Christopher Carey

Christopher Carey asked about the logistics of fiscal year 2027, specifically if the ERP shift impact from fiscal year 2026 would be added back, and the flexibility to invest incremental ERP 'get back' if back-half objectives for market share and innovation don't materialize.

Answer

Luc Bellet, VP and CFO, confirmed that the ERP shift from fiscal year 2026 (understated sales) would result in a pickup of about 3.5 points on sales and $0.90 in EPS in fiscal year 2027, regardless of investment decisions. Linda Rendle, Chairman and CEO, stated that Clorox is nimble and will adjust investments if consumer environment changes or innovation plans underperform. She emphasized their capability to invest more in brands due to digital investments, new capabilities, and strong margin transformation efforts, ensuring they can protect shares and grow categories while balancing profitability.

Christopher Carey asked about the logistics of fiscal year 2027, specifically if the ERP shift impact from fiscal year 2026 would be added back, and how much flexibility Clorox has to invest incremental ERP benefits if back-half objectives for market share and innovation don't materialize.

Answer

Luc Bellet (VP and CFO of the Health and Hygiene division) confirmed that the ERP shift means fiscal year 2026 sales are understated, and fiscal year 2027 will see a pickup of about 3.5 points on sales and $0.90 in EPS, independent of investment decisions. Linda Rendle (Chairman and CEO) emphasized Clorox's philosophical approach to long-term value growth through superior brand experiences and innovation, while acknowledging consumer strain and category volatility. She stated that if innovation plans don't materialize or the environment changes, Clorox has the flexibility and tools (digital investments, holistic margin management) to make necessary investments to grow brands, categories, and protect shares, aiming for momentum into fiscal year 2027.

Christopher Carey of Wells Fargo asked for the company's medium-term outlook beyond the current volatility, seeking clarity on the path back to its long-term financial targets, including the 3-5% organic sales growth goal.

Answer

CEO Linda Rendle acknowledged the short-term noise but stressed the ERP transition is critical for future growth. She reaffirmed confidence in the long-term 3-5% organic sales algorithm, explaining it relies on categories returning to 2-2.5% growth, plus contributions from the International and Professional segments and market share gains driven by new capabilities. She expressed strong belief in the company's margin flywheel to fund this growth.

Christopher Carey asked about plans for tariff mitigation, whether it involves accelerating productivity programs, and if this would leave less funding for other initiatives. He also inquired about the timeline for reaching the SG&A target of 13% of sales.

Answer

CEO Linda Rendle affirmed confidence in managing the estimated $100 million run-rate tariff impact over time by leveraging capabilities built through their technology transformation and holistic margin management program. She confirmed they will continue to put pressure on productivity in FY26. Regarding SG&A, she stated the company will get to its target over time, but the immediate focus is on the ERP implementation, after which SG&A will start to come down.

Christopher Carey of Wells Fargo asked how to interpret the low single-digit Q3 organic sales outlook relative to the long-term algorithm and whether it represents a clean underlying run rate. He also asked for commentary on the relative performance trends of the Cleaning versus Household businesses.

Answer

CEO Linda Rendle expressed confidence in the long-term 3-5% growth algorithm but noted the current macro environment has temporarily depressed category growth to 0-1%. She highlighted that the Cleaning business is performing 'incredibly well,' with share results now higher than they were two years ago, pre-cyberattack, and strong consumption trends.

Christopher Carey requested clarification on the pricing dynamics, seeking to reconcile the negative price/mix in U.S. segments with the positive overall price/mix reported for the company. He also asked about the underlying U.S. price/mix trend expected for the second half of the year.

Answer

CFO Kevin Jacobsen explained that segment-level price/mix figures were heavily distorted by the 'noise' of lapping the cyber-attack's unique impact on product mix. He clarified that the true underlying drivers were a 1-point negative impact from increased trade spending, which was more than offset by 2 points of favorable SKU-level mix. He noted the negative trade spend impact is a front-half issue tied to lapping the cyber event and is not expected to persist in the back half.

Christopher Carey asked about Colgate-Palmolive's balance sheet strength and its approach to M&A, inquiring if the recent impairment changes views on target categories, the desire for M&A, and the evolving thought process on assets or categories of interest.

Answer

Stan Sutula, CFO, highlighted the improved balance sheet and cash flow (record $4.2B operating cash flow in 2025), providing flexibility and dry powder. Capital allocation priorities are investing in the business, returning to shareholders (dividends, buybacks), and M&A. He stated they look for opportunities to improve the portfolio, demonstrating discipline, and cited Hill's acquisitions (Red Collar, Prime100) as examples. The impairment is part of running the business, not changing long-term belief in the business. Noel Wallace, Chairman, President, and CEO, added that they are cautious in the uncertain environment but would use the balance sheet for the right opportunities, prioritizing investment in growth.

Christopher Carey of Wells Fargo asked for an analysis of the Asia Pacific business, specifically the reasons for softening in India's urban markets and the performance disparity between the Colgate China brand and the Hawley & Hazel joint venture.

Answer

Chairman, CEO & President Noel Wallace acknowledged softness in Asia, attributing it to the Hawley & Hazel business in China and performance in India. He contrasted the strong Colgate brand in China, which has an effective go-to-market and digital strategy, with Hawley & Hazel, which requires adjustments in those areas. For India, he cited plans to address urban market sluggishness with stepped-up innovation, core brand relaunches, and price-pack architecture adjustments.

Christopher Carey of Wells Fargo & Company asked in which regions or product categories the company has the highest confidence for acceleration in the back half of the year, and where it can best outperform if overall category growth remains volatile.

Answer

Noel Wallace, CEO, expressed confidence in Oral Care due to significant brand health investments and innovation like the Colgate Total relaunch. He also expects Hill's to continue performing well by focusing on under-penetrated segments. CFO Stan Sutula added that they expect top-line improvement in the back half from North America and Asia, with countries like South Africa and Turkey also getting better. The positive mix from strong Oral Care and Hill's performance will help offset tariffs.

