Herbalife Ltd. (HLF) Earnings Call Transcript & Summary

Good afternoon, everyone, and I'm so glad you're able to join us this afternoon. My name is Alexia Howard, and I cover the U.S. food companies for Bernstein. And I'm delighted to welcome Alex Amezquita, who is the CFO, Chief Financial Officer, of Herbalife. He joined the company in 2017, became Chief Financial Officer in November of last year. So I guess it's been about a year since he's been in that seat. And we also have Eric Monroe, who's the Head of IR over there. [Operator Instructions]

So just let's get started here. The past 18 months have been like nothing the food industry has ever seen, with the surge in demand for food at home caused by the pandemic and now elevated input cost pressures and widespread physical supply chain disruptions across the space. How has this journey played out at Herbalife given its differentiated business model, how have the capabilities needed to compete effectively in this new environment changed? And what has the company learned along the way? And what priorities do you have now as we step into this new normal?

Hi, Alexia. Thanks. And thanks, everyone, for taking the time to learn a little bit more about Herbalife Nutrition. So that's -- there's a lot packed into that -- those series of questions. So I'll try and hit some of the sort of the key themes. Now first, I think, one thing that we've seen unequivocally is the demand for Herbalife Nutrition's products just accelerate. We've always believed that there was a tremendous amount of demand. We always thought our value proposition in spreading good nutrition, a better calorie out there around the world that we had a long runway. What -- I think the pandemic in sort of people connecting health with their own ability to sort of withstand the pandemic and kind of be healthier, I think, accelerated a lot of that demand. I think there was some captive audiences, to your point, they're staying at home. So what am I going to do at home? What kind of products can I buy that can make me a little bit healthier? So I think it soften the market for our channel to really be out there in front of. And I think the evolution of the past 15, 18 months really dramatically changed how technology is integrated in the way that our channel is going to market. So technology was always important and part of the story, but just the way that it was adapted. I mean I think in the beginning, it was -- we have a concept in many of our markets called Nutrition Clubs, which are -- operate more or less like a brick-and-mortar retail location. I'm just using some words just to make it easier to conceive. And where you would go in person, just like you would go to Starbucks, you would go in person and get your coffee, you go to the Nutrition Club, you can have shake, tea, aloe or whatever other products that might be in it. And on the onset, it was -- is this with the pandemic, with -- in some markets with the restrictions. How are those -- how is the channel going to survive that? And not only did they survive it, but they accelerated their growth. They figured out quickly how to do delivery, how to do pickup, how to reach their customers through technology in different ways. And that's everything from like we do now on the Zoom calls, right? I had a non-Zoom call earlier this week, and I just thought, "Oh, do you remember the world when we were just on conference calls, and we didn't see each other?" That seems like a decade ago at this point. But yet, it was only 18 months ago. And same for the channel. The way that they're using technology to be able to cast their net out to a bigger audience to kind of get their story, to kind of get the message, to kind of get the opportunity for customers out there, they may able to use technology and being able to cast that net. Now that net, once a customer comes in, still sort of the same sort of concept, the strength of our channel and developing that personal connection with the customer to know what they need, to know what they want. I think that was another attribute that really shown through during the pandemic was that stickiness with customers, even if somebody may not be picking up products same way or there was still that connection. There was still that, say, "I'll e-mail, I'll text you, I'll call you, I'll figure out". How can you stay on your program? Whether that's just healthy active lifestyle or that's a fitness program or that's just simply some form of a weight management program that stickiness persisted. And I do think technology also help there. We have -- in some markets, we've been rolling out over the years. Tools for our channel to help maintain CRM tools effectively back the sales force to help with sort of customer management and that type of stuff. So technology was critically important to the success over the past 18 months. And had it not been for the pandemic, I don't think the adoption rate of those tools would have been much slower or would have taken much longer. Some may and like, "Oh, I need to learn a little bit on new ways to go-to-market with technology, but my current way is working well enough." And so they might not be incentivized. And then the pandemic sort of forced everyone to learn a completely different tool set. Now as we hopefully are coming out the other side of that, I hope, the channel is just much more capable. So they have their bread and butter in-person skills. They have the types of qualities that really contribute to the stickiness of customers. And married against a new set of tools to help with reach, to help with efficiency, to help with productivity. Now we still need to help them on that technology side. That's a big strategic initiative for us as a company to continue to develop that tool set to help with productivity in various ways in the field. But now there's sort of a core capability that was really developed over the past 18 months that we're excited to leverage on for that next decade of growth going forward. So again, just to wrap up on some of those concepts. Demand really, really shown through on the demand side. And then really, what's new is sort of the technology adoption of the channel and the ability now to have a kind of broader tool set as we go forward to use the legacy sort of in-person skill set, which is sort of the bread and butter of the channel. But now marry that against sort of the next evolution of the channel with just developing a lot of these different technology tools.

