Despite continued high commodity and transportation costs, inflation in the upstream supply chain and in our own operations, accelerating headwinds from foreign exchange, geopolitical issues, COVID disruptions impacting consumer confidence and historically high inflation impacting consumer budgets. Moving to the first quarter numbers. Organic sales grew 7%, pricing added 9 points to sales growth and mix was up 1 point. Volume declined 3 points, primarily due to lower shipments in Russia. Growth was broad-based across business units with each of our 10 product categories growing organic sales. Personal Health Care grew high teens. Feminine Care was up double digits. Fabric Care and Home Care were up high single digits. Baby Care, Grooming, Hair Care and Skin and Personal Care were each up mid-singles. Family Care and Oral Care grew low single digits. Focus markets grew 4% for the quarter, with the US up 5%. Greater China organic sales were down 4% versus the prior year, modest sequential improvement in the market still affected by COVID lockdowns and weak consumer confidence. Longer term, we expect China to return to strong underlying growth rates. Enterprise markets were up 16% with each of the three regions, up 13% or more. Global aggregate market share was in line with prior year, with 26 of our top 50 category country combinations holding or growing share. In the US, all outlet value share was in line with prior year with 6 of 10 categories holding or growing shares. On the bottom line, core earnings per share were $1.57, down 2% versus prior year. On a currency-neutral basis, core EPS increased 7%. Core margin decreased 160 basis points and currency-neutral core margin was down 130 basis points. Higher commodity materials and freight cost impacts combined with a 550 basis point hit to gross margins. Mix was 120-point headwinds, productivity savings and pricing provided 580 basis points of offset. SG&A costs as a percentage of sales were lower by 90 basis points as sales leverage and productivity improvements more than offset inflation and foreign exchange impacts. Core operating margin decreased 70 basis points, currency-neutral core operating margin increased 10 basis points, productivity improvements were a 230 basis help to the quarter. Adjusted free cash flow productivity was 86%, we returned nearly $6.3 billion of cash to shareowners, approximately $2.3 billion in dividends and $4 billion share repurchase. In summary, considering the backdrop of a very challenging cost and operating environment, results across top line, bottom line and cash to start the fiscal year. Our team continues to operate with excellence, executing the integrating strategies that have enabled strong results over the past four years, which are the foundation for balanced growth and value creation. A portfolio of daily use products, many providing cleaning, health and hygiene benefits in categories where performance plays a significant role in brand choice. The priority across the five vectors of product, package, brand communication, retail execution and value. Productivity improvement in all areas of our operations to fund investments is a priority offset cost and currency challenges, expand margins and deliver strong cash generation. An approach of constructive disruption, a willingness to change, adapt and create new trends and technologies that will shape our industry for the future especially important in this volatile environment. Finally, an organization that is increasingly more empowered, agile and accountable with little overlap or redundancy flowing to new demands, seamlessly supporting each other to deliver against our priorities around the world. Going forward, there are four areas we are driving to improve the execution of integrated strategies

Steve Powers:

Yes, hi good morning. Thanks for the question. Andre, I kind of wanted to pick up where you left off about your P&G's commitment to remaining fully invested even in this environment. I think the -- one of the – the biggest questions and points of pushback that I've received around P&G in recent months is just this idea that given all the headwinds that you've talked about and quantified today and given the accelerated push on productivity that you've emphasized coming into the year and again underscored today, that there isn't enough leftover to keep those investments going. Investments that have been, I think, pretty critical in investors' eyes to enabling the growth that we've experienced over recent years. So maybe you could just step back and reassure investors and give some perspective on how much room there is to invest even as you push for productivity and work to offset these headwinds and kind of counter the idea that you're going too far in curtailing investments that's necessary for future growth.

Jon Moeller :

Hey, Steve, this is Jon. I agree with everything that Andre said, just one additional short comment. If we find ourselves, which we don't currently, in a position where we have to choose between investing in the business and delivering a bottom line target, we will invest in the business.

Lauren Lieberman:

Great. Thanks. Good morning everyone. I thought it might be timely to get sort of an update on what you're seeing in terms of consumer behavior in the US. You did comment on all outlet market share being flat in the US. As you know, it's hard for us to see that via Nielsen, but also just the absolute sales growth that we see in tracked and untracked data does look like there's category contraction that's going on. So I guess, commentary on what you're seeing, maybe we could just hit on, say, laundry and whatever pick another category will to talk a bit about consumer trade down and dynamics that you're seeing in the market would be great? Thanks.

Operator:

And next, we'll hear from Dara Mohsenian with Morgan Stanley.

Andre Schulten:

Good morning Dara. The guidance of 3% to 5% is really grounded in what we believe the market will be. We see some softening in the market as we have communicated, about 3% to 4% value growth is what we're expecting the market to be. We want to grow slightly ahead of that. As you say, the first quarter gives us a good level of confidence that we're within the right range, but we're also very early in the year. So, we believe -- confirming the range is prudent. In terms of volume elasticity in my earlier remarks, as I said, we feel very encouraged by the fact that we were able to realize 9% of pricing in organic sales growth and effectively only see about a point of reduction in volume, which speaks to favorable elasticities speaks to our strategy working and providing consumers value with innovation even as we take pricing. As we always do, we assume that these elasticities return to historical levels over time. But certainly, the first quarter is a good indication. It gives us confidence that the approach we've taken around the world in terms of combining pricing with innovation and productivity in order to offset the cost is the right approach.

Bryan Spillane:

Thank you, operator. Good morning everyone. I guess two questions for me just related to kind of how we should be thinking about phasing in the back part of the year. One is just in terms of price increases from here going forward, are you -- are there more incremental price increases that will flow through the balance of the year, or has most of the pricing that you need in terms of what's in your plans been implemented? And I guess what I'm really driving at is are we going to start to see -- would we expect to see more of a shift to volume contributing more to the organic sales growth as we move through the back half of the year and less of incremental pricing?

Bryan Spillane:

Thank you.

Kaumil Gajrawala:

Hey everybody. Good morning. Can you talk a bit more, maybe just give us some more details on what's driving some of these cost increases, especially as we're starting to see a lot of commodity costs start to roll over, doesn't feel like you're discussing it kind of impacting your P&L yet. So can you just give us some more details there?

Operator:

Your next question comes from the line of Rob Ottenstein with Evercore.

Andre Schulten:

Good morning, Rob. Yes, post-COVID behavior, what I would point to, obviously, is we see market contraction versus the pandemic phase in terms of antibacterial surface cleaning products, which is a small part of our total portfolio. Other than that, I wouldn't point to any major deviation from what we expected. Consumers still spend more time at home. I think, generally, the focus on our categories, which are cleaning, hygiene, health based continues to be high, which is, I think, playing back in our investments in Superiority being meaningful to consumers in order to provide value in an inflationary environment. The other element that is positive is some of the volatility might be disappearing. So when you think about categories like bath tissue or paper towels, where we had very volatile base periods with suppliers being in and out of supply over quarter three -- quarter one and quarter two of last fiscal year, that is stabilizing. So, those are the post-COVID dynamics. That obviously doesn't play for China to transition to your second part of the question. We continue to see the lockdowns in China specifically with Hainan being locked down for the last two months to impact consumption significantly. Volumes in China are down 5% to 6% on the quarter. We had certainly hoped for that to ease, but we still see significant negative impact on consumer mobility from the continued strength COVID policies. We don't -- going forward, we made no assumption on that changing. So, we have to observe where the market is going. We feel well-positioned. Once we see consumer mobility return, we feel very strongly about our ability to grow in the market. We have a strong team on the ground waiting to get going once the market fully reopens. And as we said before, we expect China to be a long-term growth driver returning to mid-single-digit growth here in the near future. Operator, do we have the next question?

