The Clorox Company ($CLX)

All right. Welcome, everybody. Thanks for joining us. For our next session, I'm very happy to welcome back The Clorox Company to our conference. With us today are Chair and Chief Executive Officer, Linda Rendle; as well as Chief Financial Officer, Luc Bellet. Linda and Luc, thank you for joining us, again.

Always a pleasure to have you here.

Thank you for having us Steve.

Let me start -- let me give you the platform, because there was some big news over the -- I guess, late last week and over the weekend. So let me -- you address that, and we're going to pick it up from there.

That sounds great. Thank you. Do I need a microphone? I do? Okay. Assuming you can all hear me now. I want to take a moment to address some news that we announced last week. I have asked our Board of Directors to initiate a search for our company's next CEO. And this was due to health reasons, and I won't get into that in great detail here, but I would offer that I posted a blog about this with more detail, and I welcome you to read that. It was an incredibly difficult decision. I love this company and love my job, but this is right for me and for my family. And with that, I just wanted to leave you with 2 takeaways before we get right into the business. The first is that nothing changes in the short term. This was a long-term decision for me. And so I am still Chair and CEO operating, as I always have, and we'll continue to until the Board finds my successor, and we have a successful transition. And then the second part is our entire team is focused on executing our strategy at the moment, while the Board has work on the search, and that's a great way to divide and conquer. And so I just wanted to make sure that people are aware of that and let you know nothing changes. And with that, maybe I'll spend just a couple of seconds on what we saw for this year, and then you can -- then I'll let you ask the [ questions ].

Sure. Sounds great.

So for this year, this was an important year for the company. We implemented the last part of our digital transformation. We executed our ERP transition in the U.S. beginning in Q1, which we finished in Q3 and we've been stabilizing that, but it's an incredibly important part of our company's future and how we create value. So we're glad to be past that and moving back into really ensuring that we have healthy brands and that we have market share plans and supporting category growth. Importantly, in Q3 we made progress sequentially on a growth and share perspective, although it was behind our expectations and we can get into that in a couple of the categories. But we feel we're taking the right actions to return to market share growth broadly. And that is, of course, in a very difficult environment. We'll talk a bit about more about what we expect in fiscal year '27. [ You on the shelf ].

No, it's fantastic. And most importantly, speaking for everyone here and probably everyone listening, we're most happy that you're in good health and wishing you all the best. And also very happy that you're still chair and CEO and get to work with us for a little while longer.

Let's talk about -- let's pick up from where you just left off in terms of 3Q and the state of the business exiting '26 and entering '27. Maybe we can focus in on where -- from your perspective, where you're, I guess, most happy, most confident to build off of into the future and then also some of those spots where we have more work to do?

Good place to start. And I'll start with the consumer in that way because I think that's the most important part. We're obviously seeing a consumer that is under stress right now. And we've been talking about that for a bit of time, and that's meant our category growth has been below what it normally is. We typically see our U.S. retail categories growing at 2%, 2.5%. This year, we expected them to grow either be flat to up 1%. They have been within that range, although very volatile week to week. We saw our exit rate on Q3 a little better in category, but then it quickly went negative for a couple of weeks. But generally, I would say it's in that range. And we're watching low-income consumers get under more and more stress. They don't -- they're not making decisions to choose private label in our categories, but they are very value-seeking as are all consumers, but where we're particularly focused on low-income consumers at the moment. That being said, in our category context, we have done quite well in a number of categories consistently. So I would call it our Cleaning, our largest, biggest -- most profitable business. [ Our ] businesses in international, we're growing share in those markets as well as our [ Pro ] business have been consistent winners throughout these last number of years. We've had a few businesses that we told you we all wanted to address and improve. I'll call out Glad and Litter. The good news is that Glad has reached that change in trajectory point through a holistic amount of work that we did to ensure we have the right innovation and brand building plans. And now we've seen Glad trash turn and is beginning to grow share. Litter, we have more work to do, but I think Steve will talk a bit more about that. So I will talk about it when you get to that part of the question. But I'm feeling good that the ERP is now behind us. We're finishing the stabilization of that. And then we're going to get into optimization as we head into fiscal year '27 and beyond, and that's the value creation stage, where we drive the efficiencies, we are able to remove SG&A. We're able to get more efficient in how we do things. I mean it will be a key way that we drive margin improvement in the coming years. But it will also be a really important way in how we grow because it gives us a better data foundation. It allows us to use modern technologies like Gen AI to drive product improvements and innovation off of consumer insights. So I think we're just at that tipping point where we've laid the foundation. We're getting back to what we want to do day in and day out with more focus, which is growing categories and winning with our brands through innovation. And then just as we look ahead, the thing that we're watching really closely is the consumer and the cost environment.