Christopher Carey requested more detail on the end-market competitive activity mentioned in markets like India, Africa, and Eurasia, asking for specifics on what the company is observing.

Answer

CEO Noel Wallace clarified that the heightened competition was isolated to a few markets and often driven by local players chasing volume. He identified India as the most notable example, with increased discounting in urban modern trade, but he expects the market to rationalize. He also mentioned Turkey and South Africa but does not see the activity as a sustained trend, noting that the broader promotional environment in the U.S. and Europe remains constructive.

Christopher Carey asked for an expansion on trends in Latin America, specifically the direction of travel in Mexico and Brazil post-elections, and how the company approaches pricing in the region amid currency volatility and a potentially stabilizing macro environment.

Answer

Noel Wallace, Chairman, President and CEO, confirmed a strong performance in Latin America against tough comps, with volume increasing sequentially for four quarters on a two-year stack basis. He noted some post-election 'choppiness' in Mexico that requires monitoring but expressed confidence in the team's ability to execute in volatile environments and take necessary pricing to offset FX, supported by strong brands and innovation like the Colgate Total relaunch.

Christopher Carey asked about the percentage of General Mills' portfolio with pricing investments and visibility on savings initiatives to respond to competitive changes, also seeking an update on the Wilderness brand's current strategy and potential tweaks.

Answer

Dana McNabb, Group President of North America Retail and North America Pet, confirmed two-thirds of the business had price investments by Q2, with 90% performing as expected, noting Totino's as an exception due to conversion. Kofi Bruce, CFO, reiterated confidence in delivering 5%+ transformation savings this year and 4%+ next year. Dana McNabb acknowledged Wilderness's unacceptable performance and outlined plans for new positioning, protein products, and advertising.

Christopher Carey asked about the company's pricing reinvestments, questioning the competitive response and how to avoid a 'race to the bottom.' He also asked for a framework on how gross margins and SG&A will trend given the investments.

Answer

CEO Jeffrey Harmening responded that pricing actions are targeted and strategic, not across-the-board, designed to get brands 'in the zone' for marketing to be effective. CFO Kofi Bruce added that SG&A is expected to grow slightly faster than sales, driven by increased media spending for the Freshpet launch and an incentive compensation reset.

Christopher Carey of Wells Fargo & Company asked about the competitive response to General Mills' pricing reinvestments and how the company avoids a "race to the bottom." He also requested a breakdown of margin impacts between gross margin and SG&A.

Answer

Chairman & CEO Jeffrey Harmening clarified that pricing actions are targeted to specific items to regain a competitive value position, not across-the-board cuts, and are paired with strong marketing. CFO Kofi Bruce added that SG&A is expected to grow faster than sales due to increased media spending, particularly for the Freshpet launch, and an incentive compensation reset. VP of IR Jeff Siemon provided a clarification on the Q4 price/mix figures.

Christopher Carey sought clarification on whether new cost savings are targeted for full reinvestment and asked for a diagnosis on why the company's portfolio is underperforming its categories, questioning if it's a value, innovation, or marketing issue.

Answer

CEO Jeffrey Harmening explained that underperformance is a holistic issue and the recipe for success is getting the value proposition right so that strong marketing and innovation can be effective. CFO Kofi Bruce added that the purpose of the new cost savings is to 'free up resources to reinvest for growth' and that the company's bias would be toward reinvestment.

Christopher Carey asked for clarification on whether new savings targets are for full reinvestment or just for flexibility. He also asked for management's diagnosis on why the portfolio is underperforming its categories, questioning the roles of value, innovation, and marketing.

Answer

CEO Jeffrey Harmening addressed the performance gap, stating the primary job is to improve competitiveness to capture the 1% category growth, starting with volume share. He emphasized a holistic approach of getting value 'in the zone,' improving marketing, and driving innovation. CFO Kofi Bruce added that the savings are meant to 'free up resources to reinvest for growth' and that the company's bias is toward reinvestment.

Christopher Carey asked for an overview of Coty's cash commitments, including swaps and debt refinancing, and inquired about long-term profitability aspirations for the Consumer Beauty segment versus potential revenue impacts.

Answer

CFO Laurent Mercier reiterated that deleveraging is a top priority, with fiscal '26 free cash flow expected to increase and plans to refinance 2026 debt. He confirmed that improving Consumer Beauty's low profitability is a "number one mandate" and acknowledged this might involve making choices that could impact net revenue in certain areas to achieve necessary margin improvement.

Christopher Carey asked about Coty's cash commitments over the next several years, including swaps and debt refinancing. He also inquired about the profitability aspirations for the Consumer Beauty segment and the potential trade-off with revenue growth.

Answer

CFO Laurent Mercier emphasized that deleveraging remains the top priority, with fiscal '26 free cash flow expected to increase. He mentioned a new forecasting tool will improve inventory management and cash flow. He confirmed plans to refinance the 2026 debt maturity and reiterated confidence in selling the Wella stake. Regarding Consumer Beauty, he stated that improving its low profitability is a key mandate, which may involve making choices that impact net revenue to prioritize a healthier bottom line.

Christopher Carey of Wells Fargo & Company asked about the company's long-term growth algorithm and for an explanation of the swaps and the required Q3 prepayment.

Answer

CEO Sue Nabi stated that while the goal remains to outperform the beauty market, it is no longer prudent to set specific sales growth targets due to macro uncertainty. She outlined five growth drivers to achieve this outperformance. CFO Laurent Mercier explained the swap is a mechanism to reserve shares for future buybacks and that the recent stock price pullback triggered a true-up cash payment, confirming the intent to eventually operate the share buyback.

Christopher Carey asked about the company's long-term growth algorithm and strategic goals, and also requested an explanation for the swaps and the required Q3 prepayment.

Answer

CEO Sue Nabi explained that due to significant macro uncertainties, it is no longer prudent to provide specific sales growth targets, but the goal remains to outperform the beauty market. She outlined five key growth drivers to support this. Executive Laurent Mercier clarified that the swaps are a mechanism to reserve shares for a future buyback, and the cash prepayment is a required true-up to the banks based on the recent pullback in the stock price.

