The Clorox Company (CLX) Earnings Call Transcript & Summary

Okay, so we're going to get started. And really excited to have Clorox with us again this year. We have the company's CEO, Linda Rendle; and CFO, Kevin Jacobsen, with us. [indiscernible]. So again thanks so much for being here.

[ I mean, if you could -- if I could just start ] is just on volume growth. Volume has been kind of at the forefront of the conversation at the conference for all the companies that are here. And for you guys, in particular, right, when will it lock up, right, fourth quarter, much better than expected, still down only 2%. But there were a couple of things that maybe were -- I don't have onetime, but timing from some benefits of improved deployment and so on. So just, I guess, maybe we can start with how do we think about your volume growth trending from here? Can we start to see growth, I mean, as soon as the first quarter, you've got easier comps or is this kind of some of the sell-in dynamics that benefited last quarter making so or if we should correct kind of wait a little bit and think forward?

Excellent. And if you permit me, I'm just going to say a few comments and then [indiscernible] that question I think is related to. But hope you were happy to see in fiscal year '23, our performance based off of delivering against our priorities of maintaining top line momentum, rebuilding margin and continuing to invest in the long term. So we delivered 4% sales growth, 6% organic, grew margins by 360 basis points and grew earnings by 24%. And I know we're going to get into '24 in our assumptions on volume. But as we look out, we continue to see a stressed consumer more in aggregate. Our categories have been resilient, but my comments will be consistent with what we're seeing from a consumer perspective. And then just one note, we have provided guidance on August 2 at our call. And of course, we had a set of assumptions around that. And I just wanted to be clear that what is not contemplated in that is that we announced on August 14 through an 8-K that we had a cybersecurity incident and that was not factored in. Obviously, it happened afterwards. We don't know if there's a material impact yet, and we don't have an update on our financials, but I wanted to make sure that was clear before we got started. Good. So more on volume, which is important to how we think about '24. Certainly, in Q4 of fiscal year '23, we saw improved volume performance, as you noted. And we're down less as we started to lap before price increases we took over the last 18 months. And what we would expect in fiscal year '24 as we continue to finalize something that which will happen at the end of this calendar year, that volume will play a more significant role in our top line performance moving forward. I wouldn't say that it will be linear. And given there's more visibility, and we're assuming a recession, a mild recession in the back half of our year, looking at that and saying that, that will be a straight line is not what I would commit to you now. But we do believe volume and is already continuing to play a strong role, and we believe we have the right plans investing in our brands and their superior value. We're investing more in advertising and sales promotion this year, always invest strongly at about 10% of sales. But this year, we decided to spend 11 and as well as we have strong innovation plans that will support that return to volume growth as consumers begin more normalized behavior as we lap pricing. So again, volume will play a stronger role. It won't be exactly linear there, but we believe we have the right plans in place to continue to expect that moving forward.

Okay. Great. And in that [ vein ] on the August call, you mentioned innovation, right, and more important than ever driven volumes and particularly given the assumptions you're making around the consumer environment. So what's interesting is your R&D as a percentage of sales has actually been down over the last 10 years pretty consistently year-over-year [indiscernible] isn't so much pricing in the numbers more recently. So I'm sure if we looked at it relative to volume, it's probably a different conversation. So I'm just curious, is R&D an area that you think requires or warrant maybe additional spending as innovation grows and importance, [indiscernible] can do sort of R&D machine is properly funded as it stands today?

And maybe I'll fill my comments in broader terms of how we're thinking about investment broadly in our company. And we believe we have made the right set of investments to ensure the long-term value creation for our company and for our brands. And if you look across all of the buckets, that would be in things like advertising and sales promotion, where we're spending stronger and we lead and share a voice in our categories whether that be in ensuring that we have the right infrastructure from a technology perspective, we're investing $500 million in our digital transformation. And then R&D is no exception. We are one of the leading spenders among our peer group, and we continue to be. And so we feel very good about the R&D that we have in place to deliver incremental value from innovation, which is critical to our 3% to 5% sales growth number. And although that number has remained flat in terms of absolute spending, our business is significantly bigger and we're able to drive the right efficiencies but that's an area we continue to be moving in our industry, and is an example of the broad set of investments we're making to ensure the long-term health of our business.