Nik Modi:

Thanks. Good morning everyone. Andre, I was hoping you could provide some macro context in terms of what's being embedded in the guidance. I mean there's so much going on across the world. You address China to some degree. But perhaps you could just give us a little bit more context as it relates to Europe, especially as we head into the winter; US, maybe some of the developing markets? Just kind of how you're thinking about how the macro dynamics will play out over the next -- rest of the fiscal year? Thank you.

Operator:

The next question comes from Kevin Grundy with Jefferies.

Andre Schulten:

Yes. Kevin, we expect a slowdown from the growth rate we've seen over the past years, which was 5% to a more modest 3% to 4%. That is still the case. We continue to believe that the majority of that growth will be price driven with a negative volume component, as you would expect given the inflationary pressure. We don't have more detail by region at this point in time, and it's really not -- it's really not a constructive forecast exercise to try to bring this down into a lower level of detail. So 3% to 4%, still underlying our forecast. We want to grow slightly ahead of that, which is reflected in our guidance range.

Christopher Carey:

Hi, good morning. So, just two connected questions on focus and enterprise markets. First, just on the US, you noted that growth was 5%, which is several points ahead of what we can see in the US standard [ph] data. Are there any timing differences with inventory or non-track performance that you would highlight there? And then just tacked on the enterprise market in general. Can you just expand a bit on the acceleration we've seen in these markets? What's driving that uptick in growth? And maybe importantly, how you see relevant performance versus local competitors in these markets, namely if that growth is being driven by pricing and certainly, some of the local competition has different inflation exposures versus that of P&G. So, thanks on the US and the overall enterprise markets.

Operator:

Your next question comes from the line of Olivia Tong with Raymond James.

Andre Schulten:

Yes. Morning Olivia. China, I think you've answered the question. So, I will leave it there. We will continue to invest. I think our teams are very well set up, but we need consumability to return in order for China to return to mid-single-digit growth. So, I'll leave it at that. In terms of competitive spending, I won't speculate. I think the fact is, obviously, local competitors, as you mentioned, and non-US dollar-denominated competitors, multinational competitors have -- I don't see the same headwinds in terms of foreign exchange. Our strategy continues to double down on our own priority, continue to double down on our own investment. And as Jon said, our commitment to continue to drive Irresistible Superiority is relentless. And that is going to be even more important in some of those market category combinations where we see local or non-US dollar-based competition play.

Bill Chappell:

Thanks. Good morning. Just wanted to follow up a little bit on Lauren's question a while back on trade down. And you said, certainly, you're seeing some trade down within your categories within your brands. And I guess -- two questions. One, are you surprised that there isn't more at this stage even within your brands with inflation and with potential recession. And then two, maybe could you talk about, is there any differences in terms of trade down on what you're seeing in the US versus, say, Europe, Latin America, or is it all fairly, fairly similar? Thanks.

Jon Moeller:

I think some of the -- I mean, the clearest explanation of all of this, if there is such a thing, in a very complex world is that, value is found at the intersection of price, product performance, as Andre has said, and usage experience. It's not just price. Price is an important component, but those other components are equally important. And as Andre has said several times during the call, we continue to invest heavily in performance and in the usage experience and are hopeful that we can maintain a value proposition for most consumers. Some will, out of necessity trade down. And as Andre said, we have offerings to meet them where they are as well. But I think, again, to cut through this, you have to think about the totality of the value proposition to make sense of what's happening.

Mark Astrachan:

Thanks and good morning everyone. I guess I want to ask about market dynamics for lack of better terms. Maybe start with reconciling global share being in line in terms of what you said on the call with the 7% growth that you reported organically in your 3% to 4% expectations for category growth, right? Obviously, that implies a bit of a deceleration. And then specifically, what's happening in segments that you talked about where there's market contractions. I think you mentioned in the press release, Hair Care, Oral Care, Fabric Care, specifically anything sort of takeaways from there and your expectations and what's driving that going forward?

Jon Moeller:

And as you think about market and market growth, at some point, the whole market has priced. At some point, that annualizes and it's less of a contributor to topline growth. Yes, volume will hopefully be a partial offset to that. But I think it's normal to expect kind of a reversion to the mean as we get through the pricing cycle.

Andrea Teixeira:

Good morning and Jon, on your last point, I think just a follow-up on your comments on revenue growth management. I just want to confirm on the timing of this entry-level products hitting the shelves. I know you've done some of it, and which categories you're finding the need to offer Vermont the volume share. I'm assuming Family Care, Baby Care and Laundry Care, I just wanted clarify. And my main question is on what you're embedding in terms of additional pricing in Europe into the second half of fiscal 2023, which I believe is usually when the retailers accept new pricing negotiations. So, what is embedded in your guidance for the back end of the year or the fiscal year at this point. Thank you.

Operator:

Your next question comes from the line of Jason English with Goldman Sachs.

Andre Schulten:

Yes. On the media investment, I think we really need to shift focus. It is difficult to describe media sufficiency in dollars, especially when we are actively shifting our spending from linear non-targeted TV into programmatic and into digital spend, that is a lot more targeted and a lot more precise in terms of delivering reach and quality of reach where we need it. So spending reduction might not necessarily correlate with this investment. So we continue to, as Jon said, we committed to drive superiority of our brands. We will not step back from that, and that for us means higher reach, higher quality of reach, higher targeting capability, which we've built around the world, and that's the measure of success for us. If we deliver that, the dollars are an outcome, not the determining factor of efficiency of investment. On the price and promotion side, Jason, we've seen promotion levels come down during COVID, as you know, from above 30% pre-COVID to, I think, 16% was the low during the COVID period. We now see in our categories, promotion coming back up somewhere between 27% to 30%, which is to be expected. For us, the most important element is to use promotions in the right way. If we are able to drive regimen, for example, by co-promoting, co-merchandising, laundry detergent, and fabric enhancers where we have significant penetration opportunities in fabric enhancers, it grows the category, it drives incremental purchase, and it drives repeat of the trial if we do it right. Same is true in Baby Care. When we co-promote wipes with diapers, it drives higher usage in a relatively more underdeveloped category, which is wipes. So, in that sense, promotion can be a driver of growth, market growth, and profit growth, and that's how we want to use it.

Operator:

And your final question comes from the line of Jonathan Feeney with Consumer Edge.

Andre Schulten:

On the pricing to gross margin reconciliation, I suggest you go back to our IR team for them to give you the math off-line. On the pantry inventory, we do have some data. We have in-home consumer data, specifically in the US and many other markets that allows us to see their relative pantry inventory. So, it's based on that observation in the market. But it's not illogical to assume that high inventories that were built during the COVID phase, for example, in bath tissue and paper towels slowly drawing down. I would tell you that we're still seeing somewhat higher levels than we've seen pre-COVID, but none of this is material. It's more an element of consumer behavior we're observing. So, it's nothing that would stand out in terms of the construct of the market growth or forecast.

Andre Schulten:

Yes. Only point to add is and the combination of value shareholding globally and in the US is a strong indication in our mind that the strategy of driving superiority even in inflationary environment is the right strategy for P&G. So, we'll continue to double down, as we said in our opening remarks.

Andre Schulten:

With that, I just want to remind you quickly that we'll be hosting an Investor Day here in Cincinnati on the afternoon and evening of Thursday, November 17th. You should have received the registration e-mail in early September. If you didn't receive it and would like to attend, please get in touch with John and our IR team. Thank you for your time and have a great week.

