Clorox F1Q08 (Qtr End 9/30/07) Earnings Call Transcript

The Clorox Company (CLX)

F1Q08 Earnings Call

October 31, 2007 9:30 am ET

Executives

Steve Austenfeld - IR

Don Knauss – Chairman, CEO

Lawrence S. Peiros – EVP, COO

Daniel J. Heinrich – CFO

Beth Springer - EVP Strategy and Growth

John Replogle - President and CEO of Burt’s Bees

Analysts

Chris Ferrara - Merrill Lynch

John Faucher - J.P. Morgan

April Scee - Banc of America Securities

Lauren Lieberman - Lehman Brothers

Ali Dibadj - Sanford Bernstein

Amy Chasen - Goldman Sachs

William Schmitz - Deutsche Bank

Kathleen Reed - Sanford Financial

Nik Modi - UBS

Connie Maneaty - BMO Capital Markets

Joe Altobello - CIBC World Markets

Jason Gere – Wachovia

Linda Bolton Weiser - Oppenheimer

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Clorox Company fiscal year 2008 first quarter earnings release conference call. (Operator Instructions) I would now like to introduce your host for today’s conference call, Mr. Steve Austenfeld, Vice President of Investor Relations for the Clorox Company.

Mr. Austenfeld, you may begin your conference.

Steve Austenfeld

Great, thanks. Welcome, everyone and thank you for joining Clorox’s first quarter conference call. On the call with me today are Don Knauss, Clorox’s Chairman and CEO; Larry Peiros, Executive Vice President and Chief Operating Officer of Clorox North America; and Dan Heinrich, our Chief Financial Officer.

We are broadcasting this call over the Internet and a replay of the call will be available for seven days at our website, www.thecloroxcompany.com.

On today’s call, Larry will start with comments on the first quarter operating results, providing key business highlights as well as perspective on the current commodities cost environment. Dan will follow up with a review of the quarter’s financial performance as well as detail supporting our updated fiscal year ‘08 outlook as communicated in our press release this morning. Don will then conclude our discussion of our first fiscal quarter with his perspective on a recent performance and future expectations.

Following that, we will be joined by other members of management who will share additional information and perspective on the acquisition of Burt’s Bees, as was announced in our press release earlier today. We will then open it up for your questions.

Let me remind you that on today’s call we will refer to certain non-GAAP financial measures, including but not limited to: free cash flow, EBIT margin and economic profit. Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today’s press release, this webcast’s prepared remarks or supplemental information available in the financial information and results area of our website, as well as in our filings with the SEC.

Lastly, please recognize that today’s discussion contains forward-looking statements. Actual results could differ materially from management’s expectations. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results to differ materially from management’s expectations.

With that, let me turn it over to Larry.

Lawrence S. Peiros

Good morning and Happy Halloween. As you saw in our press release, we are off to a great start this fiscal year. Strong first quarter results across our businesses were driven by healthy top line growth and positive business mix. Sales were up 7%, with sales up 5% in North America and sales up 18% in international markets.

In North America, volume grew 5%, with strong shipments of the home care products, Hidden Valley salad dressings, Brita water filtration products, cat litter and double-digit gains in Canada behind strong base business growth and the recently bleach acquisition.

On the international side of the business, volume grew 11%, behind strong category growth in laundry and home care in Latin America, as well as the bleach acquisition. Our Australian business returned a positive, high single-digit volume growth behind increased shipments of trash bags and the new Chux Spray and Wet Wipes in the utensils category.

Dan will review the financial results in more detail in a few minutes. Before that, I’ll provide some overall perspective in three areas: (1) key brand building activity; (2) reinvigorating the grocery channel and (3) the commodity environment.

Starting with our key brand-building activity, we feel good about the programs we have in place to both grow our brands as well as grow the categories in which we compete. In home care, Clorox disinfecting wipes business returned a solid growth in the first quarter, despite competitive activity with double-digit volume games behind the launch of a new Label Street product improvement and incremental merchandising support. We also saw strong gains on other Clorox-branded home care products.

In food, we achieved strong sales in volume growth on Hidden Valley bottled salad dressings. We’ve recently seen the salad dressing category grow for the first time in more than a year, as Hidden Valley shares continue to increase behind our premium positioning and strong advertising.

On charcoal, we delivered double-digit sales growth behind volume gains and the benefit of price increases. Much of our Q1 success on charcoal was driven by the initiative designed to extend the barbecue season beyond Labor Day. The creative idea was promoting tailgating at home with the unique ESPN sports tie-in and high-impact in-store execution.

Brita also had a particularly good quarter driven by strong category consumption. We believe the Brita business may be benefiting from a sustainability trend related to consumer concerns about the impact of bottled water container waste. We have stepped up our public relations effort and entered into a partnership with Nalgene, a leading manufacturer of high-quality reusable water containers.

Finally, the integration of the bleach acquisition in Canada and several Latin American countries is going very well. We are tracking ahead of our objectives and see further growth opportunities beyond our original projections.

With respect to reinvigorating the grocery channel, we have talked a lot about a refocus on grocery retailers given higher profitability and the improving gross trends in that channel. We continue to focus on all of our key customers but we did make a choice to add incremental resources within grocery. I’m pleased to report that we saw solid growth in this channel during the quarter, a very positive change from the declining trend during the previous four quarters. Grocery will remain an area we need focus over the longer term and we are optimistic that this effort will generate both incremental sales as well as profit.