Great. Makes sense. And how do you see the pandemic reshaping consumer behaviors over time?

Yes. One thing that we're -- so one thing that dramatically changed was, and so we've been talking about this for 15 months is we have, for a lot of our products, we have these things around what we call sales centers. It's a place where a distributor, someone who sells out in the field, can go in person, their preference is to go to the sales center, it's in preference, pick up their product. Oftentimes, there would be learning or other ancillary activities that could happen at that sales center. But in the pandemic, home delivery changed. So we have much more home delivery -- FedEx, UPS, DHL, that type of thing. So we're not quite sure. If I could think of all of the sort of customer/channel changes, that's the one that's been the most dramatic. And what we don't know yet is what's the new normal. Is home delivery the new normal? Or do we need to -- and do we need to sort of reorganize this infrastructure that we've built to help get product to our distributors for decades beyond? Do we need to sort of reshape that? Or will we go back? Will we go back to having more of the in-person distribution that we've had for our channels. So as it relates to the customer buying behavior, I don't think there's -- I can't think of anything other than just the increasing demand. But if we look at baskets, if we look at what's in the basket, I mean, in the onset of the pandemic, there was certainly a higher amount of immunity-type products that were being purchased. But that's sort of regulated out probably within 3 to 6 months for much of 2021, the baskets in 2021 look very much like the baskets of 2019. So other than demand, I'm not seeing a tremendous amount of difference and from that perspective, from the actual purchasing behavior. So we'll keep an eye on that. But I don't know if Eric, if there was any -- I might be missing something on the customer...

I was going to just layer in the method by which the distributors and the customers are using to build that personal connection, historically, as Alex referenced, a bit more in person and as the pandemic evolved, it's really using technology on a broad level to connect. So historically, there was always a subset of our sellers that use technology very well to build their networks. And now it's integrated really across our entire channel technologies integrated throughout. Even at the Nutrition Club locations where they're still having in-person activity, they've leaked in an element of technology, whether it's through social media or online follow-ups. So I think that, that's been a broad change that more advanced technology is here to stay, and we've seen it adopted really at a very broad level.

Yes. Yes. Your comments gave me a moment to think to. I mean things that popped up were things like virtual Nutrition Clubs, right, where people literally do activities together on a Zoom platform or on some sort of virtual video platform. I don't know if that was just a product of a pandemic or that type of thing is here to stay. It will be really interesting to see what happens as we unwind. I know on fatigue that we Zoom. If I can get off it, I want to be off it. So I don't know if others would feel in that way where I don't know if I want to do a workout on Zoom anymore. I'm actually -- I know the answer to that. I don't. So I don't know if others feel that way.

I'm totally with you, okay? So can you talk a little bit about the recent reduction in sales guidance? It all seems to happen fairly quickly as recurrent new distribution sales leaders and new consumers dropped off in recent months. Is the current tight labor market or an escalation of wages causing some of the slowdown in recruitment? Or are there other factors involved?

