The Clorox Company (CLX) Earnings Call Transcript & Summary

Okay. And in that vein, I would think your customers have to be excited by the plan to step up advertising as much as you discuss or the 100 basis points in fiscal '21. A lot of your products were seem to be selling themselves these days. So -- but at a high level, I understand you're trying to capitalize on this current momentum, really get those brand equities into the permanent purchase cycle. But I'm curious on a sort of more granular level, sort of case studies or areas where you're really stepping up that spend because it's a big number. And Clorox has never been one to overspend in an irresponsible way. But I'm just curious. It's tough to have a great ROI, I would think, on that much spending in a given year.

Yes. Just so everyone has the context, Lauren, which I know you know the numbers. In the back half of fiscal year '20, we added $70 million in spending. And then in fiscal year '21, we committed to a full incremental point of A&SP, and that's what you're referring to. And we invest A&SP not to manage a quarter or a year, but it's about the long term. And we're getting millions and millions of new consumers trying our products right now. And we want to develop loyalty with them. And so some specifics of what we're taking that money to go and do, I'll talk about 2 things. The first would be we set out in our IGNITE Strategy to get to know 100 million consumers in the U.S. I think you probably remember that from October. And we said that, that was 5x more than we knew at the beginning of the period. And what that's about is getting to know people enough that we can deliver personalized messaging, get their feedback and virtual loop in terms of how we innovate and really create that loyalty then with them over time. We are doubling down on that in fiscal year '21. So we're doubling the amount of personalized media that we will put out. We have a brand-new consolidated media agency with world-class capabilities and how we do audience generation and targeting, and we're going to fully leverage that to continue the digital spending leadership that we've had in the industry. We spend about just over 60% of our dollars online already, but it's really about accelerating that personalization agenda and getting to know consumers. And then the second bucket is, as consumers move online, we are accelerating the content creation we have so that people experience everything seamlessly. If you go into a store and you go online, that omni experience for you is seamless. You have the right information that you need at the moment to make your purchase decision. And we're starting to do things like talk about basket creation in that content. So typically, when you go online right now, you see a product, it's a one-off and you click it and you add it to your basket. But how do we encourage a grilling occasion through a digital engagement with a consumer? How do we encourage thinking about your routine and cleaning, not just buying one product? And so that's what we're focused on right now, is capturing that consumer who's moving online. And again, transitioning them to a loyal consumer. And both of those have terrific payouts because if we can capture those consumers now and turn them into loyal users, that benefit stream is what's going to help us accelerate the financial performance of the company.

Yes. Okay. Great. And I guess on the topic of long-term investments, right, there's been obviously a lot of interest in the idea of Clorox taking the brand into more institutional professional setting. And again, history, I know this has been a growth opportunity that's been of interest to the company since, I think it was 2006 was the Investor Day when it was in that grid. So if you could just maybe talk about the starting position of the professional products division in terms of size and business mix, the degree to which you've already begun to maybe alter some of your -- or grow your sales and marketing staff and kind of key market segments that you may be targeting?

