The Procter & Gamble Company (PG) Earnings Call Transcript & Summary

P&G would like to remind you that today's discussion will include a number of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. Additionally, the company has posted on its Investor Relations website, www.pginvestor.com, a full reconciliation of non-GAAP and other financial measures.

And now it's my pleasure to welcome Procter & Gamble back to the CAGNY stage. As you all likely know, P&G has long been a supporter of this conference. And today, we have with us -- we have Chairman, President and CEO, Jon Moeller; CFO, Andre Schulten; and VP of Investor Relations, John Chevalier. The last several years have been eventful, to say the least for Procter & Gamble. Following a few years of tepid industry growth, Procter management turned the ship, simplifying its org structure, developing game-changing innovation, investing in both digital and supply chain capabilities and perhaps most importantly, focusing on irresistible superiority across its brands to drive peer-leading growth. They also effectively navigated a global pandemic, rampant input cost inflation and supply chain challenges, all while delivering top and bottom-line growth well ahead of peers and expectations. No small feat. So with that, I'll turn it over to CFO, Andre Schulten.

Thanks, Andrew. Good morning, everyone. I'll start today with a review of results. Then Jon will discuss our strategies, and we look forward to answering your questions after our prepared remarks. So starting with results. We had a strong start to the fiscal year. Through the first half, organic sales are up 6% despite market pressure in Greater China, a reduced portfolio in Russia and trade inventory reductions. We are very pleased with the 6% top line performance for half one. Core earnings per share are down 3%, offsetting the vast majority of the 26 points of headwinds from material costs, foreign exchange and transportation. We have strong pricing execution across all markets and continued productivity across the full P&L and balance sheet. The organization overcame those headwinds while growing sales, holding share on a global aggregate basis and continuing to invest in innovation and superiority of our brands, setting us up for sustained growth and value creation. We have momentum across the portfolio. Top line growth is broad-based with all 10 categories growing organic sales in the first half. Through December, global aggregate market share is in line with prior year with 29 of our top 50 category country combinations holding or growing share. Through January, past 3 months U.S. all outlet value share is up 40 basis points with 8 of 10 categories growing share. U.S. volume share is up 80 basis points, improving sequentially versus the first quarter as we continue to invest and as consumers demonstrate their preference for P&G products. The portfolio performs across regions. Through December, focused markets' organic sales are up 3% and enterprise markets are up 15%. Five out of 6 regions are growing organic sales. North America exceeded $10 billion in sales for the first time ever in the first quarter and beat their sales record again in quarter 2. North America is tracking towards $40 billion of sales this fiscal year, up from $30 billion just 4 years ago. Enabled by these results on our last quarterly earnings call, we increased our guidance for fiscal year organic sales growth from a range of 3% to 5% to a range of 4% to 5%. We are continuing our strong track record of cash return to shareowners. We've paid a dividend for the past 132 years, only 7 U.S. publicly traded companies have paid a dividend more consecutive years than P&G. We raised our dividend for the past 66 years. Only 3 U.S. companies have raised their dividend more consecutive years. Through the December quarter, we've returned nearly $10.5 billion of cash to shareowners, $4.5 billion in dividends and $6 billion in share repurchase. Over 2 years, we have incurred $7 billion of after-tax headwinds from commodities, foreign exchange and transportation. To put this into margin terms, this equates to $8.7 billion of operating profit, more than 1,100 basis points of operating margin hit on a fiscal year '21 sales basis. In EPS terms, $2.79 per share of cost and FX headwinds, nearly half of fiscal year '21, core EPS of $5.66. Now despite these challenges on our last quarterly earnings call, we maintained our outlook of core earnings per share growth in a range of in line to plus 4% versus prior year. We are confident in our ability to overcome these impacts via top line growth, productivity and well-balanced pricing while we continue to invest in our brands across all 5 vectors of superiority. With this context, we're very pleased that we are on track to deliver at least $5.81 per share this fiscal year, the low end of our guidance range. As you are aware, the time horizon of our guidance extends to the end of June. We want to reiterate 2 key points. We are committed to returning to our balanced growth algorithm across the top and bottom line, which includes consistent margin expansion over the coming quarters. We will do so via a combination of productivity and adequate pricing while investing in innovation and the overall priority of our brands. Still, for the balance of this fiscal year, we have challenges to manage through. None of the macro challenges in the context are unique to P&G. We attempt to be realistic about these impacts in our guidance and transparent in our commentary. While we're encouraged to see input costs moderating, they are still up significantly year-on-year. And it takes time for the benefits to flow through our P&L for some material costs 6 to 9 months. Foreign