Yes. So I think we're still -- so for some of the markets, I think, we -- it's pretty easy to understand the driver why. So particularly, so if I break it down, we had sort of a revision. It was fairly broad-based. And again, this was back in just before Investor Day in September, we've maintained that position in our -- in our recent quarterly earnings earlier this week. And what we saw was -- so for example, in Asia Pac, we saw in Southeast Asia, everyone's cycle of COVID is a little bit different in terms of the government lockdowns. And Southeast Asia was a draconian lockout. Vietnam, Malaysia, 2 of the bigger markets for Asia Pac went into full-on house lockdown. We've seen that in other markets at different times. We saw that in India in the middle of 2020. And India's volume went -- was almost -- I think, it was almost cut in half for a quarter. But obviously, they've bounced back and they're growing phenomenally well post -- and again, it's not -- these lockdowns aren't inflection of demand. It's really a reflection of logistics. People just can't get out of their house. They can't either purchase, distributors can't go get the product. There's just a fundamental breakdown and sort of that sort of thing. So demand side is still there. It's really the supply side and how do you navigate these draconian lockdowns. Now I know since then, there just seems to be some green shoots and reopening in some of those markets. But there was an event. And I think we've used this, I mean, a little bit. We have the event that clearly showed an acceleration in demand really globally. We saw it really in every market. You're having 2-year stacks now of -- in the 30s of percent in North America and Europe and elsewhere, where it's just dramatic increase in demand to the upside. And we knew that wasn't going to be sustainable. We knew that sort of run rate. We were going to normalize at some point. I think in Asia Pac, it was easy to understand what happened there because that was directly related to COVID. The rest of the world is a little bit more difficult to pinpoint. And we still don't know unequivocally what is the why. But it could be -- you look at the antidotes and you look at the data, we do have a human aspect in our channel. Over the past 15 months, our channel has done incredibly well because of all of that demand. And as the world started to open up, back-to-school, vacations, this is -- by the way, this is just prior to the Delta variant. And I think we're now sort of getting a little bit on that same ZIP code where things are opening up for most of the world. There is -- "Hey, I've done well. I've made a decent chunk of change over the past 1.5 years. And I've worked incredibly hard, and I haven't been on vacation in 18 months. I haven't been out of my house." So there -- I think, there is a case to be made for simply the channel taking a breath. We've seen that on a market-by-market basis, I think the challenge here is just that all of our markets are sort of synchronized to this one global event. Usually, our markets operate a little bit asynchronously. They operate to their own market developments. And so you get a portfolio theory. In this case, you have this event that basically synchronized all of our major events, and now we're sort of unwinding out of that. So what you had, I think, in the middle of the summer was just that synchronous, take a breath, there was nothing in the data that would have allowed us to forecast for that breadth because it was sort of a human behavior. And in my mind, indirectly tied to COVID because -- I mean, you wouldn't have had that if you, obviously, didn't have the prior 15 to 18 months. So I think that's a little bit of what we saw our guidance and the guidance that we largely -- that we reaffirmed earlier this week is reflective of that going on for the rest of this year. And then in February, we'll come back with what we think 2022 is going to be. But hopefully, that gives some color on sort of what we've seen. I also would say, I think, it's important to note, okay, Q3 comps down year-over-year, still, the business is up significantly over where it was in Q3, not only on just every financial metric that you can -- that you could throw up there, but also fundamentals, right? So the new customers, new distributors coming into the market, into the network or new customers to the business, new preferred customers to the business, still dramatically up over 2019. We have our new -- our active sales leaders and active sales leaders to us. A way to think about that is just storefronts. And you take a retail concept, right? So how many stores do you have out there selling for us? How many active sales leaders? How many folks are out there selling? That number is up dramatically over 2019 is still even up over last year, over 2020. Obviously, do the math, the productivity is down, but the fact that there's more folks out there selling, bodes well for the future. That is a good indicator of where things might go in the future. And so I get the year-over-year comps are down. Q4, a little bit better -- the implied guidance of Q4 would suggest a little bit better than Q3 and then we'll come back in terms of 2022. But I know the revision, I get that. Nobody likes revisions. Nobody likes to know, hey, well, you thought you were going one way. Now you're going in a different way. So I totally get that. But I still feel like the overall health of the business is actually fairly strong. And we'll see how we -- the trajectory of that going into next year in a couple of months.

Great. What are you learning about the best ways to recruit and retain consumers over time and encourage repeat purchases?

