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

EventDescription:Q12015EarningsCallMarketCapasofEventDate:224.36BPriceasofEventDate:80.95

©2014TheStreet,Inc.Al l R ightsReserved Page1of21

Procter&GambleCompany(PG)EarningsReport:Q12015ConferenceCallTranscriptThefollowingProcter&GambleCompanyconferencecalltookplaceonApril23,2015,08:30AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

JonMoeller;TheProcter&GambleCompany;CFO

OtherPart icipants

BillSchmitz;DeutscheBank;AnalystDaraMohsenian;MorganStanley;AnalystJohnFaucher;JPMorgan;AnalystOliviaTong;BandofAmerica-MerrillLynch;AnalystChrisFerrara;WellsFargoSecurities;AnalystWendyNicholson;Citigroup;AnalystStevePowers;UBS;AnalystLaurenLieberman;BarclaysCapital;AnalystNikModi;RBCCapitalMarkets;AnalystJavierEscalante;ConsumerEdgeResearch;AnalystAliDibadj;SanfordC.Bernstein&Company;AnalystCarolineLevy;CLSALimited;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Goodmorning,andwelcometoProcter&Gamble'squarter-endconferencecall.Today'sdiscussionwillincludeanumberofforward-lookingstatements.IfyouwillrefertoP&G'smostrecent10-K,10-Qand8-Kreports,youwillseeadiscussionoffactorsthatcouldcausetheCompany'sactualresultstodiffermateriallyfromtheseprojections.

AsrequiredbyregulationG,P&GneedstomakeyouawarethatduringthecalltheCompanywillmakeanumberofreferencestonon-GAAPandotherfinancialmeasures.Managementbelievesthesemeasuresprovideinvestorsvaluableinformationontheunderlyinggrowthtrendsofthebusiness.

Organicreferstoreportedresultsexcludingtheimpactsofacquisitionsanddivestituresandforeignexchangewhereapplicable.Adjustedfreecashflowrepresentsoperatingcashflow,lesscapitalexpendituresandexcludingtaxpaymentsforthepetcaredivestiture.Adjustedfreecashflowproductivityistheratioofadjustedfreecashflowtonetearningsadjustedforimpairmentcharges.

AnymeasuredescribedascorereferstotheequivalentGAAPmeasureadjustedforcertainitems.CurrencyneutralreferstotheequivalentGAAPmeasure,excludingtheimpactofforeign-exchangeratechanges.

P&Ghaspostedonitswebsite,www.pg.com,afullreconciliationofnon-GAAPandotherfinancialmeasures.




NowIwillturnthecallovertoP&G'sChiefFinancialOfficer,JonMoeller.

JonMoeller (CFO):

Goodmorning.

JanuarytoMarchwasanotherchallengingquarterfromamacrostandpoint,withsignificantforeignexchangeheadwinds,modestmarketgrowth,andcontinuedpoliticalandeconomicvolatility.Thecurrencychallengeincreasedthroughthequarter,withcurrenciesinBrazil,Turkey,andtheUkraineweakeningsequentiallyversusthedollar.

Despitethesechallenges,wegrewconstant-currencycoreearningspershareatadouble-digitrate.Wegrewcoregrossmargin,includingandexcludingforeignexchange,andmadestrongcoreoperatingmarginprogressup170basispointsonaconstant-currencybasis.Allofthiswasenabledbyover400basispointsofproductivitysavings.

Organicsalesgrewmodestly,up1%.Grooming;healthcare;andbaby,feminine,andfamilycaresegmentsgrew9%,6%,and2%respectively.OrganicsaleswereinlinewiththeprioryearinfabricandhomecareduetothetimingofinnovationlaunchesinNorthAmericainboththebaseperiodandthecurrentyear.

Thebaseperiodincludedpipelineandshipmentsforthemajorfabriccareinnovationbundle,includingtheTidePlusupgradesandintroductionsofTideSimplyClean&FreshandGainFlings,whichledto6%organicsalesgrowthforthesegmentintheyear-agoquarter.Thecurrentperiodincludestheimpactoftradeinventorydrawdownaheadofthelaunchofnewliquiddetergentandfabricenhancerformulations.

FabriccareconsumptionremainsstronginNorthAmerica,withmarketsharegrowthonbothavalueandavolumebasis.Beautysegmentresults,however,reflectsoftnessinprestigefragranceandmaskskincare.

Organicvolumewasdown2pointsversustheprioryear.Developingmarketvolumewasdownlowsingledigitsfollowingpriceincreasestakentooffsetforeign-exchangedevaluationinseveralcountriesandadjustmentsmadetocorrecttradeinventoriesinMexicoandChina.Theseadjustmentshadabouta1-pointimpactontheCompany'stoplineinthequarter.

Developedmarketorganicvolumewasdown2%,drivenmainlybytimingimpactsassociatedwiththeApril1stincreaseintheJapaneseconsumptiontaxlastyear.ShipmentsinJapanwereup22%,aheadoftheconsumptiontaxincreaselastyear.Andasaresult,weredownmid-teensinthecurrent-yearquarter.Thishadabouta0.5pointimpactontotalCompanyorganicsalesgrowth.

Pricingcontributed2pointstoorganicsalesgrowthandmixadded1point.All-insalesweredown8%versustheprioryearduetoan8-pointheadwindfromforeignexchangeanda1-pointreductionfromminorbranddivestitures.WeheldorgrewworldwideshareonbusinessesrepresentingabouthalfofCompanysales,andonbusinessesrepresentingmorethan60%ofsalesinourhomeUSmarket.

Wecontinuedtogrowshareonmanyofourcategory-leadingbrandsincountrieswhereitmattersmost.Pampers,Tide,GilletteFusion,andAllwasintheUnitedStates,forexample.Onaconstant-currencybasis,coreearningspersharewereup10%,keepingusontrackfordouble-digitconstant-currencycoreearningspersharegrowthforthefiscalyear.IncludingFX,whichwasan18-percentage-pointdragonthequarter,coreearningspersharewere$0.92,down8%versustheprioryear.

Foreignexchangehurtstotaled$530millionafter-taxintheMarchquarterand$1.2billionafter-taxfiscalyeartodate.Theyareforecasttobea$1.5billionafter-taxhurtforthefiscalyear.Formanagingthrough




theFXchallengewasacombinationofpricing,mixenhancement,andproductivitycostsavingsandbypursuingopportunitiesonbrandsincountriesandregionsunaffectedbyFX.

GrossandoperatingmargingrowthimprovedsequentiallyversustheDecemberquarteronbothanall-inandX-currencybasis,drivenbyproductivitysavings.

Coregrossmarginincreased20basispointsintheMarchquarterversustheprioryear.Thiscomparestoa20-basis-pointdeclinelastquarter.Excludingforeignexchange,coregrossmarginwasup90basispoints.Thiscomparestoa40-basis-pointimprovementlastquarter.

Inthecurrentperiod,costsavingsofapproximately250basispointsand90basispointsofimprovementfromhigherpricingwereoffsetby150basispointsofmix,50basispointsofinnovationandcapacityinvestments,andamodestincreaseincommoditycosts.

CoreSG&Acostsasapercentageofsalesincreased50basispoints;excludingFXtheyweredown80basispoints.160basispointsofoverheadandmarketingsavingsweremorethanoffsetby130basispointsofforeign-exchangeimpacts,50pointsoforganizationcapabilityinvestmentsinR&Dandsales,and30basispointsofotheroperatingitems.

CostofgoodssoldandSG&Asavingstotaled410basispoints,aswecontinuetoaccelerateproductivityinitiativesandprogramsandtheydeliveraheadofourobjectives.

Coreoperatingmarginwasdown30basispointsversustheprioryearincludingFX.Thiscomparestoa60-basis-pointdeclinelastquarter.Coreoperatingmargin,excludingFX,wasup170basispoints,50basispointsbetterthan120-pointimprovementlastquarter.Weexpectevenstrongermarginexpansioninthefourthquarter.

Theeffectivetaxrateoncoreearningswas19.6%,0.5pointsabovelastyear'squarterlyrate.Thisleavesusontrackfortheguidanceorfiscalyearcoretaxrateofabout21%,whichisroughlyinlinewithlastfiscalyear'srate.

Marchquarterall-inGAAPearningspersharewere$0.75,whichincludeapproximately$0.07persharefornon-corerestructuringchargesand$0.10pershareofchargesfromdiscontinuedoperations,primarilyanadjustmenttoDuracellcarryingbalancestoreflectP&G'sMarch-endingstockprice.Wegenerated$3.6billioninoperatingcashflowand$2.9billioninadjustedfreecashflow,with117%adjustedfreecashflowproductivitythisquarter.