Yes. On the consumer, is your base case that we maintain that level of category growth that we've been seeing with volatility? Or are you increasingly concerned that we see another leg down in growth? And to what do you describe the volatility that I think is not just unique to your categories we've seen it across the board?

Yes. I think a good base planning assumption is what we've seen in our categories, which is flat [ to up 1% ]. The question mark will be, to the degree that inflation comes out of what's going on in the Middle East, that will impact the consumer even further, and we're seeing some early indications of that with gas prices, et cetera. So I think that's yet to be seen, and we're planning against a number of scenarios, what I call out though is we're Household essentials. So even if you look back at 2008, when consumers [ were in ] incredible amounts of stress, our categories were mostly flat to down slightly. So that, I think, could be the delta that we're talking about if it gets worse for the consumer consumers need to take out their trash. They need to clean their houses. They need to change their litter box, they care for their cats like they're their family. So we feel we're in categories that are resilient, and they're not as discretionary as some others. Now when it comes to volatility, what we believe is that there's so much uncertainty. And when consumers are getting news in an uncertain environment, they are making decisions week-to-week to deal with that uncertainty. And so you see that people might pull back on a purchase when they're hearing news and they're nervous. The gas might go up at the pump or they're hearing other news. The other thing I'd say is they're way more sophisticated than they've ever been. So if you watch our consumer shop, they are shopping in a store with their phone, and they have multiple carts going at the same time. And so I think some of it is, if they don't see the deal they want, they're waiting. And they know that because they have the data now to be able to ensure that they are getting the most out of their wallet. So I think those are the 2 things we're seeing that are creating some of the volatility.

Sure. Okay. So Luc, let me pivot to you. And I guess, let's start with 3Q into 4Q because I think coming out of the third quarter when took -- we lowered the fiscal '26 guidance. lot of questions as to the moving parts in that EPS bridge from prior to now. Maybe we can just start there and just walk us through kind of what happened 3Q to 4Q what you saw in the business and what led you to take down the call for '26?

Sure. There's a few things to unpack. So maybe let me start with top line. And I think Linda alluded to some of it and then talk about the cost side of things. So on the top line, again, I think we -- the environment is playing out generally as expected, which is consumer the pressure of the categories being lower than our historical average, close to flat to 1%. From a market share standpoint, we actually saw improvement in Q3, and we continue to see improvement in Q4. Now this is less an improvement than we expected when we started the year, but still improvement throughout. And if you get rid of the noise associated with the ERP and the GOJO acquisition, you look at organic sales growth, it was negative 2% in the front half, negative 1% in Q3, and we -- our Q4 outlook is expected to be about flat. So that give you a sense of the momentum. Now on the cost side of things, there's probably 2 things to talk about. First, we had a higher cost to serve related with the ERP implementation. So let me talk about that, and then I'll talk about the inflation impact in Q4. So following the ERP implementation at the beginning of the fiscal year, we started experiencing some challenges on the order fulfillment part of the ERP. And our #1 priority since then has been to reestablish our service level as well as essentially stabilizing the order fulfilment system and process. And as a result, we incurred incremental expenses in the second quarter and the third quarter. Those were most of them logistic type of expenses, think about expediting orders, moving inventory around or even higher level of operational labor. Now at this point, service levels, by and large, have been stabilized. And so we don't expect a higher cost to serve in the fourth quarter or going forward. So that was one element. Now the other element is, of course, we communicated that we expect to see higher inflation and supply chain cost in the fourth quarter tied to the Middle East conflict, right? And we -- where we communicated is we expect an incremental $20 million to $25 million in cost increase on our supply chains in the fourth quarter and for perspective that represents about a little under 150 basis points of gross margin pressure. Okay, which is about double of what we experienced in the prior 3 quarters -- and so that's what we're communicating. Now there's a little bit of noise in the fourth quarter ARPU gross margin, which is currently projected at 41% to 42%. But if you exclude about 150 basis points of GOJO related onetime transaction costs, which are not adjusted EPS you get a fourth quarter gross margin about 43%. So that gives you a sense of the exit rate.

