Clorox (CLX) Q3 2026 Earnings Call Transcript

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DATE

Thursday, April 30, 2026, at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Linda Rendle
• Chief Financial Officer — Luc Bellet

TAKEAWAYS

• Total Distribution Points -- Increased over 5% compared to the prior period, with ongoing resets expected through the next quarter.
• Gross Margin Guidance -- Updated full-year decline forecasted at 250 to 300 basis points, attributed to supply chain costs, delayed cost savings, the GOJO acquisition, and elevated oil prices.
• GOJO Acquisition Impact -- Contributes an expected $200 million in revenue in the final quarter, equating to 10% quarterly growth and about 3% annual growth, with a 50 basis point gross margin dilution in year one and 150 basis points of one-time headwinds in the same quarter.
• Input Cost Headwind -- Q4 faces $20 million to $25 million in additional costs from elevated oil prices, impacting margins by approximately 130 basis points, with no mitigation actions yet deployed.
• Health and Wellness Shipment Timing -- The quarter saw about one percentage point negative timing related to earlier shipment pulling from the prior period ahead of the ERP rollout; this was anticipated and now reversed.
• Segment Category Performance -- Cleaning delivered continued momentum and share gains, Glad experienced sequential distribution and share improvement, Food returned to share growth despite a mid-single-digit category decline, while Litter underperformed and remains in a multiyear reset process.
• Operating Expenses -- Interest expenses are set to increase by $30 million in Q4 and by $110 million in the following fiscal year post-GOJO acquisition, above the pre-acquisition $100 million run rate.
• Private Label Market Share -- Private label shares remained flat in most categories, but some competitive activity was noted, particularly in the Brita segment.
• ERP Implementation -- The system rollout is now complete; related stabilization costs were higher than expected but are tapering down, with minimal incremental impact projected for the coming quarter.
• Advertising Expense -- The addition of GOJO is expected to decrease total company advertising as a percentage of sales by about 25 basis points for the full year.

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RISKS

• Gross margin fell below expectations due to "higher-than-expected supply chain costs and delayed cost savings" from prioritizing ERP stabilization.
• "the pace of improvement has been slower than we expected in some businesses," with Food and Litter singled out for underperformance relative to management's projections.
• Q4 input costs face a headwind of $20 million to $25 million, or "about 130 basis points of gross margin," stemming from higher oil prices without mitigations yet in place.
• The Food category was hit by "high promotional intensity and deep discounting from competitors," resulting in a category decline closer to mid-single digits rather than management’s anticipated low single-digit decrease.

SUMMARY

Clorox (NYSE:CLX) management signaled that although the ERP transition is complete and foundational for future execution, gross margin and business recovery are progressing more slowly than targeted, hampered by rising input costs and specific business-unit resets. GOJO’s $800 million acquisition is on track to raise near-term revenues while creating initial gross margin dilution of about 50 basis points, with nonrepeating headwinds from inventory step-up costs in the fourth quarter. Plans for additional cost-saving programs and innovation initiatives are underway, with several accelerated into the next fiscal year to address persistent margin pressure and category volatility. Management reaffirmed confidence in offsetting future cost inflation through integrated margin management, price-pack architecture, and targeted revenue growth management (RGM), while emphasizing that further share gains depend on successful on-shelf execution and consumer value superiority initiatives.

• Management’s priority is to "driving improvements in value superiority" across the brand portfolio, balancing pricing moves with strategic investment in innovation and promotion.
• RGM activities are being expanded with new market tests rolling out in the coming weeks, and learnings to be incorporated into fiscal 2027 plans.
• GOJO integration is described as "off to a great start," with expected synergies of "at least $50 million" in run rate cost savings from year two onward.
• Retail shelf space gains are meeting expectations, but category velocities are subdued in areas such as Litter, affected by product-line resets and required consumer adjustments; remedial retail placement work is ongoing.
• Portfolio reviews remain active, with recent actions including the Argentina divestiture and greater focus on strategic inorganic growth in health and hygiene.

INDUSTRY GLOSSARY

• ERP (Enterprise Resource Planning): An integrated IT system implemented to centralize and streamline company operations, covering finance, supply chain, logistics, and order management.
• TDPs (Total Distribution Points): A metric capturing aggregate product availability across all sales channels and SKUs within a retail distribution network.
• PPA (Price Pack Architecture): The strategic design and assortment of product pack sizes and prices tailored to different consumer segments and retail environments.
• RGM (Revenue Growth Management): A set of processes and tools (including pricing and promotional optimization) to drive profitable sales growth.
• SG&A (Selling, General & Administrative expenses): All direct and indirect operational costs excluding production, such as salaries, marketing, and administrative overhead.

Full Conference Call Transcript

Linda Rendle: Thank you for joining us today. As we approached fiscal year 2026, we knew it would take a disciplined, phased approach. In the front half of the year, we intentionally focused on implementing and stabilizing our new ERP. That work was foundational to strengthening how we operate, even though we knew it would create some near-term disruption. As we moved into the back half, our focus turned to rebuilding momentum, getting innovation to shelf and sharpening execution. That sequencing is still the right one and it remains central to our plan.

That said, the pace of improvement has been slower than we expected in some businesses and as a result, our third quarter results were mixed and fell short of our expectations. We continue to make progress on market share across much of the portfolio, but more gradually than we anticipated in certain categories. Gross margin also came in below expectations, driven by higher-than-expected supply chain costs and delayed cost savings as we deliberately prioritized stabilizing the ERP. Even with those challenges, we remain confident in the path forward.

With the ERP implementation now complete, we're better positioned to convert our innovation, investments and distribution gains into value superiority for our brands and stronger results our focus is squarely on execution, delivering the fundamentals, accelerating innovation performance and finishing the year with momentum as we set up for fiscal year 2027. With that, Luc and I are happy to take your questions.

Operator: [Operator Instructions] And our first question comes from Peter Grom with UBS Financial.