Lastweekweincreasedourdividendforthe59thconsecutiveyear,up3%.Wewillbepayingourdividendforthe125thconsecutiveyear,everyyearsinceourincorporationin1890.

Insummary,wegeneratedmodestorganicsalesgrowthinthequarter,constantcurrencycoreearningspersharegrewdoubledigits,drivenby410basispointsofproductivitysavings.Constant-currencygrowthandoperatingmarginswerewellaheadofayearago,andwecontinuetobuildonourstrongtrackrecordofcashproductivityandcashreturntoshareholders.

Whilewemustandwillmanagethroughtheexternalheadwindsandmarketvolatilitythatislargelyoutofourcontrol,thebulkofoureffortiscenteredondrivingsignificantopportunitiesinourcontrol:brandinitiativesandproductinnovation,businessandbrandportfoliosimplification,overheadsavings,andmajorsupplychainproductivityinitiatives.

TheCompanyandportfoliostrengtheningandsimplificationannouncedlastAuguststrategicallyresetsP&G'sWheretoPlaychoices.We'refocusedonwinningwithconsumersandcustomerswhomattermostinchannelsincountriesthatmattermost,withcorebrandsandbusinessesthatcreatethestrongestconsumerpreferenceandthebestbalanceofgrowthandvaluecreation.Wewilleliminate60%ofthe




brandsandthecomplexitytheycreatewhileretainingabout85%ofsalesand95%ofbefore-taxprofit.That'sagoodtrade.

ThenewCompanywillconsistofabout65leadingbrands,wherethesizeofprizeandprobabilityofwinningarethehighestin10categoriesthatarestructurallyattractive,andplaytoP&G'scorestrengthsofconsumerunderstanding,innovation,branding,go-to-marketandleverageP&G'sscale.Itwillenablemoreresourcesandattentiononthebiggestopportunities,resultinginfaster,moreprofitablegrowth.

It'safocusedportfoliowithjustsevencategoriesrepresenting84%ofsalesand85%ofprofit.It'salsofocusedgeographicallywiththetopfivecountriesforeachcategorydeliveringabouthalftoessentiallyallofglobalprofits.

Everybrandweplantokeepisstrategicwiththepotentialtogrowandcreatevalue.Withinthesebrands,wewilloperatewithmoreefficientproductlineandSKUofferings,reducingSKUs15%to20%oftheremainingportfoliooverthenexttwoyears,theSKUsthatshopperswantandconsumersuse.

Discontinuedweedingwillensurenewbrandandproductinnovationasampleroomtogrow.Wewillcreateafastergrowing,moreprofitableCompanythatisfarsimplertooperate.Wecurrentlyexpecttoexitapproximately100brandpositionswithafairamountoftheworkalreadycomplete.

Todate,wehavedivested,discontinued,orplannedtheconsolidationofover40brandsandabout40%oftargetedsales.Wehaveexitedthebleachbusiness,petcare,Duracell,MDVIP,severalfragrancebrands,theDDFandNoxzemaskincarebrands,VicksVapoSteam,andtheCamayandZestbarsoapbrands.

We'retargetingtobeinapositiontohavenegotiatedannouncedtheentireprogramoratleastalargecomponentsasearlyasthissummer,roughlyoneyearafterourinitialannouncement,andtohaveexecuted,inotherwords,closedtheprogram,bytheendofFY16.ThiswouldenableustoheadintoFY17withanewportfoliofullyinplace.

Anothersignificantopportunityisstrengtheningandfocusingourstrategiesandbusinessmodels,towinwithconsumersandinchannelsandmarketsthatmattermost.

Thestrategytopicthathascomeupwithincreasingfrequencyinrecentinvestordiscussionsisifleadingbrandsarestillrelevantinawinningmodelandcanstillgrow.WecontinuetobelievethatP&G'sstrategyandbusinessmodel,consumerinsightsandinnovationsthatleadtoconsumer-preferredproductsfrombrandsthatovertimeareleadersintheircategories,isawinningformulaforus,aconstant,reliable,andsustainabledriverofbalancedgrowthandvaluecreation.

Overthelastfiveyears,ourcategory-leading$1-billionbrandshavebeengrowingsales1pointfasterthanour$0.5-billionbrands,andseveralpointsfasterthanoursmallerbrands.

Inmostcategories,ourleadingbrandshavetheleadingequitiesandnetpromoterscores.Theyarebrandsthatretailerswantandneedintheirstores,becausecategory-leadingP&Gbrands'householdpenetrationandreachdrivesstoretraffic,andtheirpurchasefrequencyandmodestpricepremiumsdrivebasketsize.

Leadingbrandsandproductinnovationgrowcategories.Theselargebrandsareplatformsforinnovationswhichcanbecommercializedfarmoreeffectivelyandmoreprofitablythancanbedoneonsmallerones.Theytypicallyearnadisproportionateamountofcategoryprofitandcreateadisproportionateamountofcategoryvalue.

AgoodexampleisPampers,ourlargestbrandwith$10billioninannualsales.Pampersisgrowingata5%




paceoverthepastthreeyears.Inthelargestmarket,theUnitedStates,Pampersisdrivingcategoryvaluegrowthof3%,reversingamulti-yeardeclinecausedbydecliningbirthratesandbothcompetitorandtradepricediscounting.

P&G'sUSdiapershareisupatover90%ofcustomers,wideningourmarginofcategoryvalueshareleadershipto9points.ThepremiumpricedSwaddlerslineisontracktoreachover$750millioninsalesthisfiscalyear,upmorethan30%versustheprioryear,andLovesisgrowinginthemid-tierwithsalesupmid-singledigitsthisfiscalyear.

WehavebuilttheleadingbabydiaperbusinessintheUSandintheworldwithoutaconsumerpreferredpants-stylediaper.WehaverecentlytherolloutofournewPampersPants,designedtoprovideexceptionaldrynessandskincomfortinanunderwear-likedesign.Achievingfairshareoftheglobalpantmarketrepresentsanother$2billionsalesgrowthopportunity.

AnothergoodexampleisTide,oursecondlargestbrand,atabout$5billionofsales.Tidehasalsobeengrowingaheadofcategorygrowthrates,buildingshare.

IntheMarchquarteroflastyear,weintroducedastrengthenedfabriccarebrandandproductlinethatsignificantlybroadenedconsumerappeal.Weofferedshoppersafullrangeofbrandsandproductspricedfromabout$0.12to$0.28alaundryload,includingbroadenedPodofferings,newandimprovedliquiddetergentoptions,andTideSimplyClean&Fresh,apreferredbrandofproductformanyconsumersinterestedingood,basiccleaningatattractiveeverydayvalue.

Inaddition,wefocusontradinginnew-to-the-categoryconsumerstheTide,withnewwashingmachinebuyerandnewhouseholdformationprograms.Moreconsumerstradedinandtradedupthantradeddown.

Infact,Tidehouseholdpenetrationisupmorethan200basispointsforthefirsttimeinseveralyears.Werecentlyhitanall-timerecordhighUSlaundrydetergentvalueshareof60%.Tidenowholdsa40%valueshareofUSlaundrydetergents,withbrandequityandnetpromoterscoresasstrongasthey'veeverbeen.

GainisthenumbertwobrandintheUSdetergentcategoryatovera15share.Bothoftheseleadingbrandshavegrownmarketshareoverthepast12,sixandthreemonthperiods.

TheTideandGainbrandshaveprovidedabroadplatformforunitdoseinnovation.Theyaretrustedleadingbrandsthatconsumersarewillingtotrytheirnewproductofferings.ItwouldtakealotlongerandcostalotmoretogeneratetrialofPodswithasignificantlysmallerbrandoracrossaportfolioofseveralbrands.

TidePodsandGainFlingshavereachedacombinedvalueshareofover10%oftheUSlaundrymarket,andP&G'sshareoftheunitdosesegmentisnearly80%.WecontinuetoexpandPodsaroundtheworld,leveraginganothermultibillion-dollarbrand,Ariel.Weexpectourunitdoseproductsalonetoreach$1.5billioninsalesthisfiscalyear.

Downy,alongwithitssisterbrandLenor,isanothermultibillion-dollarfranchiseinthefabriccarecategory.It'sbeengrowingatahighsingle-digitrateoverthepastthreeyears,drivenmainlybythesuccessofourscentbeadsinnovation.Sincescentbeadswereanewproductforconsumerstoaddtotheirlaundryregimen,wecouldhavetriedtolaunchthemwithanewbrand.WechoseinsteadtoleveragethestrongequityofDownyandLenor,alongwithGainandBounce,tocommercializethisnewinnovation.

WelaunchedDownyUnstoppablesintheUSaboutfouryearsago.Sincethen,scentbeadshavegrown




to17%ofsalesinthefabricenhancercategoryandthecategoryhassustained3%growth.P&G'sbigbrandshaveearnednearlyan80%shareofthesegment.

