CLOROX CO DE
For the period ended Sep 30, 2024. Filed Oct 30, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Oct 30, 2024
CLX$99.96+0.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-30.
0000021076-24-000016
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-10-30.
0000021076-24-000040
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 156 previous paragraphs and 131 current paragraphs.
67 unchanged; 49 reworded; 14 added; 38 removed; 2 previous and 1 current paragraphs rearranged.
Tables are not compared: 18 previous and 18 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (14)
Current report
The Company will continue to invest in its brands, capabilities and people to deliver consistent, profitable growth over time. The Company completed implementation of the new streamlined operating model in fiscal year 2024, which continues to generate annual cost savings in fiscal year 2025 and beyond. The recent divestitures of the Company’s Argentina and Better Health VMS businesses reflect its commitment to continue evolving its portfolio to reduce volatility, accelerate sales growth, and structurally improve margins.
Current report
The Company has recovered from the August 2023 cyberattack which had significant impacts to its operations and results in fiscal year 2024. For further information on the incident, see Notes to Condensed Consolidated Financial Statements.
Current report
Net salesand volume in the current period increased by 27% and 26%, respectively, primarily due to lapping impacts from the August 2023 cyberattack.
Current report
RESULTS OF OPERATIONS (Continued)
Current report
Other (income) expense, net was ($22) and $12 in the current and prior period, respectively. The variance was primarily due to a gain on revaluation of the Company’s trust assets related to its nonqualified deferred compensation plans and the benefit of insurance recoveries related to the cyberattack in the current period. For further information on the cyberattack, see Notes to Condensed Consolidated Financial Statements.
Current report
The effective tax rate on earningswas 41.8% and 14.6% for the current and prior period, respectively. The higher tax rate on earnings in the current period was primarily driven by the nondeductibility of the loss on the divestiture of the Better Health VMS business in the current period and the impact of relief provided by the Internal Revenue Service relating to U.S. foreign tax credit regulations in the prior period.
Current report
Diluted net earnings per share
Current report
Diluted net earnings per share (EPS) increased by $0.63, or 371%, in the current period, primarily due to higher net sales and cost savings, partially offset by the loss relating to the divestiture of the Better Health VMS business and higher advertising investments.
Current report
Both volume and net sales increased by 38%, and segment adjusted EBIT increased by 126% during the current period. The volume increase was primarily due to lapping impacts from the cyberattack. The increase in segment adjusted EBIT was primarily due to higher net sales and cost savings, partially offset by higher advertising investments.
Current report
SEGMENT RESULTS (Continued)
Current report
Volume and net sales decreased by 6% and 4%, respectively, while segment adjusted EBIT increased by 3% during the current period. The volume decrease was primarily due to the Argentina divestiture partially offset by lapping impacts from the cyberattack. The variance between volume and net sales was mainly due to favorable price mix partially offset by the impact of unfavorable exchange rates. The increase in segment adjusted EBIT was primarily due to volume recovery from the cyberattack, partially offset by higher advertising investments and the Argentina divestiture.
Current report
Net sales decreased by 34% due to lower net sales in the Better Health VMS business as a result of the divestiture in the current period. Segment adjusted EBIT was essentially flat for the current period.
Current report
Net cash provided by operations was $221 in the current three month period, compared with $20 in the prior three month period. The increase was primarily driven by higher cash earnings and lower incentive compensation payments; partially offset by changes in working capital in the current three month period. The higher cash earnings and changes in working capital in the current three month period were a result of the operational disruption from the cyberattack in the prior three month period.
Current report
•risks related to the Company's reliance on third-party service providers, including inability to meet cost savings or efficiencies, business or systems disruptions, and other liabilities, including legal or regulatory risk;
Removed paragraphs (38)
Previous report
Cyberattack
Previous report
On Monday, August 14, 2023, the Company disclosed it had identified unauthorized activity on some of its Information Technology (IT) systems. That activity began on Friday, August 11, 2023 and after becoming aware of it that evening, the Company immediately began taking steps to stop and remediate the activity. The Company also took certain systems offline and engaged third-party cybersecurity experts to support its investigation and recovery efforts. The Company implemented its business continuity plans, including manual ordering and processing procedures at a reduced rate of operations in order to continue servicing its customers. However, the incident resulted in wide-scale disruptions to the Company’s business operations throughout the remainder of the quarter ended September 30, 2023.
Previous report
The impacts of these system disruptions included order processing delays and significant product outages, resulting in a negative impact on net sales and earnings. The Company has since transitioned back to automated order processing. The Company experienced lessening operational impacts in the second quarter and has since returned to substantially normalized operations.
Previous report
The effects of the cyberattack are expected to negatively impact fiscal year 2024 results, though some of the anticipated net sales not recognized in the first quarter as a result of the disruptions were recognized in the second and third quarters.
Previous report
The Company also incurred incremental expenses of approximately $8 and $57 as a result of the cyberattack for the three and nine months ended March 31, 2024, respectively. These costs relate to third-party consulting services, including IT recovery and forensic experts and other professional services incurred to investigate and remediate the attack, as well as incremental operating costs incurred from the resulting disruption to the Company’s business operations. The Company expects to incur lessening costs related to the cyberattack in future periods.
Previous report
The Company has not recognized any insurance proceeds in the three and nine months ended March 31, 2024 related to the cyberattack. The timing of recognizing insurance recoveries, if any, may differ from the timing of recognizing the associated expenses.