Peter Grom: I was hoping to start just on the top line trajectory. You touched on some of the macro pressures. But as you just mentioned, the progression of your business has not been in line with your expectations. So I mean, you touched on different areas in the prepared remarks, but do you have any perspective as to why the improvement isn't taking shape the way you hoped? And I guess as you look out to '27, do you have confidence that you will see stronger performance across more pieces of the portfolio?

Linda Rendle: Thanks, Peter. I'll get started and Luc can build if there's anything he wants to add to this. I'll start with there's areas of continued momentum in the portfolio that are going as well as we expected or better. I'd call out our cleaning business, which continues to be an area of strength and of course, is our biggest business. Innovation is going extraordinarily well there. And despite a very competitive promotional environment right now, we continue to win and win share. International, despite disruptions around the world, continues to perform with strength. We're seeing Glad make significant progress, so shares quarter after quarter have sequentially improved.

We're seeing distribution pick up on that business and some of the actions that we took investing back in price have done really well. Food, we returned to share growth this quarter. So lots of things going well and where momentum continues. And really, the area of the shortfall is a few businesses we expected to make more improvement that did not quite make the improvement that we expected in Q3. We expect continued progress there in Q4 and then continuing to make improvement in fiscal year '27. And I'll talk about a couple of them. The first and most importantly would be Litter.

Category tailwinds continue to be exceptionally strong, and we are committed to getting back the share that we have lost, and we're doing that through a complete reinvention. So for those of you who saw what we talked about in CAGNY, this is really a fundamental reset of our Fresh Step business. We changed all of the items. We changed their names. We changed their claims, pack size through price pack architecture, and that began to roll out at the end of Q3. And while largely that foundation is now in place, now we're doing the really difficult work of mapping consumers from what they used to buy in Fresh Step to the new items.

I would say the distribution came in generally in line with what we expected, which was an increased amount of TDPs. But unfortunately, some things aren't quite where they need to be, and we're working on improving those in the next few months. And that would relate to shelf placement on a couple of items in key retailers, et cetera. But we're addressing those fast and making changes. So I think Litter is going to be just bumpier, and it's not totally unexpected given the amount of transformation we're taking on there. And I'd also remind you, Litter is going to be a multiyear process.

We talked about this was the first important step, but we've got to get innovation back on track to the place where over time, we can begin building or growing share, not just rebuilding share. And then the other area I would just call out would be Food. And although we did grow share in the quarter, and we saw portions of the elements of the things we put in place working, the category was weaker than we had expected. So we expected a low single-digit decline. It was closer to a mid-single-digit decline in the category. We're seeing high promotional intensity and deep discounting from competitors in that category, which is putting pressure on dollars.

And we're also seeing some consumer trends that we're watching closely on GLP-1s, et cetera. But the good news for Hidden Valley is we did some price pack architecture work. I think you all recall, we had made a transition where we flipped our bottle upside down, which was consumer preferred right before last February when kind of value superiority really accelerated from a consumer perspective. So we have since reversed that decision and put our regular 16-ounce bottle that everyone knows and loves back on the shelf. That's playing well.

In addition, we've just recently launched a number of trend forward Hidden Valley launches, including protein forward options, Avocado Oil item, and we believe that's why we've seen that inflection in share and that, that should continue moving forward. So net, Peter, a lot is going well, and we're making progress in a lot of the areas we expected to. I would just call out Litter making slower progress than we had expected and Food are really working to get that category going again.

Peter Grom: Okay. Great. And then I guess I know we'll get '27 guidance in August, but there's just a lot of moving pieces here with the $0.90 and now this inflationary pressure. And I guess if I look at the guidance this year, it would seem the majority of the $0.40 move at the midpoint is related to cost pressures, which if you were to annualize, would seem like a pretty substantial headwind. So just -- is there any way to frame how you see costs and inflation looking out to '27 at this stage?

Luc Bellet: Peter, this is Luc. I can try to answer that. I mean, obviously, it's a very dynamic situation and uncertainty. I would say it's too early to share any perspective for next fiscal year. And as you can imagine, we're currently working on next fiscal year, working on a wide range of scenarios, including a wide range of possible -- potential outcomes. Having said that, what you can see in Q4 is the current impact of the higher oil price. Right now, we are assuming about $100 per barrel will be the midpoint of our estimate in Q4, which is about between $20 million and $25 million of headwinds or about 130 basis points of gross margin.

So that gives you a point of reference. This is obviously material. But because it's in Q4, we didn't have time yet to deploy any of the mitigation actions. So this is -- we're basically getting the full gross impact in Q4 and not yet any of the mitigations. As we talked in the past, over time, we feel confident in our ability to cover those input increased costs. We have a solid track record over the last few years. And if anything, we've developed a really robust set of tools around integrated margin management. And we have a really strong pipeline of cost savings next year.

Now again, I'll get back to my first point, which is it's very hard to predict what might happen in the next few months, next quarters or even the next year.

Operator: And we'll move next to Filippo Falorni with Citigroup.

Filippo Falorni: Linda, I was hoping you can talk about the shelf space gains that you realized so far versus expectations, especially as we think about Q4 organic sales and as we're heading into fiscal '27. Are they going according to plan, especially around the innovation? And then are you seeing any of the areas of the business where you're seeing maybe more or less shelf space than you were expecting?

Linda Rendle: Sure. Thanks, Filippo. So shelf space gains are going according to our plan at an aggregate level, and then I'll touch on a few businesses. So if you look at Q3, total distribution points for Q3 were up over 5%. And we know that our retailers are still resetting our shelves and will through the remainder of Q4. So we expect continued progress on that as we move through this quarter. That being said, what we're watching is not only that we got the gains, but the items are in the right locations. So I'll call it Litter.

We got the distribution gains that we expected, but there are places where it was shelved in a different place than we had expected or next to an item that we didn't expect. So we're doing that type of detailed shelf work, but all of the distribution points were there. And I would say a number of the businesses, like I called out Glad that we have been working on, we feel good about where we're landing on distribution points there, and that will continue to accelerate into Q4 as well as food behind our innovation and our price pack architecture work.