Yes. So there's a couple of concepts on retention. There's sort of retention of the sellers and then there's retention of the customers. Retention of the sellers has been a major initiative of this company for well over a decade. The number of sales leaders that we were retaining, if you went to like 2004, '05, '06, '07, sort of that time zone, it was down in the 20% to 30%. It's now through concerted efforts around the world, lots of different things contributing to it, our retention is now up in the upper 60s, dramatic improvement. And there's no doubt you can correlate a lot of the company performance to the improvement in the retention of the salaries. And there's a lot of things about that. The proliferation of Nutrition Clubs, which creates a daily purchasing behavior, creates a stickier customer, how we have adjusted the marketing plan to be more consumer-based, so that the sales leaders that are actually selling can be more successful. There's a whole laundry list. Where we're now, a new initiative, a relatively new initiative for us, is that the same way that we've maintained that focus on the sellers, we're going to maintain the focus on the customers. So the actual just straight out of customers. We have seen -- we have data now that we didn't have a decade ago. And we have data of customers. Segmentation has really helped us get customer end data. The U.S. has also other tools that gets us customer end data. And so the initiative now is how do we improve the retention of those customers. So if you bought within the first 3 months, how can we keep you on with higher efficacy in that beyond those 90 days? And so that's going to be something that we'll keep talking about. It is going to be a core part of our next leg of this growth trajectory that we're on. We're establishing the metrics to make sure that we can measure it with some sort of -- it is sometimes a little bit challenging for some markets to make sure that you're getting that data measure just quite right, and then behaviors and strategies to go against it to see how we can improve that number. Yes. So that's our next initiative.

Great. Where do you see the biggest longer-term growth opportunities going forward by product category and geography because we, obviously, have different pillars in different geographies?

Yes. I mean sports nutrition clearly is the next place that we've been doing well. We continue to add to that portfolio to hit critical mass. It tends to be a more discerning customer. So the product portfolio has to -- is very particular. The market, we're #1 in the weight management category, and that market has been pretty stable for us. We've made a lot of that market. We're not a company that usually takes market share. We're a push business on the -- on initial purchasing behavior. So we typically make market share. So for the weight management, we're the #1 by a long shot. And so our energies are really focused on, well, how do we make market share in these other categories. Sports nutrition is a faster-growing category than weight management. And we have a very low piece of that high. And so how can we make share in sports nutrition. That's going to be a key driver. And we've been seeing the growth rate from that area far outpace our other product categories in recent years. So we'll continue on that journey. And then there's sort of this middle category, and I say middle because we often put this chart out where we have weight management in the left, sports nutrition in the right and targeted nutrition in the middle. And in that bucket, it's a much larger bucket. It's a huge -- it's -- a lot of different products and a tremendous opportunity. For us to really penetrate that, we have to work with our channel and really creating different alternative pricing models. There's a lot of, I would call them, just to make the point, commodity-type products in that category. And our current weight management in our sports nutrition, we consider those differentiated products. We have really high-quality, the formulations. There's something about them, whatever those specific formulations that really works in those categories. So we feel like we're differentiated from the average for certain -- in those categories. But when you get into that middle category and you're talking about something like vitamin C, it's not -- you got a jar of vitamin C pills, it's hard to really differentiate on that other than quality. And so then it becomes a little bit more of a price point discussion. And so for us, coming up with pricing models, our traditional pricing model that we have in weight management and then largely in sports nutrition doesn't necessarily work to find a retail price point where we can be competitive on those products. And so we really need to work with our channel on those types of things to unlock that market potential. But it is something that we're actively having discussions about.

Great.

And then maybe just -- maybe add in on the regional perspective, because we do have a lot of opportunities around the globe. We're present in over 95 markets. So our geographic diversity is one of the strengths of the business. When we think about where we have opportunity to grow, it is pretty broad-based. We have our Asia Pacific region. I think Southeast Asia, where there's really a developed middle class and really an opportunity to become more involved in the nutrition category, how you can get a more nutrient-dense calorie, we really feel we're scratching the service in a lot of the markets that we're in, in the Southeast Asian region. North America as well, really penetrating into more rural parts of the country. We've seen a lot of Nutrition Club growth. In fact, over the last year, it's been over 2,000 new Nutrition Clubs that we've opened up in the U.S. specifically, and a lot of that's coming from the more rural parts of the country from the South, from the states like Louisiana, Alabama, where the opportunity for nutrition is present. I think we still have a lot of room to grow there. So I did maybe bucket the APAC region, our U.S. business and parts of EMEA as well, where we really see -- from a geographic perspective, really a lot of white space and room for the business to grow.