Christopher Carey of Wells Fargo Securities asked for more context on recent performance trends in Asia and for an outlook on the European market for the next twelve months, including key benchmarks for success.

Answer

President and CEO Stéphane de La Faverie stated that in Asia, China is showing encouraging signs of stabilization with strong Q4 retail growth across categories, while the rest of APAC is experiencing a slowdown. He described Europe as more concerning due to weakening consumer sentiment, particularly in France and Germany. The strategy there involves expanding consumer coverage, focusing on the strong fragrance category, and accelerating innovation. He expressed confidence that all four new geographic regions would be in positive growth territory by the end of fiscal 2026.

Christopher Carey questioned if the exceptionally strong July sales figures indicated any customer pull-forward ahead of planned price increases. He also asked for perspective on why the category slowed last year and what drives confidence for the next twelve months.

Answer

Hilton Schlosberg, Vice Chairman & CEO, did not comment on pull-forwards but attributed last year's category slowdown to macroeconomic factors like inflation and high gas prices. He expressed confidence in future growth, citing a strong innovation pipeline, the functional nature of energy drinks, increased household penetration, and favorable pricing dynamics compared to other beverage categories like coffee.

Christopher Carey sought clarification on the potential for additional price increases, asking what factors—such as aluminum costs, tariffs, or competitor moves—would drive that decision and its potential timing.

Answer

Executive Hilton Schlosberg confirmed that the company is always evaluating pricing opportunities. He noted that Rainstorm and Bang were not included in the last price increase, representing a future possibility. He stated that any decision would depend on the outcome of tariffs and competitor actions, with the goal of increasing shareholder value without harming the brands' competitive position.

Christopher Carey inquired about distributor inventory levels heading into October, seeking to understand if recent performance was due to a tough comparison or distributor hesitancy to take on more inventory.

Answer

Hilton Schlosberg, Vice Chairman and Co-CEO, clarified that Monster's business model involves fulfilling orders placed by its sophisticated Coca-Cola distributors. He stated that Monster supplies product based on customer requirements and does not experience inventory 'hiccups' in the same way as some competitors, indicating that inventory levels are managed by the distributors themselves.

Christopher Carey of Wells Fargo & Company sought clarification on the timing of the Midwest premium cost impact and challenged the view that the beer category's weakness is purely cyclical, given that volume softness dates back to 2022.

Answer

CFO Tracey Joubert clarified that the incremental Midwest premium impact of $20-35 million is expected in the second half of the year. CEO Gavin Hattersley defended the cyclical view, linking the recent downturn to a drop in consumer confidence since early 2025. He acknowledged the need to monitor other factors but stressed that the company's strategy, including the Fever Tree acquisition, is designed to address evolving consumption habits.

Christopher Carey asked about the sustainability of the net favorability in cost inflation seen in COGS per hectoliter and inquired about the CEO succession process, including timing and desired leadership qualities.

Answer

CFO Tracey Joubert explained that while underlying COGS per hectoliter is expected to increase for the full year, the Q1 favorability was due to cost savings offsetting moderated inflation, with volume deleverage being the largest negative factor. CEO Gavin Hattersley stated the board is conducting a thoughtful search for his successor, considering both internal and external candidates with a focus on relevant experience and cultural fit, while affirming the board's support for the current long-term strategy.

Christopher Carey of Wells Fargo Securities inquired about the recent volatility in the beer category and whether Molson Coors' 2025 guidance factors in any share repurchases.

Answer

CEO Gavin Hattersley advised caution against over-interpreting short-term data, noting that Q4 2024 was the industry's strongest quarter of the year. CFO Tracey Joubert confirmed the company plans to continue its share repurchase program, which has both systematic and opportunistic elements, but noted that the timing could be influenced by capital commitments like the Fever-Tree investment.

Christopher Carey asked for perspective on the 2024 top-line performance, seeking to understand how much of the volume weakness is an anomaly versus a durable trend, and how this dynamic might affect the top line in a more normalized environment.

Answer

CEO Gavin Hattersley expressed confidence in the long-term growth algorithm. He noted that excluding the Pabst contract, 2024 top-line growth is positive. He highlighted strong share retention for core brands, double-digit growth for Coors Banquet, and robust performance in Canada and EMEA & APAC as reasons for optimism about achieving long-term net sales revenue goals.

Christopher Carey of Wells Fargo Securities inquired about the primary drivers for the reduction in the free cash flow forecast and the company's internal incentive structure around cash flow, noting the increase in leverage.

Answer

President and CEO Rod Little explained that while cash flow metrics are part of executive incentives, strategic decisions like pre-buying inventory to mitigate tariffs can temporarily override them. CFO Francesca Weissman detailed that two-thirds of the cash flow reduction stemmed from lower earnings, FX headwinds, and tariffs, with the remaining one-third due to working capital changes, including higher sun care inventory and tariff-related pre-builds. COO Daniel Sullivan added that these are transitory issues and expressed confidence in returning to historical cash flow generation levels, citing the business model's fundamental strength.

Christopher Carey asked a broader question to reconcile management's confidence in execution with the stated disappointment in North American results. He also followed up on whether the increased investment is temporary and why free cash flow guidance was reduced more than earnings.

Answer

CEO Rod Little explained they are 'fixing the plane while flying it' in North America and that the decision to increase spending, rather than cut it, reflects confidence in the new leadership and strategy. COO Daniel Sullivan clarified the disappointment was in the Q2 sales result, not execution, and confirmed the ~$15 million investment is a one-time Q3 event. CFO Francesca Weissman added that the free cash flow reduction reflects lower earnings and higher inventory from tariff mitigation pre-buys.

Christopher Carey asked for context on when businesses with atypically negative performance, such as Shave Prep and Sun Care, would begin to lap those difficult periods. He also asked for clarification on a mentioned shift in Sun Care orders.