So on track from a shelf space perspective, but now we'll do that work to ensure that items are placed on the shelf where they should be.

Filippo Falorni: Great. That's helpful. And then, Luc, maybe I can follow up on Peter's question on the cost headwinds into next year. I guess as you think about the mitigating -- potential mitigating factors, how are you thinking in terms of order of importance between cost savings, potential from pricing and any other levers that you can pull to mitigate some of those headwinds?

Luc Bellet: Filippo, yes, we're looking at a whole set range and looking at essentially all elements of our integrated management set of tools anywhere from leveraging RGM and leaning more in RGM and PPA in some business units to lean more into productivity and cost savings, and it's a whole wide range of potential savings, including potential reformulation, supply chains. And we're also looking to accelerate some more structural cost savings that we had planned maybe later in '28 into '27. And as you probably saw in Q4, we are recognizing a lot of onetime cost, and this is in our gross margin.

That's a headwind of 50 basis points, but that's going to allow us to actually accelerate one of those more structural cost savings. So I would say it's across the range of levers. Of course, it will differ by BUs depending on the competitive dynamic as well as the pipeline that was already existing.

Operator: And our next question will come from Andrea Teixeira with JPMorgan.

Andrea Teixeira: I wanted to just go back to the comments, Linda, you made on the exit of the quarter in the prepared remarks and things got tougher, especially for the Food for Hidden Valley. I'm assuming you -- can you comment a little bit on how you landed as you exit the quarter, the categories. As you said, it was like a mid-single-digit decline for Food, but just in general, in all categories that you're in, if you can give us like an estimate of how much the categories have contracted.

And then as you think about like the view that you embedded in there, in terms of the mitigations and all of that, do you feel you can have a potentially an RGM that could allow you to create or maybe pivot into RGM, as you pointed out, even in the first half of the year or that's going to be more of a long, let's say, a long-term shift that you wouldn't be able to make in such a short period of time?

Linda Rendle: Thanks, Andrea. I got it. I'll start with the categories, and then I'll move to your question on RGM. So from a category perspective, we thought at the beginning of the year, we would be in the range of flat to up 1% in aggregate for our categories. And what's played out through Q3 is exactly that. So we're about in the middle of the range. What we did see in Q3, though, was market differences in January, February and March. January and February were more in line with what we expected, and March was slightly better, meaning that the categories at the end of Q3 were slightly above our expectation of 1%.

What we think happened in March was that people received additional tax refunds and some of that money they spent back in essentials categories on stock-up trips. But we're starting to see that decline a little bit as people are having to spend more money at the pump. But generally, still for the remainder of the year, we expect our categories to be in that range of 0% to 1%. Some of them are higher, as we noted. So Litter is closer to mid-single digits. We're seeing Food down closer to mid-single digits, although we're hoping, again, some of those actions that we've taken are going to help mitigate some of that and then a range between those 2.

Most of our categories were positive, though, this quarter, which is good news. I think the important part to note here is that even though the consumer is under stress, and you could argue a lot more stress now given what they're experiencing from gas prices and just the uncertainty of what's going on, they're still really resilient in our categories, and that's a good sign. We're seeing them continue to buy innovation. Private label shares did not increase this quarter. They're still shopping for brands.

We're seeing the premiums here in many of our businesses do very well as people are looking for value in all of its forms, whether that be convenience or a little bit of joy in their lives as well as trading up to larger sizes and trading down to smaller sizes. So all of that's playing out. But I would say, generally, again, the consumer is pretty resilient in our categories. And we will watch closely for '27 for what this means. I think what Luc outlined from a cost perspective is the single most important variable, whatever happens in the Middle East and how costs play out, that will impact the consumer environment in '27.

But again, what we're focused on is that we have resilient categories. They respond well to innovation. They respond well to growth plans, and that's what we're focused on is improving our superiority and being the leaders in category growth as we move to '27 and making improvement on share. And one of the important levers is the second question you had, which is RGM. And this is something that we are live in action right now. So we gave an example, if you might recall at CAGNY that we did RGM work on glass. And we actually took the price down on one of our items that made a significant difference and grew a significant amount of share.

We are doing that work across our businesses. And actually, in the coming weeks, we'll have a couple more tests in market. And if those tests do well, we'll expand those. So we have that built into our Q4 plan, and we would expect additional activity as part of our fiscal year '27 plan.

Andrea Teixeira: And that's super helpful. And then if I just can squeeze the GOJO's acquisition. I mean, obviously, you have given the synergies. Did that change as you point out, like the impact that I think if I understood you correctly, Luc, you mentioned 30 basis points gross margin headwind. But how does that change for GOJO's when you gave guidance at the time, it wasn't when we saw oil prices at these levels?

Linda Rendle: So for GOJO, and then I'll have Luc walk through the financials just so we're clear, but I'll make a few comments. We closed on April 1 and have been deep at work on integration and integration planning since then. And I'll just say my confidence remains incredibly high on this acquisition, both from a strategic perspective and the fact that it gives us additional growth exposure in health and hygiene, where we have a long history of strong performance. The team, we were able to retain the management team. We're seeing strong results on the business.

And as we think about that moving forward, we knew it had a different profile given it's a Pro business, just like our Pro business has a little bit of a different profile. It has higher SG&A, lower advertising, a bit lower gross margin. But overall, this is financially attractive and will be accretive to the company in the near term, and we outlined that in the prepared remarks. And again, I'll have Luc go through it. But I would just say that my confidence continues to increase that this is a great acquisition for the company.

Luc Bellet: Yes, I can -- I'll add maybe a little bit more context around how it's impacting the P&L. Maybe what I can do is some of it was already included in our prepared remarks as we think about Q4, but I'll also just give you a sense of how it might impact next year. So maybe let's start with growth. So we're adding a business of $800 million that has a solid track record of growing mid-single digits. And so far, they're progressing as expected during the calendar year.