exchange continues to be a significant year-over-year headwind, and consumers are facing the highest inflation in over 40 years. These near-term market realities are putting pressure on global market volumes. Over time, our expectation is that we return to more balanced top line growth, a combination of volume, price and mix. As a leader in the categories we compete in, we play an important role in driving category growth in both volume and value. The timing of when we get there depends somewhat on the strength of the consumer. And consumer dynamics vary by region. The U.S. and our enterprise market consumers remain very resilient. European markets have softened as high inflation affects consumer spending. While COVID restrictions have been lifted in Greater China, we expect a modest recovery curve. Longer term, we expect China to return to mid-single-digit underlying growth rates. Across all regions, we continue to focus on expanding the irresistible superiority of our brands as we offset the cost challenges via innovation, productivity and pricing. A question we frequently receive is, how pricing discussions are going with retailers. As you might expect, as the inflationary cycle wears on, each new pricing decision becomes more difficult. We do everything we can to offset cost increases with our productivity work to minimize the need for pricing. However, if it comes down to a choice of taking pricing or cutting investment in innovation and support for our brands, we continue to believe that we can deliver superior value for consumers and retailers via sustained investment. That's why whenever possible, we close couple pricing with innovation to deliver a better value for consumers, even at a modestly higher price. Our strategy is built on superiority that drives category growth, which benefits both retailers and P&G, and that strategy requires investment. When we decide to take pricing, we discuss input cost details, innovation plans, superiority and consumer value with our retail partners. We all want the consumers to be delighted with the performance and value they receive. Overall, we believe this is a rough patch to go through. We will not reduce investment in the long-term health of our business so that we can drive both volume and value growth in the categories we compete in. We view reigniting underlying category volume growth in the categories we compete as a critical enabler for balanced mid- and long-term growth. And catalysts for this growth are available to us even in the most developed markets. We have opportunities to drive incremental household penetration, identify new jobs to be done with our consumers and encourage incremental usage for a better consumer experience. Let's look at a couple of examples. U.S. fabric enhancers' organic sales have grown double digits on average over the last 7 years. Despite strong sustained growth, there remains significant upside in household penetration across all forms, liquid fabric enhancers, scent beads and dryer sheets. And once we're present in a consumer's household, significant opportunity exists in load penetration, which is illustrated by the table on the right. While we use fabric enhancers as a common example, growth opportunities exist in all categories. So for example, in Baby Care, since launching Ninjamas, the bedwetting segment has grown double digits with P&G driving 40% of the growth on average, nearly 4x our fair share. Dawn Powerwash and Downy Rinse, incremental products to the dishwashing and laundry regimen that solved previously unmet consumer needs. In summary, balanced growth remains our objective and reinforces the importance of continuing to invest in the superiority of our brands, especially when consumers are even more focused on the performance and value of the brands they choose. Now let me turn it over to Jon.

I'll begin by reinforcing Andre's last point, the importance of balanced top and bottom-line growth. Our integrated set of strategies have enabled balanced growth and we believe position us well going forward. A focused portfolio of daily use products, many providing cleaning, health and hygiene benefits in categories where performance plays a significant role in brand choice. Superiority is to win with consumers. Superiority is critical in an inflationary environment. As consumers face increased pressure on nearly every aspect of their household budgets, as Andre said, we're investing to deliver truly superior value, a combination of price, product performance and usage experience to earn their loyalty every day. Superiority drives market growth. And as the industry leader in most of our categories, it is up to us to lead this growth. Today, we assess our level of superiority across product, package, communication, retail execution and value at about 80% of sales. The Dawn brand provides a great example of superiority. With consumers spending more time at home, eating more meals and doing more dishes at home, appreciation for superiority in the dish care category is higher than ever. Dawn has delivered outstanding results behind innovation that drives product and packaging superiority, such as Dawn Powerwash, which we launched in the U.S. 3 years ago. If Powerwash were a stand-alone brand, it would be the third largest in the category. And we're innovating to extend this margin of advantage. Last year, we launched Dawn EZ-Squeeze in the U.S. and Fairy Max in Europe, superior products with an upgraded formula across the entire lineup. Superior packaging, the no-flip, no-mess cap makes it easy and fast to use from the first squeeze to the last. Superior communication across the lineup. Let's watch 2 ads, 1 for Dawn EZ-Squeeze and then Dawn Powerwash. [Presentation]

