Procter and Gamble (PG) Earnings Report: Q2 2015 ...s.t.st/media/xtranscript/2015/Q3/13239129.pdf · The following Procter and Gamble conference call took place on July 30, 2015,

CompanyName:Procter&GambleCoCompanyTicker:PGSector:ConsumerGoodsIndustry:ConsumerNon-Durables

EventDescription:Q22015EarningsCallMarketCapasofEventDate:217.66BPriceasofEventDate:77.39

©2014TheStreet,Inc.Al l R ightsReserved Page1of23

ProcterandGamble(PG)EarningsReport:Q22015ConferenceCallTranscriptThefollowingProcterandGambleconferencecalltookplaceonJuly30,2015,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JonMoeller;ProcterandGambleCompany;CFOA.G.Lafley;ProcterandGambleCompany;Chairman,CEO,President

OtherPart icipants

JohnFaucher;JPMorgan;AnalystOliviaTong;BofAMerrillLynch;AnalystStevePowers;UBS;AnalystLaurenLieberman;BarclaysCapital;AnalystBillSchmitz;DeutscheBank;AnalystDaraMohsenian;MorganStanley;AnalystChrisFerrara;WellsFargoSecurities,LLC;AnalystJavierEscalante;ConsumerEdgeResearch;AnalystAliDibadj;SanfordC.BernsteinandCo.;AnalystJoeAltobello;OppenheimerandCo.;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator:GoodmorningandwelcometoProcter&Gamble'squarter-endconferencecall.Today'sdiscussionwillincludeanumberofforward-lookingstatements.IfyouwillrefertoP&G'smostrecent10K,10Qand8Kreports,youwillseeadiscussionoffactorsthatcouldcausetheCompany'sactualresultstodiffermateriallyfromtheseprojections.

AsrequiredbyRegulationG,P&GneedstomakeyouawarethatduringthecalltheCompanywillmakeanumberofreferencestonon-GAAPandotherfinancialmeasures.Managementbelievesthesemeasuresprovideinvestorsvaluableinformationontheunderlyinggrowthtrendsofthebusiness.

Organicreferstoreportedresultsexcludingtheimpactsofacquisitionsanddivestituresandforeignexchangewhereapplicable.Adjustedfreecashflowrepresentsoperatingcashflow,lesscapitalexpendituresandexcludingtaxpaymentsforthepetcaredivestiture.

AdjustedfreecashflowproductivityistheratioofadjustedfreecashflowtonetearningsadjustedforimpairmentchargesandVenezuelacharges.AnymeasuredescribedascorereferstotheequivalentGAAPmeasureadjustedforcertainitems.CurrencyneutralreferstotheequivalentGAAPmeasureexcludingtheimpactofforeign-exchangeratechanges.

P&Ghaspostedonitswebsitewww.pg.comafullreconciliationofnon-GAAPandotherfinancialmeasures.NowIwillturnthecallovertoP&G'sChiefFinancialOfficer,JonMoeller.

JonMoeller:Goodmorning.Asyouknow,earlierthisweekweannouncedthatDavidTaylorhadbeenelectedandappointedasthenewChiefFinancialOfficeroftheCompany,whichbecomeseffectiveNovember1.Sorry,ChiefExecutiveOfficer.




AndsojoiningmethismorningisA.G.Lafley.I'mgoingtostartadiscussionwithareviewofthefiscalyearandfourthquarterresults,thenA.G.willdiscussourbusinessstrategyandongoingmovestotransformtheCompany,andIwillclosewithguidanceforFY16.

Onereminderbeforewebegin,unlessnotedotherwise,theorganicsalesandcoreearningsresultswe'rereportingtodaycontinuetoincludethebeautycategoriesthatwe'reintheprocessofexiting.

TheresultsofthesebusinesseswillbereportedasdiscontinuedoperationsstartingwiththefirstquarterofFY16.InSeptemberwewillprovideaninformational8Kpresentinghistoricalresultsofthesebusinessesasdiscontinuedoperations.

Anotherimportantaccountingitemtopointoutbeforewegetstartedisthedecisionwe'vemadetomovefromconsolidationaccountingtocostmethodaccountingforVenezuelainourGAAPfinancialstatements.WhilethisdecisioniseffectiveforperiodsbeginningJuly1,itentailsaone-timenon-corewrite-downoffixedassets,cashandreceivablesofabout$2.1billionor$0.71persharethatisreflectedourfourth-quarter2015numbers.WewerecommittedtocontinuetoserveVenezuelanconsumers.Thechangewe'vemadetoouraccountingsimplyreflectsourcontinuedinabilitytoconvertcurrencyorpaydividends.

Nowontoourdiscussionof2015results.Weaccomplishedfourthingsin2015.First,wedeliveredstrongdouble-digitconstant-currencycoreearningspersharegrowthandverygoodfreecashflowproductivity,over100%onmodesttop-linegrowth.

Second,wecontinuedtomakestrongproductivitygainsacrosstheboard,incomestatementandbalancesheet,withmanymoreopportunitiesstillinfrontofus.

Third,welargelycompletedthereshapingofourportfolioinlessthanoneyear,refocusingon10categoriesand65brandsthatbestleverageourcorecompetencieswithleadingglobalpositionsandhistoricallysuperiortop-andbottom-lineperformance.Thispositionsusovertimeforstrongertop-andbottom-linegrowth.

Fourth,wecontinuedtoinvestinourfutureandmorededicatedsellingresourcesandproductinnovationandbrandbuilding,andintransformingoursupplychain.Forthefiscalyearorganicsalesgrew1%.Excludingthebusinesseswe'reintheprocessofexiting,organicsalesgrew2%.All-insalesweredown5%,includingthe6-pointheadwindfromforeignexchange.

Whenwehadtomakechoicesbetweenthetopandbottomline,forexample,thepriceforforeigncurrencyratherthanshiftvolumeatanegativegrossmargin,ortocontinueonprofitablenon-strategicproductlineswe'vedeliberatelyplacedemphasisondrivingvaluecreationandcash.Coreoperatingmarginwas19.3%,inlinewiththeprioryeardespitea130-basispointchallengefromforeignexchange.

Onaconstantcurrencybasis,coreoperatingmarginwasup[130]basispoints.(technicaldifficulty)Productivitysavingscontributedapproximately330basispointstocoreoperatingmarginexpansionfortheyear.

Coregrossmargin,includingforeignexchange,grew30basispoints.Onaconstant-currencybasiscoregrossmarginwasup80basispoints.Wedeliveredthismarginprogresswhilemakingimportantinvestmentsinthebusiness.

AsImentionedearlier,we'veincreasedinvestmentsinsalescoverage.We'reinvestingininnovation,intheupstreaminnovation,pipelineandbehindrecentlaunches,Pods,beadsPampersPants,GilletteFlexBallandVenusSwirl,launcheswhichbothcreateandbuildmarkets.

We'reinvestingthesupplychain,includingthestart-upofsixnewUSmixinganddistributioncenters.We




investedinanewbusiness,withourmarket-expandingentryintotheadultincontinencecategory.

Coreearningspersharefortheyearwere$4.02,down2%versustheprioryear.Thisincludesa13-pointheadwindfromforeignexchange,over$1.5billionaftertax.

Onaconstant-currencybasiscoreearningspersharegrewatadouble-digit11%rate.Onanall-inGAAPbasisearningspersharewere$2.44.(technicaldifficulty)Thisincludesnon-corerestructuringcosts,batterybusinessimpairmentchargesandtheVenezuelacharge.

Wecontinuetobeoneofthestrongestcashgeneratorsamongcompetitivepeersandcomparablemegacapcompanies.Wegenerated$11.6billioninadjustedfreecashflowwith102%adjustedfreecashflowproductivity.

Increasingourdividendforthe59thconsecutiveyearandreturning$11.9billionincashtoshareholders.$7.3billionindividendsand$4.6billioninsharerepurchase,105%ofadjustednetearnings.

Overthepastfiveyearswe'vereturned$60billiontoshareholders,$12billionayearonaverage.Andintendtopaydividends,retireandrepurchasesharesworthupto$70billionoverthenextfouryears.

Twoimportantdriversofourstrongcashgenerationhavebeenareductioninpayablesforthebroaderimplementofoursupplychainfinancingprogramandourworktoreduceinventorylevels.Inventorydaysonhandaredownfivedaysonaconstant-currencybasis,sevendaysallin.

Movingfromthefiscalyeartothequarter,organicsalesgrewmodestly,roundingdowntoalevelthatwasequaltotheprioryear.Organicsalesofour10coreproductcategoriesgrew1%.ThequarterwasalsoheavilyimpactedbyafullpointfrommarketdynamicsinRussia.All-insalesweredown9%,includinga9-pointheadwindfromforeignexchange.

Coregrossmarginandcoreoperatingmarginbothimprovedonbothanall-inandex-currencybasis,drivenbyproductivitysavings.Coregrossmarginincreased110basispointsfortheyear.Excludingforeignexchange,coregrossmarginwasup130basispoints.

Costsavingsofapproximately220basispoints,pricingbenefitsof140basispoints,and40pointsforlowercommoditycostsmorethanoffset170pointsofmix.CoreSG&Acostasapercentageofsalesincreased10basispoints,as130basispointsofproductivitysavingsweremorethanoffsetbyreinvestmentsanddedicatedsalescoverageandinourinnovationpipelinebyforeignexchangeandotherimpacts.

Coreoperatingmarginwas18.1%,up90basispointsversustheprioryear.Onaconstantcurrencybasiscoreoperatingmarginwasup130basispoints.Productivitysavingscontributed350basispointstomarginexpansionforthequarter.

Non-operatingincomewas$300millionaboveyearagolevels,drivenbygainsfromminorbranddivestitures.Thecoreeffectivetaxratewas19%forthequarter,21%forthefiscalyear,consistentwithouroutlook.

Coreearningspersharewere$1,up8%versustheprioryear.Thisincludesa14percentagepointforeignexchangeheadwind,roughly$370millionaftertax.Onaconstant-currencybasiscoreearningspersharegrew22%.Excludingthenon-operatingincomegainsversuslastyear,constant-currencycoreearningspersharewasup12%forthequarter.Onanall-inGAAPbasisearningspersharewere$0.18forthequarter.Thisincludes$0.07ofnon-corerestructuringcosts,$0.04ofearningslossfromdiscontinuedoperationsandthe$0.71pershareVenezuelacharge.