Andre Schulten:

Good morning, everyone. Joining me on the call today are Jon Moeller, Chairman of the Board, President and Chief Executive Officer; and John Chevalier, Senior Vice President, Investor Relations. I'll start with an overview of results for fiscal year '22 and the fourth quarter. Jon will add perspective on our strategic focus areas. We'll close with guidance for fiscal '23 and then take your questions. Fiscal 2022 was another very strong year. Execution of our integrated strategies continues to yield strong sales, earnings and cash results in an incredibly difficult operating environment. We delivered broad-based strong top line growth across categories and regions, earnings growth in the face of significant cost headwinds, continued strong return of cash to P&G shareowners. Organic sales for the fiscal grew 7%, up 13% on a two-year stack, up 19% on a three-year stack. Growth was broad-based across business units with all 10 of our product categories growing organic sales. Personal Health Care grew 20%. Fabric Care and Feminine Care grew double digits; Baby Care, up high single digits; Oral Care and Grooming, up mid-single digits; Hair Care, Home Care, Skin and Personal Care and Family Care each grew low singles; Focus Markets were up 5% for the year; Enterprise Markets, 10%. We delivered strong results in our largest and most profitable market, the United States, with organic sales growing 8%, up 16% on a two-year stack. E-commerce sales increased 11%, now representing 14% of company total. Our integrated strategies continue to drive strong market growth, and in turn, share growth for P&G. All channel market value in the U.S. categories in which we compete grew approximately 6% in fiscal '22. P&G value share continued to grow, up 90 basis points for the year. Global aggregate market share increased 50 basis points. 36 of our top 50 category country combinations held or grew share for the year. Importantly, this share growth is broad-based. Nine of 10 product categories grew share globally over the past year. Core earnings per share grew 3% for the year despite a 22 percentage point headwind to earnings from commodities, freight and foreign exchange. Our initial outlook predicted $1.8 billion after tax of headwinds. We ended up at $3.2 billion. So despite an incremental $1.4 billion of earnings pressure versus ingoing plan, we delivered core EPS growth within our initial guidance range for the year. On a currency-neutral basis, core EPS was up 5%. Adjusted free cash flow productivity was 93%. We increased our dividend by 5% and returned nearly $19 billion of value to shareowners, $8.8 billion in dividends and $10 billion in share repurchase. Moving to the April-June quarter. Organic sales grew 7%. Pricing contributed 8 points to organic sales growth as additional price increases reached the market. Mix was flat and volume declined 1 point, which is due to reduced operations in Russia. Volume for the balance of the business excluding Russia was up 1 point. These strong company results are grounded in broad-based category and geographic strength. Nine of the 10 product categories grew organic sales in the quarter. Personal Health Care grew mid-teens; Fem Care was up low teens; Fabric Care grew double digits; Oral Care, up high singles; Baby Care and Family Care, up mid-single digits; Hair Care, Home Care and Grooming, each grew low singles. Five of seven regions grew organic sales with Focus Markets up 3% and Enterprise Markets up 18% for the quarter. Organic sales in the U.S. grew 6%, up 24% on a three-year stack. European Focus Markets were up 3%. Excluding Russia, Europe Focus Markets were up 7%. Greater China organic sales were down 11%, mainly due to COVID-driven lockdowns in major regions of the market. Since lockdowns have eased, we've seen sequential market recovery but somewhat slower than expected when we gave guidance last quarter. In Enterprise Markets, each of the three regions grew organic sales 14% or more. Global aggregate market share increased 50 basis points. 29 of our top 50 category country combinations held or grew share for the quarter. On the bottom line, core earnings per share were $1.21, up 7% versus prior year. On a currency-neutral basis, core EPS increased 12%. Core operating margin decreased 30 basis points as gross margin pressure were largely offset by sales leverage and productivity improvements in SG&A. Currency-neutral operating margin increased 20 basis points. Free cash flow productivity was 99%. We returned $3.5 billion of cash to shareowners this quarter, nearly $2.3 billion in dividends and nearly $1.3 billion in share repurchase. In summary, we met or exceeded each of our going-in target ranges for the year, organic sales growth, core EPS growth, free cash flow productivity and cash return to shareowners, strong performance in very difficult operating conditions. Now I'll pass it over to Jon.

Andre Schulten:

Thank you, Jon. As we've said in each guidance outlook for the past two years, we will undoubtedly experience more volatility in the fiscal year ahead. This rings true again as we enter fiscal 2023. The combined year-on-year profit headwinds from foreign exchange rates, freight costs, materials, fuel, energy and wage inflation are an even greater challenge in fiscal '23 than they were in fiscal '22. Based on current spot prices and supply contracts, we estimate commodities, raw materials and packaging material costs to be a $2.1 billion after-tax headwind in fiscal 2023. Freight costs are expected to be higher in fiscal '23 compared to the average cost paid in fiscal '22 by roughly $300 million after tax. Foreign exchange rates have moved sharply against us even since our presentation at the Deutsche Bank Conference in June. We now expect foreign exchange to be a $900 million after-tax headwind in fiscal '23. Combined headwinds from these items are now estimated at $3.3 billion after tax, roughly equal to the challenge we faced in fiscal '22, a 23 percentage point headwind to EPS growth or roughly $1.33 per share as we start the year. As Jon said in his review of our strategies, we're working to mitigate the impact of these cost headwinds through a combination of innovation to create and extend the superiority of our brands, productivity in all aspects of our work, and pricing. With this context, I'll move to the key guidance metrics. We expect global market value growth in our categories to moderate back towards a range of around 3% to 4% with strong price contribution offset by modest decreases in unit volume. With the strength of our brands and commitment to keep investing in the business, we continue to expect to grow at or above underlying market levels, building aggregate market share globally. This leads to guidance for organic sales growth in the range of 3% to 5% for the fiscal '23. On the bottom line, we expect EPS growth in the range of in line to plus 4% versus fiscal '22 EPS of $5.81. This guidance equates to a range of $5.81 to $6.05 per share, $5.93 or up 2% at the center of the range. Considering a 6-point headwind from foreign exchange, this outlook translates to 6% to 10% EPS growth on a constant currency basis. There are many possible scenarios that could cause us to be outside of this range to either side, high or low. While it's relatively easy to envision many possible scenarios, steeper inflation, deep recession, further geopolitical disruption or commodity cost reversion easing inflation, peaceful conflict resolution, it's very difficult to assign probability to any single scenario. As a result, we set the range we feel is most probable based on market conditions as we see them today. We expect adjusted free cash flow productivity of 90% for the year. This includes a step-up in capital spending as we begin to add capacity in several categories. We expect to pay more than $9 billion in dividends and to repurchase $6 billion to $8 billion of common stock. Combined, a plan to return $15 billion to $17 billion of cash to shareowners this fiscal year. This outlook is based on current market growth rate estimates, commodity prices and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruptions, major supply chain disruptions or store closures are not anticipated within this guidance range. Now I'll hand it back to Jon for his closing thoughts.

Operator:

[Operator Instructions] First question comes from the line of Bryan Spillane with Bank of America.

Andre Schulten:

Yes. Our core EPS guidance, as I said, in the range of flat to plus 4% with a tax rate slightly higher than what we've seen in the previous fiscal year. This is driven by geographic mix changes, and it's also driven by reduced benefit from stock option redemption. From an operating profit standpoint, you're in the right ballpark. And I would leave it at that.

Stephen Powers:

You both spoke a number of times, I think Jon reinforced it at the end of the prepared remarks, about the need to drive continued cost and cash productivity. As I reflect on fiscal '22, I think it's fair to say that the expense productivity was an area that came in a bit light of going in expectations, at least external expectations. As you turn the page to fiscal '23, and maybe this is embedded in the answer to help drive that operating profit growth you just talked about, Andre. What's your confidence, your line of sight to be able to accelerate productivity in the year ahead? That's my main question. If you could also comment on just the -- mix has been a very material driver of margin for a while now. And I'm just curious to see your base case of how mix impacts your margin outlook in '23 as well.

Operator:

Our next question from Dara Mohsenian with Morgan Stanley.