Alex, you talked a little bit earlier about technology being a big enabler, something that's taken leaps forward recently. Can you talk about the progress that's being made in introducing those new technologies? I mean, for example, what are you and your distributors and end customers able to do today that wasn't available until either the pandemic or as this technology was being introduced? And what new capabilities are planned for the future?

Right. Those are all good questions. So the way to think about -- so there's -- technology means a lot of different things, right? So when we think about technology for the field, these are tools across a broad range of business purposes to help that distributor. So it's really a suite of tools. It's not like, hey, here's one app or here's one software program or here's one piece of technology. It can mean -- and so anything from productivity, when we think about it from a productivity standpoint, it could be anything from a CRM tool to help manage their -- to help that distributor manage their customers. It could be anything from contact information to the last thing they sold to when is the last time we had a conversation to reminders of, hey, I haven't called this person in 3 weeks, right? So all of those types of things that just help like any other sales team and any other -- like, how do I maintain my customer relationship. So we have a sort of a CRM suite. We have business analytics. What's selling? Where is it going? What baskets are people are buying? What -- anything that any other business would have in terms of, hey, let me understand what's going on in terms of sales perspective to help you gain insights into your own where you can make optimizations, where do you figure out what's working, make some things working here and it's not working there. So to help with productivity from just a sales effort perspective. There are logistical tools, for example, like point-of-sale tools, if you have a Nutrition Club, you come up to the register. You want something really easy to, obviously, check that customer out from the perspective of the logistics of purchasing a shake or whatever that product is to give yourself more time to actually interact on -- from a value-add perspective, not spending time on the logistics of the transaction, which is not -- that in and of itself doesn't build the relationship. It's all the other stuff. So minimize time with someone in the line having them purchase or making that transaction and maximize your time with building that relationship, understanding where they're going, understanding what their goals are, all of that type of stuff. And then that point-of-sale tool could also help with things like inventory management, whatever is going on in that, it can be customized to the specifics of that club. I'm sure I'm forgetting some other -- there's lots of tools, making it easier for people to sign up, making it easier for -- there's always sort of maintenance that you have to do with your relationship on your account, making that just easy. So we want everything to be easy. We want to minimize the amount of time that our channel is doing logistical work. We want to maximize their time to be able to be out there, attracting new customers. They're incredibly good at finding new customers. So maximize their time doing it. That's where we want them to spend their time. So that's the journey that we are on. A lot of it we have sort of version 1 or maybe even version 2.0 in a lot of these, a part of the technology is getting some of those things to be really easy just to use on this, right, where they are. Some of our applications are desktop-only or on the website, where it's just not as easy to just grab on an [indiscernible] where possible unifying that app and making it seamless and integrated and all of those types of things. So that's the journey that we are on. We have a Chief Digital Officer that is -- that we hired in 2020 and I know that a lot of what I just said, he's enabling a team behind to really accelerate that sort of trajectory of where we're headed in the future.

Great. Makes sense. Okay. So let's move on to product assortment. How do you manage your product assortment over time? Are weaker products phase out? And what are the criteria for managing this?

Yes, we do. So we do. We do, do SKU management. It's usually -- it's -- we may keep things in the product line a little bit longer than most just because that might affect somebody out there in the channel for whatever reason, that might be a product that is really successful with a unique business or a unique group or in a unique market. So sometimes, we have to be mindful of that, whereas in the aggregate, it may be a SKU we should rationalize. But maybe it's helping. So we have to be a little mindful of that. But in terms of -- probably the more interesting thing is how SKUs get in, how do SKUs get in? How do we...

That's what we call innovation. Yes. Right...