Okay. Could you maybe talk about within that, how maybe of your approach to innovation has changed? Or what it means to go after kind of bigger, stickier ideas? And is the process, that R&D process is different today than it was 5 years ago or pre- IGNITE?

It is different. And we have been building better innovation processes long before IGNITE as well, and we're very focused then on ensuring that we are closer to the consumer, that we were shortening the window that it took to innovate. So those windows can be pretty long in innovation cycle. So pre-IGNITE, we're really focused on shortening that window. And as we head into the [ new ] period that we wanted to ensure was taking the learnings that we had from the previous period and applying them. And the biggest learning we had was that when we could launch innovations and consumer need spaces that we could invest in for multiple years. We call it stickier innovation. Then that was a better return for us, and we had more contribution from a top line perspective, and that's what we're focused on doing now. For each one of our categories, we want to have platforms that we can invest in for multiple years, and that incents retailers because they know that innovation is going to be around for a while. We can continue to put fresh items on the shelf for the consumer and give them new news. And it makes that R&D spend even more efficient, which helps us drive the number that you spoke about a lot. So that's what we're focused on now. Good examples of that would be Glad where we've had many years of innovation come out of technology platforms that we've invested in. It's allowed us to build a better [ crash card ] with less plastic with a better sustainability profile. We've been able to add great sense and colors. For those of you who are into Barbie right now with pink trash bag, and it's relating to that. I know a lot of guys are like oh my goodness, more Barbie. Pink trash bag is pretty cool right now. That's a good example of something that a technology platform allows us to do something over and over again at scale and get good return on the capital that we put in before in order to do that. And we have that across a number of our brands right now, and we launched major innovations in every one of our major brands last year, and we would intend to do the same this year.

Okay. Great. Okay. Other key focus versus in gross margin recovery. So big chunky start on that front to say the least. But could you maybe, Kevin, talk a bit about the key inputs dictating the pace of recovery as we look through '24 and even beyond, right? Because this year, cost savings -- sorry, excuse me, fiscal '23, right, cost savings and pricing really drove the bulk of it. So just curious, your -- raw materials? Is it become a tailwind at some point or building blocks...

And for a little bit of context for the folks who don't follow us closely, we've seen significant cost inflation over the last several years. If you think about Clorox, a typical year of inflation to be around $75 million for the supply chain inflation. Two years ago, we experienced $800 million of supply chain inflation. Last year, $400 million. Now this year, about $200 million of what we're projecting of fiscal year '24. So a moderating inflation environment, but still inflationary. And then, Lauren, to your good point, our commitment is to rebuild gross margins back to pre-pandemic levels. It was about 800 basis points through this inflationary cycle. Over the last 18 months, we've leaned in very aggressively on pricing. We've taken 4 rounds of pricing. Broadly, across our portfolio, we've seen large double-digit increases, and that was a key contributor to helping us build that margin. But the other 2 areas we're focusing on is cost savings. We have a very well-established cost savings program at Clorox that is to earn value for decades, and that continues to deliver very good value for us. And then supply chain optimization. During the pandemic, we built up tens of millions of dollars in our supply chain as we're building resiliency and to manage through all disruptions, and we've got the opportunity to pull that out. And so last year, we made very good progress. We recovered about 360 basis points of that 800 basis points we lost. Pricing was the biggest lever we pulled, and then cost savings and supply chain optimization. As we move forward, and particularly this year, we don't have in our plan an assumption of broad-base pricing. And so you'll see less benefit from pricing, but we'll continue to drive cost savings. We'll continue to drive our supply chain optimization. And we think in spite of ongoing inflation, we can continue to make progress growing gross margin. And then I think, well, as you look past as to your question about longer term, we have bought these commodities for decades, and they are cyclical. And we expect at some point, they will roll over, and we'll see some level of deflationary support. We don't expect that this year, but we would expect that as we go forward at some point, and that will certainly contribute to margin rebuilding.

