The Clorox Company (CLX) Earnings Call Transcript & Summary

Good afternoon, good evening, everybody. I am Steve Powers, the Head of Deutsche Bank's U.S. Consumer Goods Research, and I am very excited today to welcome The Clorox Company back to our conference. Joining us today from Clorox are Lisah Rendle (sic) [ Linda Rendle ] the Chief Executive Officer; and Kevin Jacobsen, Executive Vice President and Chief Financial Officer. Linda, Kevin, thank you both for joining us. Really appreciate your time. Before we begin a logistical point for those of you who are listening in, specifically those of you who are joining us via the conference portal, you should see the ability to submit questions in the window in front of you. Please feel free to make use of that window at any time during our conversation, and I'll do my best to integrate your questions in as we go. So with that, Linda and Kevin, thank you again. Really do appreciate your time.

Linda, maybe we start with you. Relatively early tenure as CEO of Clorox. And clearly, the pandemic has had a big print -- imprint on that early tenure. If you just look back on the past year, what stands out to you in terms of biggest accomplishments, things you're most proud of? And what changes do you think you've helped usher in and/or the pandemic that helped usher in that will have the most significant long-term impact on the company?

Yes. Well, thank you for having us today, Steve. Happy to have this conversation with you. Kevin and I are really happy to be here. It has been an interesting start to being a CEO of a company that has been able to really blossom during this time when we're trying to serve so many people around the world given what they face with the pandemic. And there are a couple of things that really jump out that I'm proud of. And the first is our people. What they have gone through, the experiences and the increase in demand and what we've asked them to do to help serve people around the world in combination with just how they've had to deal with the pandemic and their own personal lives, I couldn't be prouder and couldn't be prouder particularly of the folks in manufacturing who come in from day one and run our plants and manufacturing facilities at 100%-plus capacity and done a tremendous job while doing that safely. So incredibly proud of our people and incredibly proud of how they've reimagined work. That was one of the keys of our IGNITE Strategy with being simpler and faster and applied all of those principles to be able to move as quickly as we possibly could during this time. The second thing I'm most proud of is the fact that we did not retreat into just trying to figure out how to get up the demand during this time. We decided to play offense. And to us, that meant looking across our categories and brands and saying where could we meaningfully drive consumer behavior and loyalty to our brands by investing, by being focused on innovation and not letting that dissipate given all of the challenges that we had. And we've done that really well during the pandemic, and it's going to set us up to have stronger growth rates coming out of the pandemic than we did prior. And then third from just what the pandemic has done, it has accelerated the fact that we need to be a simpler and faster company and more technology enabled. That has to be true in the future. Digital has rapidly accelerated in this time. And we have been a leader in that space with e-com and digital marketing. But we need to live that across everything that we do in the company so that we can meet changing consumer demands as fast as possible. And of course, we're keenly focused on, unfortunately, there will be more pandemics that hit this world, how can we be ready to respond in the future. And we're imagining that right now as we start to come out of the pandemic, at least in parts of the world like the U.S.

Great. You mentioned the IGNITE Strategy. And obviously, that predates the pandemic by a while. But I guess just -- when you look back, how does that IGNITE framework help you respond? You touched upon it, but just if you could expand a little bit, I mean I think it would be interesting. And I also -- I noticed not that long ago, maybe a month ago or so, you updated the company values. And I guess, maybe just talk about that a little bit and why that was important to do now?