Yes. Okay. I think just to drill on a little bit more. I think the a little bit of the confusion because I think I'm wondering if there's one more bucket. The GOJO dilutions a couple of cents on the year. That was incremental coming out of 3Q. And the $20 million to $25 million that you called out, I think, is adding those two things together, you get about $0.20. The midpoint of the guidance came down $0.40. And I think you also took a reset on incentive comp. So there's a there's -- in addition to the expenses you incurred through 3Q, there seems to be some incremental expenses that remain in I think that is timing of cost saves, there were some programs that were delayed and there are some other programs that were started up. If I'm right about that, maybe you can elaborate that missing piece.

Yes, that's right. We had a little more a little more change in timing of cost savings, both when we're seeing cost savings and when we're incurring onetime. And if you think normally, when we started here, costuming pipeline is pretty well established for us. What happened is as a result of the challenges that we experienced on the order fulfillment, we had to redeploy resources to address this first and foremost. And as we did this, we ended up delaying and changing the timing of cost savings. Now the good news is this is just a delay. So if anything, that strengthened the cost savings pipeline for next year.

For '27, yes. Yes. So if we roll forward to '27 and I know it's early, you don't have guidance out there and visibility is exceptionally low. But is there a way to think about the ledger of pluses and minuses that you're thinking about as you start to plan for and consider a '27 framework?

Maybe what I mentioned is probably 3 very unique items that go through. And then you have to essentially project what you think would be categories, sales and inflation. The 3 unique items are -- we mentioned them already. But first is the lapping of the ERP, the timing of shipments. So that will create a year-over-year benefit of 3.5 points in sales and $0.90 in EPS. The second is related to the incentive comp that we just talked about. We have lower incentive compensation this year. This will normalize next year and that will create a year-over-year headwind. And the third one is the integration of the GOJO business, which we're very excited about. So that will add, call it, $600 million plus our year-over-year on the top line. This will be neutral on EBITDA and neutral in EPS, and it will just create a little bit of change throughout the P&L because they have a different margin profile SG&A profile.

Yes. Okay. Very helpful. Okay. In terms of -- just one more question just to round it out on the costs. Maybe a little bit of education in terms of your coverage or lack thereof in the future and also just surety of supply because there's one thing about just the cost of raw materials and packaging. The second one is just is it available?

Yes. In general, on that one, and we're working on continuously working on evaluating the safety of supply as well as contingency. So far, we haven't seen any material disruption in our supply. From a cost inflation standpoint, we do have some hedging in place, and it really depends the duration and the breadth of aging depends by communities, by commodities. But I think the -- I'll share a few thoughts as we think about inflation for next year. First, I think there's still a level of uncertainty on what would be the level of cost inflation going into next year. We're currently working on our plans for next year. And as you can imagine, we're working through different scenarios as making different assumptions around the length and the implication of the conflict in the Middle East. Now I think what we communicated in the fourth quarter give you a sense of the initial and first order impact of the Middle East conflict. But of course, as the conflict potentially persist longer, these numbers could be bigger either because we see even more pressure on oil price or you start seeing secondary impact and knock on impact from the conflict? So there is a level of our ability. The second thing I would mention is I think as we look in the medium term, we feel very confident in our ability to mitigate inflation and rebuild gross margin. I think we have a strong track record of doing so through the different inflationary period. And as I think as we mentioned, we feel good about our margin management capabilities. The last thing I would say is it generally takes time. If you look at prior inflationary periods, there is a lag between the time you see the impact of inflation and the time you recover, and it's at least a couple of quarters and sometimes been longer. So this is all the things we're wrestling with as we're looking at next year planning.

Very good Okay. Very helpful. a lot of moving parts, but helpful. Okay. So maybe stepping back and Linda, I'm thinking about the top line trajectory. As Luc mentioned, a lot depends on where category demand levels off, but then there's also company-specific initiatives. As you think about the puts and takes into the next year, I mean, how much do you think of your outcome depends on the category versus your own improvement initiatives in some of those categories that you mentioned were yet lagging?