Okay. Great. So you're talking about long-term margins as the longer-term margins, I want to ask a question about ESG, which normally goes at end of these conversations. But I think it's interesting to maybe contextualize some of the efforts that you guys have been making on ESG and how it may impact the P&L? So yes, maybe could you talk a little bit about ESG efforts impact the P&L?

Sure. I'm glad you asked it in the middle. ESG is very important to us. Not only is it consistent with the purpose we have as a company to champion people to be well and tie everything there, but it's a key way we manage risk. As you look at what's going on with waste, what's going on with our planet, it's critical that we take steps to ensure the health of our business and part of what we need to do is address these sustainability [indiscernible], so we've set aggressive goals. And in that context, we have set those goals in context of our general managers goals. So they are accountable for delivering innovation plans, cost savings plans and sustainability plans with [indiscernible] altogether. And that leads you to what would be the P&L impact. But we're always trying to achieve is a triple win. And we can't always do this, that is why we have our general managers in charge of sustainability and we embed it in the business. We would love something to be a more sustainable option. So we removed plastic or we removed some type of waste elements, we make something refillable, we change the [indiscernible] we'd love that to be a cost savings. And in a lot of cases, if we concentrate something or do it differently, we can actually get a savings out of it. And then we would love it to be at least parity, but preferably better from a consumer experience standpoint. And we have numerous cases where we've done this in the past. A good one that we've done multiple times is concentrating cost to [ bleach ]. It's really good for the planet. We're not shipping as much water around. We're reducing plastic usage. It's better for store shelves in terms of holding power. So retailers love it. When consumers get it home, it's much easier to use, and they have a better product experience. And then certainly, it saves us money. And so we're aiming to get that. Lauren, it's not always going to be the case, though. There are going to be things we're going to invest there. [indiscernible] is a great example. We wanted to be using 100% PCR by 2025. And that's more expensive at the moment. And so there are places where they're going to invest and we use the P&L to do that, and we're going to continue to drop cost savings and [indiscernible] to offset that. But in aggregate, we believe it's the right thing to make sustainable transitions that it's right for the long-term value creation of our business and over time [indiscernible] this money and it costs us money, but we still think it's the right long-term value creator. And in the short term, we're managing that while continuing to expand margins so that we contemplated this year that we'll make significant progress on our sustainability goals while we're building margins.

Okay. And also to Kevin's point going beyond that pre-COVID benchmark also is very much in the card even as you're making investments in sustainability, would you say...

As it relates to gross margin?

Yes. yes.

Yes. So for us, job 1 is to get back to pre-pandemic levels of gross margin. As you think beyond that, Lauren, our expectation is through our cost savings program in a normal cost environment, you can offset cost inflation and take a little bit to the bottom line you grow margins over time. But there's no question in the immediate term, it's about rebuilding the pre-pandemic levels. And then longer term, we'd expect to make progress on expanding margins over time.

Okay. Switch gears a little bit and talk about distribution. So many of your products were very popular, at least during COVID and then demand often outstripping supply. So with that this [indiscernible], your categories, retailers had to go to other suppliers to kind of feed that they need had on their shelves. So I guess where would you say you stand now when you think about distribution points or your share of shelf within a category to the another way [indiscernible] important way to look at it versus where you were pre-pandemic?

Well, good news is we were popular during the pandemic, and [indiscernible], we're still popular. So that helps the execution of this and what the results are. So you're absolutely right that we were not able to fully supply during the height of the pandemic and so because to bring this to your brands and we're largely through that. So most of that have been rationalized, and we're back to assortments generally that makes sense from a retail perspective. And so that means versus the pandemic time, we've significantly grown share of [ GDPs ], the measure that you talk about, we're up over 1 point since the pandemic. Now we're still slightly below where we were pre pandemic. But at the same time, we've been able to increase the efficiency of each one of those items on the shelf. So the dollars per unit are higher. So those 2 things that were moving in the right direction and the execution has been strong. And our retail partners have been very collaborative in ensuring that we have category growth [indiscernible] that are led by our brands given we're #1 and #2 share brands.