Andre Schulten :

Yes. Thanks, Dara. You're right. Our top line guidance is, as always, grounded in what we expect in the marketplace. We see moderation -- or we expect moderation in the overall value growth in the market from the 5% we had over the past 12 months back to 3% to 4%. And we expect pricing to be the main driver in that market growth with volumes slightly down. That is a logical consequence of the broad-based pricing that we are seeing in the market, assuming there will be elasticity. We've seen elasticity, albeit better than expected based on historical levels, but we're seeing elasticity in the market, and that's reflected in our market growth assumption. We have full confidence in our ability to compete in this environment. Our categories being daily-use categories that consumers don't deselect even when they see high levels of inflation, our focus on Irresistible Superiority, our ability to make strong value claims based on that superiority, the breadth of our portfolio across the price letter and value tiers and across channels positions us well to compete in the environment. And most importantly, the strength in our innovation portfolio and the runway we have in driving household penetration and trade-up within the portfolio has us focused really on driving market growth. And that inherently drives share growth for us. That's part of our assumption to market size and relative share growth. As to the private label point, we see private label reemergence in some categories, mainly in the paper categories in some regions. Broadly, what I would tell you at this point, while we acknowledge private label coming back, partly due to supply dynamics in the base, we are still able to grow share in those markets where we see private label coming back. In the U.S. in the recent period, private label coming up a little bit in Family Care. But overall, we've been able to drive share growth on an all-outlet basis. In Europe, private label shares are stronger. Private labels are reemerging in some of the markets. But for example, in the UK and France and Germany, we all have positive share reads in the most recent period. So we're keeping a close eye on it. But again, I want to bring it back to the strategy, the portfolio, the superiority, the innovation, and we believe we are well positioned and continue to be well positioned to serve the consumer in this environment.

Operator:

We'll go to our next question from Lauren Lieberman with Barclays.

Jon Moeller:

Let me just start in response to that question, Lauren, and then kick it over to Andre. We need to keep coming back to the strength of the top line. So in the U.S., for example, we grew 6% in the quarter, 8% over the course of the year. As you know, 7% total company, both on the year and the quarter. And that strength is broad-based. That's important. And we continue to protect project top line growth as well as modest share growth going forward. I'll ask Andre to provide specific commentary on China.

Jon Moeller :

And Lauren, relative to your question on the relative share performance, where you happen to have manufacturing operations located has a big impact on your ability to supply the market. And we had -- we were pretty significantly impacted by the location of some of the shutdowns, namely Shanghai, where we have manufacturing centers and important contract manufacturer supply. So that's one of the reasons for some of the noise within the share comparison.

Jason English :

Two questions. I guess kind of coming back to some of the topics that have already been raised. First on market growth assumptions, the anticipated deceleration, is this coming from an anticipation that consumers are going to use less so as volume comes in, trade down so mix comes in? Or maybe we lap some pricing and bring some more promotions back so pricing comes in? Which of those 3 components do you expect to be the bigger driver of category to sell?

Operator:

We'll go to our next question from Kevin Grundy with Jefferies.

Andre Schulten :

Yes. Kevin, I'll start, and then Jon might want to add here. In general, we acknowledge -- as you said, Walmart indicated that the pressure they are seeing is in general merchandise and apparel. Our categories, when you think about the HPC categories broadly in Walmart and across all retailers in the U.S., really are still growing at a good clip. Our interests are generally aligned with retailers' interest as our job is to provide the best possible value to consumers as defined by price and performance of the product. We both want to drive footfall to the store. We both want to drive traffic to the shelf. We both want to drive consumption of our propositions. In that sense, we continue to work constructively with Walmart and with all retailers to do that in the best possible way. Our strategy, grounded in the categories we play in, that are generally not categories that consumers deselect even in difficult times, our superiority, our investment in innovation, our intention to drive category growth and to win with our retailers versus purely focusing on share growth, all of those are good things. In our mind, all of those are good things in the minds of retailers. The dialogue generally remains constructive but focused on providing the best possible value to the consumer.

Robert Ottenstein :

Was wondering if you could talk a little bit about your price increases in July, maybe give a sense of order of magnitude and breadth, early reception. And then assuming the sort of elasticities that you expect, how far can those increases go to offsetting the $3.2 billion or $3.3 billion of headwinds that you outlined earlier?

Jon Moeller :

Just one additional point, Rob, the -- relative to the competitive environment. We're seeing price increases on private label brands and on mid-tier offerings that are even higher in some cases than our own price increases. I just offer that perspective as it relates to the ability to hold pricing and what it might mean for market share. As Andre said, it's a fairly constructive environment.

Kaumil Gajrawala:

I'd like to talk a little bit more about the $1.33. It's such a substantial amount of money between commodities and FX and what's incorporated in there, particularly, whether it's forward purchasing agreements, hedges, any of those sorts of things. And I'm asking for, I guess, an obvious reason, which is commodity costs very recently have come down. And I'm sure you don't feel the benefit immediately, but how should -- if this is to continue, which is possible, how should we think about the impact that's going to have on the estimates you've given us so far?

Operator:

Your next question comes from the line of Chris Carey with Wells Fargo.

Andre Schulten :

Good morning, Chris. On the promo side, I'm not sure we intended to mention any number. But let me describe where we are. But John Chevalier can certainly clarify afterwards, if that question remains open. Our promotion strategy remains the same. If you look at promotion levels, they are relatively stable. I take the U.S. as the market where we have the best visibility and you have the best visibility. We're running at about 27% of merch, so that's volume sold on deal, and depth combined. That compares to a pre-COVID level slightly above 30% to a COVID low at 16%. But that 27% has been relatively stable over the past few quarters. So there's no significant increase in what we're observing. We are not planning to increase significantly. But that, again, is a very tactical decision that is being made at the market level at the category level. But our intention to win is via innovation via clarity of value offer, via our superiority, not via price promotion.

Andrea Teixeira :

So my question is on RGM. I guess I'm not missing if you're prospectively or more reactively introducing new price points, perhaps type simply pulling some of these levers to help the consumer or if you're seeing basically the retailers, your customers requesting more of that help or that's too early to say. And if you can walk through what has happened with Beauty in China on new exits of the quarter. I guess that's one area that you could potentially see improvement there. If you can help us kind of like bridge that gap?

Operator:

Your next question comes from the line of Bill Chappell with Truist Securities.

Jon Moeller:

There's clearly a desire to recognize extraordinary effort and results on the part of our organization broadly defined. The challenges that have been overcome while maintaining or improving service to consumers, customer and delivering both strong top and bottom line results, that's just not an accident. And we've been trying to become even more intentional about the importance of our organization, of our employee value proposition and delivering and sustaining superiority over time. So it's just, Bill, a reflection of that reality and my confidence in this organization to continue to step up and step forward into the challenges we face and continue to deliver strong progress from a business standpoint.

Olivia Tong :

I'll be quick, but just two quick questions. First, are there more price actions planned versus what's already been announced? Is there anything being contemplated or everything that's been announced has been announced? And then secondly, just if you could give some color on your innovation pipeline and how it skews this year versus previous years potentially. Is there more premium versus more value and how you think about it in terms of contribution to price and mix?

Operator:

Your final question comes from the line of Mark Astrachan with Stifel.

Andre Schulten :

Thanks, Mark. On SG&A leverage, so from a -- let me maybe start with the broader leverage point. So we generally see sales leverage when we see growth in the range of 3% to 4%, roughly. When we go north of 4%, the leverage becomes relevant and material, and that's SG&A leverage. So if we grow in line with our guidance range, that will provide a level of sales leverage similar to what we would typically and historically have expected. On the COGS side, you're right, the volume is the key driver for the leverage. With flat volumes, as we've seen in the fourth quarter, there obviously is no leverage. But that's where our productivity efforts are even more important. And that's why we're doubling down on our acceleration of productivity improvements. We'll talk about this more, I think, in our Investor Day, where we'll give you a bit more insight on Supply Chain 3.0 just to put more substance around the runway that we still have in driving productivity. That also is the answer to your second question because you're right, foreign exchange rate represents a significant headwind for us, might not represent that much of a headwind for some of our international competitors. We're well aware of that. We've been to this movie a few times. The answer to our question is strong growth, serving the consumer better than everybody else, delivering top line growth. That fuels our ability to invest in combination with strong productivity. So it reinforces our growth model. It reinforces the need for all components of the strategy to work. But I acknowledge foreign exchange rate is one of the more discriminating headwinds we have to deal with.