So that means that we will be adding $200 million in Q4, right, which adds about 10% for the quarter and about 3% for the full year, and we'll add the remainder in fiscal year '27. So that's on growth. EBITDA margin, nothing changed. As we discussed, the business EBITDA margin is in line with that of Clorox, right? And so it will be year 1 EBITDA neutral. And of course, as we continue to be confident in generating about at least $50 million of run rate cost synergies. And so that means accretion in EBITDA over time. Now maybe just a comment on how do we think about the integration and strategies.

We're really going to prioritize the integration during the first year and expect to start delivering both revenue and cost synergies starting the second year and the third year. We -- the good news here is that we have retained the management team. We have separate resources that are dedicated to the integration, and we also retain an integration partner to help lead through the execution, which is already off to a great start. So that's on EBITDA margin over time. Now on the rest of the P&L, Linda mentioned it, given that the business is about 80% B2B, the P&L looked a little bit different than the average of Clorox, right?

So the gross margin is a little dilutive, and so that will be about 50 basis points of dilution in year 1. Now of course, some of the synergies will be in supply chain. And so we would expect gross margin to increase over time and get pretty much in line with -- over time with the average of the company. Now that's going forward, and that's also in the fourth quarter. But in the fourth quarter, you also had the recognition of onetime associated with the transactions, which are related to an inventory value step-up, right? And so just that's onetime that's worth about 150 basis points of headwinds in Q4, but that's nonrepeating.

And then if we look at the other line of the P&L, if you look at SG&A, as Linda mentioned, it will be -- it's a little higher than the average of the company. So it will probably add less than 1 point to the total company average when it's fully integrated in year 1. Again, that will go down over time as we start realizing synergies. And advertising is much lower, not that different than our own Pro business. And so that will actually probably bring the advertising as a percentage of sales down by about 1 point initially and probably ramp up as we continue growing the consumer business. So that's for the different line of the P&L.

And then the last thing I'll mention, of course, our interest expenses will increase. Our run rate pre-acquisition was about $100 million. And so you will see about an incremental $30 million in Q4. And then next year, we expect about $110 million above and beyond the $100 million run rate.

Operator: We'll move next to Robert Moskow with TD Cowen.

Robert Moskow: You are one of many HPC companies that have talked about rising inflation from oil-related costs. And the higher costs are all pretty uniform. Is it possible that since everyone is kind of facing the same cost at once, that makes it a little bit easier to go to retailers and argue for either some price increases or maybe some less generous price promotion?

Linda Rendle: Robert, yes, I think what you've heard from everyone is we expect rising inflation and what Luc talked about was our ability to handle these over time, and we feel confident about that ability given the toolbox that we've built over the last number of years and certainly how we handled the last round of inflation that we experienced in 2022. That being said, on the pricing front, although we're evaluating pricing and expect that we could take potential targeted pricing, we are approaching this with a high level of discipline and caution.

We know the consumer is under stress, and our absolute #1 priority is to ensure that we are driving improvements in value superiority to drive our categories and to drive share. So we do see there's places where we think we can take pricing. There are places where we can do trade optimization. The point that Andrea made on RGM is going to be very important, and we can be very targeted with that activity. So I think these are conversations that certainly everyone in the industry will be facing, which always makes it a more productive conversation because everyone sees what we see.

But at the same time, we are all focused on the same thing and our retailers are seeing exactly what we see, a stressed consumer, and we want to make sure that we're doing the things for long-term category growth that are right. And so again, I feel like we have the right tools. I know we can handle this. We'll discuss the pacing between sales and margin as we get a better look at what '27 will bring from an inflation perspective. And our #1 priority will be on driving consumer stability and ensuring we have value superiority to do that.

Operator: We'll move next to Anna Lizzul with Bank of America.

Anna Lizzul: So your second half guidance here was somewhat hinging on your ability to deliver here on innovation. And I know it's still moving forward, but it's proving challenging, I think, for that to come through fully in this environment. So I was wondering if you can elaborate on the ways maybe how you're adjusting moving forward, meaning have there been any changes made on these innovation investments or marketing spend as you're thinking ahead? We've also seen some greater exposure from private label and the data coming through in certain categories. So wondering if you can comment on this as well.

And then longer term, just with GOJO, do you see -- still see your ability here to meet your longer-term IGNITE strategy just given the margin profile of the business and then the potential advantages that come from this acquisition here longer term?

Linda Rendle: Thanks, Anna. I'll go through these. And if I miss anything, please come back to me. Innovation, that has been largely very successful in this back half. So despite everything that's going on, our innovation execution, and I'm going to put Litter to the side for a moment, and I'll touch on that again, has been great. So our largest innovation with Clorox PURE, which is our allergen platform, has gone very well. We got early wins on distribution. We were online early. We're getting great reviews. Retailers are very excited and they're excited for the next round that we have coming at the beginning of fiscal year '27. We'll bring them some new benefits in this category.

But on that, we got preferred shelf placement. And these are new sections of the store for us, and retailers are partnering with us to ensure we can get this in front of consumers. So feeling terrific about that big innovation platform, its execution and the results, which are at this point from a velocity perspective, above expectations. I'd also note that the other innovations we have in Cleaning, including the expansion of our Scentiva line continue to do really well. We launched a new flavor in Cherry Blossom and that has been our #1 scent, and we're expanding that scent into different forms.

But that's a place where, as I talked about, consumers are continuing to willing to pay for a premium experience and joy and scent fit in that bucket and Scentiva continues to personify that. I'd also call out our food launches, which we believe are off to a good start and our Glad line where we have a new absorbent layer in our trash bag, we continue to feel good about the distribution and the plans for that as well as new scent. So generally, innovation, very strong execution and strong performance. Litter, again, early days, and this was a hard conversion.

So I would note it's not unexpected where we are, but we just have not proven yet that it is exactly what it needs to be, and we are making the adjustments to the plan. I feel good about the fact that we're offering a better value. The claims are better. The packaging is better. Our digital execution is much stronger, and we're seeing very strong digital pickup on Fresh Step, but we don't have yet the whole thing in market yet to see exactly where we need to make adjustments. The places we do know we need to make adjustments, we are with retailers right now doing that.