Superiority across all 5 vectors, product, package, brand communication, retail execution and value drive strong results. Dawn has delivered over 90% of the U.S. hand dish category growth over the last 3.5 years, nearly 30% higher than our fair share. During the same period, Dawn's value share was up 10 points. driving category growth with superior innovation, builds market share and builds business for our retail partners. Safeguard detox body wash in China is another example of driving category growth with the superior proposition across the 5 vectors. As the #1 personal cleansing brand, Safeguard has provided family protection to Chinese consumers for over 30 years. We continue to extend our superiority advantage beyond just cleansing to a superior usage experience. Packaging that dispenses a luxurious foam 10x creamier than normal lathering. Superior communication, where the consumer chooses. Traditional media still plays a role in China, but increasingly, consumers are engaging via Douyin and live streaming. So how we engage with the consumer has to shift as well. Let's look at 2 examples. [Presentation]

Superiority, again, driving superior results. Safeguard detox body wash grew 80% in the first half. Value share has grown continuously in the past 3 years. And at a retail price, 2x the category average, Safeguard detox body wash is a sweetener for our retail partners as well. Our India Fabric Care team has innovated across the 5 vectors of superiority in both Tide and Ariel. Product superiority shifted from less than 25% of sales to over 65%. This was fueled by productivity with the dual purpose of investing in superiority and expanding profitability. Tides' superior communication helps ensure kids start the school year with shirts that look like new. Let's watch. [Presentation]