How do you know where you're going to go? And we have an incredibly capable product development team here. But really, the magic is how that team cascades into the regions and into the markets where they work with something we call Product Committees. That Product Committee is made with both company personnel that's, obviously -- that has an expertise in product development. But it also works with the leadership from the channel in that particular market. So the power of that is that it's not just us pushing our products and saying, "Hey, well, the trends are, you should have this flavor in a vegan format, go and push it and then just sit back and say, well, let's see, is it going to be successful or it's not going to be successful." When we work with our channel, we get that feedback right away. So they could say something like, "Hey, something I'm seeing a lot of," or, "Hey, you know what, that product sounds great, but could you tweak it like this because that would help me with my sales pitch that much more or it would help me with the customers that I know have a need in XYZ." So the collaboration of those Product Committees are really instrumental in sort of how we add on SKUs, how we add on category thematically. And so that's sort of a little bit of how but a little bit of the what is thematically choice has been a big -- and I say choice, broadly speaking, because it depends on the market. So when I say choice, clean label, vegan, a good, better, best strategy, like those types of concepts so that different customers that have different preferences, one may be discerning than the other. One may have typically the more discerning and the more types of agreement that might be more expensive. So finding price points that work with difference. So all of that choice not only finds different customer segments, but it also speaks to different sellers in the way they feel comfortable going to customers. It's hard selling this, right? You need to have confidence, you need to have something that you feel good about saying when you're trying to -- when you put yourself out there and try and make that next sale. So finding product portfolios for them, where they have confidence to be able to go and make that pitch is really important. And choice gives them the ability to have different ways to go do that.

I think I'll add on to that. Localization as well, right, being in over 95 markets, you're going to have a different flavor profile operating in different parts of the world. So that's been a strategy of ours as well. We're really going to be launching products that are going to resonate in a certain geography. If it's a flavor that is going to be popular in Brazil, is it going to be popular in India, and we have to think about that. So we'll launch very unique flavors in certain markets. For example, China, we have a red bean flavor of Formula 1. And in India, we have a coffee flavor that's very unique to that particular palette and get to resonate with a consumer in that market. So being such a geographically diverse market business, we're not really one-size-fits-all from a product flavor perspective as well. We've got to resonate in the markets that we sell, and that's an ongoing strategy of the company.

Great. Can you talk about the pace of innovation? I mean do you use metrics like the percentage of sales that come from new products introduced over the last 3 years? How has that trended over time? Are you comfortable with the current level?

Yes. It's really interesting that you say that because at Investor Day, this is something that we're going to talk about a little bit more of. And we are even internally setting the bar a little bit higher than where we have typically run. I think we've run historically something in -- and Eric, correct me if I'm wrong here, in the high teens, is my understanding.

So the historic rate that we've been running at is about 14.5% of our products have been launched within the past 3 years. And the goal over the next 5 years is to increase that from 14.5% to 25%. So that the -- through increased speed to market, launching new localized product flavors, expanding the sports nutrition line. So we do have that set as an internal target to expand from 14.5% to 25% over the next 5 years.

It's helpful. Yes. That's great. Alex, you talked about these Product Committees, and I may have to phrase [ rolled ]. But that sounds intriguing. How are they structured? I mean are they -- is it one for each continent? Is it one for each country? I mean about how detailed does that get?

Right. No, it's -- so it depends on the market. The smaller markets may not have their own unique Product Committee, there may be a multi-region Product Committee, but it really is -- it's kind of correlated to the size of the market. So the U.S. would have its own. There are countries in Europe that would have their own, but then there are regions once you get to some of our smaller countries that would have their own. So it's -- there's just a balance between the size of the markets that they're covering. But it can get -- to Eric's point that he just made around localization, that's the point, right? Because you need -- as long as it's localized enough, then it could be effective.

Great. What is your biggest execution challenge today?