Answer

President and CEO Rod Little explained that the company will face easier comparisons in the second half of the fiscal year (Q3/Q4), citing the recovery of Wet Ones post-factory fire as an early positive indicator. COO Daniel Sullivan reiterated that 70% of the business is expected to grow at mid-single-digits. Regarding Sun Care, Little attributed the order shift from Q2 to Q3 primarily to the later timing of Easter this year. Sullivan confirmed this was a minor phasing issue and does not change their bullish outlook for the full sun season.

Christopher Carey questioned Edgewell's confidence in its fiscal 2025 organic sales growth forecast of 1-3%, given recent volatility, and asked about the key drivers for this growth and the company's ability to protect profits if sales targets are missed.

Answer

COO and CFO Daniel Sullivan affirmed confidence in profitability, citing relentless productivity and cost management as levers to protect earnings. He outlined sales growth drivers including mid-single-digit growth in international markets, a recovery in the U.S. Sun Care business, expansion of the Billie and Cremo brands, and lapping prior year supply disruptions. CEO Rod Little added that 70% of the business is already growing at a mid-single-digit rate, and the plan assumes the remaining U.S. Shave and Fem Care portfolio will stabilize to flat, an achievable improvement from the prior year's decline.

Christopher Carey of Wells Fargo inquired about the strategic review of the vitamin business, asking about the factors influencing a potential divestiture versus a joint venture, and how the Touchland acquisition could offset any dilution. He also asked about the strategies driving strong market share performance in the laundry business.

Answer

President and CEO Rick Dierker outlined three options for the vitamin business: a clean divestiture, a joint venture, or shrinking the business to enhance profitability and speed. He noted some 'green shoots' in the revitalization efforts. Regarding laundry, Dierker attributed the success to a strong value equation, correct sizing strategies, and effective price points, which are driving share gains.

Christopher Carey requested a breakdown of the full-year earnings reduction between the revenue takedown and the impact of tariffs. He also asked for clarity on the 2025 and 2026 tariff exposure after mitigation efforts. Additionally, he questioned the status of the vitamin business and at what point the company's patience with its turnaround plan might run out.

Answer

Executive Richard Dierker explained that a gross $190 million tariff exposure is being mitigated to approximately $40 million through portfolio actions and supply chain moves, with a net P&L impact of about $30 million in 2025. Regarding the vitamin business, he acknowledged it is not meeting expectations and stated that management will assess the success of its new innovation and marketing plan after Q2 before making further decisions.

Christopher Carey inquired about the Q4 outlook, asking whether it reflected inventory timing dynamics or a more cautious view on decelerating consumption trends. He also asked for clarity on the visibility of achieving the long-term U.S. top-line growth target.

Answer

CFO Rick Dierker confirmed there were no significant inventory timing issues influencing the outlook. CEO Matthew Farrell explained that the cautious stance is based on observed category growth deceleration in major categories like laundry and litter throughout the year. Regarding the growth algorithm, management clarified the U.S. target is 3% organic growth (as part of the total 4% company goal), which they are confident in achieving long-term through innovation and market share gains.

Christopher Carey asked for clarification on the 'dry powder' for promotional spending, questioning if it's already factored into the outlook or being held in reserve, and which categories are being monitored most closely. He also inquired about the stability of the VMS (gummy vitamins) business.

Answer

Richard Dierker (CFO and Head of Business Operations) clarified that the 'dry powder' is being held in reserve in case the promotional environment intensifies, particularly in household and vitamin categories. Matthew Farrell (executive) added that the VMS business turnaround is taking longer than anticipated, with challenges in renovating the portfolio and gaining retailer support, stating it's 'more on us' than the external environment.

Christopher Carey of Wells Fargo Securities requested a 'state of the union' on the Lawns business, its performance versus expectations, and how this informs the medium-term strategy to improve the product mix relative to growing media and mulch.

Answer

CEO James Hagedorn expressed high satisfaction with the Lawns business, noting its positive unit growth despite regional weather challenges and highlighting significant progress in making the supply chain a competitive advantage. President & COO Nate Baxter emphasized the large organic growth opportunity from increasing household penetration. EVP & CFO Mark Scheiwer added that product mix was a positive contributor to results this year and that upcoming lawns innovation is expected to be margin accretive.

Christopher Carey of Wells Fargo Securities inquired about a potential sales timing shift from Q2 to Q1 due to early retailer load-in, early season consumer demand reads, and the logistical feasibility of pursuing a strategic alternative for the Hawthorne business.

Answer

Executive James Hagedorn and Executive Nate Baxter explained that while there was some early load-in, they expect a return to a normal sales cadence with consistent low single-digit growth in both halves of the year. They noted strong retailer optimism and inventory positioning for spring. Regarding Hawthorne, Hagedorn confirmed the leadership team is now fully aligned on separating the business to unlock shareholder value and eliminate volatility, stating that logistical challenges are manageable and action is expected within months.

Christopher Carey asked about the year-over-year EBITDA impact from changes in incentive compensation and questioned the visibility on Hawthorne's profitability if its revenue were to decline materially.

Answer

An executive clarified that EBITDA add-backs for incentive compensation are guided to be similar to last year. Regarding Hawthorne, CEO James Hagedorn expressed high confidence, stating the team is managing more upside than downside risk and that the $20M EBITDA target already includes a $10M reinvestment in the brand. Hawthorne President Chris Hagedorn added that the outlook is 'risk-adjusted' and they have downside contingencies in place if necessary, though he does not expect to use them.

Christopher Carey asked if the higher tax rate is a permanent dynamic and requested a breakdown of the offsets to the 500 bps gross margin benefit in 2026. He also asked if Hershey could leverage peer pricing actions to inform its elasticity assumptions.

Answer

SVP & CFO Steve Voskuil explained the higher tax rate is driven by sourcing strategies and lower tax credit returns, expecting the ~250 bps headwind to be 'sticky' into 2026. He outlined the puts and takes for 2026 EPS, including pricing, productivity, inflation, and tariffs. He stated Hershey will monitor its own elasticities in the market and remain agile, supported by brand investment.