Superior execution, you guessed it, superior results. P&G laundry is driving 25% of the category growth in India over 1.5x our fair share. Organic sales are up over 40% fiscal year-to-date. Over the past 3 months, value share is up nearly 2 points. We are defining superiority across every part of our portfolio with specific consumer groups and benchmarks for each brand and price tier. We're innovating across tiers, ensuring we provide value to the consumer in all price tiers where we compete. The strategic need for investment to continue to strengthen the long-term health and competitiveness of our brands, the short-term need to manage through significant cost increases and the ongoing need to drive balanced top and bottom-line growth, including margin expansion, underscore the importance of ongoing productivity. Productivity and marketing as an example, more efficiency and greater effectiveness enable us to reach consumers when and where they're most receptive to our advertising. This leads to higher quality engagement and when orchestrated across media platforms, avoids excessive advertising frequency, which is at best, wasteful spending and at worst, an annoyance to consumers. We've made good progress in building and scaling capabilities to drive effectiveness and efficiency of marketing spend, but still have plenty of runway ahead of us. At our Investor Day in November, we shared many examples of how we're constructively disrupting brand building. Pampers provides just one example. By applying a proprietary algorithm, we can create consumer groups across the various stages of baby and child development to more effectively target content. Superior communication to new parents looks different than superior communication for parents with active on-the-go toddlers. Programmatic media allows us to target these smart audiences, buying and serving digital media in an automated way, only to consumers we want to reach in a way that avoids excess ad frequency. Constructive disruption to drive productivity and a sustainable expanding competitive advantage. In cost of goods sold, productivity is usually a lower cost per case of product delivered to a customer. The lower cost is only one form of productivity. Productivity that improves quality, increases supply assurance and yields higher on-shelf availability of our products, all of which improves superiority with consumers and retail partners are huge creators of value for our business. As discussed at Investor Day with Supply Chain 3.0, and we're creating the next benchmark, a supply chain that provides greater agility, flexibility, scalability, transparency and resilience. We expect Supply Chain 3.0 to enable productivity savings of up to $1.5 billion per year. A portion of this will be reinvested to enable capacity expansions. We'll also invest in technology to continue to improve our supply chain to enable future growth. In North America, we're launching a platform of supply chain services for our retail partners in July 2023 that will enable us to better serve our joint consumers while streamlining the end-to-end supply chain aiming to create a sustainable and expanding competitive advantage. We're also driving productivity by constructively disrupting the way we identify and develop new raw materials. We're creating proprietary algorithms, leveraging artificial intelligence to digitally design molecules. In Fabric Care, we're using this capability together with virtual reality tools to reformulate [ periphery ] molecules and formulations based on real-time raw material availability and cost data. This has enabled us to reduce product development time from years to months while increasing irresistible consumer experiences. Success in our highly competitive industry also requires agility, that comes from a mindset of constructive disruption, a willingness to change, adapt and create new trends and technologies that will shape our industry for the future. These capabilities often extend our competitive advantage. In our organization structure yields a more empowered, agile and accountable organization with little overlap or redundancy, flowing to new demands, seamlessly supporting each other to deliver against our priorities around the world. Going forward, there are 4 areas we're driving to improve the execution of these integrated strategies. Supply Chain 3.0, digital acumen, environmental sustainability and a superior employee value equation. These are not new or separate strategies. There are necessary elements in continuing to build superiority, reduce costs, enable investment and value creation and to further strengthen our organization. We've already discussed Supply Chain 3.0. Environmental sustainability. Our efforts in sustainability are important to create more value while improving our environmental impact, enabling consumers to reduce their footprint and helping society solve some of its most pressing challenges. Irresistible superiority without making trade-offs between performance and sustainability. A few examples, Gillette and Venus replaced their plastic packaging with fully recyclable paper and cardboard boxes. This saves over 1,000 metric tons of plastic, the equivalent of 150 million water bottles each year. Always launched a new packaging in parts of Europe that has made of sustainably sourced fibers and is recyclable. Hair Care Europe has moved to 100% recycled plastic for Head & Shoulders and Pantene, which saves 10,000 tons of virgin plastic annually. We also have superior innovation that helps consumers reduce their footprint, which can often lead to a superior value equation by enabling consumers to save energy and water. Tide and Ariel provide superior cold-water performance that enables energy cost savings for our consumers and improved sustainability by reducing the energy required to heat the water in the laundry process, and washing in cold improves garment lifespans. Cascade, using the dishwasher can use less water than Washing in the sink, up to 20 gallons per load. The Fairy Max improved formula helps save water by being able to start washing dishes from the very first drop of water, no need to wait for the water to warm up. We're also helping industry reduce its footprint through leading innovation and making innovative technologies available to the entire industry for application. P&G invented a patented recycling technology to produce virgin-like resin from polypropylene plastic waste. We've licensed the polypropylene application to PureCycle technologies, and are making it broadly available across industries. We recently developed a similar technology to recycle polyethylene waste, and we're working with partners to commercialize this as well. Another example is our leadership in enrolling industry to use digital watermark technology that's embedded in packaging. It's invisible to the human eyes but detectable at recyclers to enable accurate and automated plastic sorting. This results in higher quality recycled material and an increase in recycling rates. We will continue to invest in innovation to help society solve some of the most pressing environmental challenges we face. Digital Acumen, data and digitization are giving us access to tools we never had before to delight consumers and create shareholder value across our operations. An example, we're creating new digital tools and capabilities that help us recommend winning shelf sets to our retailers, faster, more accurate at prediction and with fewer resources. On the virtual shelf, we have digital tools that tell our teams exactly where to show up and search, which words to bid on, how much to invest in a campaign and when to run it. These digital technologies drive superior retail execution and provide us with a competitive advantage versus anything else in the marketplace today. And finally, the employee value proposition. We want a superior employee value equation to ensure that working at P&G delivers a superior experience and value for all employees. By definition, this must include equality. To deliver a superior value proposition, there must be something in it for everyone. As mentioned earlier, our focus remains on balanced top and bottom-line growth. In the ever more complex world we live in, it's not just top and bottom line that must be balanced. We must endeavor to balance the needs of an increasing number of constituents or we're unlikely to deliver against the needs of any of them. Consumer, customer, employee, society and shareowner needs must each be met. There is no choice to make here. There is no opt out. Servicing and balancing the needs of each of these constituents will not be easy, but it's necessary. And those that do it best as I expect we will, should thrive. Better [ we ] balanced top line, bottom line and effective in serving an increasing number of constituents. These strategic choices, portfolio, superiority, productivity, constructive disruption and organization structure and culture are not independent strategies. They reinforce and build on each other. When executed well, they grow markets, and in turn, deliver strong sales, share, earnings and cash results, leading to balanced growth and value creation. These strategies were delivering strong results before the crisis. They served us well during these more recent volatile times. They remain the right strategic choices to drive balanced growth and value creation as we move through and hopefully pass the crisis. We're stepping forward, not back, focused on growing through the near-term challenges we're facing. We're doubling down to serve consumers and our communities. We're doing this in our interest, in society's interest and in the interest of our long-term shareowners. Thanks, and we'll be happy to take questions.