The last topic I want to highlight is commodities. In Q1, commodity pressure was greater than we had anticipated, as sharply rising energy costs caused resin prices to increase more than our original projections. Agricultural commodities like cornstarch that goes into charcoal and soybean oil used in salad dressings, also remain very high.

To help offset the impact of commodity pressure, we plan to increase prices on Kingsford charcoal by 6%effective January 2008. In addition, the execution of our previously communicated price increase on Hidden Valley is going well.

Beyond pricing, our aggressive cost savings programs are also a critical component of managing our profitability. For the full fiscal year, we continue to anticipate higher year-over-year commodity costs. Our outlook projects additional increase in resin cost, particularly in Q2. That said, we still believe that commodity costs will begin to decline in the back half of the year, but not as much as we had previously thought. We continue to forecast that resin costs will decrease over the next several years as additional capacity comes online in the Middle East.

To conclude, we had a strong quarter with better than expected results, despite continuing commodity pressure. Overall, we are building healthy brands, improving our channel mix and taking the right steps to mitigate the impact of rising commodities. As you’ll hear later from Don, the long-term outlook is promising as we work to make our Centennial Strategy come alive.

With that I will turn it over to Dan for a more detailed financial perspective.

Daniel J. Heinrich

Thank you, Larry. With that, let me walk you through our first quarter financial results. For the quarter, we delivered $0.76 in earnings per diluted share, reflecting strong top line performance, including the benefit of increased sales from higher margin businesses and also reflecting slightly lower Q1 restructuring costs than previously anticipated, due to the timing of the related initiatives.

On the top line, sales grew 7%, including 1 point from favorable foreign exchange and about 2 points from the recently acquired bleach businesses, while volume grew 6% versus the year-ago quarter, including about 1 point from the bleach acquisition.

Despite increased year-over-year investments in trade promotion spending to support brands facing competitive pressure, sales growth outpaced volume growth due to the benefits of favorable business mix, price increases and favorable foreign exchange. Given the competitive environment, increased year-over-year trade promotion spending is expected to continue into the second quarter and beyond.

As expected, first-quarter gross margin declined, coming in at 42.6%, compared with 42.9% in the year-ago quarter. Let me break down the 30 basis point decline. Gross margin benefited from about 180 basis points from cost savings and 50 basis points from price increases. These positive factors were more than offset by 140 basis points from higher expenses for manufacturing and logistics, which includes diesel costs and some restructuring charges; and 120 basis points from commodity cost increases, primarily from resin, but as well as agricultural commodities such as soybean oil and corn starch.

First quarter charges were $27 million for consolidation of our manufacturing networks and other charges the company decided to take in light of our Centennial Strategy. As a reminder, we continue to anticipate fiscal year 2008 total pre-tax charges to be in the range of $49 million to $58 million, of which $35 million to $39 million are non-cash. We anticipate the balance of this year’s charges of $22 million to $31 million to be spread fairly evenly across the quarters with about half hitting cost of sales which will have a dilutive affect on gross margin.

As previously communicated, in the first quarter we executed an accelerated share repurchase agreement or ASR. As a result of the ASR, first quarter interest expense increased due to the debt we incurred to finance the transaction. Final settlement of the ASR program is scheduled for no later than January 24, 2008.

The final number of shares the company is repurchasing under the terms of the agreement and the timing of the final settlement will depend on prevailing market conditions, the final discount of volume weighted share price over the term of the ASR program and other customary adjustments.

Turning to cash flow, we had a terrific quarter. For the quarter, cash flow from operations was $163 million compared with $133 million in the year ago quarter. Free cash flow increased 34% to $137 million or 11% of sales compared with $102 million or 9% of sales in the year ago quarter. We define free cash flow as cash provided by operations less capital expenditures. Q1 capital expenditures were $26 million compared with $31 million in the year ago quarter.

Our cash flow increases were primarily driven by higher earnings, excluding $25 million of non-cash charges. As you know, we focus on the company’s cash flow generation ability which has been our hallmark. We believe it’s an excellent indicator of the long-term performance of the company. But as a reminder, $0.01 of EPS equals but about $1.5 million after tax. So of variance of a few cents EPS in the quarter does not have a material impact on cash flow generation in that quarter.

Turning to our financial outlook for the year, we continue to expect organic sales growth in the range of 3% to 5%. Including the benefit of the recent bleach acquisitions and before the impact of Burt’s Bees, we anticipate total sales growth in the range of 4% to 5%. It’s possible we could be in the higher end of the range based on the potential of the Green Works launch, our efforts to revitalize grocery and some other positive trends we’re seeing in the business.

Gross margin for the year is now expected to decline compared with fiscal 2007. This reflects our current outlook for additional downside from commodities costs, particularly in the second quarter. Previously, we had assumed greater declines in resin costs over the balance of the year. Given current trends, we still anticipate declines in the second half but less than previously anticipated.

Our belief in moderating resin prices is based on capacity coming online in the Middle East. In light of our increased commodity cost outlook, we’re doing a number of things to help offset this impact including evaluating trade spending levels, marketing investments and administrative spending.