Christopher Carey of Wells Fargo asked if the higher tax rate is a permanent dynamic. He also requested a breakdown of the offsets to the 2026 gross margin benefit and if Hershey could leverage European peer pricing to inform its elasticity models.

Answer

SVP & CFO Steve Voskuil explained the higher tax rate is driven by creative sourcing strategies and lower returns on tax credits, expecting the ~250 bps headwind to be 'sticky' into 2026. Regarding margins, he outlined puts and takes including pricing, productivity, cocoa inflation, and absorption, but did not quantify them individually. He stated Hershey will remain agile on elasticities based on its own market data.

Christopher Carey asked if the higher tax rate is a permanent dynamic, how to frame the various offsets to the 500 bps gross margin benefit in 2026, and if Hershey is leveraging data from peer pricing in Europe to inform its elasticity models.

Answer

SVP & CFO Steve Voskuil explained the higher tax rate is driven by creative sourcing strategies and lower returns on tax credits, expecting a 250 bps headwind to persist into 2026. He detailed the 2026 EPS puts and takes, including pricing, productivity, and potential tariff relief as positives, against cocoa inflation and absorption impacts as negatives. Regarding elasticity, he stated the focus is on executing their own plan while remaining agile to what they see in the market.

Christopher Carey asked for insights on reformulation and price pack architecture efforts and how the company's thinking on mitigation tools, particularly pricing, has evolved with lingering high cocoa costs.

Answer

CEO Michele Buck noted that price pack architecture is already in the market and that supply chain agility is a key competitive advantage. She stated that Hershey has always had confidence in its ability to price and is now 'ready to activate even more of the levers' to combat costs, with more details to come.

Christopher Carey of Wells Fargo asked about the durability of improving trends in China, particularly the sustainability of strong '618' shopping festival results, and how P&G is assessing the impact of tariffs on the Chinese consumer.

Answer

President, CEO & Chairman Jon Moeller noted that while uncertain, the trend in China is generally improving and consumers are highly responsive to innovation like Pampers and SK-II. CFO Andre Schulten added that he is encouraged by the fundamental changes the China team has made to its business model, which are showing progress and driving growth.

Christopher Carey of Wells Fargo Securities sought clarification on the '2-3 year' glide path for category growth, asking if it implies below-average growth into fiscal '26, and whether the strategic playbook for North America and Europe is being adjusted due to the recent slowdown.

Answer

Executive Andre Schulten clarified that the 2-3 year timeframe refers to delivering the company's balanced top and bottom-line growth algorithm, not a specific forecast for when category growth will normalize. He stated that the current slowdown makes capturing identified growth opportunities in the U.S. and Europe even more critical, reinforcing the company's commitment to its existing strategy of investing in innovation and superiority.

Christopher Carey of Wells Fargo Securities asked several category-specific questions regarding timing dynamics in Family Care's double-digit growth, the recent slowdown in Oral Care, and the rationale for increased investments in the Baby Care business.

Answer

Andre Schulten, an executive, attributed the Family Care strength to consumer pantry loading but expects it to be largely sustained. For Oral Care, he pointed to a full rollout of the iO power brush lineup in the second half to drive acceleration. For Baby Care, he explained that investments are strategically tied to recent innovations, like on the Luvs brand, to drive trial and communicate benefits.

Christopher Carey asked about the persistent pressure in the Baby Care business and the sustainability of growth in Family Care. He also inquired about any potential sales impact from port congestion-related stock-ups.

Answer

Executive Andre Schulten stated that Family Care's growth is sustainable, driven by a proven, decades-long model of substrate innovation. He confirmed no material impact from port strike stock-ups. For Baby Care, he explained that value creation comes from trading consumers up to premium products, not volume, and noted that the company is actively working on innovation for the mid-tier in North America.

Christopher Carey asked about the medium-term growth outlook for Keurig Dr Pepper's U.S. Refreshment portfolio, questioning the relative contribution from partner and acquired brands versus the core Dr Pepper business.

Answer

CEO Tim Cofer explained that growth is broad-based. He highlighted that the core Dr Pepper brand is on track for its ninth consecutive year of market share growth, complemented by rapid expansion in energy, where KDP's portfolio now holds a 7% share. Cofer expects this balanced contribution from both the base business and new partner brands like Electrolit and Ghost to continue driving robust growth for the segment.

Christopher Carey asked about the development of free cash flow, particularly as the impact from the payables program lessens, and inquired about the company's plans for capital allocation as cash flow generation improves.

Answer

Chief Financial Officer Sudhanshu Priyadarshi stated that strong cash generation is a hallmark of KDP and the company is on a clear path to return to its target conversion levels over the next couple of years. He noted Q1 performance was strong even with a one-time payment for the GHOST transition. For capital allocation, he confirmed that deleveraging is the current priority, but the company remains open to disciplined investments to grow the business.

Christopher Carey inquired about the key drivers for Keurig Dr Pepper's 2025 guidance, focusing on Q1 dynamics like the leap year and Easter shift, the impact of green coffee inflation, and the expected balance between volume/mix and price.

Answer

Chief Financial Officer Sudhanshu Priyadarshi explained that KDP anticipates a path toward the upper end of its mid-single-digit net sales growth range, driven by momentum in U.S. Refreshment Beverages and International, along with the GHOST acquisition. He noted that Q1 would be softer due to calendar shifts and a lag in coffee pricing benefits, with growth expected to accelerate through the rest of the year. While sales look strong, he cautioned that high-single-digit EPS growth is challenged by significant green coffee inflation.

Christopher Carey asked about potential shipment timing impacts from storms on the coffee business and questioned how the company's portfolio optimization strategy will evolve, particularly how adding growth assets like GHOST enables pruning of slower-moving brands.