I wanted to ask a little bit about China. So over the last couple of quarters, definitely been transparent about performance in China and relative to the market. But one of the questions I had is, I can't help but think back to, I think it was 2016 went at this conference, David kind of stood up and said, we've done something wrong in China, right? We're sort of -- we're going left, the consumer is going right, and we need to address the broader strategy. So I was curious if you could talk, I guess, a little bit about your sense of the underperformance in China, how much of it is channel-specific? Is it strategy specific relative to brands or positioning? And is there a discussion on some sort of strategic reset that needs to happen in China? Or is it just a matter of the market getting better and P&G will get better with the market?

So I'll provide some perspective and Andre can add. If you look at the last 5 years, our results in China have been very encouraging. We've grown about 7% on average over those years, including some of the more recent declines due to COVID and the impact that it's had on the market. If you look at our market shares -- I was just on the phone with the China team earlier this week, we're holding our building shares in aggregate, so that's encouraging as well. China is China, though, which means it changes every day. So we always have work to do to meet emerging consumer desires, both in terms of the products they buy and where they choose to purchase them. And so social media is a very rapidly evolving platform or platforms, plural. And in some of those channels, we see market share deficits. So we need to work to catch up in those channels. But overall, it remains a very attractive business. I'm glad we made the strategic pivot that we made that you referred to several years ago by focusing on our 2 largest markets, the U.S. and China. And I think we're reasonably well positioned to continue to do well there. Andre do you...

I agree.

Good. Go ahead.

Just a quick follow-up on that. You mentioned China changes every day. Could you characterize any -- certainly, we were familiar with the structural changes that took place in a lot of categories [ in ] the COVID period since our last CAGNY in the United States. Could you characterize the changes to you -- the channel to the consumer that you see in your business and maybe identify where that leaves you better or worse, same?

I think Jon mentioned some of it. It's -- the major changes for us, I think, are in the retail footprint, where the consumer shops. And I think we've seen a transition towards online, certainly a more elevated and accelerated transition towards online shopping during the COVID period, which put disproportionate burden on every brick-and-mortar retailer, including department stores. So for us, the job at hand is to ensure that we are adequately set up in online retail, which we are doing. And Jon said it, we're gaining share. So I think we're doing something right in that sense, making sure that we have the media muscle and the marketing muscle to operate in an online environment. You saw 2 examples in the presentation, and the team is strengthening that every day that's working. And then the other element we now need to watch carefully as China reopens, is on our SK-II business, the balance between travel, retail, online business and department stores, all 3 channels will be important, but there is certainly a different balance and a higher level of engagement in department stores is required in order to drive new user acquisition in that channel, and that's really the primary purpose of it. So I think the channel dynamic is one. The media dynamic is another. And I think the other component that we'll have to see is from a supply chain standpoint, I think the strategy we've chosen is the right strategy to ensure that really the majority of our China business, virtually all of it, is locally sourced. We can locally innovate, which is relevant for the consumer because that for -- in my mind, is one of the big examples we have, is we can develop innovation that is locally relevant at a pace that probably we couldn't 10 years ago.