Obviously, the category will matter a lot. But as I outlined, if the scenario continues in a way that is similar to what today is or resolves, we would expect our categories to be generally what they're doing today. And then if that impact would be greater, if you look at history, I would say, you're slightly below that. So that leads us to it's really important what we do and what we can control. And we're really focused on market share improvements. And the #1 way we do that is by driving superiority on our products. And that's what we're focused on right now. As we've gone product by product, to understand the levers that we can pull to ensure we're offering superior value to consumers, and we are making improvements on that through innovation, using our new tools through our digital and tech foundation like RGM, price pack architecture, design to value. And those are all creating different ways for us to ensure that we are extracting as much value as we can that we're delivering the best experiences for consumers. And we're really focused on getting our innovation to be stickier and bigger, and we're off to a strong start there. Our innovation is more incremental than it was in the past, and we have larger platforms. A good example is Clorox [ Pure Allergy ], which is off to a terrific start. But we have innovation across the portfolio, and we'll be focused on ensuring that we execute that with excellence next year.

Okay. So maybe we can talk about the kind of 3 categories of -- categories that you mentioned. So you have the, we'll call it, the positives, the improving and then still to improve. So Cleaning, international professional, very different, but all relatively resilient and consistently on the positive side. Is there an element of commonality that makes those all in on the positive side of the ledger? Or what has contributed to those businesses being better performing?

That's where we execute the playbook that we believe drives categories with excellence continuously. We have superior products there. We do a great job at driving marketing and communication. It's where we have growth plans with our retailers, where we're leading them to what's the next thing for the category. Again, Purell is a great example of that. It's a category that didn't exist that we created and we co-created with retailers. And so that's the commonality. It's about superior products and then executing with excellence. And we have the ability to do that on all of our businesses. And as you mentioned, there are some that are beginning to turn. So food is a good example where we have done that for years and years and years. The category has been under pressure given what's going on with GLP-1s and other trends. And then we have the unfortunate timing of making a model change right when all of that hit. So we have since rectified that, and we've returned to share growth in Q3. And what we're just watching carefully is the category growth number. But in that one, I feel we have a great innovation pipeline of health and wellness type of initiatives, protein forward options, avocado oil for consumers who care about that. So feel good about that pipeline. Glad is another one that we've been talking a lot about. We turned to share growth on Glad trash this quarter, and that was through that same playbook. We had some distribution gaps on the [ Clorox ], which we did. We launched some great innovation. We have a new trash bag that has leak guard technology on it, and that has the ability for the bottom of the bank to absorb liquids. So if you were to get a holler bag, it wouldn't then be dripping as you're walking out to the trash barrel. That's off to a good start as well as we released a new [ purple it breeze bag ]. Just try that one. And that's off to a strong start as well. And in addition to that, we're using our new RGM tools to do some very detailed understanding of price gaps in the market. And we found a gap on one of our items, a very important item. It's an 80-count item we have in a number of retailers we saw an opportunity to narrow the price gap, and we believe would pick up share and be financially attractive. We tested it in October, and we ended up rolling it out. And that item in itself grew mid-single digits to high single digits and share and overall has helped the Glad business, and we're going to continue to apply those tools. So it's a good example of when we are focused all those right things, even in a very difficult category, we can get back to growing share. And I feel good about that. Litter is the one we still have more work to do on. We announced that we were making a large transition in Q3 and Q4. resetting the foundation of our Fresh Step business, which is our largest brand and our strategic brand in Litter. We changed at all, price pack architecture, new sizing, pricing. We changed the naming convention. We launched some new packaging forms. We upgraded the formula. And that was a lot of transition. So one thing is the heart conversion, meaning retailers had to take the old product off the shelf, and that takes a period of time. They had to bring the new product on. So that creates a little bit of noise, but it's important that we make that transition. And then there were some things in execution. We got the distribution we want it. It's the more distribution, we didn't get everything placed on the shelf exactly where we want it, and that's what we're going back and modifying. And then we're helping the consumers understand if they bought a certain package before this is the new one to buy what the benefit is. That's just the first leg of improvements we need to make we've had to go back and rebuild our innovation pipeline. This is a business that when you're doing a lot of things operationally, we had built a new plant in order to sustain volume, we had the cyber attack, which was more impactful to Litter back in 2024. And then what's happened more just recently that's one that they've been focused on operations. And now we're going to get back to growth. And so that innovation pipeline will begin kicking in, in earnest in calendar year '27 and that will be a further way for us to advance our progress. But right now, we're focused on just getting to the place where we're growing where the category is, which is highly attractive, it's a mid-single-digit grower and then focusing on share growth from that.