Answer

CEO Timothy Cofer confirmed late-quarter hurricanes had a negative impact but did not quantify it. On portfolio strategy, he explained that adding a high-growth asset like GHOST provides the 'top line flexibility' to make tough choices on optimizing the portfolio, particularly in U.S. refreshment beverages. This will allow KDP to prune underperforming SKUs to create a faster-growing portfolio with a better cost structure over the long term.

Christopher Carey of Wells Fargo asked about the key drivers behind the strong North American margins in Q2 and sought perspective on the durability of this performance.

Answer

Chairman and CEO James Quincey, while cautioning against focusing on a single quarter, identified several drivers for the improved North America margin. These included productivity initiatives, a favorable mix shift away from lower-margin vertically integrated businesses, and continued strong investment in brands. He characterized the improvement as a 'normalization' of margins over time, not a result of cutting growth investments.

Christopher Carey asked about the sustainability of the quarter's very strong operating margins and whether the company might need to reinvest some of that margin strength to reignite volume growth in developed markets.

Answer

President and CFO John Murphy acknowledged that timing benefited the Q1 margin but pointed to the company's long-term goal of expanding margins. He expressed confidence that a combination of marketing spend and productivity gains provides sufficient 'ammunition' to invest in growth and adapt to market needs without sacrificing the margin expansion objective.

Christopher Carey asked for context on how incremental moves in aluminum prices might impact costs and whether the system's pricing response could harm volume durability.

Answer

CEO James Quincey clarified that this is predominantly a North American issue and that the company can adapt its packaging strategy to manage relative input cost changes, for example by putting more emphasis on PET bottles if aluminum becomes more expensive. He stated that the impact is manageable within the context of the total U.S. business and does not fundamentally undermine the system's ability to drive volume in 2025, as it's one of many dynamic elements the company can mitigate.

Christopher Carey of Wells Fargo asked about the company's ability to overcome significant FX and interest expense headwinds in 2025, seeking lessons from 2024 and insights into areas of heightened focus or potential slowing.

Answer

Chairman and CEO James Quincey reiterated the company's 'all-weather strategy' and noted that 2024's FX headwinds were mainly from emerging markets where inflation pass-through is quicker. President and CFO John Murphy added key lessons: consistently investing in brands, focusing on profit drivers, and embedding productivity into the business model.

Christopher Carey of Wells Fargo inquired about the flexibility of PepsiCo's beverage system to respond to evolving ingredient preferences, such as removing artificial components, and how this journey compares between North America and international markets.

Answer

Chairman and CEO Ramon Laguarta explained that the strategy for beverages is consumer-centric, similar to the approach with foods. He confirmed that PepsiCo has a technical roadmap to eliminate artificial colors and flavors from its beverage portfolio and is prepared to execute on it as consumer preferences and regulations evolve.

Christopher Carey asked if the Pepsi brand's recent market share gain is the start of a durable trend and how management's thinking on the North American beverage business's capabilities has evolved, given peer performance and a perceived investor focus on margins over growth.

Answer

Chairman and CEO Ramon Laguarta expressed that he feels very good about the progress in the beverage business, emphasizing that margin improvement is a result of long-term operational excellence across the value chain. He highlighted that consistent investment in the Pepsi and Gatorade brands is leading to share gains. He believes the portfolio has further opportunities for growth through organic innovation, inorganic moves, and partnerships, viewing it as a year-after-year progression.

Christopher Carey from Wells Fargo asked about the drivers behind the Europe segment's successful and balanced volume/price performance and its sustainability. He also questioned if international profits could still fund North American investments despite currency headwinds.

Answer

CEO Ramon Laguarta affirmed that the strong, margin-accretive international business provides flexibility for the entire company. He attributed Europe's success to a consistent strategy of cost reduction reinvested into growth platforms like zero-sugar drinks and healthier snacks. He expressed confidence that this performance is sustainable, given large opportunities for per-capita consumption growth.

Christopher Carey asked if the Frito-Lay slowdown is purely cyclical or if there are structural shifts in consumption. He also asked if productivity visibility is better in PBNA and International, given the profit pressure at Frito-Lay.

Answer

Chairman and CEO Ramon Laguarta addressed both points. On productivity, he confirmed that PBNA and International are key drivers of margin expansion, providing flexibility for the total company. On consumer trends, he described the slowdown as cyclical but highlighted the long-term structural opportunity in evolving the portfolio towards permissible snacks and 'mini meals' to align with changing eating habits, noting the Siete acquisition as a tool for this strategy.

Christopher Carey from Wells Fargo asked for confirmation of a significant step-up in productivity and its drivers, and also inquired about the competitive dynamics with private label given shared inflationary pressures.

Answer

President & CEO Sean Connolly and EVP & CFO David Marberger confirmed a strong productivity outlook of over 5% for FY26, including tariff mitigation efforts. Drivers include automation and supply chain modernization. Regarding private label, Connolly noted Conagra has below-average exposure but will closely monitor price gaps in key competitive categories like tomatoes and cooking spray, where they are taking targeted pricing due to tariff-driven inflation.

Christopher Carey sought clarification on how Q4 gross margins are expected to improve despite higher costs from rebuilding inventory and asked whether fiscal '26 uncertainty is driven more by the top line or the cost structure.

Answer

CEO Sean Connolly explained that Q4 gross margin will improve relative to Q3 because Q3 absorbed the highest impact from plant shutdown-related costs. Regarding fiscal '26, he emphasized the company's strategic priority has been returning to volume growth, which pressured margins, and the goal for next year is to develop a plan that strongly addresses both growth and margin expansion.

Christopher Carey of Wells Fargo Securities asked if the current market slowdown warrants a re-evaluation of the company's focused portfolio strategy towards more diversification and questioned if Pacifico's growth could be further accelerated.

Answer

President & CEO Bill Newlands argued the portfolio has already diversified through innovations like Non-Alk, Oral, and Sunbrew, which attract new consumers. He confirmed Pacifico's strong performance, noting 50% of its growth is now outside California, and stated the company intends to 'put some fuel on the fire' to accelerate its national expansion.