Thelargestmaleandfemalegroomingbrands,Gillette'sFusionandVenus,haveproventobehugeplatformsforbladeandrazorinnovation.TheoriginalFusionrazorlaunchedinJanuary2006isstillP&G'sfastestbrandtoreach$1billioninsales.

We'vecontinuedthegrowthofFusionwiththeProGlideinnovationin2010andthebig,obvious,andpreferredFlexballinnovationlastyear.Fusionvalueshareofmalerazorsistrackinginthehigh50sandisup2pointsfromlastyear.TheFlexballrazorhandleinnovationhastranslatedintosharegrowthoncartridges.Fusionvalueshareofmalecartridgesisupmorethan2pointsversusayearago.

We'veput12millionFusionFlexballrazorsintothehandsofmenintheUSinlessthanayearsincelaunch.Andwe'renowextendingthebreakthroughrazorinnovationtoVenus,themarket-leadingfemalerazorbrand,withVenusSwirl,whichbeganshippinginFebruary.

Earlyconsumptionresultsareverystrong,andlessthanthreemonthssincelaunch,we'vesoldover1millionSwirlrazorsintheUS.AndVenus'svalueshareoffemalerazorswasupmorethan10points,nearly65%inMarch,thefirstfullmonthVenusSwirlwasavailable.

ThesenewinnovationsfromGillettehavehelpedreversethedecliningvaluetrend--marketvaluetrendinUSbladesandrazors,improvingyear-on-yeargrowthratesby3pointsversusthe12monthspriortotheFlexballlaunch.Consumerssignificantlypreferthesebetterperformingproducts.Themarket-leaderconsumertrustedFusionandVenusbrandsaredrivingawareness,trial,andshareresultsfromnewinnovationsthatwillbemoredifficultforanewsmallerbrandtoachieve.

We'retakingasimilarapproachinthefemaleincontinencecategory,leveragingourmultibillion-dollarAlwaysbrandtoenterthis$7-billionfaster-growingglobalcategory.WebeganshipmentsofAlwaysDiscreetintheUKinJuly,andtheUS,Canada,andFranceinAugust.

IntheUK,theadultincontinencecategoryisgrowingdoubledigits,roughly50%fastersinceourentry.TheUScategorygrowthratehasalsomorethandoubledtoaround9%,withP&Gvalueshareexceeding10%inthemostrecentfour-weekperiod.We'vecontinuedtheexpansionofAlwaysDiscreetwithlaunchesintoGermany,Switzerland,andAustria,withmoreEuropeanmarketscomingsoon.

Afewofourleadingbrandsarenotgrowinglikeweknowtheycan.We'rebringingthesamestrategicfocusandoperatingdisciplinetothesebrandsthatwehavetotheonesI'vejustmentioned.Ensuringthebrandstrategiesandbusinessmodelsareaimedatdelightingthetargetconsumer,buildingstrongpipelinesandportfoliosofconsumermeaningfulproductinnovation,ensuringSKUassortmentandbrandpresenceareattractiveandeasytoshopattheshelf,andensuringthatmarketingandsalesprogramspersuasivelyconveythevalueandrelevanceofourbrandsandproductbenefitstoconsumers.

Anotheropportunitydirectlyinourcontrolisproductivity.Wehavemadeverygoodprogressandhavealotofrunwayremaining.Wehavesignificantlyacceleratedandwillsignificantlyexceedthecostsavingsandoverheadenrollmentgoalswesetthreeyearsago.We'redrivingcostofgoodssavingswellabovetheoriginaltargetrunrateof$1.2billionperyear,with$1.6billionofsavingsthisfiscalyear.

Weexpecttoimprovemanufacturingproductivityby5%thisyear.Thiswillbringcumulativepastthree-yearmanufacturingenrollmentreductionto15%,includingnewstaffingnecessarytosupportcapacityadditions.Onasame-sitebasis,enrollmentwillbedownnearly20%overthispastthreeyears,enabledbytechnology,andourintegratedworksystemsapproach.

Weexpecttostartupatleast18newplantsormodulesinthedevelopingmarketsinthenextfewyears.




Thiswillnotonlyhelpourforeignexchangeexposure,butwilldrivemanufacturing,transportation,andcustomsanddutiessavings.

Aswestartupthesenewsites,wehaveopportunitiestoapplytechnologyandautomateinanaffordablewayandtoclosecoupleandintegratefurtherwithsuppliers,deliveringadditionalmanufacturingefficiencies.

Indevelopedmarkets,wehavebegunworkonwhatisthebiggestsupplychainredesignintheCompany'shistory.We'redesigningthesupplychaintoaccelerateconsumerpreferredproductstomarketandtomakeanddistributetheminboththecustomerservicepreferredandcost-advantagedway.

SupplychaintransformationbeganwiththedistributionnetworkintheUnitedStatesconsolidatingcustomershipmentsintofewerCompanydistributioncenters.Thesedistributioncentershavestrategicallylocatedclosertokeycustomersandkeypopulationcenters,enabling80%oftheCompany'sbusinesstobewithinonedayofthestoreshelfandtheshopper.

Allsixofthenewdistributionalandmixingcentersareupandrunning,allonoraheadofschedule.Weexpecttocompletetheconversionoutoflegacylocationsthisyear.Inadditiontolowercosts,thistransformationwillallowbothP&Gandourretailpartnerstooptimizeinventorylevelswhileimprovingserviceandon-shelfavailability.

InFebruary,weannouncedthatwewillbeconstructinganewmulti-categorymanufacturingfacilityinWestVirginia,thenextstepintheNorthAmericansupplychangeredesign.We'vetakenthefirststepsinthetransformationofourEuropeansupplychain.WerecentlyannouncedtheconsolidationofdistributioncentersinFranceandtheUKandtheconsolidationofmanufacturingforsomehomecareproductsintoourplantsinItaly.

Weseea$1-billionto$2-billionvalue-creationopportunityfromtheglobalsupplychainreinventioneffort.Wearetargetingtobuild$400millionto$600millioninannualcostsavingsoverfiveyearsandareexpectingtop-linebenefitsformoreeffectivecustomerserviceandreductionofout-of-stocks.Thisvalueandthesesavingsareincrementaltothe$6billionofcost-of-goodssavingsweoriginallycommunicatedandareontracktoexceed.

ThroughMarch,we'vereducednon-manufacturingoroverheadenrollmentbyover19%,nearlydoublethe10%reductionweinitiallyenvisionedwhenwelaunchedourrestructuringprogram.Wecontinuetoevolvetheorganizationdesignsothatisbusiness-focused,startingwithconsumersandcustomers,andsothatitissimpler,moreeffective,moreresponsive,andmoreefficient.

We'veorganizedaroundindustry-basedsectors;wearestreamliningandde-duplicatingtheworkofbusinessunitsandsellingoperations;we'veconsolidatedfourbrand-buildingfunctionsintoone.Eachofthesechangesreducescomplexityandeachcreatesclearaccountabilityforperformanceandresults.

Amorefocusedportfolioofbrandsandbusinesseswillenablefurtherorganizationchanges.Weshouldbeclosetothehighendofourestimated16%to22%non-manufacturingenrollmentreductionrangebytheendofthisfiscalyear,morethanayearaheadofplan,withadditionalopportunityremaining.Asaresult,weareincreasingouroverheadenrollmentreductiontargetto25%to30%,excludingdivestituresbytheendofFY17,reflectingadditionalopportunitieswesee.

Thethirdcostareawherewecontinuetohavesignificantsavingsopportunityismarketing.Byfollowingtheconsumer,weareimprovingmarketingspendingeffectivenessandefficiencytodelivermorewithless.We'reshiftingmoreadvertisingtodigitalmedia,search,social,video,andmobile,whichiswhereconsumersarespendingmoreoftheirtime.




Onenon-mediacostareathatofferssignificantopportunityisagencyspending,whichincludesfeesandproductioncostsforagenciesweuseforadvertising,media,publicrelations,packagedesign,anddevelopmentofin-storematerials.

Weplantosignificantlysimplifyandreducethenumberofagencyrelationshipsandthecostassociatedwiththecurrentcomplexityandinefficiency,whileupgradingagencycapabilitytoimprovecreativequalityandcommunicationeffectiveness.Weseeanopportunityforupto$0.5billionincostsavingsinthisarea,alongwithstrongercommunicationtoconsumersacrossalltouchpoints.

Theseefficienciesareenablingustomaintainstrongmediaweights,despitethecoststructurewe'refacingfromforeignexchangeandtoreinvestinallelementsofthemarketingmixtoimproveourpositionsandsupportnewinnovationslikeAlwaysDiscreet;FusionFlexball;VenusSwirl;DownyUnstopables;andTide,Gain,andArielunit-dosedetergents.