Wegenerated$2.9billioninadjustedfreecashflow,yielding106%adjustedfreecashflowproductivity.




Thestrongconstant-currencyearningsgrowthandcashflowhasbeendrivenbyourprogressonproductivity.

AsofJuly1we'vereducednon-manufacturingoverheadrolesby22%,morethandoubletheoriginaltargetsetinFebruary2012,andayearearlierthanplanned.We'recurrentlytargetinga25%to30%cumulativereductionbytheendofFY17.Thisexcludesrolereductionsfromdivestedbusinesses,whichwouldincreasethisfiguretoover35%.

Wegenerated$1.5billionofcostofgoodssavingsinFY15,contributing200basispointsofgrossmarginimprovement.Weimprovedmanufacturingproductivityby5%,bringingcumulativepass-throughyearmanufacturingenrollmentreductionsto15%.

Thisincludesnewstaffingnecessarytosupportcapacityadditions.Onasame-sitebasis,manufacturingenrollmentisdownnearly20%overthepastthreeyears,enabledbytechnologyandourintegratedworksystemsapproach.

We'restillintheearlyphasesofoursupplychaintransformation.InFY15wecompletedtheconstructionandstart-upofsixnewdistributionandmixingcenters,allonoraheadofscheduleandunderbudget.Weexpecttocompletetheconversionoutofourlegacylocationslaterthiscalendaryear.

Weannouncedtheconstructionofanewmulti-categorymanufacturingfacilityinWestVirginiaandamajorexpansiontoanexistingmanufacturingsiteinUtah.Severalplantclosureswerealsoannounced,allearlystepsinthere-sitingandre-platformingofourNorthAmericanmanufacturingsystem.

We'retakingsimilarstepsintheEuropeansupplychain.WeannouncedtheconsolidationofdistributioncentersinFranceandtheUK,andconsolidationofmanufacturingforsomehomecareproductsinourplantinItaly.

Wecontinuetoseea$1billionto$2billionvalue-creationopportunityfortheglobalsupplychainreinventioneffort.We'retargetingtobuildovertimetoannualsavingsof$400millionto$500millionandareexpectingadditionaltop-linebenefitsfromcustomerserviceenhancementsandreductionsofidlestocks.

Marketingspendingisanotherareawherewearedeliveringmore,greaterreach,higherfrequency,moreadvertisingforlessoverallcost.Thesavingsarecomingprimarilyfromnon-workingmarketingspend.Oneexamplearethefeesandproductioncostsforagenciesweuseforadvertising,media,publicrelations,packagedesignanddevelopmentofin-storematerials.

We'resimplifyingandreducingthenumberofagencyrelationships,whileupgradingagencycapabilitytoimprovecreativequalityandcommunicationeffectiveness,allatalowercost.OuroverallagencycostsinFY15weredownabout15%versustheprioryear.

InBrazilweconsolidatedagenciesanddelivereda50%reductioninspending.InUShaircarewereducedthenumberofshopperandconsumermarketingagenciesbyathirdandloweredtotalagencyspendingby20%.Inanotherbeautycategoryweconsolidatedtoasingleglobalagencyfordigitalmarketing,reducingspendingfortheseservicesbymorethan75%.

Intotal,wereducedthenumberofagenciesbynearly40%andcutagencyandproductionspendingbyabout$300millionversustheprioryear.Heretoo,thereismoresavingsaheadofus.Mostofthiswillbereinvestedinstrongeradvertisinggrowth.

Movingfromproductivitytoportfolio,asImentionedattheonset,we'vemadeexcellentprogressonplanstostrengthenandfocusourbusinessandbrandportfolio.OnthiscalllastyearwesaidweweretargetingtobecomeaCompanyofaboutadozenproductcategoriescomprisedof70to80brandsover




atwo-yearperiod.AttheCAGNYConferenceinmidFebruaryweupdatedplanstofocuson10productcategoriesandabout65brands.

WiththebeautybrandsmergerwithCotyannouncedearlierthismonth,wehaveessentiallycompletedthestrategicportfolioreshaping.We'vecompletedthedecision-making,negotiationandcontractingworkonbusinessesthatrepresent95%ofin-scopesalesandessentiallyallofthein-scopeprofit.

Atthecloseofthebeautybrandsmergerayearorsofromnow,wewillhavefocusedourportfolioon10categoriesand65brandsthatbestleverageourcorecompetencies.Wehaveleadingglobalpositionsinthesecategories,theconsumer-preferredproductsandleadingbrandsinthelargestmarkets.Thesebusinessesandbrandshavehistoricallygrownfasterandhavebeenmoreprofitablethanthebalance.

Aswe'reabletofocusallofourenergyontheseleadingbusinesses,whichbenefitfromourcorestrengths,andasweinvestproductivitysavingsandprofitablegrowth,weexpecttoimprovebothtop-andbottom-lineperformance.Withthat,I'llturnitovertoA.G.

A.G.Lafley:Thankyou,Jon,andgoodmorning,everyone.Thismorningwe'regoingtotalkaboutthechoiceswe'vemade,aremaking,andwillcontinuetomake,todrivegrowthandvaluecreationasmeasuredbyoperatingtotalshareholderreturn.

Everychoicewetake,everymovewemake,isintendedtoaccomplishoneofthreethings:increaseshopperandconsumerpreferenceforP&Gbrandsandproducts;improveoperationaleffectivenessandexecutionalexcellence;developedmorebalanced,reliable,sustainablegrowthandvaluecreation.

WearerebalancingandrefocusingthisCompanytoreinvigorateitandaccelerategrowthandvaluecreation.Wehavezero-basedgoalsandstrategies,theorganization,morecapabilitiesandthesystemsrequiredtowin.

AtP&Gwearesuccessfulwhenwewinwithshoppersandconsumers,whenweprovideconsumer-preferredbrandsandproductsthatbecomeleadingvaluecreatorsintheircategoriesofbusiness.Thebestmostbalancedandintegratedmeasureofvaluecreationisoperatingtotalshareholderreturn.

AfoundationbuildingblockofOTSRisoperatingcashflow.Cashisthefinanciallifebloodofanycompany.Strongcashflowenablesbothreinvestmentinthebusinessandsignificantreturnstoshareowners.

Thesecondbuildingblockisoperatingmarginandprofit.Ouroperatingmarginshavebeguntoimprove.Theyshouldcontinuetoimproveaswemoveintothe10corecategory,65brandportfolio,andaswecontinuetodeliverasteadystreamofconsumer-preferredproductinnovationandconsistentproductivitysavingsthroughtheendofthisdecade.

Thethirdandlastbuildingblockisnetsalesgrowth.Ourresultshereobviouslyhavebeenmixed.Butwearemakingsteadyprogressinmostofthecorebusinessunitsandwehavedetailedimprovementandgrowthplansinplaceforthebalance.Muchofthesalesgrowthisaheadofus.

Wehaveastronglineupofnewandimprovedproductsthatarecomingtomarketoverthenextone,twoandthreefiscalyears.Webelievemoreoftheresultingsalesgrowthwillbesustainable.Andwearelearningthatbigobviousconsumer-meaningfulproductinnovationscancontinuetogrowsalesprofitablyforthree,five,sevenandmoreyears.

ThestrengthofOTSRisit'sactionability.Ithelpsusprioritizebusinessstrategychoices,translatethosechoicestobusinessbuildingblocksandactionplansthatcanbeexecutedonacategoryandbrand,countryandcustomer,orevenmanufacturingplantsalesrepordistributorbasis.OperatingTSRcorrelateswithmarketTSRovertimeandalignstheinterestsofemployeesandshareowners.




Thequestionforanycompanyisnotwhatbusinesseswearein,butwhatbusinessesshouldwebeinfortheforeseeablefuture.AsJonsaid,wechose10category-basedbusinessunitswhereP&Ghasleadingmarketpositions,strongbrandsandconsumer-meaningfulproducttechnologiesfromwhichwecangrowandcreatevalue.

Baby,feminineandfamilycare,fabricandhomecare,hair/skingrooming,oralandpersonalhealthcare.These10categorieshavebeengrowing50to100basispointsfasterthanthetotalCompany.Theiroperatingmarginsareupto100basispointshigher.Theirsalesandprofitsarehighlyconcentratedinafewbigcountriesaroundtheworld,whichmakesthecurrentbusinesseasiertooperate.

Yeteverybusinessunit,everycategory,stillhassignificantvaluecreationopportunityinbothourhomeUSmarketandotherbigdevelopedmarkets,GermanycutJapan,etal.Andingrowingdevelopingmarkets,thebrickcountries,Mexico,Turkey,etal.MarketswhereP&Ghasbeencontinuallyimprovingitsposition.

ThesecategoriesandbrandswillcontinuetoplaytoP&G'scorestrengths,shopperandconsumerunderstanding,brandbuildingandproductinnovation,productivityandgo-to-marketexecution,andleveragingwhereappropriateandwhereitmakessense,thescaleandscopeoftheCompany.Ascategoryleaders,wehavetheresponsibilitytocreate,occasionallytransformandbuildthesecategoriesyearinandyearout.

Abouttwo-thirdsofallsalesgrowthcomesfromcategorygrowthandabouthalfofthatisdrivenbythemanufacturer.Thatisus.Thebalanceone-thirdcomesfromsharegrowthandM&A.

Iwanttotakeafewminutesthismorningtoreportwherewestandineachofthe10categorybusinessunits.First,baby,feminineandfamilycare.Afteradrop-offinperformance,bothbabyandfamilycaredeliveredsoliddouble-digitOTSRresultsinFY15.Infemininecare,asyouknow,wehavedecidedtoinvestintheAlwaysDiscreetentryintotheincontinencecategory.

FamilycareisanexcellentexampleofbalanceddisciplinedapplicationofOTSR.It'sabigimportantNorthAmericanbusinessthatgotbackonitsprovenbusinessmodelandcontinuedtoimprovestructuraleconomics,whilegrowingsalesandmarketsharecustomersrepresentingmorethan90%insalesandprofits,andfocusingontheprofitablepremium-tiertissuebusinessinMexicowhiledeemphasizingconventionallower-valuetissueproducts.

WithleadingbrandslikeBountyandCharmin,consumer-preferredproductinnovationcomingtomarketthissummerandearlynextcalendar,builtonP&G'suniqueandproprietarytechnologyandanoperatingdisciplinethatrelentlesslydrivesoutcostsandkeepstheconsumervalueequationcompetitive,weexpectanothersolidperformanceinFY16.