Additionally, we’re taking our cost savings target from $80 million the $90 million up to about $100 million for the full year. Of course we’re always looking to do more on the cost savings front. In addition to the charcoal price increase Larry mentioned, we’re also considering where additional price increases may be necessary, particularly with Glad.

Previously we anticipated our tax rate to be 35% to 36% for the fiscal year. We now anticipate our full year tax rate to be in the range of 34% to 35% based on our outlook for the timing of settlement of certain tax matters.

Due to all the factors I just discussed, our updated earnings outlook before the impact from Burt’s Bees is for fiscal year 2008 diluted EPS in the range of $3.33 to $3.50 which still includes $0.21 to $0.25 EPS impact from the charges we’ve discussed. This increased EPS outlook primarily reflects the benefits of the accelerated share repurchase.

For the year, we now anticipate weighted average diluted shares outstanding to be about 142 million, subject to adjustment once the ASR transaction is settled.

So we had a very strong quarter. While we’re also facing a higher than anticipated commodity cost environment throughout the year, we feel good about the organization’s ability to deliver on our plans for the fiscal year.

Now with that, I’ll turn it back over to Don.

Donald R. Knauss

Thanks, Dan. Good morning, everybody. Certainly as Larry and Dan noted, we had a great first quarter. I’m particularly pleased with the strong results across the business and also that our brands responded well behind our investments to address the competitive conditions we’ve talked to you all about over the last six months. Also that strong cost savings and the ongoing benefit of price increases helped mitigate what we all know to be a fairly intense commodity cost environment out there.

Now at the same time, I think it’s still important to bear in mind that we focus on annual targets and long-term goals, and as we noted frequently there are going to be quarters that come in higher or lower than anticipated as we saw this quarter and last. What’s important is how our business performs over time and whether we stay on track to hit our annual targets and the long-term goals, despite variances in the quarters. Based on our current performance and the outlook for the year , I’ll talk a little bit about the innovation pipeline for the second half, we feel good about where we are right now.

I’d like to take a couple of minutes to update you on our Centennial Strategy and comment on our economic profit outlook for 2008. While it’s still very early, I’m certainly pleased to note we’re beginning to gain traction against several of our strategic choices. Let me give you a couple of examples. As you’ll recall, one of our strategies is to expand our business in and beyond the core, and we’re making considerable progress against this strategy.

As Larry already mentioned, the transition of our recent bleach acquisition is going extremely well, and we continue to anticipate this business will add a little less than a point of growth to the top line.

Many of you have heard me talk about Green Works, and we plan for that later in this year. We’re also launching in Canada and Puerto Rico with more markets to follow. With Green Works, Clorox is the first major CPG player to enter the natural cleaning category. As I’ve talked frequently, unlike other natural cleaners on the market, Green Works cleans as well as conventional cleaners, and it’s going to be the first natural cleaner with national distribution and significant brand-building investments. We believe we really hit the sweet spot here because Green Works capitalizes on the convergence of two of the mega-trends we’ve been talking about that we’re seeing taking off with consumers, health and wellness and sustainability. We’re optimistic about the brand’s prospects as it performed very well in test markets, and customer reaction and interest across channels has been very enthusiastic.

On a similar note, as Larry mentioned, we believe the same trend may have contributed to some positive Q1 results for Brita water filtration systems as consumers certainly seem to be adopting more sustainable lifestyles.

Just for a brief second, looking to the second half of the year, we’ve got a number of new product launches planned. I would just say we feel very good about our second half innovation pipeline, leading of with Green Works.

Another one of our strategies is to win by building consumer lifetime loyalty through what we call the three Ds: Desire, Decide and Delight. As I’ve talked before, desire is about pre-purchase communication in the form of advertising and other activities to generate consumer interest and create motivation.

Now to build that desire for the Armor All brand for example, a few weeks ago we announced Armor All will sponsor two-time NASCAR NEXTEL Cup Series Champion, Tony Stewart in the 2008 season opening NASCAR nationwide series race at Daytona. A new advertising campaign featuring Tony will begin early in the spring on TV and print and this marks the first time we’ve used a race car driver in the Armor All advertising. Tony is also being featured on the package of the Armor All holiday gift pack, and we’re really excited about the partnership with him.

Now to look at decide, our communication at the store shelf where about 60% to 70% of the purchase decisions are still made, the grocery channel is one that I talk to a lot of you about over time, and it’s one of those opportunities we believe has a strong economic profit growth potential. As Larry mentioned, we’ve added staff to focus on accelerating growth within this channel through improved assortment in shelving, primarily. As Larry also mentioned, in Q1 we began to see already those investments behind decide start to pay off particularly through this focus on the grocery channel. Our trends in Q1 in grocery were certainly quite a change from what they had been the previous 12 months, so we feel very good about our focus on grocery.

On delight, about offering higher quality, consumer-preferred products based on a deep understanding of consumer insights so they’ll keep coming back. A great example was the recent launch of Bosque de Bambu, or Bamboo Forest scented cleaners and air fresheners in Latin America where fragrance is important to consumers in every aspect of their lives. The product has been very successful. It brings a fragrance that is both contemporary and classic, and people have voted with their wallets in Latin America, and the scent has become one of the top three selling scents in a short time on the market.

So as Larry and Dan said, we’ve had a very strong quarter, better than expected results despite continuing commodity pressure. And overall we do feel we’re really building healthy brands, improving our channel mix and taking the right steps to mitigate the impact of these rising commodities.