So I'd call that out as the one place in innovation that is behind our expectation with everything else at or above. And then on -- I'll go to your next question, as long as I've covered innovation sufficiently for you. I'll start with private label. And I think I mentioned in one of my comments that private label shares have been flat over the majority of our categories. It's basically stabilized. We're watching it really carefully because we have seen ticks up in certain time periods as retailers promoted or and bring in a new item. But generally, consumers continue to want brands, and they continue to want value overall, not just the lowest price.

There are places where we've seen a bit more pickup in private label. Brita would be one. We're watching that one carefully. We've seen that trend over time. And as we continue to launch innovation, we end up getting some of that share back, but that's a place we're watching carefully. And then I'd say we're watching carefully any other place where retailers are leaning in and making investments. But overall, private label just hasn't had the impact that many would have expected. And I know many of you are asking questions about that. We've continued to see it play the role that it normally does, which is offering a low price for those consumers who need it.

And then on GOJO on the long-term algorithm, certainly, GOJO is a strong step to delivering our overall algorithm, which we remain committed to. But also what is also very important is that our categories get back to normalized levels in order for us to deliver that. So because it's accretive from a growth perspective, we see that playing a role in '27 and beyond. And of course, most importantly, we're focused on getting our core categories back up to what they were before in low mid-single digits.

Operator: And our next question comes from Chris Carey with Wells Fargo.

Christopher Carey: I just wanted to ask about just first and foremost, as a clarification. Was there any kind of like shipment versus consumption dynamic in the quarter? I think just health and wellness and household specifically came in a bit different than expectation. I realize that you had the timing dynamics from last quarter, but I just wanted to check how results compared to underlying consumption as you see it. And I have a follow-up.

Luc Bellet: Yes, Chris, I can take that. There was certainly a lot of movement across segments and difference between shipment and consumption. For the total company, U.S. retail, we -- it all netted out to about 1 point of negative timing relative to consumption. Now if you remember, in the second quarter, we shipped volume ahead of consumption in health and wellness ahead of our last wave of manufacturing ERP implementation. So we were expecting that point of favorability in the second quarter to reverse in the third quarter and that happened. So that's on Health and Wellness.

But then you had more noise in both household and lifestyle, and they were related to a mix of retailer inventory adjustments, mostly in lifestyle as well as some early shipments in -- mostly in household, both in Litter and in Kingsford. So those 2 offset each other. There were about a point of the company -- a point of total company each. And the retailer inventory adjustment is just onetime and nonrepeating. But of course, the early shipment is something that we expect to reverse in the fourth quarter. So that will be a little less than a point of headwind in the fourth quarter.

Now the fourth quarter has a lot of merchandising leading up to July, August, September period. So there might be more noise. And so we'll see what happens. But that's the gist of it as you think about shipment related to consumption.

Christopher Carey: Okay. The follow-up question is just around the portfolio. There are some areas of the portfolio which have been challenged for some time. There are some categories where maybe they're not traditionally where you would think you are right to win exists. When you go through moments like this where market shares are maybe progressing a bit slower, there's potentially an opportunity to be even a bit more focused. Are you having those portfolio review conversations? Is that activity becoming a bit sharper? Any context on just when you're going through these kinds of cycles, how you think about them and how you react?

Linda Rendle: Sure, Chris. First, I'd start with we're always doing portfolio work, and we have a regular review process as a management team and, of course, importantly, a regular review process as a Board where we're looking at our portfolio, and we're doing a number of things. We're deciding how we allocate resources within the portfolio that we have, where we want to place bets, where we think we need to be more efficient. And we do that on a regular basis. And in fact, we'll do that again coming up here for fiscal year '27.

And then we are evaluating the portfolio more strategically as well and looking at inorganic options, and that's led to many of the things that we have done, including the divestiture of Argentina, the acquisition of the majority of the ownership in the JV that we had in Saudi Arabia as well as the sale of VMS and of course, importantly, the acquisition of GOJO and our expansion in our Health and Hygiene portfolio. And that is exactly the result of the work that we have done. And we'll continue to do that work. It's important work to ensure that we have a portfolio set up for success.

The thing I would note is some of these issues, we just -- we've got to execute better and we have to deliver better superiority. And a case in point would be Glad. In Glad, trash it can be a tough category. It's very competitive. Consumers can be price sensitive, but innovation works in that category. And we've seen through the work that we've done on getting sharper price points, better innovation, stronger plans that Glad has begun to progress and make progress. We saw the trash category was quite strong this quarter, up over 2 points. And our share is sequentially improving significantly, and we feel good about our Q4 plan.

So it's a great example of where we talked about that, that's been a little bit of a thorn for the last couple of years. But putting the right measures in place, being disciplined about cost management, ensuring that we have superiority, we can make progress, and we're doing just that. And I would expect that for any of our businesses. So maybe just to sum up, Chris, yes, we're always doing the portfolio work. That leads to the type of actions like we've taken. And job #1, no matter what, is always ensuring that we have a healthy core, and that's exactly what we're focused on.

Operator: Our next question will come from Javier Escalante with Evercore ISI.

Javier Escalante Manzo: Hello, everyone. I guess mine are for Luc, I think. So double clicking on the -- hello, can you hear me?

Linda Rendle: We can hear you. Yes, perfectly.

Javier Escalante Manzo: Okay. Sorry for that. Okay. So perhaps for Luc, I think, because they are very mechanical my questions. One clarification about price mix for household. So reported was flat, right? But Circana data shows pricing running down mid-single digits. So trying to bridge the difference, should we think of that to be some sort of an artifact, meaning that you advance shipments of litter and grilling and that trade and marketing spending will accrue in Q4. So shall we expect pricing to become negative in Q4? And then I have a follow-up on Glad.

Luc Bellet: Yes, Javier, in general, like the price/mix for household, I would step back, and we might have a little bit of noise by quarter, but we expect it to be about a point of headwind, meaning that volume would grow about a point ahead of sales. That's the average for the quarters. We'll see a little bit of difference by quarter, and it depends, of course, on promo events. And in household, especially if you have different promo at club, this can actually really distort the data and which might not be fully reflected in the same exact period from a P&L standpoint. So that's maybe what it is. But I wouldn't expect a big shift in Q4.