Babyandfemcareresultshavebeenmoremixed.VerystronginNorthAmericawherehalfofworld-wideprofitismade,mixedinEurope,weakinChina.PampersandAlwaysbrandsareleadersinthesecategorieswithstrongequities,householdpenetrationthat'sgrowingandstrongnetpromoterscores.

Thefocusinbabyandfemiswinningwithconsumer-preferredproductinnovation.Thesearecategorieswhereconsumersnoticeandexpectperformancewitheverysingleproductusageexperience.We'veinvestedsignificantlyinR&D,newplantsandequipment,andwillbeinvestinginproductsamplingandtrial,marketing,sellingandsourcingasweaccelerateconsumer-preferredbetter-performingproductstomarket.

Thenext-generationofPampersPantsandthepremiumdiaperlinearegoingtomarketinChinaandtheUSaswespeak.Achievingthesameshareofthefaster-growingpantssegment,aswehaveontapeddiapers,overthenextfewyearscouldbeworthasmuchas$2billionto$3billioninsalesovertime.Over




thenextonetotwoyearstherewillbeasteadydrumbeatofproductupgradesacrossPampersandLuvsinNorthAmerica,AlwaysandAlwaysDiscreet,everyoneofthemconsumer-preferred,severaluniqueandproprietary.

Wecontinuetobeencouragedbytheprogresswe'remakingonAlwaysDiscreet.Categorygrowthhasaccelerated50%to100%to10%-plusgrowthratesintheUS,UKandFrancefromalaunchlessthanayearago.Discreet'ssharehasreached7%to9%inthesemarkets.

Importantly,wearetrackingnewwomentothecategory.Recallwomenarenotsatisfiedwithcurrentproductofferingsthatdon'tworkverywell.DiscreetpadsandpantsdeliverbetterfitandsignificantlybetterprotectionfromanAlwaysbrandwomentrust.

Productratingsandreviews,productusagesatisfactionandrepeatratesareallstrong.Withstillanampleawarenessandtrialopportunityaheadofus,wewillcontinuetoinvestinmarketingsalesandconsumer-preferredproductinnovationinthisnewcategory.

FabricandhomecarehasbeenataleoftwocitiesfromoperatingTSRstandpoint.Homecare,Duracellandour$1billionB2Bprofessionalproductsbusinesshavealldeliveredstrongvaluecreationfornowseveralyearsinarow.

WeexpectthistocontinuebecauseeachcategorycontinuestoadaptprovenbusinessstrategiesandmodelsandoperateswithdisciplinetodeliverbalancedgrowthandvaluecreationacrossallthreeOTSRdrivers.

InFY15modestsalesgrowthandstrongprofitgrowthandcashproductivityresultedinanotherverysolidyearforhomecare.Wecarefullypickourspotsinthehomecarecategoryandsegments.Wehaveleadingbrandsandconsumer-preferredproducts.Wecontinuetostrengthenmarketingandsellingfundamentalswhileweimproveproductivityandstructuraleconomics.

Duracell,inayearofsignificanttransformationaswestandupanindependentcompanywithMarmonandBerkshireHathaway,deliveredafourthconsecutiveyearofstrongoperatingTSRandmarketsharegrowth,whiledivestingthemorecommodity-likelow-tierbatterybusinessinChina.

P&Gprofessionalisveryafocusedjewelthatdelivereditssixthstraightyearofstrongindustry-leadingOTSRresults.PGPhasauniqueandprovenbusinessmodelthatdeliverssuperiorserviceandvaluetoitscustomersanddeliversconsistentlyforshareowners.

Fabriccarehaschallengingaswe'vetalkedbecauseitisinvolvedinasignificanttransformationofstrategyandbusinessmodel,capabilitiesandoperations,andexecutionacrossanumberofimportantmarketsstartingwiththeUS,thelargestandmostprofitablemarketintheworld,wherewehavehadtogetthecategorygrowingagainandrekindlehouseholdpenetrationandsharegrowth.We'vegottenthestrategybackinbalance,sharpenedourbusinessmodel,andhavebeenoperatingwithconsistencyandexcellence.

Weexitedonattractivesegmentslikebleach,andprofitablelaundryadditives,sheeplowtierpowders.Weinvestedsignificantlyinconsumer-preferredproducts.We'veconstructednewmanufacturinginthelasttwoyearstoenabletheexpansionofpremiumproductslikepodsandbeadsandconcentratedheavy-dutyliquids,notonlyfortheUS,Europe,andJapan,butalsoforbigdevelopingmarketslikeChinaandBrazil.

We'vestimulatedcategorygrowthintheadjacentfabricconditionercategory,thefastest-growinghouseholdproductscategoryoverthelasttwoyears,asreportedbyKantar.AndwehavegrownsharebehindtheDownyandLenorbrandequitiesandinnovativenewproducts.




Withleadingbrands,TideandGainandAriel,DownyandLenor,consumer-preferredproductsandmuchmorerobuststructuraleconomics,we'relookingforwardtomorebalancedandmoreconsistentgrowthandvaluecreationinfabriccarestartingthisyear.

Thesesegmentshelpgroomingandbeauty--thesesegments,againaswe'vetalked,aretaleofthreecities.OralcaredeliveredanotherstrongyearofOTSRbehind4%organicsalesand10%profitgrowth,withstrongcashproductivity.Oralcarehasevolvedsuccessfullytoawell-differentiatedbusinessstrategyandit'sbeensteadilyimprovingstructuraleconomics.

We'veclearlydefinedthestrategicrulesforCrestandOral-B.We'veexpandedOral-Btoothpasteintoover40countriesandcontinuetogrowthisbusinessbyover20%initssix-yearsincelaunch.We'vecreatedtwostrongpremium-pricedpropertiesinPro-Healthand3DWhite,eachnowabove$1billioninsales.WejustlaunchedCrestPro-HealthHDintheUS,auniqueandproprietarysuper-premiumtwo-steptoothpastesystemthatisofftoaverystrongstart.

Wehaveanotherstrong$1billiondollarbusinessinOral-Bpowerbrush,whichgrewdoubledigitsinFY15andactuallydoubledoffarelativelysmallbaseinChina.Thereisstillalotofupsideinthepowerbrushsegment,ashouseholdpenetrationisverylow.We'redevelopingabusinessmodelthatdrivesconsumertrialandacceleratesOral-Bgrowth.

PersonalhealthcarehasevolvedtoaveryfocusednicheplayerinOTC.ItturnedinanotherverysolidyearofoperatingTSRbehind4%organicsalesand5%profitgrowth,andagain,strongcashproductivity.

Next,our$1billionOTCbrandgrewsalesdoubledigits,andprofitastrongdoubledigits,behinditspremium-pricedcough/coldproductline,Severe.AndthenourWellnessinitiativegrewsales15%andsignificantmarketshareinournewVMSbrand,NewChapterandSwissearebothofftoagoodstartinleadmarkets.

Thegroomingbusiness,asyouknow,isundergoingsignificantchange,thebiggestofwhichmaybeconsumerhabitsandpractices.Thisisnolongerjustafacialshavecarebusiness,it'sbecomingabroadergroomingbusiness,faceandbody.Butstillthevastmajorityofsalesandprofitsareinshaving.

GroominghadachallengingyearduetounprecedentedFXimpacts,significanttradeinventorydestocking,especiallyineconomicallychallengedcountrieslikeBrazilandRussia,changesingroomingfashionsandhabitsandthecontinuinggrowthofonlinecompetitorsinsomemarketsliketheUS.

Despitethechallenges,GilletteekedoutmodestsalesandsharegrowthandbegantostimulatemorecategorygrowthbehindtheGilletteFlexBallandVenusSwirlconsumer-preferredproductinnovations.Bothareofftoastrongstartandcontinuetorolloutaroundtheworld.

InthefirstyearinNorthAmericaalone,15millionmenhavetriedaFlexBallrazor.Gillette'sonlineshaveclubisofftoaverygoodstart.We'rebuildingpartnershipswithe-tailersandretailerswhoareofferingtheirshopperssubscriptiontie-instotheGilletteShaveClub.

Importantly,wearehelpingretailcustomersmoveoutoflockboxesonshelvesandatcheckoutandintomuchmoreshopper-friendlycostandshrinkeffectivehardtags.Thisinnovativein-storesolutionisbetterforshoppersandforretailers.Andinthefirstseveralhundredstores,it'ssignificantlyimprovingin-stockandsalesoff-take.We'llberollingouthardtagsasfastaswecanintheyearaheadwithourretailpartners.

Finally,wecontinuetore-platformmanufacturingtosignificantlyimproveproductivityandacceleratetheexpansionofnewproductinnovation.We'vealreadyannouncedandwebeganshippingthenextmajornewcartridgeinnovationonGilletteformeninJanuary2016.




Turningtohaircare.We'verepositionedhaircareforgrowth.Asyouknowweareexitingthesalonserviceandretailcolorantsbusinesses.We'vesoldoffsmallnon-strategicbrandslikeFekkaiandWash&Go.We'veinvestedsignificantlyinproductinnovationandtechnology,brandbuildingandsales.Andwehave,importantlyinabigway,strengthenedthestructuralcostsandcashproductivityofthisbusiness.

Haircarehadachallengingyearbutprogressisbeingmade.Head&Shouldersgrewglobalorganicsalesmidsingle-digitsforthe20thyearinarow,andcontinuedtobuildprofitandcash,valuecreation.Pantenemodestlygrewsalesworldwidebutimportantlydelivered4%salesandmodestmarketsharegrowthintheUSforthefirsttimeinseveralyears.Pantene'sthreeminutemiracleconditionerproductinitiativeisbeingexpandedrightnow.

Moreimportantly,onceinadecade,newshampooandconditionerproductinnovationsbuiltonuniqueandproprietarytechnologieswillbegintogotomarketthissummer,andcontinuetoexpandaroundtheworldoverthenexttwoyearsonPantene,Head&Shoulders,andasappropriate,onthelocalandregionalbrandsintheportfolio,likeHerbal,Vidal,etal.

P&G'sremaininghaircareportfolioconsistsofbrandswithrealconsumerequity.Thesebrandswillnotonlybenefitfrombetter-performingproducts,butalsofrommorefocus,betterpackaging,marketingandsalesexecution.Assalescontinuetopickup,theOTSRleveragewillbesignificantwithoperatingmarginsnow50%higherthanleadingcompetitorsandsuperiorstructuraleconomicscontinuingtoimprove.