Now with that, let me turn to the second topic for today’s call, and that’s the acquisition of Burt’s Bees which we’re extremely excited about. Joining me for this portion of the call are Beth Springer, and Beth, as many of you know, is our Executive Vice President of Strategy and Growth; and John Replogle, the President and CEO of Burt’s Bees. And Beth and John are dialing in from North Carolina where Burt’s Bees is based.

I think most of you know that a key element of our Centennial Strategy is to accelerate growth in and beyond our core, and I talked about this at length in May at the investor conference. We’re really focusing on growing markets that are (1) aligned with health and wellness, sustainability, convenience and the ethnic shifts in the country, those four mega-trends. (2) We’re looking at brands that are in this size categories that are economically attractive. (3)We’re trying to provide opportunities to build or buy a big share brand, and (4)Leverage our core competencies especially in brand building and our customer facing organization. We certainly believe that Burt’s Bees is a compelling strategic fit on all of those lines and is strongly aligned with those acquisition criteria making it a very attractive investment for our company.

Now as many of you may know, Burt’s Bees is a leader in natural personal care which is outgrowing the larger personal care industry. The other thing that’s interesting about natural personal care is the highly fragmented category where the top five players have less than a 20 share. Consequently, it has a very attractive competitive set with numerous single brand privately-owned companies.

Now today, natural personal care is a market of $6.4 billion with a strong growth rate of about 9% annually and a margin structure that’s certainly at the upper end of the consumer products categories that we compete in.

Burt’s Bees was founded in Maine in 1984, now headquartered in North Carolina. In addition to the US, the brand is marketed in Canada, the UK, Ireland, Hong Kong and Taiwan where the growth rates are as high or higher than they are in the U.S. Our evaluation of the business, which Dan will talk about in a few minutes, is primarily based on expanding distribution within these current markets. For example, building out distribution in mass, grocery, drug and convenience channel where as you know Clorox already has a large presence.

We see potential for continuing to build the brand in additional subcategories such as baby care and expanding the brand into other product adjacencies and other markets making this certainly a global play for Clorox with possibilities for significant upside potential.

What I’d like to do is turn it over to Beth Springer who will talk more about the strategic fit and how we plan to manage the business.

Beth Springer

Thanks, Don. We are simply delighted to announce this acquisition. As Don said, it is very strongly aligned with our Centennial Strategy, a key element of which is to grow the company in and beyond our core by focusing on higher growth and higher margin categories. Our goal with this transaction is to make a platform acquisition by acquiring a company with sufficient scalability. With Burt’s, we are entering into a rapidly growing market that has gained momentum behind the consumer mega-trends of health and wellness and sustainability.

Let me take a moment now to outline in a little more detail how Burt’s Bees aligns with our strategy and our acquisition criteria. First, it’s in a high-growth category that is consistent with the consumer mega-trends we’ve talked about. In line with our strategy, we’ve been actively seeking potential acquisitions aligned with these trends, and we were very excited when we found this brand and this opportunity. Burt’s Bees is anchored in the sustainability and health and wellness mega-trends, and we believe this business will continue to benefit from those tailwinds for years to come as more consumers adopt these lifestyles.

Second, we believe Burt’s Bees has the ability to become an even stronger brand. Currently, it is the leading natural care player with strong shares in most of its categories. Among many consumers who purchase natural brands, it is already viewed as the most natural personal care brand and the leading natural brand in the US. And as Don mentioned, growth rates in the markets outside of the US are as high or higher as they are here.

Third, national personal care is an economically attractive category and Burt’s Bees margin structure is at the upper end of the range of consumer products. It will be highly accretive to Clorox.

Finally, the brand aligns strongly with our strategy to drive demand creation and build lifetime loyalty by focusing on the three Ds of desire decide and delight. As a reminder, desire is about increasing consumer awareness and trial. Decide is about winning at the point of purchase. We believe our deep capabilities in desire and decide complement Burt’s Bees strong capabilities and innovation to delight consumers with natural products they truly love.

As mentioned in our press release, the business will remain in North Carolina and John Replogle will stay on as President and CEO of Burt’s Bees reporting to me. I could not be more pleased with John’s decision and truly look forward to working with the other employees and Burt’s Bees affiliates.

Our plan is to operate Burt’s Bees as a semi-independent unit leveraging its highly effective strategy and plan, its excellent trade practices and organizational capabilities and Burt’s is a wonderful robust culture and esprit de corps that we want to build on and protect by minimizing the disruption to the business and the culture.

At the same time, we are confident there are opportunities to accelerate the company’s profitable growth and we will focus on creating these revenue synergies. Specifically, we’ll leverage our considerable capabilities in the food, drug and mass merchant channels, our expertise in niche brand management, as well as our capabilities in advertising and sales promotion to ensure we maximize the potential of this business.

Our strategic rationale in this acquisition was always predicated on the recent strong growth and our belief that the convergence of the two trends of health and wellness and sustainability will sustain growth in this category and for this brand for years to come. That said, we believe the acquisition has additional value to be unlocked as our national platform expands and take shape. Burt’s Bees will also an enabler for international expansion and our broader strategy to pursue health and wellness and sustainability at Clorox.