Yes. Our IGNITE Strategy set us up really well to deal with the pandemic. And what it did, it might seem simple. But it's a really meaningful choice, is that the very first choice we made was to put people at the center of everything that we do. And that means the people that we serve around the world from a consumer perspective, the people who don't buy our brands today and understanding and knowing them better, our stakeholders around the world, shareholders and really taking a human-centric view to everything that we do. And then we built an ecosystem of 4 strategic choices around that to create the fuel we need to invest in terrific, amazing, innovative experiences for those people. And then, of course, do our own work on how we show up so that we can act simple, fast and bold to best serve those people. And that model has worked really well when you're dealing with a pandemic that impacts people. It certainly impacted businesses and everything, but it impacted everyone at a human level. Being focused on that helped us make the right choices. And you combine that with the values that we have, and I'll talk about those in a second and enable us to make prioritization choices. It was very clear that investment was the only choice that we had in order to serve people and serve them better coming out of the pandemic. And that's really where the strategy took hold, is we live that virtuous cycle during that time. And we knew we were focused on and what we wanted to be. So for example, when we were faced with the choice of do we shut down innovation during this time and only focus on demand, we said absolutely the wrong thing to do. If you put people at the center, we have to do everything we can on demand, but we need to be ready to serve people with innovation coming out of this pandemic. And I think we have one of the strongest innovation programs that we've ever had coming up over the next 18 to 36 months as a result of that choice. And then our values, we did update and modernize our value. But what stayed the same is as important as what's changing. What stays the same is do the right thing. That is the core, if you ask any single one of our teammates around the world, they'll tell you, our core value is do the right thing. We want to win, but it only counts if we do it the right way. Second, we affirmed what we said in our strategy by articulating the value of put people at the center as an actual value for what we do. And we'll talk about that hopefully a little later if you ask me an ESG question. And then third, and this is the one that we're stretching the most towards, it's about play to win. And we want to grow share in our categories. We want to serve people better than any other consumer packaged good company does in our categories, and we'll do that and we'll play offense to ensure that we can win in the future.

Great. So -- and we will -- I will ask you an ESG question.

Great.

But before, I want to get Kevin in the conversation a bit. And just have you kind of reflect from your vantage point. And how last year has shaped, how you envision your role as CFO, how it's challenged the finance function? And just as Linda articulated, I think even more assertively than before, Clorox is going after growth, and you see that in the long-term algorithm raise that you made at CAGNY. What impact, I guess, just from your perspective, Kevin, how has the company changed around you? And how has it changed your thinking as CFO?

Yes. Thanks, Steve, for the question. What I'd tell you is, I think it's the right way to describe our intention is to have more sort of growth posture. That was really core to our IGNITE Strategy, well before the pandemic. As you know, we set financial goals to accelerate the performance of the company from a sales perspective, 2% to 4%. And that was really towards our broader ambition that we want to deliver total shareholder return in the top 3 of our peer group. And so that's really where we started with IGNITE. And then as a result of the pandemic and as a result of the change in consumer behaviors, we've identified a number of new additional growth [indiscernible]. So as a result of that, we've raised our sales expectation, as you mentioned, even further now 3% to 5%. And so to your question, Steve, in terms of the implication and how the role has changed, what you'll see from us is we are leaning in and investing more to pursue growth. And you'll see that in a number of areas across our portfolio. Probably the clearest example we talk about quite frequently is on advertising. We are leaning in this year. We're probably going to spend somewhere between $100 million and $125 million more in advertising. We have such a unique opportunity. Millions of new consumers have come into our franchise as a result of pandemic. And we're investing in these consumers. We're investing to build loyalty. We know what a strong return that generates. And so one area of incremental investing is certainly in advertising. The other area is people. As a result of these new growth runways, we're investing in standing up dedicated teams to pursue these opportunities. And so I think that really speaks to this posture of we see these opportunities, we have tremendous conviction in them, and we're going to invest behind them. And so we're doing that with people as well. And then I'd probably point to the last area, Steve, is in capital spending. We typically as a company spend 3% to 4% of sales in our CapEx program. This year, we're probably being closer to 4.5%. I suspect next year will be north of 4%. And again, that's really investing in increasing our production capacity behind these incremental demand opportunities we see and we're pursuing them. And so with our desire to accelerate the performance of the company, we have conviction, we believe in these opportunities. And what you'll see is we're putting money behind these opportunities we're investing behind them. That's probably the biggest difference I see.

Great. And I -- Linda, here's your ESG question. Because I want to loop it in a little bit to what Kevin just described. I mean ESG has been in various forms, pretty core to the messaging and message and persona of Clorox for a while. So just a general question as to how you -- how and why that is so important to the company. But in the context of those financial considerations that Kevin mentioned, how does ESG factor into the 3% to 5%? Is it separate and distinct? Is it an enabler? Is it somehow a governor? How do you think about that? And the same vantage point from a spending standpoint is, does ESG require new different capital investments? And is that somehow, again, complementary? Or is that an additional cost that the company is carrying? How do you think about that?