Operator:

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

Andre Schulten:

Good morning, everyone. Joining me on the call today are Jon Moeller, President and Chief Executive Officer; and John Chevalier, Senior Vice President, Investor Relations. We will keep prepared remarks brief and then turn straight to your questions. This was another strong quarter, strong top line growth across categories and regions, sequential earnings growth progress in the face of significant and still increasing cost headwinds. Starting with a few highlights on the March quarter. Organic sales grew 10%. Volume contributed 3 points of sales growth. Pricing added 5 points as additional price increases began to reach the market. Mix added 2 points to sales growth for the quarter. These strong company results are grounded in broad-based category and geographic strength. Each of the 10 product categories grew organic sales in the quarter. Personal Health Care grew more than 30%. Fabric Care was up low-teens. Baby Care and Feminine Care grew double digits. Oral Care and Grooming up high singles. Home Care and Family Care up mid-single digits. Hair Care and Skin and Personal Care each grew low singles. Focus markets grew 9%, and enterprise markets were up 12%. In focus markets, US organic sales were up 11% on 7% growth in the base period. On a two-year stack basis, US organic sales up 18%. Focus markets in Europe were up 10% and Asia Pacific, up 8%. Greater China organic sales were down mid-single digits versus a comp period that was up 22%. Market conditions continued to soften in the March quarter due to COVID-driven lockdowns. In enterprise markets, Europe grew 18%; Latin America, up 16%; and Asia Middle East Africa grew 8%. Broad-based growth across geographies with six of seven regions growing organic sales high singles or better. Global aggregate market share increased 50 basis points. 36 of our top 50 category country combinations held or grew share for the quarter. Our superiority strategy continues to drive strong market growth and in turn, share growth for P&G. All channel market value in the US categories in which we compete grew nearly 9% this quarter. P&G value share continued to grow, up 1 point versus same quarter last year. Importantly, this share growth is broad-based. Nine out of 10 product categories grew share over the past three, six and 12-month period in the US and globally. Consumers continue to prefer P&G brands, recognizing the superior performance and value. On the bottom line, core earnings per share were $1.33, up 6% versus the prior year. On a currency neutral basis, core EPS increased 10%. Within the EPS results, we estimate Ukraine, Russia was a negative impact of about $0.01 per share. Core gross margin decreased 400 basis points, and currency neutral core gross margin was down 380 basis points. Higher commodity and freight cost impacts combined were a 490 basis point hit to gross margins. Mix was 130 basis point headwind, mainly from product form and pack size mix impact. Pricing and productivity savings of 260 basis points partially offset the gross margin headwinds. SG&A as a percentage of sales decreased 380 basis points due to strong top line leverage. Advertising investments remain strong as we continue to communicate the superiority and value of P&G offerings across price tiers. Core operating margin decreased 10 basis points. Currency neutral operating margin increased 20 basis points. Productivity improvements were 170 basis points helped to the quarter. Free cash flow productivity was 74% as receivables and inventories increased due to strong sales results. We returned $3.4 billion of cash to shareowners, approximately $2.2 billion in dividends and $1.2 billion in share repurchase. Last week, we announced a 5% increase in our dividend, reinforcing our commitment to return cash to share owners, many of whom rely on the steady, reliable income earned with their P&G investment. This is the [66th] (ph) consecutive annual dividend increase and 132nd consecutive year P&G has paid a dividend. So three quarters into the fiscal, organic sales up nearly 7% on broad-based growth across categories and geographies, solid global value share growth, sequentially improving EPS growth, strong cash productivity and an increased income commitment to owners of P&G shares. Moving on to strategy. Our team continues to operate with excellence and stay focused on the strategies that enabled us to create strong momentum prior to the COVID crisis and to make our business even stronger since the crisis began. We continue to step forward into the challenges and to double down on our efforts to delight consumers. The strategic choices we've made are the foundation for balanced top and bottom-line growth and value creation; a portfolio of daily use products, many providing cleaning, health and hygiene benefits in categories where performance plays a significant role in brand choice. In these performance-driven categories, we've raised the bar on all aspects of superiority

Lauren Lieberman:

Great. Thanks so much and good morning. Andre, curious this quarter's revenue numbers surely show that there isn't really much that's happening in the way of trade down, and you just commented on elasticity. But I just was curious kind of what, if anything, P&G is doing to prepare for what feels like an inevitability for consumers becoming more sensitive to the pricing that is prevalent not just in your products, but across everything that they need to buy. So anything that you guys are doing proactively to help mitigate or think ahead to when trade down or substitution may become more of a factor? Thanks.

Operator:

Your next question comes from the line of Bryan Spillane with Bank of America.

Andre Schulten:

Yes. Thanks. Morning, Bryan. You're right. Over the past three quarters, you see pricing and productivity continue to increase a bigger portion of the commodity, foreign exchange and T&W gross margin impact. In quarter one, this covered 37%. In quarter two, we covered, I believe, 43%, and now we're at 53%. So you see a bigger portion being covered over time– [via] (ph) those effects. We will continue to drive all three levers to recover the dollar impact of commodity cost increases, foreign exchange and T&W. Productivity will continue to play a significant role. We have a lot of runway left on productivity. And as the supply situation stabilizes here over time, we have more line time and more resources available to reinvest in cost of goods savings. And that will allow us to strengthen our productivity muscle here sequentially, hopefully, over the next few quarters. We will continue to drive innovation. We have prioritized innovation in our resource and line time allocation to ensure that we can continue to offer superior value to our consumers, which also enables us to take pricing and see these relatively benign elasticities at this point in time. So you continue to see us invest in innovation. With innovation, we will try to take pricing at a very granular level by market, by brand. A lot of the price increases that we have announced are yet to flow through. So you will see an incremental contribution to the top line and to gross margin recovery over the future. The other price increase is already announced, and we will have to carefully evaluate more opportunities to take pricing. It will take time to recover the full dollar impact. And as we said before, it's more important to us to support the business model, support innovation, support superiority, execute pricing in the right way and recover gross margin and cost impact over time versus rushing to do this faster. So, you should expect sequential progress. I won't give you a specific timeline. We will continue to use all three, productivity, innovation and pricing.

Dara Mohsenian:

Good morning. I was hoping to get a bit more detail on China. How much of the decline in the quarter do you think was specifically related to lockdowns and maybe the comp versus last year? And can you give us a bit more granularity on some of the performance by product category there? And any thoughts on China going forward with the continued lockdowns in April, and how the business is positioned going forward? Thanks.

Operator:

Our next question will come from the line of Rob Ottenstein with Evercore.

Andre Schulten:

Okay. Thanks, Robert. So in terms of pricing run rate for the quarter, on average, we have a five point contribution to top line. As we said, pricing will continue to increase as more of the price increases flow through. So I would say exiting the quarter, I would see about a 6% run rate to top line from pricing contribution. So you will see more of the pricing that has been announced, and that will flow through in April for the flow through in quarter four. Pricing elasticities remain favorable. And within the portfolio that we offer to consumers, we broadly see a trade up into higher price propositions that offer better value and better product performance. So – and that explains the mix effect that you see in gross margin, where we see higher unit sales items being chosen with higher penny profit, but slightly lower gross margin. So consumers are trading into single unit dose detergents instead of liquid detergent. Consumers are trading into body lotions instead of Baby Dry in diapers. So we see consumers trading up even within our portfolio into higher-performing product propositions. The relevancy of – or the relevance of product performance in our categories, we believe, is the reason why consumers are not trading down. We've had an extensive period of trial during the early COVID phases, where consumers have traded into P&G. They've experienced the superior performance of our propositions. They've seen the relative value that we provide. Even though the cash outlay might be higher, they see the higher efficacy of the product and the benefit that they gain from it. And we've seen repeat rates reaffirming that. We believe that a good portion of the resiliency of our demand is driven by the superiority of the product and packaging, clear communication of the benefits basis, clear communication of the value, good retail execution and carefully crafted price increases that allow consumers to choose the cash outlay they feel ready to afford and to choose the brand and brand proposition that they are looking for. So I'll leave it at that.