So you mentioned the rough path ahead. So I wanted to just -- if you can elaborate a little bit on RGM and investments, ad investments and share of voice above and below the line. I understand that obviously, through guide, the second half implies a 50 basis points or 40 basis points SG&A reduction, but we don't see what is above the line. So are you seeing the need, especially in the commentary about Europe, the deceleration there, and again, giving a lot of credit to all the improvements in assortment and preference superiority. Anything you can elaborate on how to go through the rough patch as we go into RGMs and product prices?

So the worst thing we can do, in my opinion, in this environment, and I mentioned it briefly, is step back or to blank or to back off our strategies. Now that doesn't mean -- so we're committed to continue. And Andre said the same thing in his remarks. That doesn't mean we're not looking for opportunities to reduce cost of those investments. So for example, in media, we're increasingly looking at reach, which I mentioned, as the measure of sufficiency. We want to achieve -- we want to increase reach, in part, by reducing investment in frequency and the tools we have increasingly available allows us to do that much better than they ever have in the past. So we've talked about this many times, but we have to be very -- it's difficult to look at total dollar spend and draw a conclusion, which I realize that's frustrating for you, in terms of whether we're investing sufficiently or not. But we're focusing on those endpoint deliverables as what we're committed to deliver against. And I've been very clear about this that if we're faced with a choice, which we may be, to back off that investment or to have a degree of gross or operating margin compression or even small earnings per share decline, we will make those investments. It's very important for the future of the business. And we -- I'm sure you've heard a lot this week about the relationships between retailers and manufacturers. And I think our relationships with our partners in those -- in the retail space are better than they've ever been. But that won't be true when we stop supporting growth of the market, which is the only way that they can grow.

Kevin?

Kevin Grundy, Jefferies. Jon, question on your market share and how you potentially adjust the playbook here over the next 12 months given what remains still largely premium portfolio. So I think in your presentation, you alluded to broader pricing ladders and investments that you've made, including laundry, family care, grooming just to name a few. But with that being said, your market share has slipped a little bit in the U.S. in some of these categories, and we have seen trade down in some of them. So how do you sort of balance the longer-term goals around superiority versus what we're seeing in terms of consumer behavior here given your premium portfolio?

We want to be -- we want to have delightful superior experiences across relevant price tiers, not just at the highest end. So that's a part of how we deal with that is ensure that consumers who want to trade down have -- still have a delightful option within our brand family that they can choose. And as a result, our market shares in aggregate, as Andre talked about, have held up very well. They're growing in the U.S., both value and volume. That doesn't mean that we should stop asking the exact question that you asked, we ask good of ourselves every day. But so far, I haven't seen anything that would indicate a need for -- a significant need for a change in strategy. Andre showed you the breadth of the growth across the categories and across the markets. There's always an opportunity here or there, and we will always work to address those opportunities. But I think our approach thus far has served us very, very well.

Yes. And if anything, Kevin, I would just add that when you look at all outlet data, which is really what we're basing Jon's statements on and my statements in the prepared remarks. If anything, we see strengthening of the business. So family care, which was under pressure is back to share growth in all outlet, fabric care growing volume share. So I think the portfolio play that we're describing is actually serving us very well.

So just a question about balance. You talked a bit about that in the presentation. And as we think about a scenario where maybe some of the headwinds over the last few years, whether it's commodities and currencies become tailwinds over the next year or 2. Can you talk about how you're thinking about the balance of how much of that you'd reinvest in the P&L? So how much of that might be marketing investment or product innovation? And also maybe touch on how you would think about that in terms of cash investments as well, like capital spending. So just how much drops to the bottom line, how much you'd want to use to sort of maybe play a little bit more offense to the extent that, that's a scenario.

So let me start with capital. The core for us at the moment is to catch up to demand, which we're still doing in some of the categories. So that's why you see a little bit of accelerated capital spending I don't expect a fundamental change in our capital percentage of sales versus previous years, just an acceleration to catch up. The level of investment, I really don't have a good answer because it will depend on the opportunity that is out there. First and foremost, we'll continue to invest fully in innovation, in fully driving superiority across all 5 vectors. And we are committed, as we said in the prepared remarks, to return to our growth algorithm, which includes margin expansion. So a component of whatever comes as a help will certainly be reinvested. Our objective is balanced top line and bottom-line growth, return to [ same ] level of margin expansion. But first and foremost, the primary job at hand is to continue to build irresistible superiority across the lineup.