Productivity-drivencostsavingscontinuetobeakeyenablerofoureffortstostrengthenprofitabilityindevelopingmarkets.Constant-currencyearningsgrewtwotimesfasterthansalesindevelopingmarketsin2013,fourtimesfasterthansalesin2014,andareforecasttogrowsixtimesfasterthansalesthisfiscalyear.Overthosethreeyears,we'llhavegrowndevelopingmarketconstant-currencyearnings13%,28%,and27%respectively.Intotal,we'reforecastingdevelopingmarketmargins,includingFX,tobeupabout40basispointsfortheyear.

Wearefocusedondrivingproductivityimprovementupanddowntheincomestatementandacrossthebalancesheet.Disciplinedworkingcapitalmanagement,strongexecutionofoursupplychainfinancingprogram,andthescarcitymentalityincapitalspendingwillcontinuetodrivestrongcashflowresults.

Withthat,letmeturntoguidance.AswelooktotheApril/Junequarter,productivitysavingsshouldcontinuetogrow.Thebenefitsfromportfoliostrengtheningandsimplificationshouldcontinuetobuild.Oil-basedcommoditycostsshouldbecomeatailwindandadditionalforeign-exchange-relatedpricingwillkickin.

Withjustonequarterremaining,wenowexpectorganicsalesgrowthoflowsingle-digitsforthefiscalyear.Pricesshouldbeasignificantcontributortosalesgrowthagaininthefourthquarter,whichshouldmorethanoffsetpressureonunitvolumegrowth.

FXwillcontinuetobeheadwind,andwewillcontinuetoinvestincategory-leadingestablishedbrandslikePampers,Tide,andGillette,andproductintroductionslikeAlwaysDiscreetandVenusSwirl,andR&Dforfutureinnovationandsalescoverageandeffectiveness,andincapabilitiesandpeoplethatwillenhanceourchancesofsuccessinthenear,mid,andlongterm.

Wearemaintainingouroutlookfordouble-digit,constant-currencycoreearnings-per-sharegrowthforthefiscalyear.Weexpectforeignexchangetohaveabouta13-pointimpactoncoreearnings-per-sharegrowthfortheyear.We'remaintainingourcoreearnings-per-shareguidancerangeofinlinetodownlowsingledigitsversuslastyear'scoreearningspershareof$4.09.Withthecurrentforeign-exchangeoutlook,weexpecttobetowardthelowerhalfofthisguidancerange,consistentwithanalystconsensusestimates.

We'reforecastingall-insalestobedown5%to6%forthefiscalyear;thisincludesthe6-to7-pointnegativeimpactfromforeignexchangeanda1-pointimpactforminorbrandinvestitures.

Weexpectall-inGAAPearningspersharetobedown21%to22%versusthepriorfiscalyear.Thisincludesapproximately$0.83pershareofnon-corecosts,primarilyfrom$0.63pershareofnon-cashadjustmentstocarryingvaluesoftheDuracellbusinessand$0.20pershareofnon-corerestructuringcharges.




Asyouconstructyourfourth-quarterearnings-per-sharemodels,keepinmindthatseveraloftheminorbranddivestituresImentionedearlierareexpectedtocloseinthefourthquarter.Altogether,we'reexpectingabout$0.04pershareofnon-operatingincomegainsincoreearningspershareversustheprioryear.

Reflectingthesameproductivityfocuswe'rebringingtocostsavings,wearenowforecasting100%adjustedfreecashflowproductivity,abovepriorguidanceofatleast90%.Keyenablersofthisstrongcashproductivityincludeimprovedresultsonpayables,includingcontinuedprogressonoursupplychainfinancingprogramandsteadyimprovementsoninventorymanagement.

Wearemaintainingouroutlookforcashreturntoshareholders.Weplantoreturncashtoshareownersthroughdividendpaymentsofmorethan$7billionandsharerepurchaseofapproximately$5billion.Thisguidancerangeassumesmid-Aprilspotratesforforeignexchange.Furthersignificantcurrencyweakness,includingVenezuelaisnotanticipatedwithinthisguidancerange.

Ouroutlookisbasedoncurrentmarketgrowthrates,whichwearemonitoringclosely,especiallyinmarketswherewearetakinglargepriceincreasestooffsetcurrencyimpacts.WealsocontinuetomonitorunrestinseveralmarketsintheMiddleEast,RussiaandtheUkraine,andwecontinuetocloselymonitormarketslikeVenezuelaandArgentinawherepricingcontrols,importrestrictions,andaccesstodollarspresentrisk.

Ontheflipside,ourguidancedoesnotreflectsomepotentialtailwinds.Ourresultscouldimproveifcurrenciesease,ifmarketsbegantoexpandinasustainableway,orifUSeconomicgrowthaccelerates.

Steppingback,wearecontinuingtoinvestinourbrandsandproducts,andincriticalCompanycapabilitiesthatwillenablemuchbetterconsumerandcustomerresponsiveness,withsystemsthataremoreagile,faster,better,andcheaper.Wecontinuetoinveststrategicallyinadditionalcapacityforcriticaldevelopingmarkets,andwecontinuetorationalizeourmanufacturingprocessessothatcommon,simpler,andmoregloballystandardmakingandpackingplatformssupportacceleratedproductinnovationandalowercash,capital,andoperatingcosts.

Wecontinuetoevolvetheorganizationdesignsothatitisbusiness-focused,startingwithconsumersandcustomers,simpler,moreeffective,moreresponsive,andmoreefficient.Wecontinuetoinvestselectivelyinsalescoverageandmerchandisingtoimproveexecutionforshoppersinstoresandonline.Wecontinuetoinvestselectivelyinproductinnovationtechnologiesandproductinitiativeacceleration.Weareimprovingourdigitalande-commercecapabilitiesandarereinventingoursupplychain.

Throughthistransformation,wearecreatingamorein-touch,agile,coordinated,andintegratedorganizationthatputswinningwiththeconsumerfirst.Wearesharpeningourstrategiesandbusinessmodels.Weareoperatingandexecutingwithmoreconsistency.Thesearethechoicesandthecapabilitiesthatwillenablebalancedgrowthandvaluecreationinthemid-andlong-termasweworkourwaythroughthecurrencydevaluationsintheshortterm.

Thatconcludesourpreparedremarksforthismorning.Asareminder,businesssegmentinformationisprovidedinourpressreleaseandwillbeavailableinslides,whichwillbepostedonourwebsite,www.pg.comfollowingthecall.NowI'dbehappytotakequestions.

QUESTIONS&ANSWERS

Operator :

Thankyou.(OperatorInstructions)

YourfirstquestionwillcomefromBillSchmitzfromDeutscheBank.




BillSchmitz (Analyst-DeutscheBank):

Goodmorning.

JonMoeller (CFO):

Goodmorning.

BillSchmitz (Analyst-DeutscheBank):

Hey,canyoujusttalkaboutthefirstderivativeimpact,thestrongdollar?Sowhat'sgoingoninsomeoftheemergingmarketswithsomeofthebigpriceincreasesyou'vetaken?Andthenyoulookatsomeofthe[scanrate]intheUSanditsclearingcategorieslikeshampoowherepercentageofsalesandACVismassivelyspiking.

L'OrealistalkingaboutseekingrevengeHenkelislaunchingPersilexclusivelyatWalmart.Socanyoujusttalkaboutwhatthatisrelativetoyourexpectationsandhowyouplanoncombatingthatgoingforward?Thankyou.

JonMoeller (CFO):

Thankyou,Bill.First,Iwouldsayit'sstillrelativelyearlyinthedevelopmentofthat,thedevelopmentofwhateverdynamicoccurshere.Butsofar,marketshaveheldupfairlywell.AsIsaid,it'sprettyearly,sowereallywon'tknowtheimpactsinmarketslikeRussiauntilnextquarterorthequarterafter.

Ithinkyou'veseenfromseveralofthecompaniesintheindustrythathavereportedthroughthelastquartertheRussianmarketwasactuallyup,astheyanticipateapriceincreasewascoming.Soagain,wehaven'tseenasecondlagthere.

WhatIwouldtellyou,broadlyisthat,andI'llgettotheUSinasecond,butindevelopingmarkets,thosecurrencieshavedevaluednotjustversusthedollar,butalsoversustheeuro.IfyoutakethecaseofRussia,whichwetalkedthroughinsomedetailinthelastcall,there'severyreasonforbothlocalcompetitorsandmultinationalcompetitorstobepricinginmanyofthesemarkets.Andthat'sgenerallywon'tbeinearlydayswhatweareseeing.