Okay. Great. Are there -- I guess are there -- your categories are different, right? Like cleaning, you have the [indiscernible] fleet, right? There's Brita. So as you think about the portfolio in the different categories, are there ones where there's greater incremental opportunity to grow distribution, to grow shelves, whether it's just we can repair or more broadly distribution.

Well, obviously, a category that grows faster always has more opportunity for distribution because typically it requires more holding space. And then after, of course, I think it's important to note the digital shelf is a very different animal all in itself because you don't think about it in traditional share of GDP. I hate to say there's unlimited ways that you can gain distribution. So we're thinking about that, for example, you rightly point out gross [ Burt's Bees ] and Brita that have grown very quickly. And so we're always working with retailers and ensuring we're having the right space that we have the right distribution online. And you've seen that. You've seen shelf expansions in categories where we've been able to have faster category work and faster brand growth. And then in other cases, we're leveraging things like sustainability and compaction to actually reduce the amount of shelf space overall for a category and that makes a good sense for the retailer perspective and drives efficiency for them and doesn't impact the way the consumer interacts with that as long as we get it shelved right, et cetera. So I think sometimes it's a very valid measure to say it's more space, better, yes, sometimes, but not always. And that's sort of balancing categories depending on how consumers shop them, the degree of penetration online. And then again, how fast they're growing and the growth opportunities moving forward.

Okay. I guess inverse of that, are there areas where you think the distribution footprint and maybe this is by channel, not saying by retailer, but by channel, broadened out to [indiscernible] is maybe not as relevant. Is there a distribution that's spread to outwards where you think it's not the best environment for your brand for a given category where it would be a worthwhile exercise for you to pay it back?

Well, we want to be where shoppers are. And so if shoppers are in our channel, we want to be there. And we want to have the right [indiscernible] to obviously create value overall for our company. That's really the key way that we [indiscernible] and a lot of channels have started over the years, I think people have feared that, and we don't fear it. When [ dollars ] started, we were one of the first deeper to have a team on the ground. When e-commerce, the same thing. And so we approach that as we have to be ubiquitous for the shopper and then we will do all the things about the economics to make that work for us. And that has worked really well, being here of the very -- I'm very comfortable if they are distributed today and I feel really good about all of the channels and the way they're performing.

Great. Let's talk about household penetration. So you've spoken to an expectation that it would be down for Clorox and to the categories overall, given how much pricing there has been. Maybe just first off, do you see a marked difference across categories for where household penetration is pending?

No. And you're exactly right that we anticipated in one of the highest round trade-offs we made when we took pricing was that household penetration would come down. Now putting that in context with [indiscernible] distributed in 9 out of 10 households. And we assume the high penetration across categories. But we did know that, that would come down. And typically, what ends up happening is you lose some of the light users in the category or people who have really entered. They tend to exit during times of taking pricing and then we see usually there's heavy users use more, and that's exactly what we've seen. We made that tradeoff [indiscernible], wide open. But that being said, we're very focused on as we return to volume growth, returning to household penetration growth and getting that back, and we do that through good innovation, through brand building, through using merchandising in a strategic way to introduce consumers either back to our items that they might have walked away from or want to wait from the categories. Or for new users who've never tried us before. Back to school is a great time to do that. It's typically appear where we introduce parents to our products as they're sending their kids back to school. And we just get that the summer, so that's what we'll be focused on is gaining that hyper penetration back, but we feel good about where we are versus the category, we're right in line in terms of the household penetration decline that you've seen and we have follow plans in '24 to begin to reverse that trend over time.

Okay. I was actually an [indiscernible] is Germany back to school season [indiscernible]. So I'm just curious, if you've seen any kind of pickup in this [indiscernible] the businesses that have traditionally benefited quite a bit during back-to-school season? But COVID creeping back in quietly on the conversation, stress, it's all there. Yes, just curious about incremental merchandise activity that you've had just in the, let's call it, recent weeks.