We’re truly looking forward to working with John and everyone at Burt’s Bees to develop the right principles and protocols were working together and to identify and pursue all the synergies as well as implement appropriate controls.

With that I’m going to ask John Replogle to say a few words but before I do I want to let you know that John and I spent the morning here today in the Burt’s Bees headquarters in North Carolina, as Don said. We’ve had the pleasure now of meeting with probably about 100 of the employees and we’re pleased to say that their response to our message about the merger is positive.

With that I’m going to ask John to share some of his perspective about the acquisition.

John Replogle

Good morning everyone and thank you, Beth. I’m absolutely delighted to be staying on and to be part of this historic next phase, which presents a great growth opportunity, not only for Clorox but also for Burt’s Bees. Both companies are built on strong leading brands with a history of delighting consumers and we have very similar core values and missions. At Burt’s Bees, our mission is to make peoples lives better every day naturally, which is a perfect complement to Clorox’s mission to make everyday life better every day.

Clorox brings tremendous brand building, customer facing and product supply capabilities to Burt’s Bees that can help us take our business to the next level. The combination of our two companies creates great opportunities for more innovation and even stronger growth platforms built on health and wellness and sustainability. I’m really looking forward to what the future has in store for Burt’s Bees and for Clorox as we begin to work together.

Now I’d like to turn the call over to Dan Heinrich.

Daniel J. Heinrich

Thank you, John. As Beth said, we’re delighted with this acquisition and we believe Burt’s Bees strategic fit and alignment with our acquisition criteria creates strong sales and margin growth opportunities for Clorox. I’d now like to walk you through the details of the transaction and our financial outlook.

As you saw in a press release we’ve entered into an agreement to acquire Burt’s for $925 million net of an additional $25 million payment for anticipated tax benefits. We anticipate the transaction will close by the end of the calendar year and it’s subject to regulatory approval.

Our valuation of the business is primarily based on expansion within the US and the countries in which Burt’s is currently marketed with anticipated ramp up and marketing spending as the brand transitions to a more complete mass distribution model. The business is enjoying very strong distribution gains and we believe we can add value and expand these trends over time through our strong customer capabilities.

As Beth noted, we see significant potential for building distribution. While not included in our base valuation for the business, expanding the brand into product adjacencies and seeking more aggressive international expansion offers significant upside potential beyond our valuation.

Burt’s Bees has very attractive returns and we believe it will create value for us. It helps accelerate our top line growth. It helps build our gross margins and EBITDA margins. It’s anticipated to be EPS accretive in fiscal year 2009. We’re optimistic we can exceed the assumptions in our base business plan for Burt’s Bees.

We intend to fund the all-cash transaction through cash and short term borrowings, which will initially take our debt to EBITDA ratio to 3.5:1. We intend to begin paying down the debt in a relatively short period of time and anticipate bringing the leverage ratio 3.2:1 by the end of fiscal year 2008 and to 3.0:1 or lower by mid fiscal year 2009 or about 12 months from now. Our longer-range target for leverage continues to be 3.0:1 and we are committed to getting at that level or below that leverage ratio quickly.

Including estimates of purchase accounting adjustments and one-time transaction and integration costs related to the transaction, we anticipate that the transaction will dilute fiscal year 2008 earnings by about $0.10 to $0.15 per diluted share and that it will be accretive in fiscal year 2009. Excluding such purchase accounting adjustments, one-time transaction and integration costs as well as non-cash expenses related to the transaction, the earnings per share impact is anticipated to be neutral in fiscal 2008 and solidly accretive in 2009.

On the top line, we anticipate Burt’s Bees to grow sales in the low to mid-teen range for the next few years driven primarily by distribution gains adding nearly 2 points of top line growth to Clorox in fiscal years 2008 and 2009.

Now I will turn it back over to Don for wrap up.

Donald R. Knauss

With this transaction, Burt’s Bees allows us to expand even further into the natural sustainable business platform in an area where we believe there is certainly tremendous opportunity to build this into a big share brand and we believe the business is the compelling fit for us strategically and as I said, this is consistent with the mega-trends that I and others have been talking about since I got here last October.

We think it’s a great strategic fit and that our complementary strengths, our core value and the parallel missions that we have that John referenced provide us a really strong foundation for success.

So with that I’d ask the operator to open the lines up for your questions.

Question-and-Answer Session

Operator

Your first question comes from Chris Ferrara - Merrill Lynch.

Chris Ferrara - Merrill Lynch

I just wanted to ask on the Burt’s acquisition, first of all I want to talk about margins and the growth rates. You’re saying low to mid-teens sales growth over the next few years and presumably a ramp up in advertising. So what does that mean for that business’ EBIT growth going forward? And also on the competitive environment, I mean, would you have expected deterioration in margins anyway as the category gets more difficult over time?

Donald R. Knauss

I think you’re looking at a brand that has had over a 25% compounded growth rate the last three years. We think our valuation, which puts it into the-low teens growth rate obviously growing off a larger base is fairly conservative. We certainly think, as Dan said, that we can exceed the assumptions that went into our valuation, particularly when you look at the distribution opportunities that are out there.

For example, our focus on grocery, which is starting to pay off. We think there is significant opportunity in grocery where Burt’s Bees does less than $20 million of revenue.

If you look at the mass opportunity, you look at the continued drug opportunity and convenience stores where there’s very little presence at all, we think we can exceed that valuation.