Asitarelatestotheoverall,theoverallpromotionalenvironment,competitiveness,etc.,andreflectingspecificallyontheUS,ifwelookatthepercentageofvolumethatwassoldonpromotionintheJanuarytoMarchquarter,itindexesat100,soitwasidenticaltolastyear.Andifyoulookatitsequentiallyquartertoquarter,there'sverylittlechange.Thatdoesn'tmeanthatitcouldn'tchange,butthat'sthedatathusfar,andthat'sconsistentwiththedynamicsinourownbusiness.

Obviously,bycategory,youmentionedhaircare;wemayseemorepromotioninonequarteroranother.There'sobviouslypromotionascompetitorsandourselvesintroducenewproductsandaretryingtogeneratetrialsofthoseitems.Buttodate,there'snothingfromeitheradevelopingmarketstandpointoradevelopedmarketstandpointthatwouldindicatesystemicchange.

Operator :

OurnextquestionwillcomefromDaraMohsenianofMorganStanley.

DaraMohsenian (Analyst-MorganStanley):

Hey,goodmorning.

JonMoeller (CFO):




Goodmorning,Dara.

DaraMohsenian (Analyst-MorganStanley):

SoIjustwantedtotalkalittlebitaboutEPSguidance,andclearlyyou'rekeepingtheEPSguidanceheredespitetheFXhitandorganicsalescomingin,thatarenowexpectedtocomeinabitbelowwhatyouoriginallyexpected.Doyouthinkyou'restretchingtheorganizationheretohittheseEPStargets?Itseemslikeeveryyearwe'vegotthishockeystickinQ4earnings.

You'venowgotsomegainscomingthroughQ4earningsinQ4;adspend'sbeendownoverthelastfewyears,andIknowalotofthatistheexternalenvironment.Clearlymacrosareworkingagainstyou.ButI'mjustwonderingiftherewasathoughtprocessasyoulookouttonextyearintheearningsguidancethat,givensomeofthisexternalvolatilityandsomeoftheinternalissues,youmightneedtoprovideyourselfmorecushionroomwhenyoulookatguidanceversuswhathasbeenthecaseoverthelastfewyearshere?Thankyou.

JonMoeller (CFO):

Soyoumakeacoupleofgoodobservationsthere,Dara.Letmetrytoaddressthemholistically.Intermsoftheforecastandguidance,we'llobviouslygetintothatinmorespecificsinAugust.We'rejustinthemiddleofourprepseasonrightnow.

Butthereisalmostnoamountofcushiononwhichyoucanbuildinthatovercomes$1.5billionofafter-taxforeignexchangecost,themajorityofwhichwerenotanticipatedbasedonspotmarketsaswewentintotheyearandstructuredourbudgetslastyear.

Butthatdoesn'tmean,Iagreewithyourpoint,thatweneedtoprovidesufficientroomtoinvestinthebusiness,andfrankly,wehavenotpulledoffinthatregard.Wehavecontinuedtoinvest,asItriedtomakeclearinmyremarks,incertainpartsoftheorganization,bothR&Dandsales.Wecontinuetoinvestinourbrandandproductplatforms;wehavecontinuedtoinvestintheredesignofoursupplychain;we'vecontinuedtoinvestinnewproductlaunchesandthat'sclearlygoingtocontinuethroughnextquarter.

We'rejustinthefirst-quarterlaunchesofthingslikeVenusSwirlandAlwaysDiscreet,andtheywillreceivefullsupport.Aswell,forinstance,thelaundryinnovationsthatIbrieflymentionedinouropeningremarks.

Sowhatallowsus,ifFXisgoingtocontinuetobeaheadwindandwearegoingtocontinuetoinvest,whichweare,whatallowsustodeliverthefourth-quarternumberthat,asyourightlypointout,willbemateriallybetterthanthefirstthreequarters.Wewillhave,asImentioned,commoditycosttailwinds.Wewillhavethefullbenefitofthisyear'sproductivitysavings.

Pricingforsomeofthecurrencieswillbegintokickin;therewillbeaminorimpact,aswenotedonaminordivesturegains.Butit'sthoseitems,lookatthe410basispointsofproductivitysavingsinthisquarter,whilewecontinuetoinvestinallofthethingsI'vetalkedabout.It'sacontinuationofthatthatshouldallowustodeliver.

Philosophically,Ihavenodifference,I'mcompletelyalignedtowhatyou'resuggestingintermsofhowweconstructplansandbudgets.AndIthinkourcurrentplanandbudgetisconstructedthatway.Recall,inthemiddleoftheyear,wetookearnings-per-shareguidancedown,sowe'renotaslavetothat.AsI'vesaidmanytimes,ifI'veprovenanythingoverthelastsixorsevenyears,it'sthatI'mnotconstrainedbyguidance.

Sowewillcontinueinvesting,butwewillcontinuetodevelopproductivitysavingsaswell.Andweare




hopefulthatreinvestingtherightamountofthoseinthetoplinewillgetboththetoplineandbottomlinegrowingatveryattractiverates.

Operator :

WewillnowmoveontoJohnFaucherofJPMorgan.

JohnFaucher (Analyst-JPMorgan):

Thankyou.Jon,canyoutalkalittlebitaboutgrossmargin?You'vedeliveredgrossmarginexpansionacoupleoftimesnow,despiteprettyweaktopline.Andit's--we'reseeing--itseemslikewemightbeseeingone-offmixbenefitsfromthatstandpoint,intermsoflessemergingmarketsorpotentiallygroomingbeingbetterthat'sdrivingthat.

Socanyoutalktousabouttheprogressionongrossmarginaswelookoutoverthenextcoupleofquarters?Doyouneedone-offthingstohappenwithinthosequartersinordertogetthere?Andwhatdoyouthinkistherateofbenefitcomingfromlocalmanufacturing,particularlyintermsoflesseningthemiximpactovertime?Thankyou.

JonMoeller (CFO):

Sothebiggestdriverofgrossmargin,byfar,weretheproductivitysavingsof250basispoints,andthat'snotonetimeanddoesn'trelyoncertaincategoriesgrowingfasterthanothers.That'sthere;it'ssystemic.Isuspectwewillmaintainorincreasethat,andIexpectgrossmargintocontinuetoimprovenextquarter,whichwouldmakeit,Ithinkthreequartersinarow,whichagain,issomeindicationofthesystemicimprovementthere.

Therewassomebenefit,asyourightlymentioned,frommix,whichisfrankly,thedevelopinganddevelopedmarketsgrowingatcloserratestoeachother.Andifdevelopingmarketsweretoaccelerate,thatmixbenefitwouldbeslightly--excuseme,thatmixhurtwouldbeslightlyincreased.

Intermsofthebenefitoflocalmanufacturing,thatcontinuestobuild;it'spartofthe250basispoints.Ihonestlydon'tknowexactlyhowthatbreaksoutintermsofbasis-pointimprovement,butJohnandKatiecanhelpyouwiththat.Butitissignificant,andasImentioned,we'remakingverygoodprogressondevelopingmarketmarginsthroughthatandotherdynamics,includingpositivemixdevelopmentsasthosemarkets,insomecasespremiumize.

AndasIsaid,we'regoingconstant-currencyearningsaheadofconstant-currencysalesgrowth2Xthreeyearsago,4Xlastyear,6Xthisyear,andthat'satrendthatshouldcontinue.

Operator :

WewillnowtakeaquestionfromOliviaTongwithBankofAmericaMerrillLynch.

OliviaT ong (Analyst-BandofAmerica-MerrillLynch):

Thankyouverymuch.Jon,withorganicsalesnowhavingdeceleratedabitmore,canyoutalkthroughsomeoftheincrementalbiginitiativesthatneedtobetakentodriveimprovements?Becauseitseemsabittoosimpletosaythatgettingoutofsomeoftheslowergrowingcategoriesandtheportfolioshipisgoingtobeenough.Isitafunctionofconsumersacrossanumberofcategories,notjustwithinHPC,butacrossstaples,sortoftradingoutabiggerbrandwhichhaspotentiallymorenichierofferingshereandthere?

JonMoeller (CFO):




Thankyou,O livia.Ourlargestbrandsareourfastest-growingbrands.That'strueoverafive-yearperiod,overathree-yearperiod,overaone-yearperiod,anditwastruelastquarter.SoI'mnotdisputingthedynamicthatyoudescribeintermsofsmallerbrands'impactinsomecategories.Ithinkit'smoreprevalent,forexampleinsomeofthebeveragecategoriesandfoodcategories.

Butanyperiodoftimewelookatconvincesusthatalongwiththeintuitivebenefitsandbigbrandplatformsintermsofinnovation,importancetoretailers,etc,convincesusthatthisisabusinessmodelthatwillcontinuetoworkforus.