Previous report
Other Recent Events
Previous report
Net salesand volume in the current three month period decreased by 5% and 4%, respectively, driven by lower shipments across the Lifestyle, Health and Wellness and Household reportable segments, primarily due to distribution losses resulting from the cyberattack. The variance between volume and net sales was primarily due to unfavorable foreign exchange rates, partially offset by favorable price mix.
Previous report
Net sales and volume in the current nine month period decreased by 3% and 6% respectively. The volume decrease was primarily driven by pricing actions and the impacts of the cyberattack. The variance between volume and net sales was primarily due to favorable price mix, partially offset by unfavorable foreign exchange rates.
Previous report
Gross margin increased by 40 basis points in the current three month period from 41.8% to 42.2%. The increase was primarily driven by the benefit of pricing and cost savings, partially offset by higher manufacturing and logistics costs, unfavorable foreign exchange rates and higher trade promotion spending.
Previous report
Selling and administrative expenses, as a percentage of net sales, increased by 40 basis points and 140 basis points in the current three and nine month periods versus the prior periods, respectively. The dollar decrease in selling and administrative expenses in the current three month period was primarily due to lower incentive compensation expense. The dollar increase in selling and administrative expenses in the current nine month period was primarily due to incremental costs associated with the cyberattack and an arbitral decision related to a commercial dispute.
Previous report
Pension settlement chargewas $171 in the current nine month period and reflects the settlement of the domestic qualified pension plan. See Notes to Condensed Consolidated Financial Statements for further information.
Previous report
Goodwill, trademark and other asset impairmentsof $445 in both the prior three and nine month periods reflected noncash impairment charges to goodwill and certain indefinite-lived trademarks related to the VMS business. See Notes to Condensed Consolidated Financial Statements for further information.
Previous report
Other (income) expense, net was ($2) and $24 in the current and prior three month periods, respectively, and $3 and $54 in the current and prior nine month periods, respectively. The variance between the current and prior three month periods was primarily due to higher restructuring and related implementation costs associated with the streamlined operating model incurred in the prior period. The variance between the current and prior nine month periods was primarily due to higher restructuring and related implementation costs associated with the streamlined operating model incurred in the prior period and the sale-leaseback transaction recorded in the current period, partially offset by the net impact of interest income and Argentina foreign exchange rates in the current period.
Previous report
Restructuring and related costs
Previous report
In the first quarter of fiscal year 2023, the Company began recognizing costs related to a plan that involves streamlining its operating model to meet its objectives of driving growth and productivity. The streamlined operating model is expected to enhance the Company’s ability to respond more quickly to changing consumer behaviors and innovate faster. The Company anticipates the implementation of this new model will be completed in fiscal year 2024, with different phases occurring throughout the implementation period.
Previous report
Once fully implemented, the Company expects cost savings to be approximately $75 to $100 annually. The benefits of the streamlined operating model are currently expected to increase future cash flows as a result of cost savings that will be generated primarily in the areas of selling and administration, supply chain, marketing and research and development.
Previous report
The Company incurred $60 of costs in fiscal year 2023 and anticipates incurring approximately $30 to $40 of costs in fiscal year 2024 related to this initiative of which approximately $10 to $20 are expected to be employee-related costs to reduce certain staffing levels such as severance payments, with the remainder for consulting and other costs. Costs incurred are expected to be settled primarily in cash.
Previous report
Restructuring and related implementation costs, net were $10 and $13 for the three and nine months ended March 31, 2024, of which $4 and $4 was related to employee-related costs and $6 and $9 was related to other costs, respectively. Restructuring and related implementation costs, net were $21 and $44 for the three and nine months ended March 31, 2023, of which $14 and $30 was related to employee-related costs and $7 and $14 was related to other costs, respectively. For further details on the streamlined operating model and restructuring, refer to the Notes to Condensed Consolidated Financial Statements.
Previous report
The effective tax rate on earnings (losses)was (18.6)% and 41.9% for the current three and nine months periods, respectively, and 14.7% and 1,813.5% for the prior three and nine months periods, respectively. The lower tax rate on losses in the current three month period was primarily driven by the divestiture of the Argentina business and an international legal entity reorganization, partially offset by the partial non-deductibility of impaired VMS goodwill in the prior period. The substantially higher tax rate on earnings before income taxes in the prior nine month period was driven by lower pre-tax income due to VMS impairment charges and the non-deductibility of a portion of those charges, partially offset by the divestiture of the Argentina business in the current period.
Previous report
Diluted net earnings (losses) per share
Previous report
Diluted net earnings (losses) per share (EPS) increased by $1.30, or 76%, in the current three month period, primarily due to the noncash impairment charges on assets held by the VMS business in the prior period and the benefits of pricing in International and cost savings in the current period, partially offset by losses relating to the divestiture of the Argentina business, unfavorable foreign exchange rates, higher manufacturing and logistics costs and lower volume.
Previous report
Diluted EPS increased by $0.74, or 336%, in the current nine month period, primarily due to the noncash impairment charges on assets held by the VMS business in the prior period and the benefits of pricing and higher gross margin in the current period, partially offset by losses relating to the divestiture of the Argentina business, the pension settlement charge, unfavorable foreign exchange rates and lower volume.
Previous report
Volume and net sales decreased by 5% and 3%, respectively, and segment adjusted EBIT increased by 24%, during the current nine month period. The volume decrease was primarily due to pricing actions and distribution losses resulting from the cyberattack. The variance between volume and net sales was primarily due to the benefit of price increases. The increase in segment adjusted EBIT in the current period was primarily due to lower manufacturing and logistics costs, the benefit of price increases as well as cost savings.