When you look at the pricing power of the brand, we think the margins are extremely healthy and will stay that way, but I will let John jump in and Beth as well.

Beth Springer

Don, we absolutely agree. We see lots of growth potential in the business. We have no expectation of margin erosion and in fact, see opportunities as we begin to turn our sights after growth synergies to cost synergies potentially to boost those. So we are confident that we can deliver the numbers we’ve committed to you, Don.

Daniel J. Heinrich

Chris, on our valuation model in this business it does assume over the coming years as we go increasing with this business to mass channels that there are certain increases in trade spending and certainly we have a ramp up in the model on the marketing support for the brand but as Don and Beth has said we still expect the margins on this business to remain very strong.

Chris Ferrara - Merrill Lynch

Do you think 30% plus is sustainable over the next couple of years from an EBITDA margin perspective given the ramp up in spending?

Daniel J. Heinrich

I think when we model this thing out we believe for the next several years that those kind of margins are certainly achievable and as Don mentioned, the growth trajectory of this business, the pricing power of this brand, are pretty strong and we believe that will help us sustain margins even as we move more increasingly in this business into the mass channels.

Donald R. Knauss

I think, Chris, the other thing that builds on that is, especially on the purchasing leverage that we can bring to Burt’s Bees with our scale. So I think there are some cost synergies here that we really haven’t talked about but certainly they’re there to help protect that margin.

John Replogle

I’ll add to Don’s point on scale is organizationally we are a business that has really just hit organizational scale. So as we continue to grow the top line we should enjoy some scale benefits.

Chris Ferrara - Merrill Lynch

Don, what’s your view of the EP impact of doing this deal?

Donald R. Knauss

Well I think as we model this thing out, Chris, we think it can be EP positive in five to seven years. It is a little longer than we would have hoped but I guess what really excites us about this and what we think is unique about this is that as we scour the universe to find brands that fit with the criteria we articulated in the Centennial Strategy, consistent with mega-trends, big share brands, economically attractive categories, fragmented categories, et cetera. As we looked at those I mean we couldn’t find anything that got us nearly as excited as Burt’s Bees.

When you look at the brand strength, the fact it’s been growing over 25% a year, the fact that we think the trends, the convergence of sustainability are trends that are going to sustain the category of growth rates into the future for years to come.

The fact that you do have a fragmented category where the top five players don’t have a 20 share combined plays to our strength. And then you look at the fact that these margins are very accretive to our margin structure and we do think we can sustain them. Lastly, we think there’s a significant impact on EPS fairly short term. When you add up all those things we are saying we’ll take a little bit longer time to build EP.

Daniel J. Heinrich

Chris, the other thing I would say is if you look at the impact of Burt’s in the Clorox in terms of our annual goals and economic profit growth, for ’08 our annual goal is to increase economic profit at least in the double-digit level annually. As we’ve noted before in the base Clorox business, we are not likely to achieve that in fiscal ‘08 primarily due to the restructuring costs that we’re taking in our manufacturing network.

Certainly when you overlay the Burt’s acquisition, primarily due to the transaction the one-time cost associated with the transaction in ’08, that we’re likely to see some dilution on economic profit for Clorox. But in ‘09 as Don said it becomes accretive for EPS and for EP for the total company we’re anticipating growth in EP and we anticipate right now in fiscal 10 and beyond that we’ll be returning to annual double-digit increases in economic profit.

So it does have a bit of a near term impact in fiscal ‘08 and fiscal ‘09 but by fiscal ’10, we should be back on the trajectory to annual double-digit growth and economic profit.

Chris Ferrara - Merrill Lynch

Just on a totally different note, your long-term view that resin is going down over time, I was wondering if you could just talk about that relative to -- I understand capacity is the reason you think that’s going to happen, but with hydrocarbon costs where they are and I guess the general view that hydrocarbon costs again are the biggest driver of resin; I mean, if crude stays at $90, do you still get the type of resin declines in the long term that you think you’re going to see?

Daniel J. Heinrich

Well, certainly oil prices have been pretty stubborn at these very high levels and we still anticipate that the long-term thesis in the market is the right one. We are going to be seeing the resin capacity in the world market increase probably by 30% to 40% over the coming years as that Middle East supply comes on line. And as a reminder the input, the raw material input is natural gas in the Middle East versus oil in Asia. Again, the sovereigns there will be fixing those input costs at reasonably low levels compared to the U.S.

And we think just the sheer supply/demand curve with that supply coming on line with lower input costs will naturally start to drive resin down, and again we are anticipating that. Obviously we had anticipated the inflection point to be a little bit sooner than it has been, but we still believe in our longer term thesis that that will bring resin down over time.

We still believe in that thesis. Certainly we are encouraged because we are in discussions with suppliers in the Middle East and we have an idea of what they are thinking of in terms of pricing.

Operator

We’ll go next to John Faucher of J.P. Morgan.

John Faucher - J.P. Morgan

Good morning, everyone. You talked a little bit about the broad strength of the business, and can you maybe walk us through on some of the businesses whether or not announced price actions have had any impact on the underlying volume? Are you generally seeing the strength in top line across the businesses reflected in the take away?