Okay. So I guess, is the expectation -- operational noise as that gets behind you, you get incremental improvement in the back half of '26 and then the innovation kicks in and hopefully brings that up into the positive column.

That's exactly right. Okay.

Can I just -- on the kind of the platform revamp on litter, what was the consumer insight of the consumer I guess, consumer insight that led to that kind of large scale of a change.

There were 2 things. First and importantly, the Fresh Step brand stands for odor. We have stood for that for a long time, and we have superiority in how we deal with owners and consumers. If you have a cat, but the last thing you want people to do when you walk in your house, think you have a cat from the smell. And so we're returning to our core benefit of odor control and ensuring we're communicating that clearly and strongly, and that was an insight that we had not been doing that as sharply as we could, and we will do that going forward. The second thing is we took a large number of price increases as the industry did back in the inflation cycle '22 and '23. And we knew there was going to be things that we didn't get quite right. And in Litter, there were places we took too much pricing. So we needed to reset the value equation and that was why the price pack architecture work was so important to ensure that comparably against other options in the category, the consumers understand the value. So those are the 2 main components. And then, of course, innovation is about bringing new benefits to the category in the future.

Okay. Where you've had innovation, you mentioned trash, Clorox, the allergy innovation, Scentiva platform. Were those -- with that innovation cycle has been effective, are you winning new households, winning back old households? Or are you seeing increased frequency of existing households? Is there a way to parse that?

It varies by category. So for Clorox Purell is a completely brand-new category. So this is new households to a new benefit, which is great, highly incremental, obviously, 100% incremental to us, very incremental to the retailer. And there's just not been offered this benefit before. So we love when we can find these.

There's an opportunity in France right now, by the way. Allergies are everywhere.

Yes. They were telling me too. I know it was like, I need a travel size. I immediately set my team a note and said, "Where is my travel pure allergy size?" and this is one where we see many benefit spaces. In the future, we have our second wave of Clorox Purell launching in the fall. So we've already sold that into retailers. They're very excited about it. And we think we can offer more forms and deal more explicitly with certain allergens that are really meaningful to consumers. So we're excited about that. Then there are ones that offer consumers an opportunity to trade up. Maybe they're current household, but you get a better value and they -- you get a trade up occasion with that consumer. A good example of that is cloud. [ Moon my breathes ], it's like, oh, that's nice. I want to pay a little more for a purple bag, makes taking out the trash a little better, and I certainly don't want anything leaking, so I'm willing to pay a premium for [ LeakGuard ] and then there are things where we're doing to expand usage. So a good example of that would be innovation that we do on things like wipes, where we have good household penetration, but there's so much more to get and there are so many more occasions to get with a wipes. So that's how our team thinks about it is what behavior are away trying to drive, and it depends on the category and its maturity. And then we're very clear on what that is. So you'll see a range of innovations our [ Hidalleinnovation ], for example, that's about getting some new households in that may not be choosing to use a ranch because they want a nonseat oil, for example.

Okay. All right. We haven't yet talked -- we've alluded to GOJO, we haven't really talked about GOJO. Let's spend a little time there. And maybe you can tag team on this. Linda, maybe you can address the -- you've talked a little bit about this, but the strategic fit, the strategic rationale for the GOJO acquisition and maybe what -- as you learn more about that business, what you're. How you're framing it in your own mind into the future? And then Luc, from a financial perspective, as you mentioned, different P&L structure of that business versus the core. So the considerations that investors should have as that does layer on to the business?