Yes, starting with why it matters. It connects back to who we are as a company. And our enterprise purpose or company purpose is to champion people to be well and thrive every single day. And we believe people can only be well and thrive if they have healthy communities. And that means a healthy planet, that means a healthy social system. And that means having companies that serve them with values and trust and things like good governance. And so that's why it's core to who we are. We actually can't live what we intend to do with our purpose without doing that in ESG. And then that leads to the choice that we did around purpose centered brands. So not only do we have a company centered purpose of why we have an organizing principle around our portfolio, but each one of our brands -- major brands are activated by purpose. And they -- knowing their consumer knows this is what people want. And sometimes they don't articulate it exactly that way and they can get into debates over things. But generally, people want communities and planets that are well, and so we, therefore, must prioritize ensuring that we do that and that we help them. We help them with our brands, and the next journey of that is making them more and more sustainable for them, more socially aware, more part of that conversation. So that's the why. And then what we're doing about it. For a number of years, Clorox has been focused in the space and has had really strong results. So this isn't new, I should say. But how we're doing it is new. We are embedding it into the business units and into the brands. They own it in full, and the general managers and marketers are responsible for bringing this to life. What that means is it's not a distinct program that comes over the top that becomes like you said, a tax on the business. It's not -- you go figure out your financial goals, share goals and your people goals and then layer this in. What we're trying to do is reinvent categories centered around her and what she needs, that consumer who is trying to live a great life. And this is just part of that overall experience for them. So when we remove plastic, and then we can also make it a better experience for the consumer, it's a win-win-win. And that's what we're focused on right now. We're also using that as a way to try to drive cost savings in the future. And we spoke about that when we raised our cost savings goal as part of IGNITE, we saw sustainability improvements as a way we could do that and have that triple win, and we're starting to see that play out. That sometimes means we have to invest a bit upfront in order to do that, but we see the long-term benefit sustainability playing all the way through the P&L. And then, of course, on the impact that we'll have with consumers and the loyalty we'll earn.

Great. Is it -- what role does it play with your retail partners? Is your journey on ESG and your commitments and your team, is that a net beneficiary when you sit down with retailers in a lot of respects are like-minded? And does it help your standing with those retailers as you try to accomplish financial goals that may be only indirectly related to the ESG objectives themselves?

Yes. You can see that all of our top retailers have made commitments and statements around how they're going to live a more sustainable future. And so it very well aligns with where they're going. We all are eyes-wide-open to the role that we need to play to do that. And that allows us to have a different level of conversation. So when we go in and talk about something, we're talking about holistically how can we serve their shoppers in the best way, and part of that is by delivering sustainability improvements and helping them to meet their goals. So it's very well aligned. It takes us to that strategic level of conversation really fast. And what we all believe together and use of the conversations we have is each one of us can have an impact. But the multiplier effect we get when we work together on these things is enormous, and that's what we're all focused on. And so we think it's -- of course, it's the right thing to do, and it's core to who we are, but it's also going to help accelerate those goals by partnering with people like our retailer partners. And on the other end, our supplier partners who are also going to need to do this tough work.

Okay. Good. Good. So if we pivot back to the 3% to 5%, Kevin, you touched a little bit upon the decision-making process that led to that. But I guess can you expand -- either one of you or both of you, just expand on the consumer insights that you have that gave you the confidence to make that pivot. And maybe we just start there and just a little bit more background and sort of reasons to believe for investors in the 3% to 5%.