Lawrence S. Peiros

We have seen very good broad-based growth in the business. We are not seeing a lot of impact from pricing. We took charcoal pricing up a year ago. We saw fairly minimal impact. That business is still very healthy and growing and we expect it to be healthy and growing despite another price increase this year. We are obviously doing lots of things on the marketing side to offset the impact of pricing, because there is some impact. But overall, it’s a very healthy business.

I would say most of the other businesses have not been dramatically impacted by pricing. Most of our pricing actions have been pretty much anniversaried at this point. We did have some concern about raising prices on Hidden Valley, given that we haven’t taken pricing on that brand in a long period of time. We were happy to learn it appears that our competitive set is following our pricing actions, so we should be relatively unchanged from a price point versus competition.

We are seeing growth on lots of fronts. We have been spending pretty aggressively on Wipes, given the competitive situation. We’ve returned to double-digit growth. We saw some incredible performance on our Brita business. We are attributing that in part to the fact that this concern around bottled water waste is gaining momentum with consumers.

But just a lot of places where we are seeing just very good growth. I should also mention that Bleach acquisition we talked about that, terrific results versus our expectations in both Canada and Latin America. Also the potential over the longer term to broaden that to a very successful health and wellness platform like we have on Clorox in the U.S. in those areas of the world.

Don Knauss

Let me just add, as Larry ticked off the brands and categories, let me talk about channels for a second. I do think just a little color commentary on the grocery initiative. As you know, we brought 15 people on board, we are bringing another 15 on board, and the focus on AMPS, or assortment, merchandising, pricing and shelving, is starting to pay off. The trend in the first three months of this fiscal year, our grocery business was up about 3% versus a 97 index for the previous 12 months, so that’s a significant tailwind behind the growth in the business overall. We feel very good about that, so we are gaining traction there even quicker than we though we might.

And then lastly in countries, as you look at the countries, a strong growth across Latin America, Canada extremely strong growth, and really gratifying, we’re seeing Australia return to single high digit growth rates as we sort through customer issues there.

So really across the board strong growth by category, by channel, by country.

John Faucher - J.P. Morgan

So it sounds like you don’t think there is much in the way of loading involved in terms of in advance of some of these price increases?

Lawrence S. Peiros

No, there’s really only two price increases that we talked about, Charcoal, Hidden Valley, and -- no. I mean, we basically have policies in place that don’t really allow for a lot of loading, but it really hasn’t been a big issue in the past in our pricing and we don’t expect that it’s a current issue.

John Faucher - J.P. Morgan

Okay. Thank you.

Don Knauss

Plus on the charcoal, John, we are going into the off-season, so they are not going to load it up.

Operator

We’ll go next to April Scee of Banc of America Securities.

April Scee - Banc of America Securities

Thanks. When we look at margins versus our expectations, it looks like part of the beat was driven by less advertising and research and development. When you talk about your pipeline, it sounds like that could be partially driven by timing, but could you just talk a little bit more about what we should expect from advertising and research and development as we go through the year and what’s in your pipeline in particular that gives you confidence?

Daniel J. Heinrich

April, let me start with R&D. Typically, we’re around 2% of sales, slightly above that. A touch lower on R&D this quarter and that’s strictly due to timing of some of the initiatives and some of the spending that we have there, so a little over 2% is still a good number for R&D.

On advertising, as we said in the past, we tend to average right around 10%. What you do see in the advertising line though is there have been some shifts, as we’ve been responding to competitor activity, we have shifted some of our spending into trade merchandising to deal with some of these competitive issues, so you see that reflected in that metric.

Having said that, we are still strongly supporting our brands and growing our brands. We have spending, as Larry mentioned, to revitalize the acquired bleach businesses, so that’s supporting there. And then we also have some spending that we are doing behind C2 to address some of the competitive activity there.

We still believe we are strongly supporting our brands but you do see some shift from our advertising into trade spending. And for the full year, we would anticipate we are going to be in the 9% to 10% range of sales.

Lawrence S. Peiros

Let me just build on that. Again, demand building, if I look across both our advertising investment, trade investment is up pretty significantly versus a year ago. A lot of that is because of the competitive activity. I also want to point out that a lot of our trade spending these days goes to what we would call brand building within stores, so activity within stores that is well beyond price and trying to deliver a message around building our brand equities within store. I think you’ve heard a lot about that within the industry, and so some of this trade spending, technically classified as trade spending is really advertising in a different form.

Don Knauss

April, just let me tick off some of the second half pipeline for you in terms of new products and why we feel strongly about it. We’ve got two new Clorox Bleach items coming out, Cold Water and Anti-Allergen. We’ve got a line of highly fragranced cat litters under the Fresh Expressions brand name, so it’s off of Fresh Step. We’ve got refrigerated Hidden Valley salad dressing coming out in original and buttermilk flavors into the refrigerated case so that gets the brand into another section of the store.

We’ve got a 409 formula coming out for natural stone cleaning, as obviously houses now have granite fixtures in their kitchens and countertops, so we are going after that. We’ve also got an Armor All on the go auto-glass exterior detailing and cleaning line coming out, and of course, the big news is Green Works, which starts off with early shipments in late December, and then it really starts heavily in January.

April Scee - Banc of America Securities

Okay, just another quick question on trash; you mentioned that you were looking at the possibility of price increases there. What seems like it should be a lay-up, given what’s happening with polyethylene prices, so is there anything that would stop you from taking this price increase? Also, could you just talk a little bit more about the dynamics that you’ve seen in trash recently, particularly versus [inaudible]?