Operator:

All right. Next question will come from the line of Kevin Grundy with Jefferies.

Andre Schulten:

Morning, Kevin. Thank you. So category growth rates are holding up well. Fiscal year-to-date, global category growth in the categories we compete in is 5%. We expect that to continue at around 5%. Category growth in focus markets is 5%. Category growth in enterprise markets is 7%. So it's a strong 5% on a global level. It's fairly consistent. Enterprise markets have been growing past three, six and 12 at 7%. Focus markets have gone between 4% and 5% over the past three, six and 12 months. So if anything, in the most recent reading, we've seen strengthening of category growth. We're also pleased with the fact that we see P&G leading and disproportionately contributing to category growth in most of the markets we're competing in, via innovation and via leading innovation and thereby driving category growth and participating in that category growth via share growth. So overall, we feel good about the level of category growth. We're seeing slight acceleration across the periods P&G contributing via our strategy of driving market growth, via superiority investment and innovation. And that certainly is benefiting our growth and is in line with our growth model we want to drive because the only way to sustainably grow at these level's by driving market growth and then participating in that growth via shared growth.

Operator:

Your next question comes from the line of Olivia Tong with Raymond James.

Andre Schulten:

All right. Morning, Olivia. Supply constraints, maybe to start at the global level, supply constraints are only present in every potential bucket that you can think through. Being able to source raw and materials is still difficult in sufficient quantities. Getting raw and packed materials to the places we need to get them to continues to be costly and highly volatile. Labor availability is certainly a stretch, not for P&G directly, but more for our supplier base. And then getting finished product out to our retailers by being able to actually ship with truck availability in the U.S., for example, is difficult. So it's across all aspects of the supply chain. We are making progress. Our on-shelf availability continues to be stable at around 93%, 94% even as we grow at these levels that we are happy to report we're growing at in Q3 and fiscal year-to-date. We have more and more categories coming off managed supply in the US over the next two months. So we are carefully working with our retail partners to ensure that we do this in the right way to ensure best service and best on-shelf availability with our retail partners. And we're making progress. Heavy -- the most investment in terms of capacity will be in our North America and European markets to ensure that we have sufficient capacity to keep up with increased demand we've seen. Those investments will take hold over the next two years. But we expect to be in a better situation over the next, call it, three to six months, specifically in the US moving out of managed supply. There is no -- to your second part of the question on pricing, I -- there is no formula-based approach to pricing in any of these categories. So we're carefully watching number one, consumer behavior and the strength of our superiority relative to the market. We are looking at the cost pressures and cost headwinds that we are seeing. And you will have noticed that in our paper categories in Fem Care, in Baby Care, in Family Care and in our Fabric & Home Care categories, that's where we see the biggest impact from commodity cost increases, transportation warehouse, but also foreign exchange impacts. So the impacts are bigger. There is superiority, and then it becomes a matter of, do we have the right innovation available, or do we feel that it is right at this point in time to recover via pricing versus leveraging productivity and the balance between those three elements as we've talked before. So I wouldn't say there's any formulaic approach. But certainly, Fabric & Home Care and the paper categories are most exposed to the cost pressures. So, the combination of all three elements needs to play out more aggressively in those categories than maybe in some others. Jon, anything you want to add?

Operator:

Your next question will come from the line of Wendy Nicholson with Citi.

Andre Schulten:

Okay. In terms of priority, our priority remains a reasonable recovery time on the dollar impact of commodities, foreign exchange and T&W headwinds across all categories. We will do this in a way that provides value to the consumer, provides a superior proposition to the consumer by combining it with innovation. There is no time line for us that forces us to recover gross margin over a certain period of time. We want to return to margin expansion, and we will. Our balanced growth model requires us to drive top line, bottom line but also reasonable margin expansion. So there is continued commitment to return to that point, but we will do it in a way that provides the right value to the consumer in every brand in every market at any given point in time, so we can serve consumers in the best way possible and maintain business momentum. To your second question on foreign exchange rate pricing, across markets, foreign exchange rate pricing is a reality we're dealing with every day, we've been dealing with for years. Nothing different to report in terms of elasticities, it's being executed in some markets, more pronounced. You've seen us taking significant price increases, for example, in Turkey, significant price increases in Argentina. So those are being executed. The organizations know very well how to do those, and they are baked in our forecast and guidance.

Operator:

All right. The next question comes from the line of Nik Modi with RBC Capital Markets.

Andre Schulten:

Yeah. Good morning, Nik, look, we're not seeing it. We've seen consumers trade into P&G brands and trade up within the P&G brand portfolio throughout the pandemic. Every quarter this fiscal year, we've seen consumers continue to trade up within the P&G brand portfolio into higher premium propositions across most categories. That's the mix effect you've seen on the gross margin and the positive mix effect on sales. So we continue to see consumers stay within the P&G portfolio and many consumers actually trading up within the P&G portfolio as they see the benefit of those higher premium propositions. As we've said before, we don't take that for granted. We don't assume that what we're seeing to date is necessarily an indication of what will happen in the future. We are very well aware that consumers might end up looking at budget constraints. Where we see, for example, private label losses reducing, we continue to see P&G growth. So even private label coming back so far is not impacting P&G's ability to grow within those markets or within those market category combinations. Our best defense to serve the consumer in a more budget constrained environment, other point we've talked through from the portfolio focus that we're operating to superiority to value plays, cash outlay choices, price ladder choices, distribution across our channels. So I come back to those elements that we control. That will serve us well, I believe, even for consumers that are more budget constrained and looking for choices.

Operator:

All right. Your next question will come from the line of Chris Carey with Wells Fargo Securities.

Andre Schulten:

All right. Thanks, Chris. PHC had a fabulous quarter, as we point out. Part of that certainly is the stronger cold, cough and flu season. It's 57% stronger in our estimation than last year's season, which was abnormally low driven by the mask mandates and everything else going on, a slightly stronger season than average by about 4%. But importantly, North America Vicks, for example, was able to outpace that season growth, plus 123% growth versus the season, which drove about 1.9 share points over the period. So within respiratory, season recovery is certainly a big point, but mix growing ahead of the season recovery and building share. The growth is also broader than just respiratory. Digestive organic sales are up mid-teens, and fleet is up nearly 30%. So the breadth of the portfolio is performing even beyond just the season recovery. So we continue to be very pleased with the results of the PHC portfolio and certainly see significant future runway there. On quarter four, sales guidance, the only thing I would say is as we mentioned before, we do not assume the favorable price elasticities to hold. In our forecasting, we assume price elasticity is to return to normal levels that we've seen historically. That's the only thing I'll let you know. And the rest, I think, is fairly clear.

Kaumil Gajrawala:

I'd like to maybe just follow-up on a comment from earlier on sequential gross margin improvement. Was that a -- just a general comment on something that you expect over time, or are you kind of indicating that gross margins we see today are trough margins in 4Q, and as we get into the beginning of the next fiscal year is when we'll start to see it?

Kaumil Gajrawala:

Got it. Thank you.

Mark Astrachan:

Yes. Thanks and good morning everybody. I wanted to ask specifically a bit more about Beauty. So volumes negative. I guess I was curious, how much of it is category shift? It seems a bit away from Skin Care given pandemic effect there into some more discretionary categories. How much is market share challenges for SK-II around Asia and China specifically? And how do you think about how much of what I just said could be transitory versus needing more change from your standpoint to improve trends? Thank you.

Operator:

Next question comes from the line of Peter Grom with UBS.