Yes, we first looked at just the core of our business and our IGNITE Strategy and said, did we have confidence that it was delivering what we thought it would. And recall we had originally set out to deliver 2% to 4% sales growth. And based on what we were seeing, both the ability to create fuel with that increased cost savings target, we had a line of sight to doing that, and we have absolutely delivered that in the beginning parts of our IGNITE Strategy. So we knew we would have the fuel to invest. We saw the innovation programs take off. We set out to create platforms that we could invest in for many years, and we saw that take hold, as well as a few of the categories where we had work to do, Kingsford being a great example, we saw the application of our Ignite strategy turning around that business to a great degree and gave us even better confidence in our core. So that was the first part. And the second part is we looked at the trends given the pandemic and said, we squarely saw an opportunity for us to go after the health and wellness space in a more meaningful way. And we saw the consumer behavior and stickiness in the change in the cleaning behavior, in particular as an avenue to do that. And we saw incremental opportunities in international and our out-of-home business as being something totally incremental to our business and something that we could go after. So we added all that up together, we said that we believed we could get to 3% to 5%. And our goal is, of course, is to move to the higher end of the range over time, given the opportunities that we have in front of us. But that was the idea, strong strategy conviction in our choice is more relevant than ever given the pandemic and then incremental opportunities that we could go and monetize and create value for our shareholders.

Great. Two of those incremental opportunities are -- one is, in a lot of ways, channel specific in terms of a more robust professional push in cleaning and hygiene. And the second one is just taking that cleaning and hygiene focus more assertively overseas. Is that the way I -- first of all, fair?

Fair.

I guess, can you talk about the -- as you raise the top line outlook, the cost of the growth kind of implicitly went up a little bit. Overall, the growth rate is to be higher, but the margin implications implied in the new algorithm aren't necessarily a step-up. Do you think -- do those incremental pushes either international or overseas, do they inherently come with lower margins? And if so, is that a temporary phenomenon or longer term? Or is the incremental investment actually not necessarily in those directions, it's actually more investment in portions of the core where you now see stronger growth enabled by IGNITE?

Yes. I think first, just clarifying the goals, you have it exactly right, moving from 2% to 4% to 3% to 5%. And then our margin goals remain consistent. So we want to expand EBIT margins 25 to 50 basis points over time. And we still see the opportunity even with raising our sales goals to do that. And that's a strong commitment to grow profitably. And the opportunities that we have in front of us, we think, afford us the opportunity to do that. Now in the short term, there will be investments that we'll make, particularly as we stand up supply chains to support international growth, and we've talked about how we've done that over the last 9 months. There will be investments in there, and we'll invest more strongly in our brands, and we did this year from an advertising and sales promotion perspective. But if we grow these businesses, we feel we're able to achieve that target of getting to 3% to 5% as well as our EBIT margin expansion over time, which I think sets us up really well to deliver what Kevin talked about in being in that top third from a total shareholder return perspective. And if you think about just the mix of our portfolio, our IGNITE Strategy, again, contemplated a lot of the brands that we had growing faster. And many of those are margin accretive, et cetera. So when we look at that overall mix of what we're expecting in our base retail business from a cleaning perspective, and many of the categories that we see performing stronger than they did pre-pandemic, all of that adds up to our ability to deliver on both of those important metrics.

Okay. So let's talk a little bit where -- I think investors are grappling with, on the one hand, reasons to believe in the new algorithm. The other one is sort of what's the base off of which we apply that algorithm, right? And we're in a period of time where there's lots of variables that are impacting all kinds of categories, including, I'm sure, your business. Maybe just start with where you see the process of reopening, recovery, a path to a new normalcy. Where do you think we are in that in your key markets, and we just start there from a macro standpoint to set the table, and then we can talk about your business more specifically.

Perfect. I'll start with the macro, and I'll turn it over to Kevin to discuss specifically what we're seeing in terms of how that plays out in our numbers. Just from a macro perspective, obviously, the vast majority of our business continues to be in the U.S., and we're seeing the U.S. open up, and we're seeing vaccination rates thankfully on the rise, which is terrific news for all of us. And we're seeing a lot of people begin to return to a more normalized version of what life will look like post-pandemic. But that is different than what it was pre-pandemic, both from a behavioral perspective, we're seeing people do things differently and those behaviors are sticky, like cleaning and disinfecting, like taking care of their overall health and wellness and exercise that we definitely see is sticky. And even as people are entering a more normalized life that is taking hold. The second thing we're seeing is people having home as a larger portion of their time spent. And that is primarily driven by the fact that many hybrid work environments are being created coming out of this. It's what people are demanding. Most people do not want to go back to the office full time and companies are responding to that. And we've seen strong evidence that people will spend more time in their home than they did prepandemic given that, and they'll generate more things at home. And specifically related to our categories, more meals at home, more trash generated at home, more cleaning occasions at home, and we're seeing that cemented as well. And we think that's going to be a structural change to the way people operate not only in the U.S. but around the world. We do have economies that we compete in today, though, that are very much still in shutdown and unfortunately, are not through the worst of the pandemic. So we're going to see how that prolonged impact has on those markets. Would behaviors be further cemented, will there be additional changes, we're watching those very closely. And we'll evolve our plans based on what we learned from markets that have opened earlier. Kevin, do you want to just take everyone through how we're thinking about that in the financial aspect?