Sounds great. We are really excited about this acquisition. GOJO are the makers of Purell. And Purell is a leading brand in the health and hygiene space when it comes to skin health and hygiene. And we obviously compete very strongly in health and hygiene today on the surface side. And we have both a retail and a B2B business they also have retail and B2B business, but they are much stronger in B2B and have very sophisticated technologies we closed on April 1. We've been hard at work on integration, which is going well, and we have more confidence than ever that this was a great acquisition for the company and will yield value. and some of the things that we're getting really confident on. One, we had a pretty conservative case when we did this since we feel very good about that, but we also see upside. And from a strategic perspective, it makes a lot of sense because if you. I started with cleaning as a business that's done really well. It's been one of our fastest growing, it's our most profitable business. our international business, which has done the same over the last 6 years is the majority of that business is cleaning. And so we feel this is really consistent with our capabilities, but takes us one ring out in their superior B2B capabilities. and it allows us to have a bigger platform in health and hygiene. So that's the strategic rationale. And the opportunities are, one, the category is accretive from a growth perspective. It has good tailwinds on both on the professional side and the consumer side. In the B2B space, not only do we have opportunities to take their terrific innovation and the installed base we have. So we bought 22 million dispensers basically on walls that we own the annuity and the refill for, and they're able to improve the technology on a regular basis and they price for them. For example, they're -- they've been able to remove labor from the professional side instead of having a [ janitor Husky ] and take a battery out and change it and consumer experience is terrible you go in, it doesn't work. They've built the battery into the refill. So you just pop the refill in and no one has to do any work outside of that. That's a huge savings as people think about labor cost in B2B. What we're really also excited about is we had tremendous customer interest when we announced this on the professional side because of the incredible relationships and business GOJO, and they see the ability for us to scale our Clorox business in addition to Purell. And then on the retail side, they have an amazing brand. It's so amazing that during COVID, they discontinued all of their retail business because they focused on health care. There were 0, you all know this because you were probably looking for Purell hand sanitizer, if you live in the U.S. and it wasn't available. They discontinued it. And when they were able to supply, they went back and into a test with a leading retailer, it did so well, they immediately brought it and they got distribution back everywhere but their skill is not marketing and consumer if that's where we come in. And so they have good innovation in the pipeline, but we think we can take that to the next level. And it gives us a brand should be complementary to Clorox where we can really own surface to skin in a different way and is a great growth platform for the future. And then of course, financially, it's creative from a growth perspective, neutral in earnings in year 1 accretive in year 2, has a little bit of a different P&L profile as Luc spoke about, but strategically and financially a great fit, and it's off to a good start.

Yes. Maybe, so again, reemphasizing $800 million business, growing very steadily at mid-single digits. And when you add the revenue growth opportunities, you could see this growing mid- to high single digits for years to go, right? So that's the top line. On the bottom line, it's -- EBITDA margins are in line with that of the company, so that will become accretive once you start layering the cost synergies. And importantly, we don't talk about this often, but this is very high and stable cash flows, which is actually gives us a lot of confidence as we focus on delivering over the next few years. So that's the big picture. Now specifically to the P&L, you have to remember that 80% of the business is actually professional and only 20% of the business is retail. So while the EBITDA margin is actually comparable to that of the company, the different lines of the P&L are a little different. So the gross margin is a little lower. And so that will call it close to 40% or so. So that will create a headwind of about 0.5 points on our total company gross margins when we integrated their advertising is lower, actually in line with our professional business unit. And so that will lower the total company advertising by about 1 point. And their SG&A is a little higher because they have mostly driven by a higher sales force. It's more fragmented in the marketplace. And so that will add about 1 point on our SG&A as a percentage of sales. So that's -- those are the main differences.

Okay. Very helpful. Where you -- it's early, obviously, but where you started to integrate the team collaborate professional, consumer to consumer. What's been the fit, the cultural fit, the acceptance between legacy Gogo and Clorox, et cetera?

When we first went out and met this team, we were blown away. It was like, oh my gosh, we're talking to just an extension of ourselves. They have very similar values. In fact, if you read their values, they're very close to ours. And they view the world and the role that Purell hasn't very much like the way we view the world. But we also saw cultural upgrades that they could help make. They're fast they have a culture of innovation that we are building, but want to continue to nurture. So as we brought the teams together, we've just reinforced that. We have retained almost the entire management team and people are really excited about being part of the company. We've also retained their culture. We've retained their leadership headquarters in Akron, Ohio. -- to go to Ohio a lot now. And so it's just been a great fit when we told our professional business, you can imagine that would be difficult for them. They said, oh, finally, this makes a total -- it's a time of sense. So good cultural fit, integration off to a strong start and really importantly, we retained the management team. So we can keep the rest of our teams focused on improving businesses in our core.