Intermsof--youmentionedorganicsalesdeceleration,Ijustwanttoputthatincontextalittlebit.Ireally--reallyIsdon'tseesignificantdecelerationandletmeexplainthat.Weroundeduptotwoforthelasttwoquarters;thisquarterweroundeddowntoone.We'retalkingverysmalldifferencesquartertoquartersequentially.

ImentionedinmypreparedremarkstheimpactthatthetimingoftheconsumptiontaxincreasehadinJapan.Thatitemalone,ifyoutakethatoutoftheresults,wewould'veroundedto2.Mypointisnotthatthat'sameasureofvictoryordefeat;mypointissimplythatIdon'tseeanysystemicdecelerationinthesalesquartertoquarter.

Portfolio,asyourightlyindicate,willhelppromotethetop-lineandthebottom-line.Andyouareabsolutelyright,thereisadditionalworkonbrandsintosomemarketsweneedtodotofullymaximizegrowth,andImentionedthoseinmypreparedremarksaswell.

WehaveworktodoinMexicothatwe'regettingthroughthatverynicely.WehaveworktodoinChina,andasImentioned,Chinagrowthratescontinuetobegood,sothatalllooksprettyreasonable.

Andasyouknowfromourresults,wehavecontinuedworktodoinbeauty,someofwhichwillbeaddressedthroughtheportfolio,andsomeofwhichwearecurrentlymakingsignificantprogresson.

Ithinkwhenyoustepback,andIrealizeit'salittlebitdifficulttosee,andIcertainlyappreciatethat,butwe'rereallyontrackoraheadwitheverythingwearetryingtodototransformthisCompanytoamoresustainable,morereliablegrower,onboththetopandbottomline.Andthatgetslostinthemessinessofexecution,ifyouwill,andfrankly,throughthefogofFXcurrently.

Butweareveryhappywithwherewesitintermsoftheprogresswe'remakingonboththeportfolioandonthebrandsthataregoingtoconstitutethenewCompany.

Operator :

NowwewilltakeaquestionfromChrisFerrarafromWellsFargo.

ChrisFerrara(Analyst-WellsFargoSecurities):

Thankyou.Jon,IguessIapologizeinadvanceforalongquestion,butinventoryreductionsandunprofitablepromos,right,thatyouguyshavebeenbackoutof,Iguess.Iwantedtotalkalittlebitabout.

Socanyourevisit,specifically,thedriversoftheweaknessinMexico?BecauseIknowyou'retalkingaboutconsumptiontax.Ithinktherewassomeexitingofsomeunprofitablepromotion.Ithinkyou'realsocitingsomeinventoryreductions.Socanyouatleastgivemorespecificsaroundhowthoseissuesaremayberelated?

AndthenforMexicoandforChina,howlongdotheseinventorycorrectionstake?IknowinChinaUnileversortofrippedtheBand-Aidoffandtooka20%hit.Doyouhaveadefinedstrategyonthisand




howlongwillitdrag?

Andthenjustlastly,arethereanyothermarketswherethisstuffishappeningmaybejustevenonasmallerscale?Thankyou.

JonMoeller (CFO):

Thankyou,Chris.LetmedealwithMexicofirst.Thiswassimply--inanyofthedevelopingmarkets,thesupplychainsfromamanufacturer'sdoortoastorearelongandlayered.Chinaasanexample,you'regoingthroughdistributors,wholesalers,secondarywholesalers.

Andsowhenthere'sasignificantchangeinmarketgrowthrate,astherewasinMexicoasaresultoftheconsumptiontaxincreaselastyear,astherehavebeeninChina,asmanyofourcompetitorshavereported,thereisalotofinventoryinthesystem,whichneedstogetdrawndown.Andyou'renotincompletecontrolofhowquicklythatcanbeaccomplishedbecauseyouarenotowningallofthatinventory.Butwe'reworkingourwaythroughthat.

InMexico,ifyoulookatgrowthratesquartertoquarter,they'veimprovedsignificantlyontheorderofmagnitudeof10points.AndweareexpectingsignificantfurtherimprovementinAMJ,soIwouldsaythatone,wearelargely,atleastfromavisibilityhorizon,weseeourwaythroughthat.

ChinaasImentioned,ifyoulookatconsumption,we'reinaverygoodplaceinChinaandinmanycategories.We'reprobablytwoquartersintotheinventoryreductionthatneedstooccur,andthat'slargelyconsistentwithwhatourcompetitorshavereportedaswell.Iwouldsaywe'vegotanotherquarterortwotogothere,andthenwehavesomestructuralworkthatweneedtodo.

ButasIsaid,thesearelarge,developingmarketswithverycomplicatedlong-layeredsupplychains,andthesearedynamicsthatareaffectingtheindustrybroadly.Butoncewe'rethroughthem,it'sbacktobusinessasnormal,andwecompeteonthebasisofthestrengthofourproductsandbrands,andwefeelverygoodaboutthat.

Iwouldtellyou,Chris,thattherearenootherlargeissueslikethisthatI'mcurrentlyawareof.Wewillhaveto,andwe'vetalkedaboutthisseveraltimes,havetomanageverycarefullyinsomeofthemarketswhereourcurrencydevaluationhasbeensignificant,becausethosemarketsizescanchangeprettysignificantly,andwe'lldothat.

Operator :

AndnowwillgotoWendyNicholsonofCiti.

WendyNicholson (Analyst-Citigroup):

Hi,acouplethings.Firstofall,justafollow-uponChina.Iwaslisteningtowhatyousaid,andIguessIdon'tunderstandsomeoftheothercompanieslikeUnileverandColgatetalkedaboutdestockinginChinaasoflastsummer,ifnotearlier,andnowit'sonlyhittingyou.SoI'mjustcuriouswhydoesitseemthatthetimingisuniquetoonemanufactureratatime?That'sjustafollow-up.

Butthenthebiggerquestionis,fromavolume-growthperspectiveandhowitpertainstoyourlonger-termgrowthalgorithm,itjuststrikesmethatwe'veseenanenormousnumberofreallybig,maybenotenormous,butorderofmagnitude,reallybig,successfulinnovationsfromyouoverthelastfourquarters

Andyet,westillhaven'tseenmuchvolumegrowth.Andso,Iknowwe'regoingtogetintoiteasiercomps,butI--itdoesn'tsoundtomeliketheinnovationsthatarecomingdownthepikeareasbigasFlexballorasbigasPodsorFlingsorwhatnot.Andso,isthereachangeinyourlong-termoutlookforhowmuch




volumegrowthisgoingtocontributetothetopline?

Andlastone,Ipromise,justonthemarketingbudget.Iunderstandtheideaofdoingmorewithless,butgivenhowcompetitivethemarketisandgivenhowlowyourvolumegrowthis,whywouldn'tyouchoosetotakesomeofthoseproductivitysavingsandjustdomorewithmore?Thankyou.

JonMoeller (CFO):

Allright,first,intermsoftiming,differentcompanies,frankly,haveverydifferentproductmixesandtheymovethroughdifferentdistributionchannels.SoifyouthinkaboutUnileverwithalargefoodbusinessinChina,it'sverypossiblethattheycouldhaveadifferentdynamicthantheotherchannels.Andwe'retalkingdisplacementofonequarterhereorsomethinglikethat.Sothat'sthatitem.

Intermsofvolumeandinitiatives,thebiggestimpactonvolumehasbeenthepricingforFX,andthatwillcontinueuntilthosemarketsrecoveroruntilthatannualizes.Butourinnovations,ifyoulookatthebigonesthatyoumentioned,firsttheyarecontributingtobothcategorygrowthandsharegrowth,andcategorygrowthisarealindicationofthestrengthofaninnovation.Doesitlifttheentirecategory?AndwehaveseenthatbehindthethingsthatImentionedearlier.

Andthegoodnewsisthatthoselargelyhavebeenfullyexpandedinonemarket,theUS,andasweexpandthoseglobally,weexpecttoseethatsameimpact,justlikewedidwithAlwaysDiscreetinboththeUKandtheUS,forexample.

Sowe'reprettyoptimisticaswelookforwardaboutthestrengthofourinnovationprogramandwhatthatcandofromthetopline.We'regoingtohavetocontinuetomanagethevolumeimpactsofFX,butwe'rereallyfocusedontherevenuenumberastheleveragetogenerateoperatingprofitandcash,andwe'redoingreasonablywellthere.

Onmarketing,asImentioned,wearedoingexactlywhatyouwouldsuggestwewoulddo,Wendy,whichisinvestmorewhereitmakessensetodothat.AndtheseinnovationsthatI'vetalkedaboutourexactlyoneplacewherewearedoingjustthatandwewillcontinuetothat.

Theinvestmentbehindtheintroductionofnewbrand,intermsofAlwaysDiscreet,asyoucanimagineissignificant,andwe'reveryhappywiththatbecauseofthereturnthatwecangenerateandbecauseoftheimpactthat'shadonthosemarkets,whichare,asImentioned,havedoubledthegrowthrateversusthepre-entryperiod.