We plan a very strong back-to-school plans for our cleaning business, spread into other items that are sold and back to school. We'll, of course, report on that when we come out and talk about Q1 earnings and how those perform. But we were very pleased with the plans that we have in place with our retailers, they were excited about it, too, to have a more normalized back-to-school period and bring shoppers into their stores. What I would say is, as it relates to your comment on illness, it certainly is out there. It is a more normalized environment where people unfortunately in quarantine again. Again, there's a lot of things going around. And that's the way that we're continuing to remind retailers we need to put our product in front of the consumer, remind them to do this to keep them well to keep them [indiscernible]. And so it provided a great opportunity as we got through the laps of COVID to continue to work with them to have the right plans to build the category moving forward. and our assumptions for fiscal year '24 is a normalized "season". We always pretty much make that assumption, and then we'll update you as we learn more about what's expected. And there's certainly a lot of [indiscernible] going on right now.

Another business with some seasonality to Charcoal. Charcoal ends up having a really nice recovery this summer or through the end of the fiscal year. I guess just curious, our long-standing objective had been to get charged to be less seasonal, right, to have more year-round drilling and then the consumer kind of took you there during COVID. So I guess now, do you think we're at a point to start thinking about, again, more normalized curve on Charcoal? And we kind of lapped some of the bigger ups and downs. And maybe just an update on the improvements you made on price gaps if that's held through the current weeks.

So broader context on case, I hope, it would be if for people back in 2018 and 2019, when you looked at that business and it wasn't meeting our expectations. And there are a number of factors in play. One, we saw alternate forms outside of [indiscernible], where we're expanding, and we didn't play materially in those forms. And we need to revamp our innovation pipeline to address that. We needed to address the fact that retailers were using [indiscernible] briquettes in a very exciting way but not a way that was sustainable to drive store traffic. And so they were deeply discounting. And the category was no longer as profitable as it needed to be, so we put plans in place [ since 2019 ] to reverse that. We put new merchandising plans in place. We put innovation. We launched [ a set of ultra pures ]. And that led to very strong performance during the pandemic. Not only [ were people ] staying at home and buying grills and grilling more, but we think [ the playbook ] that we put in place performed very well during that time. In Q3, we saw more competitive activity from private label and some third-tier brands. And so we had talked about the fact that we weren't happy with our performance. We immediately made plans to adjust that, including, Lauren, to your point, that we had larger price gaps than we wanted because private label did not follow our pricing that we took in December. And that worked in Q4, so Q4, the business performed well. About 50% of our business is done in Q4, so that was a critical period, [ again, to ensure ] the health of our Charcoal business, but what I'd say on seasonality moving forward: People really love to grill [ on the miles side ] during July 4 and Labor Day. I don't think we're going to ever change that, so this business will be a seasonal business moving forward, but what we can do is continue to expand the occasions. More people are grilling [ from everyday ] new occasions. When they stay at home more during the week or because of they're experiencing more tough economic times, they tend to cook at home. And that's a great opportunity for us to help them make a meal on a grill that tastes great on a Tuesday night. So we continue to do that, but we would always expect that we're going to have those big bumps during those key holidays. But we continue to work on what we call extending the season.

Okay. Another -- this is going to make -- strike you as an oddball question because I'm guessing you never get it. And another business where you've expanded the occasions is Hidden Valley. [ Otherwise ] -- let's talk about Hidden Valley...

Lauren, you're making be happy, yes.

I think it's huge, at least in Nielsen data, right? It's your second largest business.

It's a large business.

It's a large business, right? [ In Nielsen ], it's 14% of Clorox' sales. And again, when was the last time you were -- let's not -- when -- rhetorical question, the last time you were asked about Hidden Valley. So I think just an update kind of on that business. What's driven its success? Maybe learnings from that business that could be applicable to other even though, again, it's such a different business, but they may be applicable to other categories in which you compete.