Good. Couple of topics I want to hit before we run out of time. One -- the first one is for you, Luke. A lot of focus across CPG on capital structure, capital allocation the GOJO transaction does raise your leverage profile. Maybe think -- talk a little bit about how you're seeing the capital structure and your prioritization of -- for capital going forward?

Yes. First of all, our capital allocation priorities remain the same. And so briefly, they're in right daughter, first and foremost, investing in the business. This is where we can strengthen our competitive advantage deliver profitable growth and generate the highest return for our shareholders. Second, we want to continue to support the dividend. We have a long track record of increasing the dividend annually, and you should expect us to continue doing so. Third, manage that leverage and our targeted net leverage ratio is 2 to 2.5x debt to EBITDA. And then fourth, if we have any excess cash, return it to the shareholders, which we've been doing in the past few years. So with that as a drop in the near term, following the GOJO acquisitions, our top priority is going to be on balance sheet discipline and delevering, right? We're going to -- we expect to end the fiscal year with a debt leverage of about 3.6x, and our focus is to bring that down to about 2.5x within 2 years. Now I just mentioned, the great news here is we're bringing a business that generate strong and steady cash flows. And in addition, the way we structure the transactions, we expect to have pretty significant tax benefit in the first 2 years. So that's really give us a high degree of confidence in our ability to deliver. Yes, but again, our commitment to dividend remain unchanged. Having said that, we have suspended share repurchase and we continue to do so until we reach our targeted debt leverage.

Leverage. Okay. Perfect. The other point I want to hit before we close, Linda, is ERP. We've talked about ERP a couple of times today as a form of disruption. But in prior conversations, we've talked about that as a huge unlock an enabler as part of the overall digital transformation. So as we turn the page, hopefully, on that on those disruptions. Can you talk a little bit about what you're seeing on the plus side and what value remains to unlock given the technology sort of evolution has now run its course.

I think it's really important what you mentioned, Stephen, so I'll just take a second to recap. We did a holistic digital transformation of the company. And the first thing we did was we got our data clean, and that's an enormous task with the amount of data that we have access to and created a data [ link ] and we knew that, that would be important as we layer technology in the Europe on top of that. So that was the first step. Then the second step was we put a bunch of technologies in place to begin to take advantage of that. An example is the work that we did in marketing personalization, which is already yielding tremendous value, and we have industry-leading advertising ROIs as a result of that. And then the final step, the most expensive step, and the hardest step is implementing the ERP, and our ERP was 25 years old. So this was a greenfield implementation, building a completely new house doing all modern electrical and plumbing, which means everyone has to operate in the house differently than they did before. And that's really the hard part. The technology I dare say, is the easier part, but we've got every single person in The Clorox Company working different in this technology. but that creates tremendous opportunity in the future. So having this data, having this technology layer, now the ERP gives us better insight and access to data. It allows us to move faster it allows us to drive productivity. So there'll be a whole slew of new projects that come out of that, many of which we drained up, we've come up with new ones since we began to implement it. And we'll start to see that value creation happen in fiscal year '27 and beyond. What we're seeing from our team right now is it's hard to do new things. So that's some of what the stabilization phase is about. And we used to touch kind of every order almost that came through our system. Now those things just have to run on its own. We need our team building growth cases and not doing that manual stuff. So we're well on our way there, but we feel terrific that we're past this milestone. It was a very important part of getting our company as foundation set to grow. And we just -- we feel fortunate because those things like AI come out, we would have not been ready to take advantage of that. Had we not invested in this time and effort. And unfortunately, have to do with the disruptions. But now we're on the side of value creation and driving the ROI that we signed up for.

Maybe to close out, if investors were to ask you what they should be most focused on, 1 or 2 critical proof points as we progress forward over the next 6, 12 months? What would you say?

Market share improvement. We intend to improve that, and we have made sequential improvements, but we intend to win in the marketplace on our key brands. And so we will continue to report out our progress on that through innovation, et cetera. And the second thing I would watch is this is -- we made a large acquisition with GOJO. We intend to integrate it with excellence and drive value from that. We'll continue to report on that. And I think that's another good sign that we're executing as we intend to.

Okay. Good place to leave it right on time. Thank you. Thank you, both.

Thanks you.

Thank you all for joining us.