Previous report
Volume, net sales and segment adjusted EBIT decreased by 3%, 4% and 25%, respectively, during the current three month period. The volume and net sales decreases were primarily due to lower consumption in Litter and distribution losses in Glad resulting from the cyberattack, partially offset by merchandising support in Grilling. The variance between volume and net sales was primarily due to higher trade promotion spending, partially offset by favorable price mix. The decrease in segment adjusted EBIT was mainly due to lower net sales and higher advertising costs.
Previous report
Volume, net sales and segment adjusted EBIT decreased by 9%, 11% and 23% respectively, during the current three month period. The volume decrease was primarily due to competitive activity and distribution losses in Natural Personal Care and supply chain constraints in Food, partially offset by the launch of new products in Food. The variance between volume and net sales was mainly due to higher trade promotion spending. The decrease in segment adjusted EBIT was due to lower net sales and higher manufacturing and logistics costs, partially offset by favorable commodity costs.
Previous report
Volume, net sales and segment adjusted EBIT decreased by 7%, 6% and 12% respectively, during the current nine month period. The volume decrease was primarily due to distribution losses, supply chain constraints and the impact of the cyberattack. The variance between volume and net sales was mainly due to favorable price mix partially offset by higher trade promotion spending. The decrease in segment adjusted EBIT was primarily due to lower net sales and higher manufacturing and logistics costs, partially offset by favorable commodity costs.
Previous report
Volume, net sales and segment adjusted EBIT increased by 1%, 2% and 41%, respectively during the current three month period. The variance between volume and net sales was mainly due to the benefit of price increases, partially offset by unfavorable foreign exchange rates. The increase in segment adjusted EBIT was primarily due to net sales growth behind pricing partially offset by unfavorable foreign exchange rates, higher manufacturing and logistics costs and unfavorable commodity costs.
Previous report
Volume decreased by 2%, and net sales and segment adjusted EBIT increased by 2% and 41% respectively, in the current nine month period. The volume decrease was primarily due tothe impact of the cyberattack. The variance between volume and net sales was mainly due to the benefit of price increases, partially offset by unfavorable foreign exchange rates. The increase in segment adjusted EBIT was primarily due to the net impact of pricing, partially offset by unfavorable foreign exchange rates, higher manufacturing and logistics costs and unfavorable commodity costs.
Previous report
Argentina
Previous report
Effective July 1, 2018, under the requirements of U.S. GAAP, Argentina was designated as a highly inflationary economy, and as a result the U.S. dollar replaced the Argentine peso as the functional currency of the Company’s subsidiaries in Argentina. Consequently, gains and losses from non-U.S. dollar denominated monetary assets and liabilities of Clorox Argentina are recognized in Other (income) expense, net in the condensed consolidated statement of earnings, utilizing the official Argentine government exchange rate.
Previous report
As of June 30, 2023, the net asset position, excluding goodwill, of Clorox Argentina was $48. Of these net assets, cash balances were approximately $28 as of June 30, 2023. Net sales from Clorox Argentina represented approximately 2% of the Company’s consolidated net sales for both the nine months ended March 31, 2024 and the fiscal year ended June 30, 2023.
Previous report
Net sales decreased by 10% and 4% in the current three and nine month periods, respectively, due to lower net sales in the VMS business. Segment adjusted EBIT increased by 31% in the current three month period primarily due to lower employee incentive compensation expenses. During the nine month period the segment adjusted EBIT increased by 5% primarily due to lower VMS operating expenses and reductions in employee related expenses primarily due to cost savings and lower employee incentive compensation, partially offset by foreign exchange losses on Corporate and Other assets related to operations in Argentina.
Previous report
Net cash provided by operations was $355 in the current nine month period, compared with $728 in the prior nine month period. The decrease was primarily driven by higher tax and employee incentive compensation payments in the current nine month period and an increase in working capital; partially offset by higher cash earnings in the current nine month period. The increase in tax payments made in the current period was primarily driven by payment of fiscal year 2023 income taxes previously deferred as a result of the relief provided by the IRS announced in January 2023 due to winter storms in California. The increase in working capital in the current nine month period is primarily due to decreased Accounts payable and accrued liabilities due to timing of payments.
Previous report
(2)Represents costs related to settlement of the domestic qualified pension plan. Due to the nature, scope and magnitude of these costs, the Company’s management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company’s operations and is useful for period over period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by Company management. See Notes to Condensed Consolidated Financial Statements for additional information.
Previous report
(4)Represents a noncash impairment charge relating to the VMS business. The Company’s management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company’s underlying operating results and is useful for period over period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by Company management. See Notes to Condensed Consolidated Financial Statements for additional information.
Previous report
(5)Represents restructuring and related implementation costs, net for the streamlined operating model. Due to the nonrecurring and unusual nature of these costs, the Company's management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company's operations and is useful for period over period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by Company management. See Notes to Condensed Consolidated Financial Statements for additional information.
Previous report
•the performance of strategic alliances and other business relationships;
Reworded paragraphs (49)
Previous wording
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of The Clorox Company’s (the Company or Clorox) financial statements with a narrative from the perspective of management on the Company’s financial condition, results of operations, liquidity and certain other factors that may affect future results. The following discussion of the Company’s financial condition and results of operations should be read in conjunction with MD&A and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, which was filed with the SEC on August 10, 2023, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this Report). Unless otherwise noted, MD&A compares the three and nine month periods ended March 31, 2024 (the current period) to the three and nine month periods ended March 31, 2023 (the prior period), with percentage and basis point calculations based on rounded numbers, except for per share data and the effective tax rate.