Yes. Hidden Valley, which is a ranch business for us, has done extremely well. And it is a big business for us. And it's one of -- we have a few other food brands, but it's really our only major foray in the foods business. And it is a wonderful flavor enhancer that we have been able to take our innovation and brand-building capabilities and grow over time. So if you just look at the last 4 years, Lauren: We've grown that business high single digits from a CAGR perspective over the last 4 years. And we've grown market share quarter after quarter, after quarter for multiple years. And what works really well? It's a very strong brand that consumers love. It is a taste of ranch. When people think about ranch, they'll think about Hidden Valley. We've been able to use innovation to create new flavor profiles, new forms in order to let the consumer use it in all the occasions they love. [ So it's food trends have changed ]. If you're [ pro protein ], if you're a vegetarian, if you use the grill, if you [indiscernible], there's a form for Hidden Valley that allows consumers to get that great taste and as well as expanding into more [ fashion flavors ]. So as price comes up, we're allowed to use ranch as a base. And consumers give us permission to add spice to that as well [ for really them ] to enjoy it, so it's a great case of all our abilities in their full form, great margin work to allow to invest in the business, strong advertising and sales promotion, great innovation, great retailer plans. And of course, that's the model for the rest of the brands, but Hidden Valley has absolutely [ been a star ]. We love that brand.

So let me take that into a broader portfolio question because you've got a Hidden Valley [ hidden gem ] [indiscernible] [ ask about ]; and then like VMS that hasn't really [ gone its hopes ] back in the day. That's you've been very clear and transparent on that. As you just think about your overall portfolio, right, or category exposures, how are you thinking about how -- portfolio development, right. Whether it's white space, how -- what's the -- I guess, the checklist as you think about potential changes to the portfolio? What will be the criteria? What would be interesting to add organically or inorganically?

There's [ 2 classes of ] things we think about in the portfolio. And the first, it's related to how we think about uses of cash; is we always want to invest in our business, to start. And that means ensuring that we're investing in the right opportunities in our portfolio. So you rightly call out VMS, which is a good example of a set of businesses we bought a number of years ago that were in categories that were -- we viewed them pretty attractive. They were growing faster. They were on trend, but our performance has not met expectations and our own expectations. And so that is a good example where we've rightsized. We're focusing more on making that more profitable; and then being a nice contributor, albeit smaller contributor, over time; and taking that investment and putting it in things like Hidden Valley where we see a greater return. So we're doing that work in the current portfolio that we have and maximizing across the very diverse set of brands that we have. And then we're always doing the work with our Board to say what other spaces [ would ] our capabilities [ on them help too ] where we can create great value. We are highly focused on return there. We want to buy something that has strong returns for our shareholders. And then of course, if there's a business that we feel is underperforming in our portfolio that -- we would look at that the same way. And we do that all the time with our Board and constantly evaluating, but the most important thing that we do is making those internal allocation choices year-to-year to ensure we're maximizing what we can get out of what we own.

Okay. I mean, what would you say are those key capabilities, right? Because if we would back -- I won't do the history thing, but like there was a period where Clorox had a very specific way of talking about its capability set and where it played, where it didn't play and so on. And then the thought process was then how to expand that because the portfolio was fairly disparate, right? I mean there were big [ types ] of businesses, but the synergies between them were not always all that clear from an external standpoint, so as you think about with the Board what could be interesting, what are the key capabilities that you have that you think are most applicable as you explore [ the art of the possible ]?