Skincareandpersonalcare,asyouknow,havebeenmixedbag.SK-II,our$1billionsuper-premiumskincarebrand,greworganicsalesmidsingle-digitsandprofitsverystrongdouble-digitsbyexecutingitsproventrial-buildingbusinessmodel.Despitestrongsalesgrowthandveryattractivemargins,theSK-IIteamcontinuestosweetenthemixandimprovethestructuraleconomicsofthisveryuniquebusiness.

Thedeodorantsbusiness,behindOldSpiceandSecret,continuestogrowsteadily,organicsaleshighsingle-digitsandprofithighsingle-digitsleadingthesolidOTSR.InpersonalcleansingwesoldCamayandZestandnarrowedourbrandproductline,focusedtoOlayandSafeguardandtoahandfulofkeycountries.

Acrosstheabovesegments,wecontinuetoimprovestructuraleconomicsandcashproductivity.Operatingmarginsareimprovingandfreecashflowremainsstrong,above100%.Thisisimportantbecausethesethreebusinessesarewherethelion'sshareofprofitandcasharemade.

OnOlaywearecommittedtoreturntosalesgrowthandthecontinuedvaluecreationgrowthinNorthAmericainFY16.We'rebackonourmasstigestrategy.We'venarrowedourboutiqueandproductlinefocustoRegeneristandTotalEffectsandnewproductsconsumerslike,likeLuminous,whichhasattractednewconsumersandhasbeengrowingsalesandmarketshare.

Rightnowwe'retransformingshoppingexperiencewithmorestreamlinedassortmentsandeasier-to-shopshelfpresentations.Withourtestretailers,categoryandOlaysaleshavebothincreased.ThequalifiednewOlaybrandcampaignwillbreakinthefallbehindincreasedeffectivesupportacrossallrelevantmedia.

We'remakingprogressineveryoneofour10corecategoriesbusinesses,albeitatdifferentpacesandneverasmuchaswewant.Eachbusinessisdifferent,withdifferentopportunitiesandchallenges,butbettertofindandproactivelyaddressed.

P&Gperformsbestwhenwestayinbalance.Balancedacrossindustriesandcategories,balancedacrossdevelopedanddevelopingmarkets,balancedinourneedtodelivertheneartermwithourneed




toinvestanddeliverthemidandlongterm.OTSRisclearlyhelpingwithafocusonbalancedgrowthandvaluecreation.

JustaswiththeCompany,gettingthebusinessunitportfoliorightmatters.Manyofourcategoriesfoundthemselvesover-expandedorover-extendedandhavehadtodivestorotherwisedisposeofnon-strategicandunder-performingbusinesses.

Withtherecentdivestitures,asJonsaid,representingabout5%ofprofits15%ofsales,andasmuchasareductionof40%to50%incomplexity,P&Gandit's10corecategoriesarebecomingmuchsimplerbusinesses,easiertooperate,easiertogrow,easiertocreatevaluecreationfrom.We'repickingupthepace,notonlyofportfoliostreamliningbutalsoofcorebusinessturnaround.We'veinvestedsignificantlyinR&D,plantandequipment,brandingandmarketing,salesandsourcing.

Allofthishasbeenenabledbyproductivitythatwillcontinuestrongthroughtheendofthisdecade.Goingforward,productivityeffortswillbemorefocusedonspecificbusinessunits,countries,functions,andonthemajormarketingandtradespendingpoolsJontalkedaboutearlier.

Despiteoursenseofurgencyandsubstantialinvestment,thebreadth,scopeandscaleofthetransformationunderwaywillcontinuetoseecashproductivity,operatingprofitandsalesgrowthunfoldovertime.Buttheprogresswillbesteadyyearbyyear,deliveringbalancedreliablesustainablegrowthandvaluecreation,asmeasuredbyOTSR.

Whenyou'rebuildingbrandsandbusinessestolastfordecades,growththatdoesnothappenstraightline,eventhestrongestofbrandshitflatspots.Butwhenwegetbackthebasics,thefundamentals,puttingtheconsumerfrontandcenter,deliveringconsumer-preferredbrandandproducts,executingwithexcellence,weputourselvesinpositiontowin.

Yearafteryear,decadeafterdecadesuccessfulbrandbuildingandproductinnovationtransformedandgrowncategoriesandcreatedvalueforconsumers,forP&Ganditsshareowners.Thekeygoingforwardwillbetherobustnessofourcategorybusinessstrategiesandmodels,thestrengthofourbrandandproductdifferentiationandinnovationandultimatelythequality,reliabilityandvalueoftheperformanceandexperiencewedelivertoconsumerseveryday.NowI'llturnitbacktoJontoprovidedetailsofouroutlookforthisfiscalyear.

JonMoeller:Thanks,A.G.First,afewmorehousekeepingitems.Theguidancewe'reprovidingthismorningassumesthetransitioningbeautybusinessesareaccountedforasdiscontinuedoperations,andarenotthereforeincludedincoreEPSforeitherFY15orFY16.Thisisthesameapproachwe'vetakenwithDuracell.

Whiletheamountsarenotyetfinal,weexpectFY15coreearningspersharetoberestatedfromthe$4.02leveltoapproximately$3.77pershare.Theinformational8KweplantoissueinSeptemberwillprovidemoredetail,includingFY15quarterlyincomestatementsandsegmentresults.Towardstheendofthecalendaryearwe'llprovideafullyrestated10Kfor2015.

Whilewe'llnolongerincludetheresultsfromourVenezuelanoperationsinourconsolidatedresults,theFY15resultswillremaininourbaseperiodsalesandearnings.Thiswillcreateaminordragonorganicsalesgrowthtrendsanda$0.05to$0.06pershareheadwindoncoreearningspersharegrowth.

NextsomecontextforFY16.Wehavelargepositions,leadingpositions,inseveralbigmarketswhereunderlyinggrowthhasslowed,mostnotablyChinaandBrazil.Foreignexchangewillcontinuetobeasignificantsalesandearningsheadwind,particularlyinthefirsttwoquarters.

Tooffsettheforeignexchangeimpactsandrestorestructuraleconomics,we'vetakensignificantprice




increasesinsomemarkets.Weneedtomanagethroughthemarketcontractionandvolatilitythatnaturallyfollow.

WehavedisproportionatelylargepositionsinthemarketsmostaffectedbyFX.We'remarketleadersinRussia,theUkraineandJapanandinVenezuela.Incontrast,manyofourinternationallydomiciledcompetitorsarebenefitingfromtheirweakercurrencies,providingfuelforreinvestment.Weneedtobecognizantofthisasweconstructourownplansandaswecontemplateguidance.

We'renotyetabletofocus100%ondrivingthe10corecategorieswe'vebeentalkingabout.Whiletheportfolioplanningworkiscomplete,westillownandareoperatingthetransitioningbrands,includingDuracellandthebeautybrands.

Somesmartchoiceswillalsocreatetop-linepressure.We'vementionedpreviouslywe'resimplifyingandstrengtheningtheproductformandSKUlineupsforourcorecategories.Aswede-prioritizeourexitproductforms,forexamplethemorecommoditysectionofthelaundrybusiness,laundrybars,asanexample,therehasbeenandwillbesomepressureonorganicsalesgrowth.

OnthebottomlineI'dmentionedFX.Itwillalsobeadraginnon-operatingincomeasweannualizethesmallbranddivestituregainsandwewillseeahighercoretaxrate.We'llcontinuetoinvestinincreasedsalescoverageandinfast-growingretailchannelsandformats.

Wewillincreaseourinvestmentininnovationpipelineandintheexamplesofrecentinnovations,likeAlwaysDiscreet,FusionFlexBall,VenusSwirlandthenewdiaperinnovationsthatA.G.mentionedthatarecomingtomarketnowandinthenextsixmonths.We'llcontinuetoinvestinthesupplychainaddingnewcapacityclosertoconsumersasourbusinessgrowsandoptimizingsupplychainindevelopedmarkets.

Againstthisvolatilebackdrop,wethinkit'sprudenttostartFY16fromaguidancestandpointwithrelativelymodest,relativelywidetargetranges.Theprojectedorganicsalesgrowthinlinetouplowsingle-digitsversusFY15.We'verecentlydeliveredtowardsthelowendofthisrange.Wecertainlyaimtoimprove,butit'sunlikelythatgrowthaccelerationwillhappenimmediatelyorinstraightline.

AndasImentioned,therearemarketandcompetitivedynamicsaswellasinternalchoicesthatwillcontinuetoputsomepressureonthetopline.Theheadwindfromforeignexchangewillhavea4to5percentagepointimpactonall-insalesgrowth.Alsominorbranddivestitureswillhaveamodestdragonall-insalesgrowth.Takentogether,weexpectall-insalesgrowthtobedownlowtomidsingle-digitsversusrestatedFY15results.

Weexpecttodeliverasolidoperatingmarginexpansion,drivenbyanotheryearofstrongproductivity-drivensavingsandcostofgoodssold,overheadandnonworkingmarketingandagencycosts.Costofgoodssoldproductivitysavingsareforecasttobeconsistentwithourannualrunrateprojectionofabout$1.2billion.Commoditieswillalsoprovideamodestbenefit.

Thesegrossmarginenhancerswillbepartiallyoffsetbyforeignexchange.Basedonlastweek'srates,FXwillbea$350millionto$450millionafter-taxheadwindonFY16earnings,ora3to4percentagepointdrag.Thisimpacthastwoprimarycomponents.ThespotrateimpactofFY16isexpectedtobea7to8percentagepointheadwindoncoreearningspersharegrowth.Thespotrateimpactshouldbepartiallyoffsetbyabout4pointsofbalancesheetrevaluationhurtinFY15,thatifcurrentrateshold,willnotrecurinFY16.

SG&Acostswillalsobeacontributortooperatingprofitgrowth,drivenbycontinuedoverheadandmarketingproductivitysavingsandloweryear-on-yearchargesforbalancesheetrevaluation.Withthisstrongoperatingmarginexpansion,weexpecttodelivercoreoperatingincomegrowthofmidtohigh




single-digits.

Thisincludesthe$0.05to$0.06persharedragonoperatingearningsfromtheVenezuelaaccountingchangeand$0.02to$0.03pershareofbeautydealstransitioncoststhatwillremaininourcoreearningsresults.Sostrongunderlyingoperatingearningsprogress,whichexcludingthe$0.08impactfromtheseitems,shouldbeuphighsinglestolowdouble-digits.