Andre Schulten:

Yes, I can start Peter, and then maybe Jon wants to add a few points here. But overall consumption is holding up. As I mentioned, market growth, 5% of focus markets, 7% in enterprise markets. That's certainly an indication that overall consumption in all categories is holding up well. There are some natural -- not natural, but logical switches. So when we think about, for example, our Grooming business, the Appliances business has experienced significant growth during the pandemic as more and more jobs that were done in salons and barbershops moved in-house. So folks -- people bought these appliances, experienced the fact that they can do the job themselves, and they continue to do so. But once that need is satisfied, appliances sees a decline versus that peak in terms of incremental job growth and incremental overall growth. At the same time, there's a natural hedge within the Grooming portfolio. So blades and razors were under pressure, as more people work from home and stayed at home. With reopening, that part of the category resumed growth. So there's a hedge component within Grooming, for example. Within anything that is health and hygiene related, I think consumers continue to put more emphasis on jobs to be done. They spend more time at home. So we continue to see our categories to benefit from both effects. Paper towel consumption continues to be increased by more than 10%. We'll see where bath tissue ends up once supply is unconstrained, but more time at home certainly would speak to more in-home consumption versus away-from-home consumption. The only part where we saw a little bit of a decline was anything that has to do with household -- surface disinfection, surface cleaning. That's a relatively smaller part of our portfolio. But as consumers get more used to the right balance there, we saw a little bit of a decline. But overall, all categories still benefiting from more time at home and higher focus on health and hygiene and certainly Beauty and Personal Care-related categories benefiting from reopening.

Andrea Teixeira:

Thank you. I was hoping, if you can please comment on the Baby, Feminine Care and Family Care. Seems that you continue to regain share in the US and also potentially in China despite the challenges there. And similar to this question, you had an impressive growth in the cold and flu brand franchises. But you start to lap those comps there. So do you think the growth is still sustainable with the innovation you've made in other franchises in health care? Thank you.

Operator:

And your final question will come from the line of Jonathan Feeney with Consumer Edge.

Andre Schulten:

I'll start, and I'm sure Jon has a few points to add here. But generally, discussions with retailers work better if your business comes from a position of strength. Consumers are looking for your propositions. Velocity at shelf is strong. You have innovation programs that are credible and tangible and meaningful for consumers. You have in-store programs that are meaningful for retailers and consumers. You have an ability to communicate and support the advertising, both in digital as well as in mass advertising. And all of those things hold true as we entered this commodity inflation cycle. P&G came from a relatively strong position in terms of superiority. We continue to invest in innovation. Products on shelf, we're doing well. And that sets up a good discussion with retailers about future growth potential, the need for pricing, which is very clear, given the inflation cycle and the reality that it's broad-based within multiple industries. No guarantee that, that will continue. It will also -- it will always be, as we said before, a very careful balance for us between productivity, innovation and pricing.

Andre Schulten:

All right. I think that concludes the call. Thank you for spending time with us today. John Chevalier and I will be available all day if you have any other questions, so please feel free to call. You know where to find us. Have a wonderful rest of the day.

Andre Schulten:

Good morning, everyone. Joining me on the call today are Jon Moeller, President and Chief Executive Officer; and John Chevalier, Senior Vice President, Investor Relations. We're going to keep our prepared remarks brief and then turn straight to your questions. Q2 was a strong quarter, very strong top line growth, sequential earnings progress in the face of significant cost headwinds, continued strong cash productivity. Our progress enables us to confirm fiscal year EPS guidance while increasing our estimates for top line growth, cash productivity and cash return to share owners. Organic sales grew more than 6%. Volume contributed 3 points of sales growth, pricing added 3 points as September/October price increases flow through, and as year-on-year promotion comparisons normalize, mix was neutral for the quarter. These strong company results are grounded in broad-based category and geographic strength. Each of the 10 product categories grew our health organic sales in the quarter, Personal Health Care grew 20%, Fabric Care and Feminine Care were up double digits, Baby Care up high singles, Grooming grew mid singles. Home Care, Oral Care, Hair Care and Skin and Personal Care each grew low single-digit. Family Care organic sales were in line with prior year. Focus Markets grew 6% and Enterprise Markets were up 7% In Focus Markets, U.S. organic sales were up 9% despite 12% growth in the base period. On a two-year stack basis, U.S. organic sales are up 21%. Europe Focus Markets were up 5%. Greater China organic sales were in line with prior year against the strong 12% bass period comp and due to slower market growth in the quarter. In addition, we took proactive steps in the quarter to encourage our network of distributors to reduce inventory levels to reflect short-term consumer demand softness in the market. Latin America led the growth in Enterprise Markets up 15%. Global aggregate market share increased 60 basis points, 38 of our top 50 category country combinations held or grew share for the quarter. Our superiority strategy continues to drive strong market growth and in turn share growth for P&G. All general market value in the U.S. categories in which we compete grew nearly 3.5% this quarter. P&G value share continued to grow up nearly 1.5 points versus same quarter last year now at 34%. Importantly, the share growth is broad-based. Nine out of 10 product categories grew share over the past three, six and 12 month periods in the U.S. Consumers continue to prefer P&G brands and superior performance they provide even as inflation is impacting household budgets. On the bottom line, core earnings per share were $1.66, up 1% versus the prior year. On a currency-neutral basis, core EPS increased 2%. Core gross margin decreased 400 basis points and currency-neutral core gross margin was down 410 basis points. Higher commodity and freight cost impact combined were a 460 basis points hit to gross margins. Mix was 140 basis points headwind, mainly from product mix impacts. Productivity savings and pricing each provided partial offsets to the gross margin headwinds. Within SG&,A advertising spending increased versus prior year as we continue to invest to communicate the superiority of our brands. However, overall marketing expense as a percentage of sales decreased 80 basis points, driven by sales leverage and savings in non-working marketing costs. Core operating margin decreased 250 basis points. Currency neutral core operating margin declined 240 basis points. Productivity improvements were 150 basis point help to the quarter. Free cash flow productivity was 106%. We returned nearly $7 billion of cash to share owners, approximately $2.2 billion in dividends and $4.8 billion in share repurchase. In summary, while input cost and supply chains remained challenging, we delivered good results for the second quarter and for the first half of the fiscal year, keeping us on track to deliver our going-in earnings estimates and to raise estimates for sales, cash productivity, and cash return to share owners, which I'll come back to later. Moving on to strategy. Our team continues to operate with excellence and stays focused on the near-term priorities and long-term strategies that enabled us to create strong momentum prior to the COVID crisis, and to make our business even stronger since the crisis began. We continue to step forward into the challenges and to double down our efforts to delight consumers. As we continue to manage through this crisis, we remain focused on the three priorities that has been guiding our near-term actions and choices. First is ensuring the health and safety of our P&G colleagues around the world. Second, maximizing the availability of our products to help people and their families with a cleaning health and hygiene needs. Third priority, supporting the communities, relief agencies and people who are on the frontlines of this global pandemic. The strategic choices we've made are the foundation for balanced top and bottom line growth and value creation. A portfolio of daily use products, many providing cleaning health and hygiene benefits in categories where performance plays a significant role in brand choice. In these performance-driven categories, we've raised the bar on all aspects of superiority, product, package, brand communication, retail execution, and value. Superior offerings delivered with superior execution, drive market growth and our categories. This drives value creation for our retail partners and builds market share for P&G brands. The superiority model works in each of our categories. Take the three category growth drivers this quarter

Dara Mohsenian:

Good morning. So the top line side clearly strong results across the board, but Beauty top line growth was below consensus in the quarter. So just any thoughts on the Beauty top line performance? And specifically maybe you can talk about China Beauty from a category and market share perspective in the December quarter? And any go-forward thoughts on China Beauty or China in general given the flattish year-over-year trends in the quarter? And then on the rest of the business with the strong market share results, can you just talk about your level of confidence going forward and sustaining those share gains and how supply chain and consumer and retailer acceptance of price increases may impact the forward outlook from a market share perspective? Thanks.

Operator:

All right. The next question will come from the line of Lauren Lieberman with Barclays.