Again, just we're currently tracking as expected on price/mix for the remainder of the year.

Javier Escalante Manzo: Very helpful. And on the Glad JV buyout, what category growth and pricing assumptions you guys built as you presented the capital spending model to the Board when you value the acquisition, right, and whether you compare that NPV and return of the buyout against divesting it, for instance? Could you elaborate on that?

Linda Rendle: Javier, we won't get into that level of specificity. But what I will say when we are talking about this with the Board and why we feel really great about what we did in Glad, we saw an opportunity to move faster. And that our Glad JV offered great innovation results for a number of years. But we knew that by having full control, we would be able to move faster. We would be able to get innovation to market faster, make changes faster. And we've seen that come to life in the plan, and we believe that's part of the reason we've been able to have an inflection in the Glad business.

The other thing I would just note is we look at all the businesses, like I said with Chris, we're always looking at our portfolio. And of course, there's a multitude of things that have to be true. There has to be a buyer. There has to be interest. It has to be the right move for our company. We have to make sure that we're able to execute any time we take very seriously whether we've divested a business like Argentina or VMS or acquired one, the organizational capacity and resources to do that. So we're evaluating all of those things with the Board.

And net, where we landed is ending this JV and moving forward with our Glad business was the right thing to do. And we are continuing to be focused on innovation in that category, ensuring that we get prices right and then managing through what -- I don't know exactly what it's going to look like, as Luc said, but a potential difficult cost environment coming up here for an uncertain period of time.

Operator: And our next question comes from Olivia Tong with Raymond James.

Olivia Tong Cheang: I wanted to ask about a comment that you made in your prepared remarks on Glad and saying that you're prepared to adjust your plans as needed to balance growth and profitability. Obviously, that business is the most impacted by resin costs and if they start to materially move. So we've seen a lot of your staples peers doubling down on brand support and how that isn't going to be an area where companies are going to look to pull back despite the increased anxiety about the consumer -- despite the increased inflation because of the increased anxiety about the consumer.

So if you could just sort of elaborate on that comment around the balance of growth and profitability, where you could potentially find areas of flexibility within the P&L given that Glad has started to turn the corner and just understanding your ability to hold that momentum?

Linda Rendle: Thanks, Olivia. Yes, we really do mean a balance. And Glad is one, as you rightly note, that does have a big impact depending on energy complexes and then how it plays out into resin costs. And it's one that we have a long history of taking price and actually taking price down over time depending on where those markets are. So too early to say what we're facing in fiscal year '27. So we're evaluating it closely. But I'll just make a comment that's true of Glad and it's true of the entire portfolio. I said a little bit earlier, but I'll emphasize it.

Our #1 priority right now and in fiscal year '27 will be on driving value superiority in our brands, investing in them strongly, and I mean that very broadly. I mean that in advertising and sales promotion, and we're strengthening our plans and investments right now on that as we think about '27 ensuring that we have the right RGM activities in the market, as I gave you an example with Glad, and we'll be putting more tests in the market that we think will pan out well and potentially could be more permanent moving forward. Of course, we've invested in data and technology.

So we're making all of the spending we have more efficient at the same time, moving more dollars into working media and out of nonworking media, using AI to take costs down. We're focused on just a holistic way that we can get more investments to our brands and drive superiority. And that will absolutely be true of Glad. And we will evaluate is pricing the right move? Would we change trade, et cetera. But that's the order of operations for us. Number one, value superiority in driving categories and shares. Number two, and we believe we will be able to do both of these balance over time is recovering costs.

And we think we have the toolbox to do both, and Glad will be no different than the rest of the portfolio. And the other thing that I would note is it's really important that we continue to be focused and we are on innovation. We said we were ramping up the back half. We have. Most of it has gone very well. We expect to continue to make progress in fiscal year '27. We feel great about our innovation pipeline over the next couple of years and getting -- if we can get another point of innovation, that is a significant driver to our top line and to our shares.

Operator: And our next question comes from Lauren Lieberman with Barclays.

Lauren Lieberman: First thing I just wanted to ask about was just the ERP stabilization that you talked about in this quarter. First, a technical aspect. Sort of where does the incremental cost from that show up in the gross margin bridge you guys share so we could just kind of try to understand the magnitude of the pressure as we think about into next year, the comp. And then just sort of anything that you could add on where you stand? You said, I don't know where -- when during the quarter you felt you reached stabilization and kind of what that entailed? And then I do have a second question afterwards.

Linda Rendle: Lauren, thanks for the question. I'll start, and then I'll hand it over to Luc for the technical margin [ question ]. So we were able to complete our ERP in Q3. If you all recall, we did the major portion of the U.S. at the beginning of our fiscal year, but then we had a series of changes at our plant, and that finalized in Q3 with very minimal impact as we had expected. So mainly the ERP stabilization too, is about getting our performance and service levels up, and we continue to stabilize that in Q3, and that was a result of the cost.

I think I would just maybe take an opportunity to say again how important this transition is to the company. And we recognize it's created some dispersed focus, but it's critical to having the foundation of the company that allows us to use all of the tools from a data and technology perspective that can help us grow our business, make our business more efficient, and so recognize the noise and certainly the dispersed focus we've had. But we feel good about where we are and the fact that we've gotten to the place where it is -- all 3 rounds are complete. And it did have a margin impact.

I think we talked about that last quarter, where we would expect some incremental costs that were a bit higher than we had expected. And I'll have Luc walk through those details now.

Luc Bellet: Yes. And Lauren, maybe one more piece of context is we rolled out a lot of different, what we call module as part of the ERP transition. Some of it is supporting our manufacturing operations. Some of it is supporting our logistics, demand fulfillment and order to cash. And if you remember, in the first quarter and second quarter, we've been slower in ramping up our order to cash and stabilizing our service levels. And we knew that we will continue that stabilization through the third quarter and the fourth quarter, right? Now we had expected -- we incurred additional costs in the front half as we stabilize that service level.