Biggest execution challenge. I think right today is sort of trying to understand where this world is going. I think -- and that's not unique to us, I'm sure. But we have -- the pandemic has caused extra volatility in our ability or, I would say, an extra challenge in our ability to forecast because you have these behaviors that are either directly or indirectly still. I mean like I mentioned earlier in the chat, you still have events that just happened in Southeast Asia that you can't predict for that. And then you have some of the fallout effects from the COVID-19, sort of the COVID fatigue and all these different fatigues. Again, you know it's going to normalize at some point, but it's very difficult to see how -- and in our case, it seems like there was a pretty dramatic change in behavior, all of a sudden. So you have a lot of that top line which when you talk about your ability to affect, it affects everything. It affects your ability to get the right product forecast, right, to get anything related to the operations of the business. What investments are you going to make, where, when, how, timing. But now, I would say, okay, that was one set of problems, but now that's getting compounded with what we're seeing from inflationary pressures from supply chain issues, which largely, I think, will manage the supply chain type issues. But that's the uncertainty, right? So right now, we self-manufacture. We bought enough for the near and medium term. Fortunately, we actually have an inventory build now as well. So even if there were to be supply chain issues, we have enough inventory out there where I don't envision how the stocks being something that we would experience in any near term. So -- but it's still managing that volatility. It hasn't been easy. We've done well. And so it's kind of like one of those things where when you do it well, then it's sort of not an issue, but it's still really -- and I think we're all getting used to everyone sort of managing in this very difficult world, and we're kind of like, oh, so no problem. But it's hard. It's hard to execute with all of the uncertainty that the world is still the backdrop of the world right now.

So you talked about supply chain challenges and cost inflation. Where are you seeing the biggest pain points around that? Are there particular ingredients, particular packaging, particular...

No. It's not in our raw materials as much. It's -- certainly, we're seeing wage inflation and more in the logistics. So between logistics and wage inflation, that's where we're seeing the biggest increases and certainly well outside of any historical levels. So the question is how sustained is this going to be. I think we all -- I mean we were looking to -- I'm listening to what the Fed says every time they come in and there doesn't really seem -- there seems to be a disconnect between what's being said and what we're seeing out there from the reality of what we think we're going to have to pay on these various items. So TBD, we're trying to manage through that.

Fair enough. So given all that, what pricing actions are you taking to offset some of those cost increases and logistics challenges?

Yes. So we have a pretty consistent pricing policy around the world. So we price whatever local inflation is. That's sort of the policy. We try to maintain our pricing with local inflation. So over the past decade, with a stronger dollar, that's typically meant that non-U.S. markets, where the lion's share of our revenue is, you would have an inflation rate, again, just basic macroeconomic area, but some markets don't actually operate that way. But generally speaking, that inflation should outpace the U.S. Now we're seeing U.S. We're seeing CPI now over 5%, which is not a level we've seen in a long time. So from a pricing perspective, we'll maintain that, right? We'll try to maintain that pricing. We need to make sure that while we need to maintain their pricing, we need to make sure we're not causing any shocks from a -- on the demand side, given that the U.S. just really hasn't seen that level of price increases or that level of inflation for quite some time. So I don't know how -- so we're going to -- we'll manage that. But generally speaking, the intent would be to match price increases with that. Us as a company, there is a little bit of a disproportionate amount of our cost structure in the U.S. to where our revenue comes from. So depending on how sustained the inflation is and how that affects other global markets, there could be potentially a little bit of pressure if we're seeing a lot of that cost structure in the U.S. accelerate where we're not able to immediately take that pricing with just U.S. price increases. We'll have to see what the other markets do. Generally speaking, as a company, we've done well over the past few years. I think over the past 2, 3 years, we've maintained price increases on a global perspective in the high 2s. I think 2.7% or 2.8%, something in that ZIP code, which over the same period was well ahead of where U.S. inflation is until recently. So yes, so that's generally the policy. I think we feel pretty good from the pricing side. The question just is really how sustained will you think, how sustained or how nonfundamental will be the cost side over the next year.

Makes sense. Yes. Can you describe your long-term earnings growth algorithm? And I think you laid out at your Investor Day. And how could that play out as we move into 2022? Could there be some hangover from the surge caused by the pandemic? Why not providing guidance yet, but what are the ideas you can give us?