Christopher Carey asked if the current market slowdown provides a reason to diversify the company's focused portfolio, and also questioned if the growth of the Pacifico brand could be further accelerated.

Answer

CEO Bill Newlands countered that the portfolio has already diversified significantly through innovation since the last Investor Day, citing Non-Alk, Oral, and SunBrew. He confirmed Pacifico's strong growth, with half now coming from outside California, and stated the company plans to 'put some fuel on the fire' to accelerate it further.

Christopher Carey requested details on the main drivers for gross margins in fiscal '26, asking to parse out the specific impact of tariffs versus other factors like currency, and whether any tailwinds are non-repeating.

Answer

CFO Garth Hankinson confirmed that FY26 guidance includes the impact of tariffs on aluminum cans. On currency, he explained the company uses a multi-year layered hedging approach and was over 70% hedged for FY26, having taken advantage of recent peso weakness to add incremental hedges for current and future years to smooth out year-over-year impacts.

Christopher Carey asked for more detail on where the significant price increases in the coffee portfolio would be applied. He also inquired about the expected cadence and drivers of the sequential improvement in the Sweet Baked Snacks business throughout the fiscal year.

Answer

CFO Tucker Marshall confirmed that pricing is being taken across the entire coffee portfolio in Q1 and Q2 to cover both commodity inflation and tariffs. He stated that the Sweet Baked Snacks business is expected to improve due to stabilization efforts, improved profitability from actions like a plant closure, and lapping easier comps in the back half of the year.

Christopher Carey sought confirmation on the fiscal '26 earnings growth outlook, asking if management was unsure *if* earnings would grow or just by *how much*. He also asked about coffee elasticity trends and the strong coffee margins in the quarter.

Answer

CFO Tucker Marshall reiterated that it was too early to call the FY'26 outlook but acknowledged the meaningful headwind from coffee costs. CEO Mark Smucker commented on coffee elasticity, noting at-home coffee remains affordable. He added that pricing aims to recover profit on a dollar-for-dollar basis, while margins are supported by other levers like hedging, formulation, and price pack architecture.

Christopher Carey sought to clarify the fiscal 2026 outlook, asking if management was unsure *if* earnings would grow or just by *how much*. He also asked for an explanation of the strong coffee margins and the comment that elasticities were better than expected.

Answer

CFO Tucker Marshall reiterated that it was too early to call the FY26 outlook due to the significant headwind from green coffee costs. CEO Mark Smucker explained that coffee's affordability supports consumption and that the company prices to recover profit dollars, using other levers like hedging and formulation to support margins, which contributed to the strong quarterly performance.

Christopher Carey asked how current Hostess trends and coffee inflation align with the company's aspiration for above-algorithm EPS growth in fiscal 2026 and inquired about the company's assessment of recent coffee consumption trends.

Answer

CFO Tucker Marshall outlined the framework for FY26 growth, including base business momentum, mitigation of stranded overhead, Hostess synergies, and debt paydown benefits, but noted it was too early for a specific outlook. CEO Mark Smucker commented that at-home coffee consumption remains strong and the company is focused on adapting its portfolio to meet evolving consumer preferences for different coffee formats.

Christopher Carey asked how the dynamics of improving Hostess trends and rising coffee inflation fit into the company's aspiration for above-algorithm EPS growth in fiscal '26. He also inquired about the current state of coffee consumption and category volumes.

Answer

CFO Tucker Marshall stated it was too early to give a specific '26 outlook but framed the key components as base business momentum, removal of stranded overhead, Hostess synergies, productivity programs, and reduced interest expense. CEO Mark Smucker commented that at-home coffee consumption remains strong, with 70% of cups consumed at home, and the company is focused on shifting its portfolio to meet consumer demand across different formats.

Christopher Carey asked about the drivers for the expected Q2 gross margin weakness, specifically the role of coffee inflation. He also sought to identify bright spots in market share performance, noting that recent data has been challenging to interpret.

Answer

Executive Andre Maciel attributed the Q2 gross margin pressure to a step-up in summer promotional activity, significant hedge losses, and peak commodity costs, leading to an expected double-digit decline in Q2 operating income. CEO Carlos Abrams-Rivera identified bright spots in 'ACCELERATE' businesses and innovations like their Mexican food strategy, stating the foundational improvements are not yet fully reflected in results.

Christopher Carey asked about the drivers for the expected Q2 gross margin weakness, particularly the role of coffee inflation, and also inquired about any market share bright spots in the portfolio.

Answer

CFO Andre Maciel attributed the expected Q2 gross margin pressure to three factors: increased summer promotional activity, significant hedge losses that will roll off in Q3, and peak commodity inflation. CEO Carlos Abrams-Rivera identified bright spots in the year-to-date progress of 'ACCELERATE' platforms and the continued double-digit growth of its newer Mexican food strategy.

Christopher Carey from Wells Fargo & Company inquired about the drivers of the expected Q2 gross margin weakness and asked for any "bright spots" in market share performance.

Answer

EVP & Global CFO Andre Maciel attributed the Q2 margin pressure to higher promotions, hedge losses, and peak commodity costs, forecasting a double-digit operating income decline. CEO Carlos Abrams-Rivera highlighted bright spots in accelerated platforms, Philadelphia cream cheese, and the company's Mexican food strategy, which is growing double-digits.

Christopher Carey inquired about the favorable commodity procurement and whether the company was tracking ahead of its inflation expectations. He also asked about the strategy for reinvestment versus pricing if cocoa costs were to decline.

Answer

CFO Luca Zaramella confirmed the company was opportunistic in procuring some minor commodities and extended foreign exchange coverage. He described a potential drop in cocoa prices as 'Nirvana,' explaining that the company would prioritize reinvesting savings back into the business to drive long-term growth and protect gross profit dollars per kilo, rather than immediately reducing prices.

Christopher Carey asked about the company's flexibility to use productivity measures to respond if cocoa costs worsen. He also inquired about the underlying business trends in Latin America, where volume has decelerated, and the source of management's optimism in China.