Movingbelowtheoperatinglinethereareseveralitemsyoushouldtakeintoaccountasyouconstructyourmodels.We'reforecastingnon-operatingincometobea2to3percentagepointdragoncoreEPSgrowth.Wehadalargenumberofminorbranddivestitureslastyearandthescopeandpaceofthesedealswilldecreasethisyear.

We'reestimateacoreeffectivetaxrateofabout24%forFY16,about3pointshigherthantheFY15rate,duemainlytolowerbenefitsfromauditresolutions.Combinednon-operatingincometaxbea$0.23to$0.26persharecoreearningspershareheadwindinFY16,a6%to7%impactoncoreEPSgrowth.

Finally,wewillretiresharesatavalueofapproximately$8billionto$9billionthroughacombinationofdirectrepurchaseandsharesthatwillbeexchangedintheDuracelltransaction.We'renowexpectingtheDuracelltransactiontocloseinthefirstquarterofcalendar2016.Thisisalittlelaterthanouroriginalprojections,asbothpartiescontinuetoprioritizeflawlessexecutionoverspeed.

We'restartingFY16withcoreearningspersharegrowthguidanceofslightlybelowtoupmidsingle-digitsversuslastfiscalyearasrestatedearningspershareof$3.77.Again,awideandrelativelymodestrange.All-inGAAPearningspershareshouldbeup53%to63%versusthepriorfiscalyearGAAPearningspershareof$2.44.

Non-coreitemsinthecurrentyearwillincludenon-corerestructuringchargesofapproximately$0.15pershare.Andnetearningsfromdiscontinuedoperationsofabout$0.17pershare,whichincludestheafter-taxprofitfromoperationsandtransactionexitcostsofthebeautyandbatterybusinesses.Thiscomparestototalnon-corecostsofapproximately$1.33forshareinFY15.

Weexpectanotherstrongyearoffreecashflowproductivity,90%to100%.Driversofthisstrongcashproductivitywillincludecontinuedimprovementofpayables,includingcontinuedprogressonoursupplychainfinancingprogramandcontinuedsteadyimprovementininventorylevels.TheseimprovementsshouldoffsetanincreaseincapitalspendingasweinvestinthesupplychaintransformationA.G.andIdiscussedearlier.WeexpectCapExbebetween5%and6%ofsalesforthefiscalyear.

We'llcontinuetobuildonourstrong[crackerhead]ofcashandoverallvaluereturnedtoshareholders,inadditiontothe$8billionto$9billionofsharesweexpecttoretire.Weexpectdividendpaymentsofmorethat$7billion,intotal,$15billionto$16billionindividendpayments,shareexchangesandsharerepurchase.

TobrieflyrecapthekeyassumptionsunderpinningourFY16outlook,thisguidanceassumesmid-Julyforeignexchangeratesandcommodityprices.Furthersignificantcurrencyweaknessisnotanticipatedwithinourguidance.

Like2015then,we'resettingupFY16asayear,givenallofthemarketandFXvolatilityandpricing,ofmodesttop-linegrowth,solidcoreoperatingincomegrowth,relativelyrobustconstant-currencycoreearningspersharegrowth,andstrong90%to100%freecashflowproductivity.

We'llcontinuetotightenandimplementourstrategyonthecorebusiness,investingwhereappropriatetobuildcapabilitiesforlong-termsuccess.We'llcontinuetodrivemeaningfulproductivityopportunities.We'llinvestinsalescoverage,innovationandthesupplychainandwe'llsubstantiallycompletethe




executionofourportfolioredesign.

Thatconcludesourpreparedremarksforthismorning.Asareminder,businesssegmentinformationisprovidedinourpressreleaseandwillbeavailableintheslides,whichwillbepostedonourwebsite,www.pg.comfollowingthecall.NowA.G.Iwillbehappytotakequestions.

QUESTIONS&ANSWERS

Operator:(OperatorInstructions)

JohnFaucher,JPMorgan.

JohnFaucher:Thanks,goodmorning.Youguyshavedeliveredalotonthestructuralstuff,branddisposals,etcetera.Andyou'redeliveringontheproductivity,asevidencedbythegrossmarginperformance.

Butunlikemanyoftheothercompaniesweallcover,theunderlyingbusinessappearstobegettingworseandmaybeatanacceleratingrate.Ithinkthiscouldarguefortwothings.One,thattheorganizationcan'thandlethismuchchangeatonetimeandyouneedtoslowdown.Or,conversely,thereneedstobealotmoreandbiggerchange,structural,leadership,etcetera.

Youguysareobviouslygoingwithoptionthreerightnow,whichistostaythecoursewiththeinitialplan.Whyshouldweallfeelcomfortablethat'stherightcourse,giventheresults,andalittlebittosomeextent,theguidance?Thanks.

JonMoeller:Iwouldsay,John,thatwe'reinthemiddleofexecutingthatplan,coursethreeasyou'veoutlined.Andaretoaplacewherewehavethefullbenefitof,forinstance,beingabletofocusonthe10productcategories,whichwewillaswegetthroughthebeautytransition.

We'realsointhemiddleofdealingwithsomeverysignificantmarket-levelevents,whichareoutsidestrategycompletely.We'rethemarketleaderinalotofthecountriesthataredifficultrightnow.Russiaisanexample.AndasImentioned,wehavemadeaverydeliberatechoice.

ThechoicewehadinRussiawasverysimple.Wecouldacceptnegativegrossmarginsinperpetuity,orwecouldpricetorestorestructuraleconomicssothatfuturegrowthwouldbeworthsomething.Andthat'sthechoicewe'vetakenthereasinothermarkets,andit'shadasignificantimpactasweexpected.

SoifyoulookatthemonthofJuneforexample,oursalesinRussiaweredown57%.We'vegotworkourwaythroughthesethings.Butwe'retakinganapproachthatwe'reconvincedistherightapproachforthelong-term.

AsA.G.mentionedaswell,theinnovationpipeline,whichwe'vebeeninvestingtoaccelerate,thataccelerationisgoingtostarthittingthemarketplaceaswegothroughthenextyear,whichwillhelpaswell.AndthenhopefullyatsomepointwegettoaplacewhereFXisn'tasmuchofanissueoneitherthetoporbottomline,andwecontinuetodeliverproductivitysavings,whichallowustoreinvestbehindthisinnovationandgrowfaster.

Weclearlyrecognizetheneedtogrowfaster.Wethinkweweremakingthechoicesthatwillallowthattohappeninasustainablewayoverthelong-term.We'renotgoingtogetthereinthenextquarterortwo.Butwedoexpectsequentialprogressaswemovethroughnextfiscalyear.

A.G.Lafley:John,I'djustaddtwoquickones.Onyourfirstdirectquestion,Iactuallythinktheemployees'managementandleadershiphasreallysteppedup.Iwon'tboreyouwithallthedetailsofwhatittakestooperateinRussia,Ukraine,Argentina,Venezuela,evenJapanandawholehostofotherdeveloping




markets.Butinvirtuallyeverycase,wearemakingtherightdecisions,andfrankly,buildingourvaluecreation.

We'veswitchedcountrieslikeIndiafromasignificantnegativeprofitpositiontomakingbasically$100millionintwoyears.OurBrazileconomicsarethebestthey'veeverbeen,stillnotwherewewantthemtobe,butthebestwe'veeverbeen.

Ithinktheorganizationhasruntheoperationalplayandexecutedprettyconsistentlyandprettywell.Wehave,atthesametime,dramaticallysteppeduptheproductivityprogram.Anditisn'tseparate,it'sintegrated.That'sthepartthateverybodymisses.It'satotallyintegratedproductivityprogramandthatwillruneasilythroughtheendofthedecade.

Third,wehavedramaticallyinvestedinR&D,sales,allofthethingsweneedtogetbackonourstrategyandourgame.ThesecondthingIwouldsayis,andthisishardforyoutosee,butI'lltakeacoupleofexamples.Takebaby.Roundnumbers,abouthalfthevaluecreationintheworldisintheUSandNorthAmerica.Threeyearsagothecategorywasn'tgrowing.Intwotothreeyearswe'veputourselvesinapositionwherewearegrowingshareandleadinginsharegrowth.Andwehaven'tevenbroughtallofourpremiumtapelineorourpantstomarket,andasIsaid,theyarecominginthenextcoupleofyears.

Takefabric--well,letmestickwithbaby.InEuropewecontinuedtodowellonavalue-creationstandpoint.Thegamehaschanged,it'susandprivatelabel,we'readjustingtothatgame.InChinawehavebeenverystraightup.Westillhavetheleadingbrand,we'restuckinthemiddleofthemarket.Wewentdown,theconsumerwhenup.Boththepantsandthepremiumtapelinesareshippingaswespeak.

Icouldgothroughcategorybycategory,butfabric'sthesamestory.We'vegenerated$1.4billioninpods.Weareactivelyaddingpodscapacityandexpandingaroundtheworld.$330millioninbeads,whichstimulatedfabricconditionergrowth7%.Butonthebottomend,asJondescribed,webeengettingoutofcheapcommodity-likebaggedpowders.We'vebeengettingoutoflaundrybars,we'vebeengettingoutofunprofitableadditives.We'vegottenoutofbleach.Sothat'swhatyouhavetolookat.

AndthethirdpointIwouldmakeisthelastthingIwanttodoischasevolumeandsharethathasnovalueorverylittlevalue.Idonotwanttogetaheadofourselvesandslamontheacceleratorandtrytogrowfasteronthevolumeorshareside.We'vebeentothatmoviebefore.We'repickingourspots,we'redoingfirstthingsfirst.We'redoingitwithproductthatconsumersreallyprefer.

Andhere'stheotherthingthat'sreallyimportant.Mostofthemoveswe'remakingarestimulatingcategoryandmarketgrowth,andthenitbecomesawinforyourcustomer,yoursupplierandpartner,notjustfortheconsumerandtheCompany.

Ihappentobelievetheobsessivefocusonvaluecreationisincrediblyimportant.Andwe'llgetthegrowthwhenandwherewecan,andfrankly,whenandwhereconsumerschooseourbrandsandproducts.Andwebelieveit'scoming.Weallwishitwouldcomefaster,butitdoesn'tmakeawholelotofsensetotrytodoitfaster.