Yes, you're right that professional has been an area of interest and growth for us for a while. And that business has had strong performance for us for a number of years. Some of the strongest growth that we've had in the company. And it's about 7% of our sales right now, and the majority of it is in the cleaning and disinfecting realm. We serve both health care channels today as well as more janitorial and then e-com customers that serve the professional channel. And that's an attractive business for us because what we don't play in is the dilution chemistry portion of the professional business, which is really about low cost per use. We play in the products that we do today, like wipes and bleach and spray chemistries, and we have the unique chemistries in the space like electrostatic sprayers that are really around having the ability to disinfect large spaces with low labor rates. So with all of those technologies, we've grown a business that is attractive to the company from a margin perspective, and we've been able to grow over time. But what we see is a unique intersection coming up here. And it's the partnerships that you referenced with our consumer business, where consumers recognize Clorox as the most trusted brand from a cleaning and disinfecting perspective in the U.S. We have almost 70% household penetration of the Clorox brand. And what they -- what we see is, as they reenter public life, they want reassurance that a space is clean. So in the past, the way they judge that was they would just look and they would say, okay, it looks clean. So I'm assuming a hotel room is clean or my airline seat has been cleaned properly. But now they're looking for, how do I know it's clean, given I can't see COVID or any of the other germs. So we're partnering with these new businesses and verticals in order to develop protocols as well as sell product to be used in those protocols to help reassure consumers that a space is safe. So United Airlines is a great example. They're talking about the experience from the moment that you check in at their counter to when you're sitting in, waiting for an airplane to when you board, when you're on the plane and all of the steps that Clorox and United will take together to ensure that, that space is clean and disinfected. And we're able to talk to them through their MileagePlus program, the consumers, we're able to get feedback from them, and it creates that great virtual loop. So the idea is, one, it's a revenue-generating and a profitable revenue-generating stream for us around product, but it's also reinforcing our consumer business and the brand and really broadening the experience consumers have. It's not just about cleaning their kitchen with a Clorox product, but it's about being safe when they enter a store, it's being safe when they travel, et cetera. As we see the benefits twofold: one into the brand; but two, just profitable revenue generation in new spaces that we haven't been in before.

Okay. And I guess, capacity-wise, right, you're already doing everything you can to keep up with consumer demand. And again, hopefully, for the sake of humanity, that moderates to a more, I don't know what level, but our standards remain high, but we're not as panic. But how -- is there -- are you currently already starting to invest significantly in capacity beyond what you've talked about for wipes and the things you're already doing in order to supply this new potential revenue stream? Because I would think, discipline will be really critical in how do you choose where to go because the list could be endless, right, the front-of-house opportunities where places consumers go. So how do you, I guess, invest in capacity and the right level versus third party manufacturing? And how are you making the choices about where you want to go with this? Because, again, it could be all the airlines, not just one, as an example.

Yes. It's a great point. So first, on the capacity, this is included in the increase in capital spending that we've talked about. We've typically been in the 3% to 4% range, and we've said about 4% to 4.5% is what we'll spend to increase capacity. And we're -- and this is part of those plans. Important to note that these opportunities are mostly in pilot phase right now because you're exactly right that we have to build the capacity to get there. It's giving us a good opportunity to learn what works, what products work best. And we do have some product lines that aren't in retail, so we're able to lean into those heavier. And they have separate and unique supply chains and don't compete with our ability to get wipes to consumers, for example. And then in terms of how we choose the partner, that's incredibly important to us, given we -- what I talked about, about the role of our brand. So we are looking for partners who really actually want to change the experience for consumers. They are committed to different protocols, they are committed to using protocol -- products in those protocols that meet the standards of EPA cleaning and disinfection, that meet the CDC protocols around cleaning. So that's incredibly important to us. And we have said no to partners who don't want to do that, who want to use our brand mark to reassure consumers, but don't actually want to change the behavior in a meaningful way. So that's one of the key ways that we're able to separate. The second, it's really just following the consumer. And we did studies and said, where would you most like to have the Clorox brand reassure you as you reenter public life, and they gave us feedback. And we've used that to go in and help us make decisions on where we would prioritize. Airline travel is a great one. People say, geez, I would really like to get on an airplane again, but that makes me feel really nervous. And so a good example of we're just listening to the consumer, and where it's most relevant is helping us make decisions.

Okay, okay. Great. And I guess if we were to switch gears a little bit, but international, just thinking about incremental growth opportunities. I think the strategy in international has definitely changed over the years. And quite a bit of variation on sort of the breadth of markets, what's the focus area, what do we want to be. So maybe could you walk us through kind of plans and vision for international under the IGNITE Strategy? And I guess how does that -- maybe that's changed or accelerated with COVID or a vision of what the world may look like with this sort of as an overhang, but maybe there's more of these that are going to come down the road and there's a bigger role for cross equity globally?