And those costs are mostly in the area of logistics and fulfillment, right? So think about cost of expediting orders, additional costs moving around inventory more than you should, less than optimal transportation costs and incremental labor costs. So as you -- now we expected those to linger in the third quarter and those costs ended up being a little more than we had anticipated. Now the good news, though, is that as we moved through the third quarter, we started making more progress on stabilization and towards the end of the quarter and this month, we incurred very minimal costs. So we're seeing those come down.

And for the fourth quarter, we would expect no incremental costs are very minimal. So that was one portion of the shortfall related to our outlook. And then we also ended up delaying some cost savings and having a little less cost savings than we planned in our outlook, which further put pressure on gross margin. And that, again, related to the stabilization of the order to cash and service level. If you remember, in Q1, Q2, as we were at the peak of the ERP disruption, we had lower cost savings than our historical level, especially in Q1 as we essentially had the organization and operational organization and resource really focused on stabilization and ramping up service levels.

And so since it took a little longer to ramp up in the third quarter, we had to further delay some cost savings. And so that will -- some will go in Q4 and some of Q4 will go in next year. Now the good thing here, though, is that we already had a strong pipeline next year, and that will only strengthen the pipeline going forward.

Lauren Lieberman: Okay. Great. And then my second question was just about TDPs earlier in the call, Linda, when you shared that TDPs are up 5%, which is great. We can definitely see that when we look at the Nielsen data. But what we have seen is that the velocities have actually been pretty weak. I guess you shared that the items are in the wrong place. So maybe the answer is just that simple. But I just wanted to check in if that's kind of the right way to think about it and that as you get that on-shelf execution more in line with your plan and your thinking that, that's where we should see the indication of change.

Is that right?

Linda Rendle: That's right, Lauren. We would expect that ramp-up as we get things fully on shelf and we turn on advertising related to those specific items. I'd also note on Litter, if you're specifically referring to velocities there, which you likely are given what we've seen in performance, because that was a hard conversion, and I know you all know this, but I'll take the opportunity to explain it a click more. We took an item and then we completely changed it. So actually changed the UPCs, and that requires a hard conversion at a retailer. So what happens is in the old item, they start to discontinue it and they sell it down before they bring the new item in.

And in some places, they don't want to have any overlap in that. So there were places where we had some out of stocks. It's pretty normal in a conversion, which can impact velocities, and that's what we think some of what the noise was in Litter and will continue to be until we get the shelf fully reset is, and we're also noticing there's some change in velocity data, Lauren, due to the fact that people are making value choices with trading up to larger sizes and small, make the velocity information a little noisy. But where it's cleaner, we see strong performance. And as we continue to ramp up spending, we would expect that to continue.

But literally, we'll be watching very closely, and we might have to make additional adjustments so we can get those velocities back up.

Operator: We'll move next to Stephen Powers with Deutsche Bank.

Stephen Robert Powers: Great. I thought I was on mute. I'm glad not. Okay. Fantastic. First question to round out the gross margin. I guess -- and maybe I'm a little slow with the punch here, but can you just, Luc, maybe bridge exactly what's changed and what the drivers are between last quarter's full year outlook for gross margin down around 100 basis points and now down 250 to 300. I think I've got the buckets qualitatively, but I'm having a hard time assigning like numbers to those various drivers.

Luc Bellet: Yes. And Steve, just confirming you're asking a bridge for the third quarter or for the fourth quarter?

Stephen Robert Powers: For the full year and prior guidance -- current guidance.

Luc Bellet: Good. Well, yes, you mentioned it. There's essentially 2 impacts. The third quarter, we just talked about it. It was a little over a point, and we just talked about what drove that. And then there was Q4. And Q4, let me unpack this a little bit because there's certainly some complexity. I guess the most important thing when we look at Q4 projected margin, it's probably important to frame it within the context of several temporary and nonrepeating items. So maybe what I can do is let me do a quick rec versus a year ago and then just talk about what is different in the new outlook.

So versus a year ago, we're also -- we're seeing about 5 points of decline versus last Q4 gross margin. 150 basis points of that is coming from the fact that we're lapping strong shipment and operating leverage associated with the ERP transition. So that was in our prior outlook, but it's still significant on a year-over-year basis. And then we have about 200 basis points coming from the GOJO acquisition, right? Now as I mentioned, we'll expect ongoing in the first year to see about 50 basis points of gross margin dilution.

And in Q4, we have 150 basis points of onetime items related to -- that are associated with the inventory value step-up of the -- that we acquired. And so that won't be repeating, but that creates a total of 200 basis points. And then the last item is really just recognizing about 100 to 150 basis points of elevated input costs related to the conflict in the Middle East. So that's the 5 points versus year ago. Now what is new, we already had the first item, which was the lapping of the ERP transition. Both the GOJO and the Middle East are new, and that creates most of the variance and then there's a few puts and takes.

Probably the most meaningful one is what I mentioned. We have about 50 basis points of headwind associated with some onetime expenses related to a large cost saving projects that we're accelerating into fiscal year '27. So that's the bulk of the difference between our prior outlook and the current outlook.

Stephen Robert Powers: Okay. Yes. I actually I follow that. That's very helpful. Okay. My follow-up then is 2 parts. One is you said earlier that the fourth quarter Middle East impact at $100 oil was a pretty full impact at $20 million, $25 million a quarter. So I'm assuming that annualized at $100, your impact at $100 of oil would be $80 million to $100 million. And therefore, we'd be looking at roughly $75 million incremental in fiscal '27, if you follow that kind of math. My second question is on advertising. You held the 11% of sales even as we layered on more sales with the addition of GOJO. So there's implied more advertising dollars in the guide now.

And I'm just curious if that incremental A&P is intended to go against the GOJO portfolio or if it goes against your legacy portfolio? And if the latter, kind of where you'd be targeting it?