Current wording
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of The Clorox Company’s (the Company or Clorox) financial statements with a narrative from the perspective of management on the Company’s financial condition, results of operations, liquidity and certain other factors that may affect future results. The following discussion of the Company’s financial condition and results of operations should be read in conjunction with MD&A and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024, which was filed with the SEC on August 8, 2024, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q (this Report). Unless otherwise noted, MD&A compares the three month period ended September 30, 2024 (the current period) to the three month period ended September 30, 2023 (the prior period), with percentage and basis point calculations based on rounded numbers, except for per share data and the effective tax rate.
Previous wording
The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with approximately 8,100 employees worldwide. The Company has operations in approximately 25 countries or territories and sells its products in more than 100 markets, primarily through mass retailers; grocery outlets; warehouse clubs; dollar stores; home hardware centers; drug, pet and military stores; third-party and owned e-commerce channels; and distributors. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach, cleaning and disinfecting products, Pine-Sol® and Tilex® cleaners; Liquid-Plumr® clog removers; Poett® home care products; Glad® bags and wraps; Fresh Step® cat litter; Kingsford® grilling products; Hidden Valley® dressings, dips, seasonings and sauces; Burt’s Bees® natural personal care products; Brita® water-filtration products; and Natural Vitality®, RenewLife®, NeoCell®and Rainbow Light®vitamins, minerals and supplements. The Company also markets industry-leading products and technologies for professional customers, including those sold under the CloroxPro™ and Clorox Healthcare®brand names.
Current wording
The Clorox Company is a leading multinational manufacturer and marketer of consumer and professional products with approximately 7,400 employees worldwide. The Company has operations in approximately 25 countries or territories and sells its products in more than 100 markets, primarily through mass retailers; grocery outlets; warehouse clubs; dollar stores; home hardware centers; drug, pet and military stores; third-party and owned e-commerce channels; and distributors. Clorox markets some of the most trusted and recognized consumer brand names, including its namesake bleach, cleaning and disinfecting products, Pine-Sol® and Tilex® cleaners; Liquid-Plumr® clog removers; Poett® home care products; Glad® bags and wraps; Fresh Step® cat litter; Kingsford® grilling products; Hidden Valley® dressings, dips, seasonings and sauces; Brita® water-filtration products; and Burt’s Bees® natural personal care products. The Company also markets industry-leading products and technologies for professional customers, including those sold under the CloroxPro™ and Clorox Healthcare®brand names.
Previous wording
The Company primarily markets its leading brands in midsized categories considered to be financially attractive. Most of the Company’s products, which can be found in about nine of 10 U.S. homes, compete with other nationally advertised brands within each category and with “private label” brands. About 80% of the Company’s sales are generated from brands that hold the No. 1 or No. 2 market share position in their categories.
Current wording
The Company primarily markets its leading brands in midsized categories considered to be financially attractive. Most of the Company’s products compete with other nationally advertised brands within each category and with “private label” brands. About 80% of the Company’s sales are generated from brands that hold the No. 1 or No. 2 market share position in their categories.
Previous wording
•Lifestyle consists of food, natural personal care products and water-filtration products marketed and sold in the United States. Products within this segment include dressings, dips, seasonings and sauces, primarily under the Hidden Valley brand; natural personal care products under the Burt’s Bees brand; and water-filtration products under the Brita brand.
Current wording
•Lifestyle consists of food, water filtration and natural personal care products marketed and sold in the United States. Products within this segment include dressings, dips, seasonings and sauces, primarily under the Hidden Valley brand; water-filtration products under the Brita brand; and natural personal care products under the Burt’s Bees brand.
Previous wording
•International consists of products sold outside the United States. Products within this segment include laundry additives; home care products; water-filtration products; digestive health products; grilling products; cat litter; food; bags and wraps; natural personal care products; and professional cleaning and disinfecting products marketed primarily under the Clorox, Clorinda®, Poett, Pine-Sol, Glad, Brita, RenewLife, Ever Clean® and Burt’s Bees brands.
Current wording
•International consists of products sold outside the United States. Products within this segment include laundry additives; home care products; bags and wraps; cat litter; water-filtration products; professional cleaning and disinfecting products; natural personal care products; food; grilling products and digestive health products marketed primarily under the Clorox, Glad, Poett, Brita, Burt’s Bees, Pine-Sol, Ever Clean®, Clorinda®, Chux and Fresh Step brands.
Previous wording
For the fiscal quarter ended March 31, 2024, the Company continued to experience an inflationary environment marked by persistently unfavorable commodity costs and higher manufacturing and logistics costs. Additionally, the Company is monitoring macroeconomic conditions as a result of increased interest rates and volatility in capital markets. These evolving challenges contributed to a highly dynamic operating environment as the Company continued its efforts to drive growth, rebuild margins and drive its transformation.
Current wording
For the fiscal quarter ended September 30, 2024, the Company continues to monitor macroeconomic conditions as a result of elevated interest rates and volatility in capital markets. These evolving challenges contributed to a highly dynamic operating environment as the Company continued its efforts to drive growth, rebuild margins and drive its transformation.