Sowe'renottalkinghereaboutconstrictionofmarketingdollars.Whatwearetalkingaboutisbeingasefficientandeffectiveaswecanandspendingthosedollarswheretheydrivereturns.

Operator :

AndnowwehaveaquestionfromStevePowersofUBS.

StevePowers (Analyst-UBS):

HiJon.Ijustwantedtodigintoyourcommentsonstrategyabitmore.Asyoustepback,asyoumentionedproductivityeffortshavebeensizableforanumberofyears,andtheyseemtoberunningaheadofplan.You'vemadesignificantshiftsinhowyou'reorganizedandnowhowyourportfolioisstructured,butalongsidethat,growthhasbeenastruggle.

AndIthinkwewouldallacknowledgethatthemacroenvironmenthasn'thelped.Butdoyouthinkthere'sariskthatallthisinwardlyfocusedchangeinoperationalimprovementhasactuallyimpededyoureffortstoexecuteonthelargerstrategythatyouarticulated,namelyuncoveringconsumerinsightsanddriving




consumer-preferredinnovations?Becauseitjustseemslikealltheseinternalimprovementsarecontinuallybeingoffsetbyrelativestrugglesinthatexternalmarketplace.

AndIdon'tmeanforthistobeanunfairquestion,butI'mjustwonderingatwhatpointit'sworthaskingwhetherorganicgrowthchallengesmayactuallybeexasperatedbyallthisinternalchange?Andwhetherimprovementmayhaveto,tosomeextent,justwaituntilthoseinternalprojectsruntheircourse?Thankyou.

JonMoeller (CFO):

Thankyou,Steve.That'sactuallyaverygoodandveryfairquestion,anditsomethingthatwecontinuetobeinactivedialogueonhereatP&G.We'rebeingverydeliberateaboutthepaceofsomeofthechangesandensuringthatwehavethecapacitytoexecutetoserveconsumers,toserveshoppers,andtodothatinamoreeffectivemannereveryday.Sothat'sexactlythequestionthatweaskourselves.

It'swhy,forexample,wesaidweweregoingtotaketwoyearstocompletetheportfolioprogram,asopposedtoovernight.Wehavethecapacitytodothatanddeliverthebusiness.

Soagain,Ithinkyouareaskingtherightquestion.It'sonethatweaskourselvesandwewillmakechoicesthatmaximizethetotal.That'soneofthebeautiesofthemetricthatwe'reworkingagainstintermsofoperatingPSR;it'sanintegratedmetric,whichdriveschoiceandbalanceacrossbothgrowthandvaluecreation.Wesimplycan'ttherewithoutonelegofthatstool;thethirdlegbeingcashcreation.

Soweareapproachingthisinaveryholisticsense,verycognizantoftherightquestionthatyouaskedandaretryingtogetthebalanceright.AsIindicatedearlier,wefeelverygoodaboutwhereweareintermsoftheprogressionagainstthosestrategicinitiativesthatyououtlinedandothers,includingtheredesignofthesupplychain.Andinmostofourbigbrandsandcategories,we'regrowingfairlywell.

AsImentioned,ifyoulookatgrooming,healthcare,babycare,andfamilycare,wegrewat9%,6%,and2%respectively.Sothat'snotanindicationofanysystemicpinchpoint,ifyouwill.Wherewehaven'tperformedaswellismoreafunctionofanindividualbusinessdynamic.

Operator :

AndnowwewillmovetoLaurenLiebermanofBarclays.

LaurenLieberman (Analyst-BarclaysCapital):

Thankyou.Goodmorning.

JonMoeller (CFO):

Goodmorning,Laura.

LaurenLieberman (Analyst-BarclaysCapital):

Goodmorning.Ihadafollow-uponthat,wastheideaofdoing--takingtwoyearsforthedivestureprocess.Towhatdegree,though,isthatcreatingorisitanydisruptiononemployeeswonderingaboutwhat'sbeingsoldandwhenorretailersorcompetitorslookingatthething?Ooh,wecanpounceonthebusinessorwethinkthatP&Gmaybedeemphasizing.Sowhatdegreedoyouthinkthatmayactuallybeweighingonorganicsalestrend?

TheotherthingwasthatJon,you'vebeentalkingabouthowyoufeelgoodinternallyabouttheprogressbeingmade.Yousaidbutit'sbeingmaskedbythemessinessofexecution.Maybethiswasn'tagreatwordchoice,butIfeelliketheonethingAGcommittedtonearlytwoyearsagowaswewillimprove




execution,andthatdoesn'tfeellikeit'shappening.

Sowhetherit'stheone-offthingsthatpopupwithChina,Mexicoandhonestly,I'mnotconvincedtherewon'tbeanotherbigone-offtwoorthreequartersfromnow.Whatisitthathasorhasn'tchangedontheexecutioninthemarket?Thankyou.

JonMoeller (CFO):

Wellletmetacklethatlastonefirst.Itwasapoorwordchoice;Ishould'vesaidthechunkinessofexecution.Frankly,we'vebeenveryintentionalinthefocusonimprovingexecutionandfeelverygoodabouttheprogressthatwe'remakingthere.SoIapologizeforthatwordchoice,buttherearejustbigchunksmovinginandoutaswemaketheseverybigtransformationalmoves,whichcanbutterthingsupalittlebit.

Intermsoforganicsalesgrowthandtheportfolioimpact,ifyoulookatthebusinesses,takeDuracellasanexample,whichiscurrentlyworkingtotransitiontoBerkshireHathaway.Buttheentireperiodthatthebusinesswasworkingonthatprojectleadinguptothesigningofthedealandpostthesigningofthedeal,managingthroughtransition,thatbusinesshasheldupextremelywell.It'sbuildingmarketshare.

Iwon'tgointothedetails,butseveraloftheotherbusinessesthatwewillbelookingtosellarealsoperformingverywell.Inotherwords,growthrateswellabove100indexversusyearago.SoIthinkwe'vegotabouttherightbalanceintermsofthepaceatwhichwearemovingandtheworktobedone.AsIsaid,itissomethingthatwerelookeveryday,butit'snotamajorconcernatthispoint.

Operator :

AndnowwehaveaquestionfromNikModiofRBCCapitalMarket.

NikModi(Analyst-RBCCapitalMarkets):

Yes,goodmorning,guys.Justtwoquickonesforme.Jon,someinthemediaworldwouldsuggesthatP&Gistakingitsmarketingmixtoodigitalheavy.SoIjustwonderifyoucouldrespondtothatandyourperspectivearoundthat?

Andthenthesecondquestionisinyourpreparedremarksyouindicated(inaudible)rationalizationwilltakeplaceinthecoreportfoliothenextcoupleofyears,ifIheardthatright.Justcurioushowweshouldthinkaboutthatandit'simpactonorganicrevenuegrowthaswelookoutthenextcoupleofyears.Iknowyou'renotgivingguidance,butjusthowshouldwethinkaboutitfromamagnitudestandpoint?

JonMoeller (CFO):

TheseareSKUsthatareatthelong,fartailintermsofproductivity.Sowehavebusinesseswherethebottom20%oftheSKUsarelessthan1%ofthesales,andthesameistruewithprofit.SoIthinkifanything,byremovingtheclutter,byallowingustofocusonproductlinesandSKUsthatreallymattertoconsumersandcustomers,itshouldhaveapositiveimpactonthetopline,notanegative;theseare[eaches]insomecases.Buttheyaremeaningfulintermsoftheamountofcomplexitythattheycreate.That'strueinouroperation;that'strueattheshelf;that'strueinthewarehouse.

Intermsofourapproachtodigitalversustraditionalmedia,weviewedthisverymuchasand,notanor.Theycomplementeachother,sowelookatitveryholistically.Weareguidedinourchoicebytwothings:oneiswhereconsumersarespendingtheirtimeintermsofconsumptionofmedia.Weneedtobereasonablyinstepwiththat.

Andthesecondisdependingonthecategory,whatmediatheywanttointeractwithandlearnaboutour




productson,andthat'sdifferentacrosscategories.Sowe'regoingtobeguided,asineverythingwedobytheconsumer,andifwestaywiththatapproach,wewillprobablynotstraytoofarfromwhat'sright.

Operator :

AndnowwewillmovetoJavierEscalanteofConsumerEdgeResearch.

JavierEscalante (Analyst-ConsumerEdgeResearch):

Goodmorning,everyone.Jon,IhavetosaythatI'mstillhavingahardtimereconcilingthetop-linegrowthof1%,whereyourpositiveremarksaboutsomeofyourbigbrands,TideandPampers?TheflipsideoftheresponsethatyougavetoOliviaearlieristhatyoubasicallyaretellinginvestorsthatProcterperformanceinthepastquartershavebeenactuallyweaker,andorganicsalesonlyroundupto2.