We like to be in categories that are more middle sized. And that's really about being able to ensure that we create value because there's a competitive set that's more rational. And we tend to lead in those [ types of ] categories with one -- #1 and #2 share brands, so we can bring big company capabilities to categories that have fewer competitors and are a bit more rational. So we like to compete in those types of categories. And then what we bring -- I mean really it's all centered around how we create superior value. We bring the capabilities to develop superior-value brands for consumers that win in the marketplace. And if you look at our value superiority rating, that would play out. Our superiority is higher than it was pre pandemic. And we've done that through investments in innovation, through investments in brand building; and we're really good at that. And we're good at taking categories that benefit from long-term trends and taking those trends over a number of years and leveraging innovation to take advantage of them. A good example of that would be, broadly in our categories, [ aesthetics ] and experience matter, so we've brought that to life in cleaning products through the way a product feels, the way it smells; same thing in a trash bag. We're able to take that trend and, over time, give the consumer more and more benefits through good innovation that we own and have the rights to and then investing in that innovation. And that's what we're really good at. We're less about fashion. We're less about [ fast ] trends. And then we're very good at supply chain and removing costs, to invest back in those brands, so whenever we're looking at a business, we're asking ourselves. Is this a place where we can take a business over the long term, invest very steadily in innovation, invest in brand building and make it be the leading player in that category and help guide where that category goes over time? And that's where we see really good returns on the investments that we make, and that's what we would be looking forward moving -- looking for moving forward.

Okay, great. You mentioned earlier that your financial plans for fiscal '24 assume a recession in the back half of the year, all right? And that's helping to inform the advertising plans and the step-up. One question I had from the earnings call was how a recession would even impact your business, candidly? And sort of we've seen [ values behavior across staples already, right ], for your business as well. You're going to have lots of pricing in the second half. You've noted that consumers tend to come back to brands after [indiscernible]. Just if -- how would a recession manifest to -- impact your business and then therefore be influencing the financial outlook?

And you're exactly right, Lauren. We have a similar outlook: in the back half of our fiscal year, which is the beginning of calendar year '24, a mild recession in the U.S. And that manifests itself in a number of ways, in regard to how we respond to that, Lauren. And you this. If you look at our categories, they tend to be fairly recession proof. If you look at the last recession back in 2008 if you assume that's a reasonable comparison period: Because of the everyday essential nature of the categories, you don't see a significant reduction in category growth. Our categories typically grow 1% to 2% per year in a normal year. And in 2008, we saw our categories decline anywhere from about flat to down about 1 point, so fairly modest change in category growth rates as a result of the recession primarily based on the nature of our portfolio. And so we expect consumers will be under some level of pressure, and it will put a little pressure on our categories. It also informs our plans. And so as you mentioned, we are investing in advertising 11% of sales. Typically we're investing about 10%, but we think that's a [ really ] good, smart investment. If you think that consumers are under more pressure this year and they're going to be even more focused on value, we want to reinforce our value superiority [ messaging ]. So we think there's a good opportunity to lean into spending based on an assumption of a mild recession, but historically it's been a fairly modest impact in our portfolio.

Okay. Are there -- just speaking to [ advertising ]. Are you finding -- what are you finding today as the best way to reach consumers? Kind of what's the best, the ideal marketing mix [indiscernible] across categories?

What we aim to do is have a personalized relationship with consumers, and that in aggregate is what we use to decide the vehicles that we have. And that tends to be digital. And it tends to be across the entire path to purchase from a consumer perspective, when they're deciding, when they're in store or online. And of course, a best advertising tool is when they come home and use the product and they [ -- or they order and they buy them ]. So more than 2/3 of our spend today is in digital. We had a goal, Lauren, as you know, to get to 100 million consumers in the U.S. and therefore use that digital marketing to personalize content to them; and that has led to significant improvements in ROI. In fiscal year '23, we had our strongest marketing ROI that we've had. And that, of course, has led to our consumer value superiority, which is an important thing over the long term [ that -- what it helps us do is ] increase that brand reception of the value superiority that we have. And that is at record highs. So that's the way that we think about advertising is both in the short and long term. And we use vehicles, depending on ROIs, that are the most effective; and that can be different by brand. Some brands respond much more to retailer media, for example. Other brands like Hidden Valley, giving them recipe content is highly effective. So we really do tailor and allow the general managers to make decisions based on what's best and what's the best returns they can get on their brand and with their set of consumers.

Okay, great. Let's end there, but thank you both so much for being here. I think you have a breakout session. So please join me in thanking Linda and Kevin for being here. And then we can keep going in the breakout [ if you want ].

Thanks, Lauren.

Thank you.

[ Thanks, Lauren. Thanks, everybody ].