Sure. In terms of how we think those are going to play through our financials, we're really moving, as Linda said, to the next phase of pandemic. So we've gone from this extreme demand we saw in this period of moderation. If you think about our business, during the height of the pandemic, we were growing at 20-plus percent. We believe long term, we'll be growing 3% to 5%. And so we've got to work through this period of moderation in demand. That really started for us in Q3 as we reported flat sales. I think for the next 3 quarters, this quarter, plus the next 2 quarters, that moderation continues. Currently, our expectation is by the back half of our fiscal year '22, which starts in January, we really worked through that period of moderation, and we're back to our long-term financial goals, growing the top line 3% to 5%, expanding margins and growing the bottom line as well. But we think we've got a few more quarters. And then maybe, Steve, just the only other perspective that might be helpful for the group is, I would also tell you it's going to be bumpy over the next several quarters. There is no precedent for this demand moderation that we're seeing right now. So trying to predict this in 90-day increments is pretty difficult. And so we expect a pretty bumpy performance for the next several quarters. But what we feel good about, hopefully, what you're hearing from us today is, we see the long-term potential here. And we believe by the back half of our next fiscal year, you're seeing that accelerated growth rate.

Okay. And do you -- Kevin, do you -- by the bumpiness, do you -- are you thinking mostly about the health and wellness segments where -- I'm sure you've gotten this question numerable times since 3Q results where you were trending above $800 million in revenue, and then you dipped below $700 million. And everyone's trying to figure out what normalized looks like off of those minimal data points. So is that really what you're focusing on, the bumpiness there is hard to call in terms of where you level out? Or is it -- does it expand to other segments as well?

I would say that the biggest challenge we have is on our health and wellness portfolio. And to your point, Steve, if you think about our health and wellness segment, before the pandemic, we averaged $500 million to $600 million in sales on a quarterly basis. At the height of pandemic, that grew to $800 million. And then as you mentioned in Q3, you saw it start to moderate down to $700 million as we expected. So we'd expect that moderation to continue. What's important to us is not the bumpiness by quarter, but our expectation is where this levels out will be well ahead of where we were before the pandemic began. So that $500 million to $600 million in quarterly sales before the pandemic began, we expect to level out well above that. But we're in that process of moderating. And so that's certainly the biggest impact. I would say, going the other way has been our Household Essentials business. That has been more resilient than we anticipated. So we've been trying to understand exactly those trends as well through increased pet adoption, increased grill ownership, people spending more time working from home even as the economy opens up. That's proven to be a benefit to a large portion of our portfolio. And so trying to understand exactly how that benefit will play out is also a bit challenging. But no question, cleaning and disinfecting is the most challenging business to predict right now.

Yes. And this is probably also a little bit unclear in terms of the seasonality of that business that results. But I guess my thinking is that the health and wellness business that emerges is a little bit less seasonal, where you have more of a steady-state demand because of at-home behaviors as well as maybe a steady-state kind of professional channel demand such that the cold and flu season, when presumably it returns has less impact on the overall numbers. Is that -- is it too early to tell? Or is that fair logic?