Yes. What we talked about in IGNITE was we wanted to evolve our international portfolio to accelerate profitable growth. We did see that opportunity. And the way we talked about it, and we're still committed to, is about 50% of our business is in Latin America right now, highly exposed to currency, volatility and to valuation. And so we wanted to, over time, move more of our portfolio out of Latin America into places that provided more stability, and we saw good opportunity to grow. A good example of a first move that we've made in that is the majority acquisition of our JV in Saudi Arabia. That is 100% of cleaning and disinfecting business. We've been in partnership in the JV for 50 years. We know the business really well, and it's had solid profitable growth over that entire time period. So that's a place where we think we can continue to expand strong market shares. We can bring innovation on our cost savings machine to that market and serve consumers in a great way. And of course, unfortunately, given the pandemic, we're playing an even bigger role for them right now, just like we are here in the U.S. So that's the idea in international, is taking geographies and businesses where we feel we have tailwinds and can provide more stability. And in the Analyst Day, we talked about from a category perspective, Burt's Bees, which continues to have great opportunities around the world; vitamins, minerals and supplements; and Cat Litter, actually, interestingly, as a business that's doing really well, and we're expanding into different markets, are some of the areas we want to accelerate. What we're looking at right now is given what's going on with COVID, the core of our business in cleaning, which is about, again, 50% of the international business, how do we do the exact same acceleration that we're doing in the U.S. into 3 buckets. The first is just meet the demand in the markets we serve today. That's job number one. So we're ramping up supply to do that. The second would be in markets we compete today, but they might not have certain products or innovations that we have in the U.S. or different markets like wipes, for example, where is the opportunity to expand our product portfolio and grow through innovation. And then the third, we are evaluating are there markets today that we're not in that we would want to enter. What I'd say, Lauren, is this is something where we'll be incredibly disciplined. We are not looking to make a quick buck on these. What we're looking to do is establish businesses that have good returns and that we can grow in the long run on. We think e-com is a way to do that. It's a new avenue that allows us to enter a market in a cost-effective way and test and learn. We're building supply to do that, but we're going to be incredibly disciplined and aggressive at the same time. But if you take a step back, I would say, I do not expect international to play a significantly larger role in our portfolio. It will have great growth opportunities we'll lean in, but we have tremendous opportunities in the U.S. And so I think they'll both grow and they'll just both grow faster together.

Okay. Great. We still have about 5 or 6 minutes. I just wanted to touch on some of the businesses that had more recent challenges and some reversal trends. So sort of a nice story to tell coming out of where things were. So first, maybe let's talk charcoal first. So rebound has been tremendous, right? Gaining share for the last 12 weeks, again, the most recent data. So share gain is now happening. It's not just about category growth. Could you talk a little bit about some of the work that was done to turn that around? And the degree to which this could be a case study for some of the other businesses like the VMS business that maybe needs a little more shift in strategy?