Yes. No, that's a good question. And we've been getting this question a lot as we've been thinking about it. So the long-term growth algorithm really represents our long-term view, whether that's 5 years, 7 years, et cetera. And so it's not meant to represent that, well, each year, 2022 over 2021; 2021 over 2020, that's going to be the financials. That's going to be the average as you go over a period of time. And there might be some, if you pick an off base here. So in other words, if you pick 2020, I don't know how many years it's going to be until the growth algorithm plays out. But we, as a management team, firmly believe in that growth algorithm. We believe that is how this company can grow on the top line. We do believe on the -- from an operational perspective that we can get margin expansion. And obviously, with all the cash we generate, we have to do something beyond. We have plenty to invest internally. We have plenty to pay off our debt. There's excess cash. We need to do something with it. Right now, particularly the share price levels, it makes all the sense in the world to put that to a share repurchase program. So that's kind of what lays out the bones of our long-term growth algorithm. But to be clear, it's not meant to be year-over-year, 2022 has to fit within that construct. We're going to have years just like over the past 5, 7 and 10 years, if you look at any of those rates, they all fit well, actually, some -- it actually exceed our growth algorithm. But if you were to look at any one year, you're going to see a down year, you're going to see now things trying to move in different directions. But over time, all of it fits the growth now. That's the same demand side. That's the same operational execution side, and that's the same sort of gearing that we can get on our EPS that we see in the future. So that's what that's supposed to represent.

Great. What do you see is the biggest strategic priorities and growth opportunities for the company over the next 3 to 5 years?

Yes. So it's some of the things that we hit, right? It's technology, making the field more productive, making our channel more productive, spending less time on the stuff that doesn't add another sale and giving them more time to get that incremental customer. So technology is huge there. And product portfolio, getting product portfolios to open up different customer segments to keep that refresh rate high to largely thinking that it should contribute to customer retention. So strategically, technology and products, still the 2 pillars of our strategy, thinking about how to use those strategies for the outcome of customer retention, right? So I mentioned earlier on this call, we really focused on distributor and seller retention. And now the idea is how do we improve that customer retention. That's an outcome, right? That's sort of how do you get there? It's through the strategies and still technology and product, our core strategies to kind of help with that objective as well as others.

And I'll maybe throw in one other strategic element we've been working on as a company, which is around ESG.

It's a good point.

We really invested a lot of resources into building out our global responsibility, building out what we feel we can do as a company from an ESG perspective, there's a lot of information that we now have available on our IR website. We have a full section dedicated to ESG with policies, position statements, global responsibility reports, scorecards, and this is a priority for the company and an area that we've really been focusing on over the past few years.

Yes. It's a good point. I mean so just to know that this isn't just an exercise, and this really is a top-down priority. We have a committee on the Board now, a committee -- an ESG committee formed, who is incredible, have incredible backgrounds in helping us with this. We have a team here that's been really focused on getting us out to speed with getting out there with all the ESG raters. We just published our first. It's called our global responsibility report. I think Eric may have just mentioned that. But it's available on our IR website. Please go take a look. It's really an in-depth of where we're hitting on all of these issues, the targets that we're starting to form. And lastly, I mean just to evidence our commitment, we had one of our key credit and investment banking relations. Rabobank leads in a sustainability loan that we launched earlier, where we're going to develop ESG targets. It's out there. It's public. We have a few metrics that we intend to prove, and there will be basis points added or subtracted from our -- the rate of financing on that debt based on the achieving or not achieving those ESG metrics. So we are putting our money where our mouth is. So it's a big initiative to us. It's not only kind of -- I think, we've moved past the point where these types of things are just philanthropic in nature. We recognize they actually really make a difference with the customers. They make a difference with the channels. To be associated with the brand, you have to feel like that company is doing the right -- is doing right by the world and the community in which it lives. And so not only do we think it's the right thing to do, but I think it is where the world is moving in terms of customer demand, too. It's almost being mandated on a company if you want to be attractive to that customer segment.

Great. Well, we've come up on time. I want to say a huge thank you to Alex and to Eric. Really appreciate the thoughtful insights and the detailed information and examples that you've given us this afternoon. Hopefully, we'll get to a catch-up again in the not-too-distant future. And thank you to everybody else that listened in today. I hope that was helpful, and we'll do it again soon.

Thank you.

Thanks, Alexia.