I think it's too early to tell, Steve. And the other thing we have to do is make sure we remove the noise of things like not being able to fully supply in quarter 3. And one of the impacts that I'll talk about, too, and it relates to your comment on seasonality is professional was behind in quarter 3, not because it didn't perform stronger than it did before, but because businesses just hadn't reopened yet. And so those things are going to have impact. And they have -- cold and flu have similar impacts. It impacts consumer different than it does businesses. Businesses react different. They clean on different -- the cycle of our sales look different, depending on how businesses react when people get sick and people don't tend to go out as much when they're sick as well. But I would expect cold and flu to be at a moment where there is even more heightened awareness and reminder of people's wellness. And so it could go the opposite way where that becomes even a stronger season than we've seen in the past. That's what we're working on right now is trying to model. We're seeing cold take effect as people have gone maskless for the first time. So we're actually seeing in markets you might expect where masks have been removed, softer sales, that's not what we're seeing because we're seeing an increase in cold at this time. So it's to be determined. I still -- my bet is that we're going to still have some seasonality in the back-to-school and cold and flu time periods as people will have heightened awareness of what's going on. But that's going to play out over the next year, and we'll keep everybody in the loop. My guess though is seasonality will continue.

Great. Okay. The other -- so trying to gauge this -- the pace and shape of recovery has been a big topic this week. Another one is just the inflationary backdrop that we're all living through and witnessing. Probably a question for you, Kevin. Just your latest and greatest thoughts on sort of the inflationary backdrop as it relates to your -- the costs that you're incurring. I'm talking raw and pack, I'm talking freight, labor and as well as how you're planning to grapple with those in terms of increased focus on productivity, revenue growth management, list pricing. You've talked about these things, but just your latest thinking would be very helpful.

Sure. And you're right, Steve. We're seeing what I suspect all our peers are talking about the conference is a fairly significant run-up in cost inputs, both on the transportation and the commodity side. And what I'd tell you, Steve is, I've been in this business a long time. This is one of the more challenging environments we're operating in is what we're seeing right now. And it's not just the fact that commodity costs are inflating, but it's the pace of that inflation. We've seen a tremendous ramp-up that really started at the beginning of this calendar year. Our view is this is not transitory. And so we're planning as if we're going to be operating in this environment for the better part of our fiscal year '22, which for us starts next month. And if you think about the backdrop that's created as you look at a low interest rate environment, you look at the latest GDP forecast [indiscernible] the U.S. growing somewhere high single digits, low double digits. That hasn't happened for decades. And then you also look at pretty high government spending. When you put that mix together, that suggests to me that this is not a temporary issue we're going to get through in the next 3 or 4 months, but it's longer term. And so that's how we're approaching it. And so in a typical year of inflation, typically, our cost savings program would be more than adequate to offset cost inflation and also give us an extra savings to take to the bottom line to deliver EBIT margin expansion goals. Clearly, that's not the environment we're operating in. And so as we've talked quite publicly, we're going to have to lean in much more aggressively across a number of additional tools we have available to us. And certainly, pricing is one I'll speak a little bit about that. We're looking at trade spending. We're looking at the -- our margin-accretive innovation program as well. And then we'll also pursue a number of opportunities in what we call net revenue management, think price pack architecture changes improving the mix to improve margin. Those tend to take a little bit more time to implement, but we'll be looking at those as well. But maybe I'll start with pricing because I know that's of interest to folks. We certainly will be taking pricing this year. As folks may know, we've already announced one price increase on Glad. And Glad, we really went out to quickly because resin is one of the highest input cost increases we're seeing. And with the ice storms we saw in the South back in February, that really accelerated the inflation in resin. And so we announced the price increase in March, that will go into effect in July. We're working our plans right now to take additional pricing and we'll communicate those in August as we roll out our outlook for fiscal year '22. But you should assume more pricing. We're going to look at trade spending as well as well as our innovation program. And then maybe, Steve, just the last comment in terms of the enterprise, I don't think there's one solution for us. And so we won't just do one thing. We manage 10 business units. And so every general manager is thinking about what's right for their business, given their category dynamics. In some cases, they've got a big cost savings program this year lined up. They may be able to rely on that to a greater degree than some of the other levers. In other cases, it may be more driven by pricing. And so I think you'll see a series of solutions across our portfolio that we think are right for the long-term health of our brands. And again, we'll share more with you in a couple of months.