Shouldn'tyoubeconsideringabiggerportfoliochangeorbreakupeven,giventhatsectorslikebeautyarenotonlygettingmorefermentedandsmallerthananyfoodandbeveragescategorythatyoualludedearlier?AndinsteadofreducingSKUsby15%and20%,asNikjustsaid,whatyouaregoingtohaveissubpar,top-linegrowthforthenexttwoyears?Thankyou.

JonMoeller (CFO):

We'regoingtotrytohavefullvisibilityontheportfoliomovesbythesummer,andIthinkwewillbeinapositionthentoarticulatewhywethinkthesearetherightmoves.AndsoI'mgoingtosavethatconversationforthatpointintime.

Butwearebeingthoroughinourapproachacrosseachofthecategoriesandbrands.There'snobusinessthatwehaven'tobjectivelyanalyzed,andsoIthinkwe'regoingtoendupinaprettygoodplaceinthatregard.

Intermsof--look,onthiswholethingofsmallbrandsandfragmentation,one,ourdatadoesn'tsupportthatbeinganissueformostofthebusinessesthatwe'regoingtomaintain.Second,wheredifferentiatedperformancemattersandwheredifferentiatedperformanceisdelivered,thisdynamicisnotgermane.

Soforexample,andI'llbringittobeautyinasecond,Javier,butifyouthinkaboutPampersasanexample,Ican'tthinkofanewmotherwhowouldbeaskingherselfwhereperformancereallymatters,wouldbeaskingherselfwhat'sthenewdiaperthatnobody'severtriedbefore?WherecanIdiscoverthenextdiaper?That'snotthethoughtprocess.

There'sajobthatneedstobedone.There'sabrandthathasprovenoverdecadesitcandothejob.Itcandoitbetterthantheotherofferingsthatareoutthere,andit'sofferedatapricethatcreatesagoodvalue.

Ifyouthinkaboutperformanceandwhereperformancemattersinabeautycontext,thinkaboutanti-dandruffshampoos.I'vegotaproblem,Ineedasolution.Thisisnottimetoexperiment,thistimetosolve.

Head&Shouldershasbeensolvingdandruffissuesfordecades.It'sabrandthatconsumersknowandtrust,andit'sofferedatareasonablevalue.SoIthinkwehavetothinkaboutthespecificdynamicsofacategory,theconsumerapproachtothecategory,therelevanceofinnovationofthecategoryanddifferentialperformanceasadriverofpurchase,beforewemakebroadconclusionsaboutwhetherfragmentationisgoingtooccurornot.

Andintermsofyourquestiononsplitup,again,let'swaituntilwehavetheportfolioinfrontofusandtalkaboutitatthatpoint.We'reverybullish.Andagain,thisisnotjustbasedonwhatwethinkisgoingtohappen;thisisbasedon10,5,3,and1yearsofdata,whichisveryconsistentinitsoutcome.Andthese




arecategoriesthatwehavelongtrackrecordsofwinningin,wherewearetypicallythemarketleaderwithbrandsandprototypesinthosecategories.

Operator :

AndnextwehaveJoeAltobellowithRaymondJames.

Unidentif iedPart icipant :

Hithisis[Christine]onforJoe.Ijustwantedtochangethetopicquicklyandgotocommoditycostsandwhetheryouarestillexpectingthattobea$500millionto$700milliontailwindnextyear?Andhowmuchofthatdoyouactuallyexpecttorecovernetofpricing?

JonMoeller (CFO):

Wewould--ourcurrentestimatewouldbemoreontheorderofmagnitudeof$600millionto$800millionofBTcommoditycostssavingsnextfiscalyear.Reallydon'thaveapointofviewyetonhowmuchofthatwe'llbeabletotaketothebottomline,asopposedtopassthroughinprice.

Soifyoujustreflectonthedynamicsintheindustry,thiswasanindustrythat,withtheexceptionofsomeinternationalcompetitorswhohaveFXtailwinds,ischallengedfromaprofit-growthstandpoint.Andthat'sadynamicthatgenerallysupportsusingthesesavingsasawaytohelpthatsituation.Sowe'rehopefulthatmanyofthesewillcometothebottomline,butthat'ssomethingthatwewillhavetoseeaswemoveforward.

Operator :

YournextquestionwillcomefromAliDibadjatBernstein.

AliDibadj(Analyst-SanfordC.Bernstein&Company):

Heyguys.Jon,you'regettingthesamequestionfrommanyfolksoverandoveragain,andI'mnotsurethemessageisnecessarilyclear,whichiswe'vebeenhearingalotofpromisethathelpisaroundthecornerforyears,years.Andeverybackhalfoftheyear,youkindoflimpacrossthefinishline;it'snotjustthisyear.

AndIguessformeatleast,IjustwonderwhetherP&Ghastherighttobeconsistentlyinashort-termoptimistatleast,givenitsrecenttrackrecord.Andnowthepromiseiswaittillwebreakup14%sales,6%ofoperatingcostoutofourbusiness,thingswillbemuchbetter.Butatthatpoint,howmuchlongerwouldwehavetowaitto--foryouguystodecidethatmaybesomethingevenbiggerhastohappen.Maybeyoureallygottorebaseyourguidance,andyoushouldbedeliveringdouble-digitEPSgrowth.MaybeyoureallyhavetobreakuptheCompanyevenfurther.

Ithinkthere'salotoffrustrationintermsoftryingtoseeresults,grantedthemacrostuff,grantedtheFX,butothershavethattoo.Howmuchlongerdowehavetowait,Iguess,isreallythecorequestion?Especiallyafterthisnextpromiseofdivestitures,howmuchlongerdowehavetowaitafterthat?Thankyou.

JonMoeller (CFO):

SolastyearyoumentionedFX,Ithinkyou'rerighttomentionthat.ExcludingFX,wegrew14%onthebottomlinelastyear.Thisyear,wewillgrowdoubledigits.Ithinkit'sprettyclearthattheoperatingimprovementsthatwe'remaking,productivityandotherwise,arecomingthrough.Andifitweren'tforFX,we'dbehavingaverydifferentdiscussionrightnow.




Wedohavebrandsandbusinesseswhereweneedtocontinuetostrengthenthetopline;wearecognizantofthat.Imentionedthat.Andthatiswhatitis.

Aswelookatthechangethatwe'reinthemiddleofexecuting,it'sprobablythebiggesttransformationthisCompanyhasgonethroughacrossthetotalityofportfoliosupplychain,organization,structure,anddesigned.AndasIsaid,it'shardtoseethatallcometogetheratthispoint.Buteachofthepieceswe'reveryhappywiththeprogress,andwe'llsee.

Operator :

YourfinalquestioncomesfromthedeskofCarolineLevyofCLSA.

CarolineLevy(Analyst-CLSALimited):

Goodmorning,thankyoumuch.Justaquestionaboutbeautyagain.O layandPantenearedifferentfromHead&Shouldersbecausethere'snotthisclearneedandpromiseanddelivery.SoifyoujustlookatOlayandtheperformance,IknowChinahasbeenveryproblematic,butaroundtheworld,whydoyouthinkP&Greallyshouldbeinthattypeofbusiness?

JonMoeller (CFO):

Whatfirstofall,Caroline,youngerlookingskin,Ithinkisarealneed.It'sincreasinglyaneedofminebeyondmyhair-careneed.AndI'mnotgoingtocommentonspecificbusinessesthatwe'regoingtobeinoroutagain.

We'lldothatwhenwearereadytodothat.Butthat'sabusinesswherefunctionandperformance--differentiatedperformancedoesmatter.It'swhatenabledustobuildoneofthelargest--thelargestfacialskincarebrandintheworld.Thatcontinuestohaveincrediblystrongequity,andfrankly,isgrowingsignificantlyinmanypartsoftheworldwherewehaven'tclutteredtheequityontheshelfasbadlyaswehave,forinstanceintheUSandinChina.

Iwasjust,acoupleweeksagointheGulf,intheMiddleEast,andthat'samarketwherethebrandarchitectureismuchcleanerandclear.Andthatbusinessisgrowingdoubledigits.ThesamethingistrueintheUKonOlaywhereagain,wehaven'tclutteredeitherthemessaging,theequity,ortheshelf.

Soskincareisclearly,lookatSK2asanexample;itdeliversaclearbenefitthat'scovetedbywomenparticularlyinAsia.Soit'snotabusinessthatisallaboutfashionsandstyle;it'saboutabusiness--it'sabusinessthat'saboutperformance.

Operator :

Ladiesandgentlemen,thatconcludestoday'sconference.

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