Previous wording
The risks of future negative impacts due to transportation, logistical or supply constraints and higher commodity costs for certain raw materials remain present, and the Company continues to experience corresponding incremental costs and gross margin pressures. For fiscal year 2024, the Company anticipates the operating environment will remain volatile and challenging. Inflationary headwinds are expected to continue and consumers may feel greater pressure as continued macroeconomic uncertainty impacts spending. The Company will continue to invest in its brands, capabilities and people to deliver consistent, profitable growth over time. The Company announced and began implementing a streamlined operating model in fiscal year 2023 and will continue with its implementation in fiscal year 2024.
Current wording
The risks of future negative impacts due to transportation, logistical or supply constraints and higher commodity costs for certain raw materials remain present, and the Company continues to experience corresponding incremental costs and gross margin pressures. For fiscal year 2025, the Company anticipates the operating environment will remain volatile and challenging. While inflationary headwinds have moderated, consumers continue to feel pressure as continued macroeconomic uncertainty impacts spending.
Previous wording
The impact of continued inflationary pressures, macroeconomic conditions and geopolitical instability, including ongoing conflicts in the Middle East and Ukraine, rising tensions between China and Taiwan and actual and potential shifts in U.S. and foreign trade, economic and other policies, have increased global macroeconomic and political uncertainty regarding the duration and resolution of the conflicts, the potential escalation of tensions and potential economic and global supply chain disruptions. These factors are difficult to predict considering the rapidly evolving landscape as the Company continues to expect a variable operating environment going forward.
Current wording
The impact of continued volatility in macroeconomic conditions and geopolitical instability, including ongoing conflicts in the Middle East and Ukraine, rising tensions between China and Taiwan and actual and potential shifts in U.S. and foreign trade, economic and other policies, especially in light of the upcoming U.S. presidential election, have increased global macroeconomic and political uncertainty regarding the duration and resolution of the conflicts, the potential escalation of tensions and potential economic and global supply chain disruptions. These factors are difficult to predict considering the rapidly evolving landscape as the Company continues to expect a variable operating environment going forward.
Previous wording
For further discussion, refer to Item 1.A, “Risk Factors” of this report and “Risk Factors” included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, as supplemented by Item 1.A. in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2023.
Current wording
For further discussion, refer to Item 1.A, “Risk Factors” of this report and “Risk Factors” included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
Previous wording
(1)The Argentina divestiture impact is calculated as net sales from the Argentina business after the sale date in the three and nine month year-ago periods.
Current wording
(1)The divestiture impact is calculated as net sales from the Argentina and Better Health VMS businesses after the respective sale dates in the three month year-ago period.
Previous wording
(2)This represents the net impact on net sales growth / (decrease) from pricing actions, mix and other factors.
Current wording
(2)This represents the net impact on net sales growth / (decrease) from pricing actions, mix, trade promotion spending, mix from acquisitions and divestitures and other factors.
Previous wording
(4)Organic volume represents volume excluding the effect of any acquisitions and divestitures. In the three months ended March 31, 2024, the volume impact of divestitures was (2)% and 0% for International and Total Company, respectively. In the nine months ended March 31, 2024, the volume impact of divestitures was (1)% and 0% for International and Total Company, respectively.
Current wording
(4)Organic volume represents volume excluding the effect of any acquisitions and divestitures. In the three months ended September 30, 2024, the volume impact of divestitures was (17%) and (5%) for International and Total Company, respectively.
Previous wording
(5)Total Company includes Corporate and Other.
Current wording
(5)Total Company includes Corporate and Other. Corporate and Other includes the results of the Better Health VMS business through the date of divestiture.
Previous wording
Gross margin increased by 360 basis points in the current nine month period from 38.1% to 41.7%. The increase was primarily driven by the benefit of pricing and cost savings, partially offset by unfavorable foreign exchange rates and lower volume.
Current wording
Gross margin increased by 740 basis points in the current period from 38.4% to 45.8%. The increase was primarily driven by higher volume and cost savings.
Previous wording
For further information on the cyberattack, see Notes to the Condensed Consolidated Financial Statements.
Current wording
Selling and administrative expenses, as a percentage of net sales, decreased by 400 basis points, while dollars were essentially flat in the current period versus the prior period. The decrease in selling and administrative expenses as a percentage of net sales was primarily due to lower net sales and incremental costs both resulting from the cyberattack, and an arbitral decision relating to a commercial dispute all in the prior period. For further information on the cyberattack, see Notes to Condensed Consolidated Financial Statements.
Previous wording
Advertising costs, as a percentage of net sales, increased by 110 basis points and 120 basis points in the current three and nine month periods versus the prior periods, respectively. The increase in advertising costs reflects the Company’s continued support behind its brands. The Company’s U.S. retail advertising spend as a percentage of net sales was 12% in both the current and prior three month periods.
Current wording
Advertising costs, as a percentage of net sales, decreased by 50 basis points in the current period versus the prior period, while dollars increased. The dollar increase in advertising costs reflects the Company’s continued support behind its brands. The Company’s U.S. retail advertising spend as a percentage of net sales decreased from 14% to 12% versus the prior period.
Previous wording
Research and development costs, both as a percentage of net sales and dollars, were essentially flat in both the current three and nine month periods as compared to the prior periods. The Company continues to invest behind product innovation and cost savings.
Current wording
Research and development costs, as a percentage of net sales, decreased by 30 basis points, while dollars were essentially flat in the current period as compared to the prior period. The Company continues to invest behind product innovation and cost savings.