No, that's very helpful. Maybe this could be a question for either one of you or both of you. But just philosophically, as I hear Kevin speaking, in the context of the -- on the one hand, you've got greater growth aspirations. On the other hand, there are these near-term cost challenges that you've got levers to pull to offset them, but the timing of magnitude is still probably uncertain even to you as you plan '22. Philosophically, do you prioritize that long-term growth? Or near-term profitability becomes a bigger concern, right? And so the question is, regardless of the costs, are you still inclined to invest behind these new cleaning initiatives? I'm certain that as we all reopen, your outlook for Burt's Bees is now a lot more rosy and you want to invest to make sure you're there for that growth. You've got work to do in some other parts of the business like the VMS portfolio. So in your mind, are these 2, like the investments you make, is that this -- in advance of the long-term aspiration, is that sort of discrete and distinct from the near term dynamics we just talked through? Or are they just -- is the near term just so strong that it's hard to separate those 2?

I think it comes down to always when we look at these decisions. What creates a more valuable company over the mid- to long term and really being long-term focused. And what creates a more valuable company for us is to lean into the growth opportunities we have. And we view investments like advertising and sales promotion as strategic to do that. And so that's something we do not want to manage by quarter or by year. We're thoughtfully putting a toolbox in place, as Kevin articulated by business that includes different innovations and cost savings and spending, and that's up to the general managers to do. But strategically, we believe in what advertising does for our business, and we simply follow the money. We use an ROI-based model to just decide where and when we're going to invest. And that model tells us that leaning in, like we did in fiscal year '21 by adding $120 million of incremental spending is the right thing to do for the long term of our business, and frankly, has good short-term payouts as well. So it's not even something we're sacrificing. It certainly has an EBIT margin implication as it did this year, but we believe that's the right choice for the long term of our business and will create the most value over time.

Okay. That's right. And are there -- you mentioned the success -- I think it's a success story of Glad -- sorry, sorry, I mean I'm thinking mostly of Kingsford?

Kingsford, yes.

Yes. As you think about the journey that business took to kind of -- it was strong. It got a little bit out of focus and then pretty quickly pivoted back into strength. Are there lessons you can draw from that as you apply to the tailwinds that I hope emerge for Burt's Bees or the process by which you reinvigorate VMS? Maybe just talk through a little bit of what Kingsford went through and then lessons learned and extrapolations you can make to other businesses.

Yes. I think the single biggest lesson that comes out of Kingsford is the most important thing that we do is understand consumers and build plans to create value around what's most important to consumers. And for the longest history with Charcoal, that meant having big seasonal merchandising, leveraging retail partners to do that. But what we missed was the fact that consumers were moving to other fuels, and we didn't take as an as aggressive stance as we could in that. And we defined our world as Charcoal and the consumer defined it as much more broadly than that. And we had to redefine what that -- what meant for us. And then we have to create value across the entire value stream, meaning our retail partners also have to have plans that make sense for them in our categories. And those are the 2 core competencies that we have, serving consumers and then making that work in retail. And in Kingsford, we just lost our way for a couple of years in that. But by returning to those fundamentals of what mattered to the consumer, which is innovation, fuels that gave them terrific experiences when they grow regardless of what they're grilling, educating them. And then putting that in the market in a way where retailers could be profitable where they could want to sell, not only a market basket, but any [indiscernible] of Kingsford that went through their location, they felt good about selling. And the magic of those 2 things have -- it doesn't sound magic, but have resulted in terrific results. And so the lesson we always learn is are we there disrupting ourselves? Are we always putting the consumer and then how we activate through retailers front and center in our plans and testing that and ensuring we don't get caught in something that worked for -- and it did for 10, 15 years, that model worked. But given what was going on in retail, we didn't react fast enough to change. And that was the lesson learned, and we apply that now to your point, Steve, to every one of the businesses and the strategic discussions and planned discussions we have with our general managers and they're thinking through, have we done that effectively? And then the other thing I'd call out is reacting faster. In Kingsford, it went on a little bit too long. And we've also made that commitment to ourselves when we start to see something, how do we react with speed and urgency and ensure that we're diving in and not letting something take a couple of years to turn around. But getting those early data signals and then reacting to them in a faster and simpler company.

So the -- yes, okay. So there are, yes, in diagnosing the issues with Kingsford and dissecting what actually worked to help turnaround, that has informed the strategic review process of other businesses that you're now -- you're better equipped to prevent that from happening again. It's not just, hey, this is how we fix something that gets broken. Now we're going to prevent it from getting broke in the first place.