Linda Rendle: Perfect. Steve, I'll start with just maybe a framing on the Middle East and cost, and then I'll hand it over to Luc for a couple more details, and he can cover the advertising in Q4 as well. So just from a Middle East perspective, I think what's important to note, and I'll just go back to what Luc said, I think that's what everyone knows, Q4 is right in front of us. So we can see the energy complex effects that are happening, and you got that right in the $20 million to $25 million.

But as we look to the year ahead, what I would just caution us all to do is there are so many impacts potentially depending on how this conflict plays out, how long it goes, other related downstream commodity impacts that can happen that we're watching carefully, and they're just really uncertain and volatile right now. And so if everything were to continue as is, and it was just energy complexes, that would be a fair set of assumptions.

But I think based on what we know and what goes through the Strait of Hormuz and things that are happening now across infrastructure, it's -- we'll be better positioned to tell you in '27 exactly what we think that looks like depending on the assumptions that we'll have at that time. But I just -- I wouldn't take that and just multiply that. That's only one of the impacts. And again, we'll be watching the other ones carefully as we move forward. I'll hand it over to Luc.

Luc Bellet: No, I think that's right. And I mean, it's still a very helpful number, and it certainly materialize what we're currently seeing. Maybe just switching to your advertising question. So the short answer, Steve, is it's just rounding. So you are correct in Q4 we will see advertising as a percentage of sales going down by 1 point due to the integration of the GOJO business. But because it's only 1 quarter, it's about negative 25 basis points or so for the full year. So we're still rounding to 11%.

Operator: And our next question comes from Edward Lewis with Rothschild.

Edward Lewis: I guess just a couple of ones for me. Just Linda, you talked about value superiority in the last month. We've heard you talk about this a lot. I guess just wondering now how much of a role does price take when you're considering sort of value superiority, how it's sort of calculated or perceived just in light of what you were saying around the actions you've done about Glad. Just any color on that would be interesting. And then you talked about making some investments to address further cost savings going forward. Can you just elaborate a bit more on those? Because obviously, we've got pretty used to seeing very consistent cost savings coming through.

And so interested to hear what you're doing there.

Linda Rendle: Ed, I'll start on value superiority, and I'll cover investments as well and if anything Luc wants to add. So on value superiority, that is, by definition, a combination of the entire experience that we provide to a consumer. It's the product, it's the package. Is it where it needs to be? Is the place right? And is the proposition right? Does the brand stand for something? And then, of course, importantly, price. And those 5 things work together, those 5 Ps to give an overall value to a consumer. And what we aim to do is take those 5 and create overall superiority.

And what we want to do is drive superiority through a better brand experience, through a better product, through a great package that gives consumers a new way to use a product or an easier way. And then we want to be able to price to that superiority, which usually means we can command a premium, which is what we do in most of our categories. And we just got to make sure we have that balance right. So for example, in Glad on that RGM activity where we took price down on 80 count, we didn't have that quite right.

We took the price down, and we got back to a place where we felt we had overall value superiority, but we did need to pull the price lever to get closer in line to the right price gap that we needed.

We're testing other things, as I mentioned, in RGM that we'll look at that for other brands where we want to be targeted to ensure that we have that overall equation right and where we think price is playing a little bit more of an important role or because we took 4 price increases as did the industry during that significant period of inflation, and there might be some places and we said we knew we would have to do this where we'd have to adjust. And again, we're testing a few of those now.

And we also want to use things like price pack architecture and other RGM levers where we don't have to just take a truckload price, but we can do take pricing in different ways as we trade off benefits. So I would say price plays a very important role, but it is really about connecting it to those other 4 levers and making sure you have overall superiority. The most important thing that we can do, though, is have those other things right. So I'll take PURE, for example. We have a superior product that we know gives consumers more benefits to remove allergies. It's in a great package that consumers love and makes it easy for them to use.

The proposition is clear. The claims are clear. We're spending against it strongly. And then we've leaned into digital and on-shelf placement to ensure they get it, and we can command a premium for that experience as a result and velocities are quite strong to start. That's the magic and that's where we want all of our brands to be. But if we need to lean into price in a couple of places to get back in line, we will, Ed. We've done that, like you said on Glad, and we'll do that in other places. Yes. And then moving to the second point on your investment on cost savings. So I won't give specifics on the project.

We'll talk about it more later, but it's a big supply chain project that we're able to accelerate and will offer significant savings moving forward. But as we looked ahead into the cost environment in '27, we thought the right thing to do was to go ahead and accelerate that project. And so we made that investment in this quarter, and we'll talk more about what we're doing as we head into fiscal year '27.

Luc Bellet: Yes. And Ed, maybe just as added context, we always have onetime investment associated with cost savings and usually plan pretty tightly by quarter. Since we've been removing and delaying some cost saving and accelerating some, that created a little bit of a difference in the fourth quarter. And just the magnitude of the project is a little larger than normally what we see. Those investments can be asset write-off, could be engineering costs, if you look at a manufacturing project -- manufacturing cost saving project as an example.

Operator: And this concludes the question-and-answer session. Ms. Rendle, I would now like to turn the program back to you.

Linda Rendle: Thanks, Jen. As we close out today's call, I want to reinforce a few points. First, while our third quarter results did not meet our expectations, we're operating from a much stronger foundation. The ERP implementation is complete, service levels have stabilized and complexity and costs are coming down. These are critical enablers of better execution. Second, we see clear signs of progress as we focus on driving value superiority across our portfolio. Innovation across the portfolio is strong. On-shelf presence is improving and teams are sharply focused on the fundamentals that matter most: availability, pricing and promotional effectiveness and end market execution. These actions are essential to building momentum through the fourth quarter.

Looking ahead, we're also strengthening our plans and investments in targeted areas to accelerate share gains. And finally, we remain confident in our ability to translate these efforts into improved performance over time. While the environment remains challenging, we have the right strategy, capabilities and teams in place to finish the year stronger and enter fiscal 2027 with greater momentum. We thank you for your time and questions and look forward to updating you on our continued progress next quarter.

Operator: And this concludes today's conference call. Thank you for attending.

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