Yourlastquestionimpliedwasshouldwedosomethingmoredramatic.Wethinktheportfoliothatwearemovingintoactuallyhasthepotentialtocreatealotofvalue.Inmostofthosebusinesseswecreatedsignificantvalueinthepastorarebeginningtocreatesignificantvalueagain,andwewouldn'tbeplayingtheirunlesswethoughtwecoulddoit.We'velookedatallthealternativesmanytimes,andthisisthebestalternativeforus.It'sthebestalternativeforshareownersbecauseitcreatesthemostpotentialvalue.

Operator:O liviaTong,BankofAmerica.




OliviaTong:Goodmorning,thanks.Asyoulookbackatthisyearandthesalesshortfall,canyoutalkthroughsomeofthekeydrivers?Wasitmorealackofinnovationorjustinnovationthatmissedtheirtarget?Oraretheproductsnotpricedproperlyorwascompetitionbetter?

Andthenwhatareyourcategoriesgrowingatnow?Andhowdothinkaboutmarketsharegrowthfornextyear?

Andthensecondly,canwetalkthroughpricemixindevelopedmarketsandwhereyouthinkthatwillgonextyear?ParticularlyasIthinkaboutyourlonger-termthoughtsonpricinginNorthAmericaifwelookatbabyandfamilycare.Kimberlyhasbeenpushingpriceintissueanddiapers.Ifyoucouldaddressthosetwothings.Thanksabunch.

A.G.Lafley:Wheretostart.I'lltakeashotatthelastone.Yes,competitionhasbeenpushingpricinginthetwoexamplesthatyoumentioned.WecontinuetogrowourshareandourvaluecreationinbabyintheUS.

AndasIhopeI'vepointedoutclearlyenough,intissue/towelwe'veverysmartlypickedourspotsandwe'reverycomfortablewithholdingsalesaslongaswecreatemorevalue.Westillhaveleadingbrandpositionsintheprincipalcategories.Andthefactofthematteriswe'regettingmorethanourfairshareofvaluecreationthereandthat'sthewaywewanttokeepit.

Onthefirstpartofyourquestion,O livia,it'sreallynoneoftheabove.It'sreallynoneoftheabove.Iwillmentiontwoexamplesbecausetheyaresignificantbecausethecompetitorthingisoftenmentioned.Wehadmajorcompetitivemovesinbigstrongholdmarketsforusinfabriccareinthelastyear.OnecompetitormovedintotheArabianPeninsulawherewe'vehadalongandstrongpositionwithconsumers.

Theother,asyouknow,movedintotheUSatthelargestretailer.Inbothcases,ourshareisatorabovethelevelthatitwasbeforetheencroachment,beforetheirintroduction.Andinbothcaseswecontinuetocreatestrongvalue.Itismoreanissueoftimingofthemovesthatwe'llbemakingcategorybycategory,andtheroll-offofthenon-performingorunder-performingpartsofthebusiness.

JonMoeller:AndIwouldsayourguidancewaslowtomid-singles.Wedeliveredlow-singles.Thedifferencebetweenthehighandlowendoftherange,IthinkcanlargelybeattributedtothemacrodynamicandFX,whichyoucansometimescharacterizeasimpactingeverybody.

Thatwasn'tthecasethisyear,asmanyofourcompetitorsbenefitedsignificantlyfromFXwhilewehadahugeheadwindforourselves.Thatisadifferentiatorbetweenfirmsinourindustry.Andthatispartofthereasonthatwe'reatthelowendoftherange.

Operator:StevePowers,UBS.

StevePowers:Goodmorning,guys,thanks.A.G.,itfeelslikewiththeCodytransactionandDavid'sannouncementthisweekasCEO,youreallydeclaredtherecentphaseofreshapingasinsomewaysdone.Nowit'stimetomoveforward.

Myquestionis,buildingonyourpreparedremarks,whatareyougoingtodifferentlyasyoumoveforward?Whilemuchofwhatyou'veoutlinedsoundsreasonableandlogicalandmakesense,italsoseems,toJohnFaucher'spoint,acontinuationofwhatyou'vebeendoingandsayingthelastfewyears.Andwehaven'tseenthatreturn,atleastasmeasuredonthetopline.

WhatI'mlookingforislessaboutwhatyou'regoingtocontinuedoingandmoreaboutwhereandhowyouandDavidaregoingtoinvestdifferentlyinthecomingyears.AndIdon'twanttomakethisjustaboutbeauty,butasexample,whatdeficienciesareyoutryingtoovercomewhenitcomestoabrandlikeOlay




andwhatisthatgoingtocost?

A.G.Lafley:Okay.Unfortunatelythisisn'tacontinuationofwhatweweredoing,andIdon'twanttobelaborthat.Butwewereclearlyover-expandedintodevelopingmarketsandevenintofrontierdevelopingmarketsandyouknowwhat'shappenedthereintermsofgrowthslow-down,economicandpoliticalvolatilityandtheFXissue,whichJonhasmentionedacoupleoftimes,Israel,andwillcontinuethroughtheendofthiscalendaryear.Butitisachange.

Thesecondthingiswewereclearlyover-extendedinseveralcategories.Themostobviousonewasbeauty,wherewegotintoservicebusinessesandmorefashion-andtrend-orientedbusinesses.Thatdidn'tturnouttobeagoodfitforus.

Iwouldarguewehavechangedquiteabitinthelasttwoyears.Andthebigchangehasbeenadramaticnarrowingofthefocusandchoices.Andtheotherbigchangehasbeengettingbacktobalancedinnovationandproductivitythatreallydrivesvaluecreation.Wewerenotonavalue-creationbuildingstrategy,wewereonashort-termvolumeandshare-buildingstrategy.Thatdoesn'tworkunlessyouarecreatingvalue.

TheotherthingIwouldsayis,likeitornotandIdon'tlikeitverymucheither,ittakestimetochangedirection.Ourplans,asI'vesaidbefore,aresoldout6to12monthswithourcustomers.Asyoumightimagine,whenyouhavegotplantandequipmentandmajorinvestmentinvolved,ittakestimetosetupbehindmajorinitiatives.Allofthathashadtobedone,andmuchofitisunderway.

AndthelasttwopointsIwillmakeis,it'smorethanwordsthatwedowellwhenwefocusonfollowingtheshopperandconsumer.Notthecompetitor,shopperandtheconsumer.Wedowellwhenwegrowcategoriesandmarkets.PodsandbeadsandconcentratedHDLsgrowthefabriccaremarket.

FlexBallandSwirlgrowtheshavecareandgroomingmarket.Shavecareandgroomingmarketwasinthedoldrums,notgrowingveryfast.It'sactuallygrowingthelastsixmonthsthefastestit'sgrowninseveralyears.Icouldgoonthere.

Butthosearethedifferences.AndI'mnotabigfanofchangeforchangesake,I'mabigfanofrunningplaysthatwork.AndIthinkoneofthebigquestionsbehindthequestionishowfastcanwedothis?

Andmyview,verystrongview,isI'mmuchmoreinterestedingettingitrightandmakingchangesthatreallysustainvaluecreationandmakingchangesthatleadtosustainableandreliablegrowth.That'sthepathwe'reon.Andbytheway,inthemeantime,thereasonwefocussohardonoperatingcashflowandfreecashflow,sohardonouroperatingmargins,issocouldcontinuetoreturndividendsandsharerepurchasetoshareownerswhilewearegettingthisCompanypositionedtogrowonamoresustainablebasis.

Operator:LaurenLieberman,Barclays.

LaurenLieberman:Thanks,goodmorning.Acoupletimesyou'vementionedsignificantreinvestmentsinsalesforce.Iwashopingyoucouldtalkalittlebitaboutwhat'sbeendonesofar,whatneededaddressing,isitparticularchannels,isitparticulargeographies?

Andthenalsohowthatfitsintoachicken-and-eggconversationabouthavinginnovationinmarketandthingsyoureallywanttogetbehindversuswhatsoundslikemaybe,withtheexceptionclearlyofthingslikeFlexBallandpods,butsomekindofbidingtimenewproductworkwiththerealexcitingstufftocomeinthenextyear-plus.Thanks.

A.G.Lafley:Lauren,Iguesstheanswerisyestoyourseriesofquestions.LetmetrytodescribeitasclearlyandcrisplyasIcan.Whenyouchoosetofollowtheshopper,youobviouslyhavetocommit




coverageandresourcestogrowingchannels,andwehavedonethat.

We'reinamuchbetterposition,forexampleine-commerce,thanwewerethreeyearsago.E-commerceisgrowing30%to40%.We'reprettycompetitive,there'sstillupsideopportunities.Andthereismoretocomewithsubscriptionandauto-replenishment.

So,yes,followtheshopperintothechannelsthataregrowing.E-commerceisone,drugisobviouslyanotherone,smallboxesdiscounters,Icouldgoon.Thatvariesbyregion,bycountry,andwehavemadeandaremakingthatshift.

Thesecondoneisdedicatedtocategoryandtoretailaccountsalessupport.Ithinkwehavetalkedbeforethatwe'veaddedasignificantnumberofdedicatedsalesresources.WestartedintheUS,we'redoingitcategorytocustomer.We'redoingitinChina,whereit'sessentiallycategorytochannelorcustomer.Andaswecontinuetogainexperienceandaswecontinuetoseetheresults,wearepreparedtomakethoseinvestments.

Thatleadstoathirdandincrediblyimportantpoint.Thisisahighlyexecutionalcategory.Abigpartofhowwedodayinanddayoutiswhetherourdistribution'srightandwhetherourself'sright.Wedidn'ttalkmuchaboutthistoday,wetouchedonitintheOlaycontext,soI'llreturntoOlay.

We'venowrunaseriesoftestsincountries,morethanonecountryaroundtheworld,severalcountriesaroundtheworld,andwe'rerollingoutintheUSfirstandtheninChina,adramaticallysimplifiedcategory-basedandOlay-basedshelfset.Withoutgoingintoallthedetails,itfairlysignificantlyreducestheSKUs.Itfocusesontheproductsandboutiquesthatconsumerswant.Andineverycasesofar,knockonwood,wehaveliftedcategorysaleswithourretailpartner,whichtheywant,andOlayhasbenefitedbyliftingitssalesrateandshare.

Sowewillsee.Butthatkindofstuffislikeincrediblyimportant.Andyes,it'sblockingandtackling,butwegottogetbacktotheblockingandtacklingthatworks.Thankyou.

Operator:BillSchmitz,DeutscheBank.