Previous wording
Loss on divestiture, pension settlement charge, goodwill, trademark and other asset impairments, interest expense, other (income) expense, net and the effective tax rate on earnings (losses)
Current wording
Loss on divestiture, interest expense, other (income) expense, net and the effective tax rate on earnings
Previous wording
Loss on divestiture of $240 in both the current three and nine month periods reflects the loss on the divestiture of the Argentina business. See Notes to the Condensed Consolidated Financial Statements for further information.
Current wording
Loss on divestiture of $118 in the current period reflects the loss on the divestiture of the Better Health VMS business. See Notes to Condensed Consolidated Financial Statements for further information.
Previous wording
The following presents the results of the Company’s reportable segments and Corporate and Other (see Notes to Condensed Consolidated Financial Statements for further discussion of the principle measure of segment profitability used by management, segment adjusted earnings (losses) before interest and income taxes (segment adjusted EBIT):
Current wording
The following presents the results of the Company’s reportable segments and Corporate and Other. See Notes to Condensed Consolidated Financial Statements for further discussion of the principle measure of segment profitability used by management, segment adjusted earnings before interest and income taxes (segment adjusted EBIT):
Previous wording
(1)See “Non-GAAP Financial Measures” below for reconciliation of segment adjusted EBIT to earnings (losses) before income taxes, the most directly comparable GAAP financial measure.
Current wording
(1)See “Non-GAAP Financial Measures” below for reconciliation of segment adjusted EBIT to earnings before income taxes, the most directly comparable GAAP financial measure.
Previous wording
Volume, net sales and segment adjusted EBIT decreased by 4%, 6% and 4% respectively, during the current three month period. The volume decrease was primarily due to distribution losses in Cleaning resulting from the cyberattack. The variance between volume and net sales was primarily due to unfavorable mix. The decrease in segment adjusted EBIT was primarily due to lower net sales, partially offset by lower selling and administrative expenses and cost savings.
Current wording
Volume, net sales and segment adjusted EBIT increased by 43%, 38% and 1,600%, respectively, during the current period. The volume increase was primarily due to lapping impacts from the cyberattack. The variance between volume and net sales was primarily due to unfavorable mix. The increase in segment adjusted EBIT was mainly due to higher net sales and cost savings, partially offset by higher advertising investments.
Previous wording
Volume, net sales and segment adjusted EBIT decreased by 9%, 6%, and 2% respectively, during the current nine month period. The volume decrease was primarily due to distribution losses and lower consumption resulting from the cyberattack. The variance between volume and net sales was primarily due to favorable price mix partially offset by higher trade promotion spending. The decrease in segment adjusted EBIT was mainly due to increased advertising costs and lower net sales, partially offset by cost savings.
Current wording
Volume, net sales and segment adjusted EBIT increased by 48%, 40% and 247% respectively, during the current period. The volume increase was primarily due to lapping impacts from the cyberattack. The variance between volume and net sales was mainly due to unfavorable mix. The increase in segment adjusted EBIT was due to higher net sales, partially offset by higher advertising investments.
Previous wording
Corporate and Other includes certain non-allocated administrative costs, the VMS business and various other non-operating income and expenses.
Current wording
Corporate and Other includes certain non-allocated administrative costs, the Better Health VMS business through the date of divestiture and various other non-operating income and expenses.
Previous wording
On March 20, 2024, the Company completed the divestiture of its Argentina business. The financial results of the Argentina business through March 20, 2024 are reflected as part of the International reportable segment. See Notes to the Condensed Consolidated Financial Statements for further information.
Current wording
On September 10, 2024, the Company completed the divestiture of its Better Health VMS business. See Notes to Condensed Consolidated Financial Statements for further information.
Previous wording
As part of those ongoing efforts, the Company has arranged for a global financial institution to offer a voluntary supply chain finance (SCF) program for the benefit of the Company’s suppliers. There would not be an expected material impact to the Company’s liquidity or capital resources if the financial institution or a supplier terminated the SCF arrangement. While the Company does not have direct access to information on, or influence over, which invoices a participating supplier elects to sell to the financial institution, the Company expects that the majority of these amounts have been sold to the financial institution. Refer to the Notes to the Condensed Consolidated Financial Statements for detail on the SCF program.
Current wording
The Company has arranged for a global financial institution to offer a voluntary supply chain finance (SCF) program for the benefit of the Company’s suppliers. The Company’s current payment terms do not exceed 120 days in keeping with industry standards. The Company’s operating cash flows are directly impacted as a result of the extension of payment terms with suppliers. There would not be an expected material impact to the Company’s liquidity or capital resources if the financial institution or a supplier terminated the SCF arrangement. While the Company does not have direct access to information on, or influence over, which invoices a participating supplier elects to sell to the financial institution, the Company expects that the majority of these amounts have been sold to the financial institution. Refer to the Notes to the Condensed Consolidated Financial Statements for detail on the SCF program.
Previous wording
Net cash used for investing activities was $94 in the current nine month period, compared with $142 in the prior nine month period. The year-over-year decrease was mainly due to cash proceeds from the sale of the Argentina business, a sale-leaseback transaction and lower capital spending in the current nine month period.
Current wording
Net cash provided by investing activities was $89 in the current three month period, compared with net cash used of $23 in the prior three month period. The year-over-year change was mainly due to net proceeds from the divestiture of the Better Health VMS business in the current three month period.
Previous wording
Net cash used for financing activities was $382 in the current nine month period, compared with $526 in the prior nine month period. The year-over-year decrease was mainly due to higher cash sourced from short term borrowings in the current nine month period.