Andre Schulten:

Yes. Good morning, Lauren. Productivity, the number of 80 basis points in the quarter, we expect about $800 million BT productivity contribution from cost of goods for the year. And it's a little bit lighter than what we would have done in previous years. But most importantly, we remain fully committed to productivity as a core driver of margin expansion. In the short-term, there are a couple of effects that I want to spend a minute on. Number one, when you think about cost savings projects, they require line time, that line time is competing with the need to ship cases in a very constrained supply chain. When we think about innovation, we talk frequently about our desire to close copper price increases with innovation. Innovation also needs lifetime. So cost savings projects on the line also compete with innovation, and they compete with our desire and need to ship the business. Therefore, in a constrained environment, as you point out, our businesses make the decision to focus on innovation, focus on shipping the business, which is better for retailers, better for consumers, better for us in terms of value creation, but it has an impact on cost savings. The good news is these cost savings are available to us in the future, they don't go anywhere. But you see a little bit slower ramp up in that context. Second element I would mention is the global pressure on supply chain. And the flexibility that we talked about that our supply people have generated, doesn't come for free. So when we need to shift to alternate materials, when we need to shift to alternate suppliers, or sources of materials geographically, that comes as a premium, which goes against productivity, again, the right choice, because shipping the cases is financially more viable than creating the cost saving. But it has an impact. And then the last point I'll make is, negotiating commercial savings when everyone is trying to get the materials in sufficient quantity is also a bit more difficult. So all of that to say short-term, pressure, longer-term, fully committed to productivity being a core driver of margin expansion and balance growth model. and you see progress quarter by quarter.

Lauren Lieberman:

Great. Thank you.

Steve Powers:

Hey, thanks, and good morning. Maybe building on that a little bit. So as we think about the back half and the leverage that you have at your disposal to offset the $2.8 billion in commodity freight currency headwinds that you now face. I guess, can you talk a little bit – I guess, can you elaborate a little bit more on the initiatives that you've put in place specifically over the last three months to help with that in as we get to calendar 2022. And I guess I'm specifically curious when we think about the second half P&L as to how you anticipate the drivers of organic growth shaking out price versus volume, number one. And then number two, whether we should expect marketing, inclusive of non-working media productivity to remain a continuous source of positive leverage as the year continues?

Jon Moeller:

I just want to underscore something that Andre said. Remember, that the pricing that we've announced, even the pricing has taken effect at shelf. We didn't have a full quarter benefit from the quarter we just completed. So that's simple roll forward is a help. And the majority of the pricing that we've announced has not yet taken place.

Jason English:

Thanks. Good morning, folks. Thank you for stopping in. I wanted to drill a little bit deeper on the cost and price outlook. So a couple of things. First, in response to that last question, I think I got the sense, clearly Telegraph that says the pricing will continue to build back half, it sounds like you're looking for at least 4%, if not more price contribution, or at least about one and a half billion or so net sales contribution. If we look at your cost and of both commodities and freight in the 2.6, I think from your margin bridge it implies that you've already absorbed around 1.7 billion in the front half. So in other words, you're expecting a billion or less in the back half. And we should therefore expect a price cost surplus to emerge. I want to make sure I had all my math right on that at least directionally. And then the second part, you've clearly had to revise your commodity and freight outlook up the last few quarters. Remind us again, what the current commodity outlook is predicated on, so that we can get a proper sense of what the upside downside risk are to that? Thank you.

Operator:

Next question will come from Robert Ottenstein with Evercore ISI.

Andre Schulten:

Very good morning, Robert. If I step back I think we're better positioned for dealing with an inflationary environment or revenue management in that sense than we've ever been before. Starting with a portfolio that is focused on daily use categories health, hygiene and cleaning that are essential to the consumer versus discretionary categories, which in these environments are the first ones to lose focus from the consumer. Secondly, starting with a portfolio that is 75% superior by our assessment and reflected probably in the market share results and trends that we're seeing. We also over time have built much stronger price letters. So we have offerings for the consumer at different price points, and different cash outlays. When you think about diapers, you can get a Luvs diaper for $0.15 a diaper, Swaddlers at $0.30, or Pure diaper at $0.38. And that's generally true across all categories across all brands. So that means the consumer has a choice within our portfolio. So in that sense, I think we are set up well, from a starting point to deal with inflation and related pricing. From an execution standpoint, I think we also benefit from a couple of things. Number one, the organizational redesign in focus markets and enterprise markets enables much faster and much clearer decision making, which is critical in these processes, and also much more diligence in terms of where to take pricing, country brand SKU level. And the other element here is that from an execution standpoint, we certainly have seen that innovation can play a significant role. And the strength of our innovation pipeline, and our ability to combine pricing with innovation is certainly helping us in this environment. That's what I make. And then Jon will probably have comments here as well. We've been operating in high inflation environments around the world for many years. Think about Turkey, Nigeria, Argentina, those are high inflation markets and environments. So we know how to deal with that. Obviously, we hope we don't get to that place, but generally well positioned for the reasons I tried to outline here.

Operator:

Next question will come from the line of Kevin Grundy with Jefferies.

Jon Moeller:

Hey Kevin, this is Jon. A couple points on large M&A. The first very, very important point is we like our current portfolio. We have confidence that we can create value with that portfolio. And, frankly, all parts of it are working. Andre mentioned that, we're growing market share in nine out of 10 of those categories. And importantly, that market share growth is not taking business. It's creating business in large part affecting the overall growth of the market. So we're in a very healthy situation with a very healthy portfolio that's underpinned with a clear set of priorities and a very effective tightly integrated set of strategies. And we're adding, we're strengthening our strategic execution by a focus on four areas. One is supply. The second is digital competence across the value chain. The third is employee value. And the fourth is sustainability. We like that hand overall. Second point, our algorithm growing slightly ahead of the market with EPS up mid-to-high singles, assumes 100% organic growth. So again, we don't need large M&A to deliver against that. And we certainly haven't utilized large M&A in the last four or five year period when we've been delivering very regularly on that expectation. A couple other points, and then I'll get to beauty. And then Andre may have some comments on beauty as well. The -- we have said many times that there that we intend to win in these 10 categories that we've selected. And that acquisition would be a part of the way that we may choose to fill out categories in order to win. And we've talked about two categories in particular, that would be particularly focus areas. One is skincare, and the other is personal health care. So all of that remains as true. The last point I would make, which is I realized not very helpful to the audience at hand but as a matter of policy, we don't comment further than what I just have on acquisition or divestiture. On beauty, I want to clarify what I think has been a little bit of a misunderstanding. When we made the portfolio decisions as to what we were going to move out on beauty and what we were going to stay in. We did not make price tier decisions. We did not exit premium beauty, we made category decisions. And we exited several categories that were more discretionary, that were not daily use, and where performance had a lower role in driving brand choice. So for example, we maintained our most premium beauty offering SK-II. So this notion that we're, we got out of a price tier and now we're getting back in is not the way to think about it. We got out of categories. And we're strengthening those categories. And these the brands that we have purchased, as Andre said earlier play in the premium portion of the beauty categories, which are the fastest growing from a market standpoint to date, and obviously give us ample opportunity to create value given their margin structure. Andre, anything to add.

Operator:

Your next question comes from the line of Andrea Teixeira with JPMorgan.

Jon Moeller:

Morning. Our ability to supply is relatively stable, is stable actually. If you look at our on-shelf availability, for example in the U.S. Last quarter, we reported that was around 94%, we're still running at about 94% which is not where we want to be which will be more than 98%, 99% range. But good relative to peer group and good given again the overall challenges the industry is seeing, the retail environment seeing. So and that is true around the world. Our supply chain people who deserve all the credit here continue to do an absolutely amazing job making sure that our retail partners have the products available that our consumers want to buy. And there are no major outages given the flexibility we've created within the supply chain. Even in China as we saw regional lockdowns, we were able to shift production into alternative sites and thereby maintain supply. So continued great work while supply organization relatively stable situation, we'll continue to monitor closely because this is not over. So great success now with no guarantee for the future, but we certainly feel well positioned.