BillSchmitz:Firstofall,congratulations,A.G.,onretirementthesecondtimearound.Myrealquestion,wereyouguystemptedatalltomoredramaticallyre-baseearnings?Itsoundslikesomeoftheinvestmentsarebeingdeferredforbecauseofsomethemacroenvironment.Butit'shardtomanageabusinessbasedoncurrency,becauseit'soutofyourcontrol.

SoIwaswonderingifyouhadmoreresourcesintheP&L?Couldyoudoboth,likedrivetheproductivityandthecashflowandalsoreinvestandstopthesharedeclines?Becauseitseemslikeonmymath,thecategoriesgloballygrew3%andyouguyswereflat.Sothat'squiteabitofsharelossthisquarter.Iwouldlovetohearyourthoughtsonthattopic.Thanks.

JonMoeller:Acouplethings,Bill.Oneis,wedidnotintheyearthatwejustcompleted,curtailinvestmenttooffsetFX.You'llrecallactuallythatwhenthemoresignificantFXimpactsoccurred,wetookourguidancedown,specificallytoprotecttheinvestmentsthatweneededtomakeinthefuture.

Ithinkourguidancerangesthatweprovidedfornextyear--infact,Iknowtheyaccommodatefullytheinvestmentsthatweareplanningtomakegoingforward.Ithinkthereisfurtheropportunitytodriveproductivity,whichwillprovideanotheropportunitytoreinvest,productivitybeyondevenwhat'sinourcurrentplan.Idonotseetheseascontradictoryinanyway.

A.G.Lafley:Bill,wedidnotpassonasinglegrowthandvalue-creatinginvestmentthatwasbroughttous.YoujusthavetolookatourCapEx.We'reputtinghundredsofmillions,billions,intonewplants.We'reputtingupanewconcentratedHDLplantinChinathatopensthissummer.




We'reputtingupanewplantinBrazil.We'reputtingupanewplantinsub-SaharaAfrica.Wehavebeenracingtoaddpodscapacity.We'reracingtoputnewInfinityandRadiancecapacityinbecauseofdemandforourfemcarelines.Acrossbabydiapers,hundredsofmillionstoconverttopantsandpremiumtapedasfastaswecan.

Again,I'mnotgoingtogointothedetails,butinourplansintheyeargoingforwardwehave10%,20%andmoreincreasesinmediabudget.It'shardforyoutoseeourinvestmentsincommunicationandmediabecausemostofitisbeingfundedbyreallocation.

We'resimplyshuttingdowntheunproductivenon-workingdollarsandwe'reconvertingittoworking.Andwe'regettingaheckofalotmoreofourdigitalmobilesearchandsocialprograms,dependingonmarket,dependingoncategory,dependingonbrand.

Butwe'veinvestedinsales.EveryyearweinvestinR&D.Andthegoodnewsis,knockonwood,forthemostpart,andR&Disariskybusiness,productinnovationisalwaysariskybusiness,butsofartheteamshavebeendeliveringveryhighratesofproductsthataredeliveringhighlevelsofconsumersatisfaction,andasIsaidearlier,withafairamountofuniquenessanddifferentiation.

Theissueisittakessometimetogetthemtocommercializationandthengetthemexpanding.Butwehaven'tslowedanythingdown.Ifanything,we'veacceleratedabunchoftheseprogramsby3,6,insomewayasmuchas12to18months.

Operator:DaraMohsenian,MorganStanley.

DaraMohsenian:Hey,goodmorning.First,adetailquestion,Jon,givenDavid'sstartdateisnotuntilNovemberasCEO,isthisFY16earningsguidanceblessedbyhim?Ormighthechoosetotakeadifferentviewaroundthelevelofreinvestmentneededbehindthebusinessandthereforeearningsguidance?

Therealquestionis,sorrytobelabor,Jon,thisquestionearlier,butwhileitwashelpfultohearthatyouaremakingmoreprogressperhapsthanisevidentintheresults,it'sbeenafewyearsnowofdisappointingresults.IwouldlovetohearwhatisPlanBifyoudon'tseetheimprovementinthebusinessyouexpectgoingforwardasyoulookouttoFY17,andthehistoricalchangesaren'tenoughtogetyoutotheTSRlevelsyoudesire.

Maybeyoucandiscusssomeoftheoptionsatyourdisposal,whetherit'stheearningsrebatesthatBillmentionedtoreinvestbackbehindthebusinessissplitup,etcetera.Whythoseoptionsdon'tmakesenseandhowconfidentyouarethatthehistoricalchangeswillactuallydriveimprovedresultsgoingforward.Thanks.

JonMoeller:Firstofall,thestrategythatunderliestheguidance,thestrategyandtheplanareaCompanystrategyandplan.ThatisallthewaythroughtheBoard.It'stheirstrategyandplan.It'sthroughtheseniormanagementteam,whichDavidhasbeenanintegralmemberof.Andit'spartofwhattheorganization--everypersontheorganization'sworkplanisbasedoff.Soit'snotanindividualstrategyorplan,it'saCompanystrategyorplan.

Havingsaidthat,IexpectDavidwilldowhathe'salwaysdoneandwe'lldowhatwealwaysdowhichiswakeupeverymorningandputourbarefeetonthecoldhardfloorandoptimizewhatisinfrontofus.Andweliveinavolatileworld,andweneedtoberespondingtothatonadailybasis.

We'renotgoingtogetlockedortrappedinaverynarrowelementofourplan.We'llmodifythatasweneedto.I'msureDavidwillapproachitthatway.

A.G.Lafley:Ithink,Dara,I'dsaythesecondhalfofyourquestion,it'sagainaverysimpleanswer.Wewillchange.Ifit'snotworking,wewillchange.Portfolio--wethinkit's90/1095/5,we'reneverdone.Wewill




makeacquisitionsintheyearortwoahead.Wewillprobablyhaveanotherdivestitureortwointheyearahead.Butwewillchange.

Ifthebabyprogramdoesn'twork,we'llmodifythebabyprogram.Ifthefabriccareprogramdoesn'twork,we'llmodifythefabriccareprogram.Ifwecan'tcompeteinabusinessafter20years,after5years,after10years,we'llgetoutofthebusiness.Ithinkthat'sverystraightforward.

JonMoeller:Ithinkthelastyearisfulltestamenttothat.You'reright,theresultsaren't--we'renotthereyet.Butmovingout60%ofthebrandsinoneyear,that'snotanindicationofacompanythatisunwillingtoembracenecessarychange.

Operator:ChrisFerrara,WellsFargo.

ChrisFerrara:Thanks,guys.Acoupleofhousekeepingandthenarealone.First,MexicoinJapan,bothofthose,JapanbecauseoftheconsumptiontaxtimingandMexicobecauseofthebackingoutofpromos.Canyoutalkabouthowthosehaveprogressedandhowtheymighthaveaffecttopline?

Onthetaxrate,goingbackupto24%fornextyear,shouldweviewthatasthebeginningofamorenormalizedtaxrateforyouguys?Howdoyouthinkaboutitlongerterm?

Andthenlastly,ontheCotydeal,onthetimingmismatchbetweenthelostearningsfrommovingthebusinesstodiscops,andtheshareretirement,itgivesusayearinbetween.Asyourshareholders,howshouldwethinkaboutthisdealtrulybeingnotdilutive?Yourabilitytooffsetthat.

Inotherwords,forthatreallytobetrueFY17again,understandingthisisalongwayout,FY17needstobeawayabovealgorithmyearbecausethesharecount'sgoingtobesolow.Iknowyou'renotguideoutthere,butconceptuallywouldthatbetheplan?Isthatpeopleshouldthinkabout?Ifthesharecountmovesthatmuchlowertherefore2017willbeabigbounce-backyearfromanearningsstandpoint,allelseequal.Thanks,guys.

JonMoeller:I'mgoingtotakethoseinreverseorder,Chris.OntheCotytransactionandtheimpacts,there'sobviouslysomeaccountingchangesthatmovethingsbetweencontinuedoperationsanddiscontinuedoperations.Butuntilthedaythatdealcloses,allofthecashthatthosebusinessesgenerategoesintoourbankaccount.

Sointermsofrealeconomicimpact,nextyearallthecashisours.Andtheninthefollowingyear,whichiswhatwecommittedtowhenwehadthecallacoupleweeksago,wesaidpost-closetherewouldbenodilutiongoingforward,andthatisstillourplan.SothatisCoty.

Thetaxrateat24%,Ithinkcertainlytheratethatwe'vebeenatislowerthanwhatwe'regoingtohavegoingforward,becauseaswe'vebeensuccessfullyconcludingaudits,releasingreserves,andthosearedowntolowbalances.Sothe,Iwouldcallit,23%to25%asbeinganormalizedrategoingforward.

OnMexicoandJapan,wesawsequentialimprovementinMexico,andarereallygettingtoapointwherethatwillbebehindus.Butinthequarterthathada20-basispointimpactintermsoftop-linegrowth.AndthenJapanobviouslywenttheotherway,andwasahelptothequarterversustheyear-agosoftness.

Operator:JavierEscalante,ConsumerEdgeResearch.

JavierEscalante:Hi,goodmorning,everyone.Weallaregyratingagainaroundthesamepoint,whichiswhatitseemstobealackofbalancebetweentop-linegrowthanddeliveringverystrongEPSgrowth.Howeveryoualreadycalledbecauseit'sallcurrency-neutralgrowth.

Iwonderwhetheryouhaveexplainedtouswhatyouaredoingwithpruningtheportfolioandhowthat




impactstop-linegrowth.Becauseyouhavementionedherethingsthatarenotdivestedthatyouhavebeenshuttingdownandcuttingthatmaybeopticallyworseningthefundamentalofthebusiness.Thankyou.

JonMoeller:Acouplethingshere.One,Ithinkit'simportanttounderstandtheorderandthesequenceinwhichwearetryingtoturnthisshiparound.Growingbeforewehavetherightstructuraleconomics,itdoesn'tcreateanyvalue.

Sowe'retryingveryhardthroughtheproductivityprogram,throughtheworkwe'redoinginFX-impactedmarketstoensurethatwehavetherightbasistogrowfrom.Thatdoesn'tmeanwe'renotseizingopportunitiesthatexist,butwe'rechoicefulandwe'resequencing.Andthenwhenthatgrowthcomes,it'sgoingtobeworthsomething.