Current wording
Net cash used by financing activities was $237 in the current three month period, compared with net cash provided by financing activities of $155 in the prior three month period. The year-over-year change was mainly due to higher net cash sourced from borrowings in the prior three month period as well as treasury stock purchases in the current three month period.
Previous wording
The Company's current liabilities may periodically exceed current assets as a result of the Company's debt management policies, including the Company's use of commercial paper borrowings which fluctuates depending on the amount and timing of operating and investing cash flows and payments for shareholder transactions such as dividends. The Company continues to take actions to address some of the effects of such cost increases, which include implementing price increases, driving cost savings and optimizing the Company’s supply chain.
Current wording
The Company's current liabilities may periodically exceed current assets as a result of the Company's debt management policies, including the Company's use of commercial paper borrowings which fluctuates depending on the amount and timing of operating and investing cash flows and payments for shareholder transactions such as dividends and share repurchases.
Previous wording
Notwithstanding potential unforeseen adverse market conditions and as part of the Company’s regular assessment of its cash needs, the Company believes it will have the funds necessary to support its short- and long-term liquidity and operating needs, including the costs related to the announced streamlined operating model and its digital capabilities and productivity enhancements investment, as well as the costs and impacts of the business disruption associated with the cyberattack, based on our anticipated ability to generate positive cash flows from operations in the future, access to capital markets enabled by our strong short-term and long-term credit ratings and current borrowing availability.
Current wording
Notwithstanding potential unforeseen adverse market conditions and as part of the Company’s regular assessment of its cash needs, the Company believes it will have the funds necessary to support its short- and long-term liquidity and operating needs, including its digital capabilities and productivity enhancements investment based on its anticipated ability to generate positive cash flows from operations in the future, access to capital markets enabled by our strong short-term and long-term credit ratings and current borrowing availability.
Previous wording
As of March 31, 2024, the Company maintained a $1,200 revolving credit agreement that matures in March 2027 (the Credit Agreement). There were no borrowings under the Credit Agreement as of March 31, 2024 and June 30, 2023, and the Company believes that borrowings under the Credit Agreement are and will continue to be available for general corporate purposes. The Credit Agreement includes certain restrictive covenants and limitations. The primary restrictive covenant is a minimum ratio of 4.0, calculated as total earnings before interest, taxes, depreciation and amortization and other similar noncash charges and certain other items (Consolidated EBITDA) to total interest expense for the trailing four quarters (Interest Coverage ratio), as defined and described in the Credit Agreement.
Current wording
As of September 30, 2024 the Company maintained a $1,200 revolving credit agreement that matures in March 2027 (the Credit Agreement). There were no borrowings under the Credit Agreement as of both September 30, 2024 and June 30, 2024, and the Company believes that borrowings under the Credit Agreement are and will continue to be available for general corporate purposes. The Credit Agreement includes certain restrictive covenants and limitations. The primary restrictive covenant is a minimum ratio of 4.0, calculated as total earnings before interest, taxes, depreciation and amortization and other similar noncash charges and certain other items (Consolidated EBITDA) to total interest expense for the trailing four quarters (Interest Coverage ratio), as defined and described in the Credit Agreement.
Previous wording
As of March 31, 2024, the Company maintained $34 of foreign and other credit lines, of which $9 was outstanding.
Current wording
As of September 30, 2024, the Company maintained $34 of foreign and other credit lines, of which $11 was outstanding.
Previous wording
As of March 31, 2024, the Company had two stock repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $2,000, which has no expiration date, and a program to offset the anticipated impact of dilution related to stock-based awards (the Evergreen Program), which has no authorization limit on the dollar amount and no expiration date. There were no share repurchases of common stock during both the three and nine months ended March 31, 2024 and 2023, respectively.
Current wording
As of September 30, 2024, the Company had two stock repurchase programs: an open-market purchase program with an authorized aggregate purchase amount of up to $2,000, which has no expiration date, and a program to offset the anticipated impact of dilution related to stock-based awards (the Evergreen Program), which has no authorization limit on the dollar amount and no expiration date. During the three months ended September 30, 2024 and 2023, the Company repurchased 789 thousand shares and 0 shares of common stock at a cost of $107 and $0, respectively.
Previous wording
The non-GAAP financial measures that are included in this MD&A and the reasons management believes they are useful to investors are described below. These measures should be considered supplemental in nature and are not intended to be a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, these measures may not be the same as similarly named measures presented by other companies.
Current wording
The non-GAAP financial measures that are included in this MD&A and the reasons management believes they are useful to investors are described below. Certain non-GAAP financial measures may be considered in determining incentive compensation. These measures should be considered supplemental in nature and are not intended to be a substitute for the related financial information prepared in accordance with U.S. GAAP. In addition, these measures may not be the same as similarly named measures presented by other companies.
Previous wording
Adjusted earnings (losses) before interest and income taxes (adjusted EBIT)represents earnings (losses) before income taxes excluding interest income, interest expense and other significant items that are nonrecurring or unusual (such as the pension settlement charge, incremental costs related to the cyberattack, asset impairments, charges related to the streamlined operating model, charges related to the digital capabilities and productivity enhancements investment, significant losses/(gains) related to acquisitions / divestitures and other nonrecurring or unusual items impacting comparability). The Company uses this measure to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment. Management believes that the presentation of adjusted EBIT is useful to investors to assess operating performance on a consistent basis by removing the impact of the items that management believes does not directly reflect the performance of each segment's underlying operations. Adjusted EBIT margin is the ratio of adjusted EBIT to net sales.