Yes. When we went back and looked at Kingsford and we asked ourselves where were we -- where we were, Eric Reynolds, I know at Analyst Day, had this conversation about what we saw. And basically, what we have done is run the same playbook for a number of years that was wildly successful for us. It was about holidays. It was about ensuring that we capture people with deep discounts during that time. We had a great briquette and a high market share, and we were able to leverage that idea of meal occasions to grow for a number of years. What happened is the consumer started to change. The retailer dynamic started to change, and we didn't evolve our plans quick enough, and that's what Eric had spoken about. So we went back and we looked at the core fundamentals of understanding the consumer and the insights, and where were they going? They were looking for new growing experiences. They were growing different types of foods, it wasn't just the traditional steak and ribs anymore. People are growing fish and vegetables. They were using new technologies like pellets, and we weren't playing in a meaningful way in that business. So we started with that and built the foundation of how were we going to lead that transition versus what had happened to us, that was job number one. Second, we put in place an aggressive innovation plan to capture that. So on our briquette business, you're going to see innovations over the next 3 years that we're pretty excited about. And then launched into new categories like pellets to meet the need for somebody who wants a Kingsford experience on a pellet grill and didn't have it. And then third and really importantly, we went back to retailers and rebuilt our plans from scratch. What they were looking to do was have -- they didn't want to have price deflation in the category. They didn't want to have to compete and just continue to lower prices, they wanted to offer a great value to their shopper and capture a market basket. So we went back and reworked those plans. And what you can see is across all of our major retailers, as they've implemented those and gotten back on that growth that you talked about, not only is the category up, but we're growing share. Our distribution is up. The acceptance of our innovation is terrific. And what we saw, really excitedly in the last few months, is grill purchases up for both pellets and for charcoal briquette. So we're seeing new consumers and millennials, in particular, enter that category and establish new behaviors. And that's what we're going to continue to grow off of as we come forward. And if we kind of look back at lessons learned, this is going to sound really simple. It's do what we do best and do it aggressively and own it at our pace. We should set the pace for categories, and that's the case in VMS. And you're seeing us launch our relaunch plans on RenewLife right now, and that's exactly the stance we're taking. We own the pace of the category. We must have innovation plans that stretch the consumer into new spaces that they want. And we have to adjust our market plans as market dynamics change and as retailer needs change, and we have to lead that. We can't just follow. And that's the lesson we'll apply to all of our businesses. It's typically how we run our businesses. Charcoal was an isolated case, but it's always a good reminder for us and committed as a leadership team that, that's what we'll do on every single one of our businesses moving forward.

Okay. Great. To wrap up, I'm going to go back to earlier. You had mentioned how we work on piece of IGNITE. And many consumer companies during COVID, I mean, everyone's had the force to evaluate how we work, but many have also had to do that in the face of challenges on demand, right? There's -- figuring out costs for you, it's a bit different because you've had this surge in demand. But to what degree you're seeing in terms of further learning or thought process around how we work and ways that exist now to be more efficient and more productive as a result of this sort of strange world that we're all in, sort of incremental opportunities on cost and efficiency?

Yes. I think there's a few things. One, we are building the entire machine in Clorox to operate in less big batches and more in the flow of how we work. We have put all the digital tools in place to do that, how we meet and how we govern the company has done that way in more real time. We have real-time dashboards that have transparency across the organization on key metrics and performance of our brands. And so -- whereas we used to do things in bigger batches, a leadership meeting, we get together, we discuss something. And then 3 weeks later, we get back and discuss the outcome of that, we are literally moving in real time. And actually, digital and being at home has enabled that to a great degree, which is great. So that's one, is just pace has increased. In terms of growth, it's applying that same philosophy with consumers. It's not big batch consumer work. It's listening right now and hearing what we hear. We literally can hear from consumers in days, sometimes hours, on what's going on in their lives, what are they facing, what are the needs that are not being met. And that's helping us input into our innovation machine much quicker on being able to test real time. And I think the same is true with e-com. We can use that as a platform to test and learn a lot more and not have to do things in big batches and carry the amount of risk that you carry in a previous launch. And then on the cost side, we're certainly experiencing some incremental costs as we do all of the things we need to do to take care of our team, so they can produce safely. And as we're prioritizing expediting products, so we have had incremental transportation costs to get things as fast as we can to the places it needs to go. But what we're really looking at, and we've learned from the simplification of the portfolio we did in cleaning to increase supply, is that we can simplify, we can reduce the number of items that we have. And we're looking at across all of our businesses right now what is the optimum mix to get the right level of consumer needs met to simplify the shopping experience and to simplify our own supply chain. And then we have doubled down on our commitment to sustainability. We see consumers want more than ever sustainable products, and we're looking how can we go even faster in our goals in removing plastics, et cetera. And that allows our supply chain to work more efficiently, too, as you're producing smaller containers in different configurations, eliminating waste, that just helps the whole operation move faster. So what I'd say is it's given us conviction in the choices we made in IGNITE. And now what we are working on is implementing them faster and doing things more in the flow and less big batch.

Okay. All right. That's great. Thank you very much for the time. Congratulations again on your appointment, and excited to see what comes next.

Thanks so much, Lauren. Stay well. Look forward to seeing you live at some point soon.

Okay. You too.