And just 2 additional points. I think I've shared this with you before. But if you look at the correlation between top line growth and our share price, it's very low. It's 11% over a reasonable period of time. If you therefore conclude that what really matters is bottom line you'd be mistaken because the correlation between our bottom line and our share price is also very low. It's 17% over the period of time I'm referring to. But when you look at operating total shareholder return, which combines, requires top line growth and bottom-line growth, the correlation is in the 60s. And so just from a pure math standpoint, I call it one of the physical laws of the economic universe. We will be committed to grow top line and bottom line, as Andre said, inclusive of margin expansion.

Steve.

Another element of balance and Andre, you referred to this is as balance of the makeup of the top line between pricing and volume and the importance of restoring your portfolio and your categories to volume growth. Can you just talk a little bit about the path to that objective towards a more balanced makeup of price versus volume, how much of that is within your control versus environmental factors and a bit about what you think it will cost to get there?

Look, I think part of this will happen naturally, right, because as pricing annualizes, the consumer stabilizes. Some of the compensating behaviors we see in the short term, like using our pantry inventory, thinking about dosing maybe more intentionally than they used to. I think some of that will just naturally disappear. And the current price levels will become the new norm. So some of that will normalize. I think, as I said, we have a huge opportunity to drive jobs to be done, helpful penetration and dosing within the categories that we operate in. And that is really part of the growth model, Steve. So I don't see it as an incremental investment it is just executing the playbook, right? And while the playbook was focused over the past -- rightfully so, over the last 18, 24 months to get innovation out, get the pricing out there, drive productivity. I think reminding our organizations, which we do really on a daily basis, that driving household penetration, new jobs to be done in usage with the innovation and with the communication that we have out there is a critical component. So it's not incremental. It's just reemphasizing a core part of the playbook.

Darrell?

Could you guys compare and contrast what you're seeing in Europe right now relative to the U.S. in terms of consumer trade down. And obviously, there's some structural differences in the market in terms of higher private label penetration in Europe and more consolidated retailers, but it does seem like there's distinct performance. And how much of that sort of relates to P&G execution just versus those structural dynamics?

Well, clearly, as Andre mentioned, the consumer is most robust in the United States currently and in parts of the developing world. China is still working to recover. Europe, for some obvious reasons, the consumers are under more pressure than they are in other parts of the world. It's hard to sort through exactly the various drivers of that, Darrell, because of timing. So we generally -- because we're market leaders in those categories, we're often the first to take pricing. And then the market works through that. And we're kind of in the middle of that process right now. But generally, Europe is more challenging. Our strategy is the same in each of those markets, though obviously having pack sizes and price points that are lower and European context is necessary to serve those consumers. But I don't see dramatic differences.

I think the core difference that we see is private label pricing is simply lagging in Europe, so temporarily, the price delta versus branded competition is bigger. So we'll see how that goes. I think how it goes to the playbook and what we're doing, every conversation we're having with the businesses is, are we sufficient in terms of media, can we invest more, can we drive the superiority of our brands via short-term media investments and stronger value messaging.

Robert?

Robert Ottenstein, Evercore ISI. Just to focus a little bit more on the U.S. Can you give us your latest read on where retailer inventories are, consumer pantries and whether you're still seeing a move -- a modest move is what you mentioned at your Investor Day towards dollar stores and club stores. Is that accelerated, diminished, about the same as it was 3 months ago?

From an inventory standpoint, I think it was very understandable that for a period of time, retailers across channels, build inventory simply because of the uncertainty of supply and the volatility of demand. And as both of those things have somewhat normalized, we've seen them understandably adjust inventories back down, and that's broadly true across channels, and it's something that is largely behind us. And there hasn't been a great shift between channels in the recent quarter or 2. I see a lot of conversation about online versus off-line, that's all blending now. I mean what is Walmart? Is that an off-line channel or is it an online channel? I think it's both, the same for Target. And between the dollar stores, the drug channel, et cetera, there hasn't been a real significant shift.

Let's wrap now and move over to the breakout.

Okay. Thank you very much. Happy to see you in the breakout.