A.G.Lafley:Onthesecondhalfofyourquestion,Javier,theanswerisyes.Wetriedtogiveyoutwoorthreeexamples,thefamilycareortissue/towelexample.Wewerequiteokaywitha100indexonnetsalesbecausewemade,inourview,asmartdecisiontogetoutofovertime,whichisasfastaswecan,unprofitableconventionalpaperbusinessesinMexico,andtoreplacethatwithlowersalesthatmuchmorestructurallyattractiveexportsofourbestproductsfromtheUSintoMexico,whichwillbepurchasedbycertainconsumersandbycertaincustomers.

Andwetalkedaboutbeingchoicefulaboutwhichinitiativeswetookinwhichsequence.Andwe'renotgoingtomoveuntilwethinkwehaveaverygoodchanceofwinningwithconsumersandshoppersanduntilwehavetheeconomicsright.

Wementionedthelaundryexamplebecausethatisabigone.Andwhilewehavebeenchargingforwardonpods,concentratedheavy-dutyliquids,machinewashpowders,alltradeup,allpreferredproductsbyconsumers,allgrowinginmostdevelopingmarkets,notjustdevelopedmarkets.

Wehavebeenpruningtier4andsometier3baggedcommodity-likepowders.We'vebeenpruninglaundrybars,asJonsaid.Wehavegottenoutofcommoditybleach.Wehavethematicallyprunedouradditivesportfolioandjustkepttheonesthatwethoughtwerestrategicandprofitable.

Soyes,thatisgoingon.Andthepointweweretryingtomakeis,whileJonandIinmanyothershavebeenworkingontheCompanyportfolio,thebusinessunitleadershiphasbeenworkingontheirportfolio.Someofithasbeensoldoff,haircarewasanexample.Someofithasbeenshutdownorotherwiseresolved.Andthatjustkeepsgettingbetter.

JonMoeller:Ijustwanttomakesureonelastpointonthis.Iwanttomakesurewearebeingunderstood.Weknowthetoplinehastogrow.

Ihaveshownyouchartsbefore,we'llprobablyshowanotheroneatBarclays,whichistheexactchartthatwetalkedtoourorganizationaboutinternally,whichshowsthatwecannotgettoourOTSRobjectiveswithonlybottom-linegrowth.WecannotgettoourOTSRobjectives,equally,withoutonlytop-linegrowth.Thatisthebeautyofthemetric,it'sabalancingmetric.Wegetit.

Operator:AliDibadj,Bernstein.

AliDibadj:Hey,guys.YousoundverydifferentthanIwould'vehopedonthecalltodayoronCNBCthismorning.Thereisstillalotofdefiance,there'sstillalotofconfidence,itfeelslike.Look,allthefrustrationwe'reallfeeling,Ifeelaswell,probablytimes10.Youarebrushingoffthetoughquestionsandmaintainingthistrustus,it'llturn,it'llturn.

Butletmeofferyoualookthroughthelensofashareholder,whoyouareaswell,andyouseewhatthestockpricehasdone.Youlookatorganicsalesgrowthandit'sdismalandit'sgettingworse.Andyou




admitthat.

Thecostsavingsaregoodbuttheyseemtoosmallandtheyseemlikethey'reslowinginsomecases,likethenetpartofitisslowing.ThetransactioniscomplexandtoughandIgetit.Butmaybeit'snotasbigasitshouldbe.YouhaveaCEOwithrespecttoatleastversusalotofpeople'sexpectationsofleavingalittleearly,youmissedfourorfiveyearsinarow.

Anditjustfeelslikethereisstillthis--trustusandthingswillchangebecausewe'redivestingthings.Istillstruggletoseewhatisactuallygoingtobedifferent.Igetyou'regoingtogetridof14%ofyoursales,15%ofyoursalesand6%ofyouroperatingprofit,butisthatreallyit?Isthat1%incrediblegrowthyou'regoingtogetoutofgettingoutofthosebusinesses,isthatwhatwe'rehopingforasshareholders?

Andhowlongdoyouwanttowait?Howlongdowantustowaitbeforeyoudothinkaboutbiggerchanges?Iunderstandthatyoudon'twanttogotherenow,buthowlongdowehavetowait?Andparticularlyinthisnewnormalofmoreactiveshareholder,Istrugglewithwhatkeepsusatbayorwhatkeepsuspleased.

A.G.Lafley:DoyouhavearecommendationAli?

AliDibadj:IthinkPlanB,whichisseriouslythinkingaboutbreakinguptheCompany,that'sverycomplex,isaviableoption.Itsoundslikeyouguyshavelookedatit.Iwanttounderstandwhyithasn'tworked,becausethestuffyou'redoingseemstomakesense.Thestuffyou'redoingthatwelisted,costcuttingandtryingtoinnovatemoreandclosingpricegapswhereyouhavetoandraisingaccountability,allthesethings,fromaclassicstrategicconsultingthoughtfulwaymakessense.Butit'sjustnotworking.

Weallarefrustrated,butwealsofeelforyoubecausethestrategyispossiblytherightone,whichmightsuggestthere'sanotherbiggersolutionhere.Whichisit'sjusttoobigtorun.MaybeperhapsevenagrowthCompanyanymore.Youhavetothinkaboutdifferentlyfromjustbeinggrowth.Thereareotheroptionsthatwedon'thearbeingcontemplatedorarguedagainst.It'sjusta--trustus--andIthinkthat'satleastmyfrustration.

A.G.Lafley:Okay,letmejustsaycoupleofthingsbecausewemayseethingsdifferently,althoughIwanttomakesurethatyouunderstand,andeveryoneunderstands,thatweconsidereveryoptionandruneveryanalysis.Firstpoint.Thecompanyis40%to50%lesscomplex,andIdon'tthinkthatisunderstood.Itisjustdawningusthatthat'sincrediblyimportant.

Thesecondthingisthetimehorizon.Ourtimehorizonismoreconsistent,morereliable,moresustainablegrowthandvaluecreation.Andwebelievethatyoubuildafoundationandyoubuildthisabuildingblockatatime.

Iwouldarguethatyou'vejusthavetolookatwhatwe'vebeenabletodowithhalfofourprograminplaceinNorthAmericainbabydiapers,andyoucould,withoutagreatleapoffaith,considerthatwemightbeabletodothesameagaininChinawherewestillhavetheleadingbrand,whenwebringaconsumer-preferredpull-onorpantandwhenwebringthenextgenerationofpremiumtapeddiapersinamarketwherenewmomsareflockingtoimportedJapanesepremiumproductsthatweknowhowtocompetewith.

Thesamethinginfabriccare.Youcouldconcludethatwehavegottenastubborncategorythatwasn'tgrowingintheUS,growingagain.Wehavebeenabletotradenewconsumersintoamaturecategory,tradethemup,growwithretailersandthesupplychain.Youcanseewhatwe'vedoneinJapan,wherewehavegrownsignificantly.Andyoucouldsay,yes,itreallydoestake18monthstoputupabrand-newmanufacturingplant.




AndweareshippinginChina.Icouldgoaroundtheworld.Haircare,wehavetotallyredone.Theproductandtechnologyprogramandwe'vepositionedourselvestostartshippingthefirstproduct.Iunderstandthepoint.

Twomorecommentsonthebreak-upandthenimpossibletomanage.Wereverseengineeredandanalyzedindetailthelastdecadeexitfromthefoodandbeveragebusiness.Wediditinternallyandwediditwithoutsideobjectiveview.Andweconcludedthatwegeneratedsignificantlymorevalueforshareownersinourfocusedanddeliberatestep-at-a-timewithdrawalfromthesegmentsofthatindustry.

Anditwasaboutthesamesizeexitastheonewe'regoingthroughnow.Ican'tremembertheprecisenumber,Jon,butitwasprobably$6billionor$7billion.We'reallaboutoptimizingvalueforshareownersbutit'soveralongertimehorizon,Ithink,thanyouare.

AndthenIthinkthelastquestionwillalwaysbeaquestionandthatiscantheleadershipandmanagementteammanageanddeliver?Wethinkwecan.It'sanewteam.DavidandIaregoingtobesidebysideforthenextseveralmonths,ayearormore.Wethinkwe'retothepointwherealotofitthisoperationalization,whichisincrediblyimportant,andjustgoodexecutionandconsistentandexcellenteveryday.

Iunderstandthepointaboutpatienceandimpatience.IthinkasJonsaidearlier,we'reinviolentagreement,wewanttogrowthetoplineasmuchasanybodyonthecall.Andwejustthinkthatonestepatatime,it'scoming.

Andoh,bytheway,we'vegottwo--wehadanotherseveralmonthsoftoughsleddingaheadbecausetheenvironmentindevelopingmarketsandthiswholeFXthingisnotgoingtochange.We'rejusttryingtoberealistshere.

Operator:JoeAltobello,RaymondJames.

JoeAltobello:Hey,thanks,goodmorning.Onequickoneintermsofthetransition.Obviouslywhenyouguyscomeoutofthisyou'regoingtolookalotdifferent.Youmentioned,A.G.,you'regoingtobe40%to50%lesscomplex.Intheory,atleastonpaper,afaster-growingmoreprofitableCompany.

CouldyoutalkaboutthecapitalintensityofProcter&Gambletwoorthreeyearsfromnow?Areyougoingtothelesscapital-intensegiventhenewbusiness,orthenewportfoliothatyou'llhaveatthatpoint?Thanks.

A.G.Lafley:No,wewon't.Isaid,Joe,we'reinaperiodwherewe'reclearlyinvestingandreturning.Butreplatformingofourgroomingbusiness,whichhasenabledustointroducetheVenusupgradeinlikesixmonthsafterthemaleupgrade.Theinvestmentswe'remakinginthenewproductinnovationinfabric,themajorinvestmentswe'remakinginthenewproductinbaby.

AsJonsaid,puttinguptosixnewmixinganddistributioncentersinNorthAmerica,andwe'llberollingacrossEuropeoverthenextseveralyears,finishthejobinNorthAmericaoverthenextseveralyears.

Andwe'llmoveontodevelopingmarketswithgettingoursupplychainaseffectiveandefficientandstreamlinedaspossible.Idon'tthinkyou'regoingtoseeanincrease.Wewouldhopeforittoleveloutintime,butIwouldsayforthenextone,two,threeyearswe'regoingtobeinvestingataboutthecurrentrateinCapEx.

Operator:Ladiesandgentlementhatconcludestoday'sconference.

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Procter and Gamble (PG) Earnings Report: Q2 2015 ...s.t.st/media/xtranscript/2015/Q3/13239129.pdf · The following Procter and Gamble conference call took place on July 30, 2015,