Yes. A good example of that, Steve, is how we look at categories now. And as part of the innovation program we put in place with IGNITE. Before, when we were innovating, sometimes we would get trapped in, we make a -- let's just continue to take charcoal. We make charcoal briquettes, and we would make those charcoal briquettes better and cheaper. And we would get that magic combination that created fuel and being able to invest back. Now what we say is the category we're competing in is natural fuels. How do we do that? And how do we think about the consumer journey and experience in that way? So translate that to our home care category, for example. We're not just looking at how we make a better wipe, how we make a better spray. We're asking what are the jobs consumers need to do? How do they define it and where might we play and build innovation platforms. So that's serving us very well and thinking about where our brands can go and the impact that they can have. But it prevents us from getting into a spot where we too narrowly define something or somebody else sees it inside, outside of our core categories that we missed.

Yes. Okay. That makes it consumer needs based, not Nielsen category based. I get it.

You got it, Steve.

Now I guess that does lead my thinking to -- so if you're thinking about it in the form of needs-based consumer platforms and how you meet those needs in the best way, does that inform also, Kevin, how you think about M&A and the opportunities there either to optimize your portfolio? Does it create a new way of thinking to bolt-on assets or potentially strip away assets that don't serve those consumer needs or the consumer could serve those consumer needs better?

Yes. I think it has informed our M&A strategy as well, Steve. As we've talked quite a bit, we continue to have an interest in health and wellness. But to Linda's point, you start thinking differently about what are the assets that would meet new consumer needs. And so some of the work we've been doing more recently on partnerships, on joint ventures is really about identifying new opportunities and new capabilities that we think will meet consumer needs. And I'll just give you an example. We've done some partnerships more recently with device manufacturers. So as a result of the pandemic, we've seen touchless disinfection is a new desire for consumers or new interests, and that's an area we didn't play in to a great degree, part of the pandemic. And that's an area of our M&A focus through some of our partnership work that we've brought on new partners, new devices that are playing in this new space. And so I expect, as we continue to understand changing consumer interest, it will absolutely impact our M&A strategy.

Yes. And does it -- I mean -- and maybe that's a good example. Does it -- I mean, do all those have to be acquisitions? Or does it broaden your thinking around strategic partnerships and licensing opportunities, either inbound or outbound? Like, is you're thinking more expansive as you think about consumer needs as opposed to your own individual categories and products?

It definitely would become more expansive. And I'll just give you another example that might be illustrative. Last week, we announced a partnership with Hamilton Beach. So that's a great example of air disinfection, a new space we're playing in with the strength of the Clark's equity and a very strong partner we've identified. That would likely have not been something we were thinking about before the pandemic. So that's just one example, and there's been many where we're looking at say more broadly at partnership opportunities that help us play in some of these new spaces, and we found a number of great partners over the last 12 months, and I expect we'll do more of that.

Okay. Great. We're just about at the end of our allotted time. So I want to be sensitive to that. But maybe, Linda, just to wrap it up, just we've covered a lot. I think there's a lot to cover. Just any final messages or thoughts on either to reinforce what you have talked about or to bring up things that we may not have talked about that you think are important for investors to understand, that they feel confident that Clorox will continue to deliver?

Yes. I think it's really important for everyone and for us to be transparent that the next few quarters are going to be bumpy, and we see that. And we've been really clear about the environment is dynamic. And predicting this thing over the next 10 days, 90 days, 180 days exactly right will be difficult. But we have very strong conviction in the ability for our company to accelerate and accelerate profitably into the future and become a more valuable company based off of these choices. We have categories that are exposed to lots of tailwinds. And we've made the right choices in our strategy to take advantage of those. And so we plan to play offense, and we plan to accelerate the profitable growth of the company. And we feel really strong conviction in our ability to do that and just thank everybody for their time and joining the session with us to talk more about that.

All right. Well, thank you, Linda, thank you, Kevin, thanks to Clorox for joining us for participating in the conference, and I wish everybody a great remainder of their respective events. Thanks so much.

Great to see you, Steve. Thank you.

Thank you.

Thanks, everyone.