Answer

CFO Luca Zaramella explained that the company has significant flexibility, with a large portion of 2025 cocoa needs covered through collars that allow participation in price declines while protecting the upside. He also noted flexibility in pricing plans. CEO Dirk Van de Put addressed Latin America, stating the volume slowdown was largely concentrated in Mexico due to pricing adjustments, while Brazil remains strong. His optimism on China stems from strong company performance, government stimulus policies boosting consumer sentiment, and distribution gains.

Christopher Carey asked if the company is pulling forward future savings from its multiyear productivity program and questioned the decision to absorb tariff costs rather than pass them on, probing if this reflects a difficult retail environment.

Answer

CEO Michael Hsu explained that absorbing the tariff cost is a strategic choice, as the optimal long-term solution is re-optimizing the supply chain, not taking price in a way that would make them uncompetitive against locally-sourced rivals. CFO Nelson Urdaneta added that while the productivity program is running strong, they are not yet raising the multiyear $3 billion target, though they are encouraged by the progress to date.

Christopher Carey asked how the new organizational structure, effective October 1, aligns with the expectation for decelerating category growth. He also questioned if the muted Q4 operating profit outlook was a discretionary decision to increase investment.

Answer

CEO Michael Hsu stated that the new organization has been operating informally for months and is already driving benefits. He acknowledged category growth may slow to around 2% but noted underlying drivers remain healthy. CFO Nelson Urdaneta confirmed that Q4 operating profit will be impacted by a planned step-up in advertising and brand support of at least 60 basis points, as well as other discretionary costs, as the company invests for growth.

Christopher Carey questioned the gross margin phasing for 2025, the durability of high freight rates, and the reason for a mid-teens growth outlook when recent consumption trends are over 20%. He also sought to confirm if current scan data already reflects headwinds from the Walmart reset.

Answer

CEO Martin Roper and Executive Michael Kirban explained that gross margins are expected to be stronger in the second half of 2025 as elevated ocean freight costs from the prior year flow through in the first half. They expect freight rates to be higher in 2025 than 2024 but anticipate some normalization. Roper confirmed the strong 13-week scan data already includes the Walmart headwinds and that the company's guidance is based on more conservative, long-term trends rather than short-term accelerations.

Christopher Carey asked for details on the Q4 gross margin outlook, questioning the wide implied range and what the exit rate suggests for 2025. He also asked about the flexibility of the SG&A structure to protect profitability amid margin volatility.

Answer

CFO Corey Baker and CEO Martin Roper attributed the Q4 gross margin pressure to a spike in ocean freight costs from the summer flowing through the P&L. They noted that while rates are declining from their peak, they remain significantly above historical averages, posing a potential headwind for 2025 if they persist. They expressed confidence in managing this volatility within the raised full-year EBITDA guidance, stating SG&A has limited flexibility this late in the year.

Christopher Carey asked about the long-term nature of Newell's portfolio simplification, questioning if the revenue headwinds from divestitures will be an ongoing part of the story. He also inquired about the company's visibility into category growth forecasts and its strategies for managing potential volatility.

Answer

CEO Christopher Peterson stated that 2025 is likely the end of the significant portfolio cleanup dynamic, having reduced brands from 80 to 55, with a target of around 50. He does not expect the 1-point headwind from exits in 2025 to be a factor in 2026. On category growth, he explained their forecast for 'about flat' growth in 2025 is based on triangulating multiple data sources and that their 2024 forecast proved accurate.

Christopher Carey of Wells Fargo Securities asked if the sequential sales improvement was due to the end of the post-COVID demand normalization cycle and questioned the company's preparedness for potential tariff risks related to the election. He followed up on the sustainability of profit improvement if revenue growth remains uneven.

Answer

CEO Christopher Peterson confirmed the end of the COVID pull-forward is a positive factor, along with market share gains. He stated the company is well-positioned for tariff risks, having reduced China sourcing for U.S. sales to under 15% of COGS. He expects profit improvement to continue, driven by strong productivity, though not at the recent 22% EBITDA growth rate. CFO Mark Erceg added that future volume growth would have very attractive marginal economics.

Christopher Carey of Wells Fargo Securities inquired about the underlying health of the Global Pet Care business, asking about a $10 million sales pull-forward, challenges from its premium positioning amid private label growth, and overall visibility. He also followed up on the Home & Garden segment, seeking clarity on comments about potential inventory carryover and slower retailer ordering in early fiscal 2025.

Answer

CFO Jeremy Smeltser confirmed the $10 million GPC sales pull-forward would reverse in Q1 and acknowledged that the segment's premium brands face headwinds in the current economy. For Home & Garden, he explained that major retailers anticipate a cooler start to spring, which could slow initial orders, but a normal weather season should still yield low single-digit growth. Chairman and CEO David Maura added that the company is actively investing in national ad campaigns for brands like Good 'n' Fun to compete with private label and that the Pet segment started fiscal '25 ahead of expectations.

Christopher Carey from Wells Fargo Securities asked for an outlook on the European business, specifically how Kellanova views its exit rate and the balance between pricing and volume, given upcoming innovation like Cheez-It. He also followed up on whether North American pricing would remain negative.

Answer

Chairman, President and CEO Steven Cahillane expressed confidence in Europe's back-half growth despite a tough environment, citing strong activation plans and high excitement for the Cheez-It launch in the U.K. Regarding North America, he clarified that pricing is rational and the negative year-over-year comparison is due to lapping a period of low promotional activity. He expects a healthy balance of price, mix, and volume in the second half.

Asked about the source of 2023 market share erosion (core business vs. unsupported innovation), the current competitive landscape for pricing and promotions, and specifically about competitive activity in the Eggo business.

Answer

The share erosion was primarily due to unsupported innovations (like Cheez-It Snap'd and Puff'd) as the company focused on core supply, not a deterioration of the core brands. Brand health remains strong. The competitive promotional environment is returning to pre-pandemic frequency but not depth, and is considered benign and stable.