Current wording
Adjusted earnings (losses) before interest and income taxes (adjusted EBIT)represents earnings (losses) before income taxes excluding interest income, interest expense and other significant items that are nonrecurring or unusual (such as the pension settlement charge, incremental costs and insurance recoveries related to the August 2023 cyberattack, asset impairments, charges related to the streamlined operating model, charges related to the digital capabilities and productivity enhancements investment, significant losses/(gains) related to acquisitions / divestitures and other nonrecurring or unusual items impacting comparability). The Company uses this measure to assess the operating results and performance of its segments, perform analytical comparisons, identify strategies to improve performance, and allocate resources to each segment. Management believes that the presentation of adjusted EBIT is useful to investors to assess operating performance on a consistent basis by removing the impact of the items that management believes does not directly reflect the performance of each segment's underlying operations. Adjusted EBIT margin is the ratio of adjusted EBIT to net sales.
Previous wording
(1)Represents loss related to the divestiture of the Argentina business. Due to the nature, scope and magnitude of these costs, the Company’s management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company’s operations and is useful for period over period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by Company management. See Notes to Condensed Consolidated Financial Statements for additional information.
Current wording
(1)Represents loss related to the divestiture of the Better Health VMS business. Due to the nature, scope and magnitude of these costs, the Company’s management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company’s operations and is useful for period over period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by Company management. See Notes to Condensed Consolidated Financial Statements for additional information.
Previous wording
(3)Represents incremental costs incurred as a result of the cyberattack the Company experienced beginning in the first quarter of fiscal year 2024. Due to the nature, scope and magnitude of these costs, the Company’s management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company’s operations and is useful for period over period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by Company management. See Notes to Condensed Consolidated Financial Statements for additional information.
Current wording
(2)Represents incremental costs and insurance recoveries incurred as a result of the August 2023 cyberattack the Company experienced beginning in the first quarter of fiscal year 2024. Due to the nature, scope and magnitude of these costs, the Company’s management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company’s operations and is useful for period over period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by Company management. See Notes to Condensed Consolidated Financial Statements for additional information.
Previous wording
(6)Represents expenses related to the Company's digital capabilities and productivity enhancements investment. Due to the nature, scope and magnitude of this investment, these costs are considered by management to represent incremental transformational costs above the historical normal level of spending for information technology to support operations. Since these strategic investments, including incremental operating costs, will cease at the end of the investment period, are not expected to recur in the foreseeable future and are not considered representative of the Company's underlying operating performance, the Company's management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company's operations and is useful for period-over-period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by Company management.
Current wording
(3)Represents expenses related to the Company's digital capabilities and productivity enhancements investment. Due to the nature, scope and magnitude of this investment, these costs are considered by management to represent incremental transformational costs above the historical normal level of spending for information technology to support operations. Since these strategic investments, including incremental operating costs, will cease at the end of the investment period, are not expected to recur in the foreseeable future and are not considered representative of the Company's underlying operating performance, the Company's management believes presenting these costs as an adjustment in the non-GAAP results provides additional information to investors about trends in the Company's operations and is useful for period-over-period comparisons. It also allows investors to view underlying operating results in the same manner as they are viewed by Company management.
Previous wording
Of the total $500 million investment, approximately 65% is expected to represent incremental operating costs primarily recorded within selling and administrative expenses to be adjusted from reported Earnings (losses) before income taxes for purposes of disclosing adjusted EBIT over the course of the next five years. About 70% of these operating costs are expected to be related to the implementation of the ERP, with the remaining costs primarily related to the implementation of complementary technologies.
Current wording
Of the total investment, approximately 70% is expected to represent incremental operating costs primarily recorded within selling and administrative expenses to be adjusted from reported earnings before income taxes for purposes of disclosing adjusted EBIT over the course of the next five years. About 70% of these operating costs are expected to be related to the implementation of the ERP, with the remaining costs primarily related to the implementation of complementary technologies.
Previous wording
During the three months ended March 31, 2024 and 2023, the Company incurred approximately $26 and $28, respectively, of operating expenses related to its digital capabilities and productivity enhancements investment. During the nine months ended March 31, 2024 and 2023, the Company incurred approximately $85 and $73, respectively, of operating expenses related to its digital capabilities and productivity enhancements investment. The expenses relate to the following:
Current wording
During the three months ended September 30, 2024 and 2023, the Company incurred approximately$29 and $27, respectively, of operating expenses related to its digital capabilities and productivity enhancements investment. The expenses relate to the following:
Showing the first 40 of 49 pairs. Open the source sections for the rest.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
or operational disruptions, or that impact the Company’s financial results or financial reporting, or any resulting unfavorable outcomes, increased costs or legal proceedings;
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
The Company initiated the extension of its payment terms with its suppliers in the second half of fiscal year 2020 in order to improve working capital as part of and to fund the IGNITE strategy and in keeping with evolving market practices. The Company’s current payment terms do not exceed 120 days in keeping with industry standards. The Company’s operating cash flows are directly impacted as a result of the extension of payment terms with suppliers.
Previous report — wording carried elsewhere
Middle East and Ukraine and rising tensions between China and Taiwan, as well as macroeconomic and geopolitical volatility and uncertainty as a result of a number of these and other factors, including actual and potential shifts between the U.S. and its trading partners, especially China;