Don Knauss

I think I would say stepping back, there are multiple levers we might apply on the Glad business with respect to the current situation on resin. We could choose, for example, to change our trade promotion spending level versus our pricing. Some would translate to pricing but some of which goes well beyond pricing. We could choose to diminish our advertising investment.

I can’t say for certainty that we will look at pricing, but obviously given the current resin situation and our outlook for resin, that’s something that we will poke at pretty hard.

In terms of the business, we’d describe the business in Q3 as basically overall flat. The good news is we continue to see very good growth on our ForceFlex trash business. ForceFlex is gaining at a high single digit rate, and we are still seeing share growth in the trash segment versus Hefty and private label.

April Scee - Banc of America Securities

Thank you.

Operator

We’ll go to Lauren Lieberman of Lehman Brothers.

Lauren Lieberman - Lehman Brothers

Thanks. Good morning. I’m a little confused about trade promotion, because it seems that clearly you had promotion and in-store merchandising step up in investment to some degree, but if we are not seeing it at all on the revenue or in the gross margin breakout that you gave. The second half of ’07, trade promotion was around 100 basis points drag to margin. So if you can explain to me what the difference is, that would be great.

Daniel J. Heinrich

Lauren, I think what you basically see, we do have a significant ramp or a sizable ramp-up in trade promotion spending. It’s been offset though do to the business mix that we’ve had. Some of these trends in our higher margin businesses and the contributions that we are seeing, that’s been some tailwind to us in terms of margin and that business mix is offsetting some of the drag from the trade promotion spending.

Lauren Lieberman - Lehman Brothers

And is that channel or product mix, or is it a combination of both maybe?

Daniel J. Heinrich

It’s really both. It’s mix of businesses, you know, foods, Brita, certainly we’ve seen benefit there. And it’s also channel, as Don and Larry referenced, particularly the grocery channel, the improved trends we are seeing there are contributing.

Lawrence S. Peiros

It was also noted in our press release, currency gave us about a point of benefit in the quarter and we are also getting some benefit from pricing, primarily the charcoal price increase we took earlier in the year. So those two things as well are masking that stuff up in trade promotion spending, which has really continued since the last half of last fiscal year.

Lauren Lieberman - Lehman Brothers

Okay, but the pricing is a separate line item, right? I mean, the pricing is given at whatever that -- 50 or 55 basis points, so maybe it’s the FX. Okay, but as we look forward, as the mix shifts, theoretically, and I would think Hidden Valley maybe is a little bit slower next quarter, Brita maybe maintains its momentum, I mean -- do you expect trade promotion to reemerge as being a little bit of a drag to margin? Even just given -- you said you are going to be shifting some of your spend from traditional advertising into the store.

Daniel J. Heinrich

I will say that we will -- we see the competitive activity continuing. We are going to continue to support our brands through the trade merchandising efforts that we have. Also in second half, we have the launch of these new products that Don mentioned, particularly Green Works, and we will be spending to support those launches. So in the second half, you will probably see a slight up-tick in total trade spending in response not only to competitive activity but also the launches we are planning.

Lauren Lieberman - Lehman Brothers

Okay, all right. That’s great. Thank you.

Operator

We’ll go next to Ali Dibadj with Sanford Bernstein.

Ali Dibadj - Sanford Bernstein

Just a couple of questions; one is, sticking to Burt’s Bees for a little bit, I am kind of surprised, given the very strong emphasis that we’ve been hearing for a while now on EP, that you did kind of feel like the succession was warranted to wait for EP to become positive five to seven years and still [be a deal]. Particularly at 5%-plus of sales and [through the] valuation, which was pretty high compared to even most recently [inaudible] at roughly 2, 2.4.

All this in the context of it sounds like you didn’t have to do anything to the portfolio, although you were looking, and EP was a very important driver of some of your decisions. And I understand the benefits going forward. I’m just trying to get a sense of has anything shifted on how you think about EP, or give me just a little bit more detail on why you think is [so great].

Don Knauss

I think, Ali, that as I said when I ticked off those five reasons for why we took a little bit more forgiveness on EP in a four to five-year timeframe versus a five to seven-year timeframe, as Dan noted, we believe we are going to return to double-digit EP growth as we get out about 18 months from now, so we don’t think this is certainly dilutive or inconsistent with our focus on EP.

But I do think when you look at this brand, it is a unique opportunity and as I said the day I got here, it was about making this company larger, not smaller. It was about accelerating the top line and the bottom line growth, and really doubling the value of this company over a five to six-year timeframe, not just doubling EP which we thought was the best proxy to doubling the value of the company.

But I think when you look at the brand strength of Burt’s Bees and the fact that this strong double-digit growth in this brand is compelling, I do think -- I really do believe these trends around health and wellness and sustainability are not trends. I think they area cultural shift and I think it is only going to build as people are educated about the benefits of natural personal care versus the other personal care.

I think the fact that this category is fragmented where five players don’t even add up to 20 share, really speaks to the whole strategic premise of the Clorox company over the last 30 years, which is build brands in mid-size or smaller categories.

And then, when you look at the margin accretion of this, with over a 30 EBITDA and the EPS accretion, that can be fairly significant in a fairly short amount of time. I’d say that’s a pretty good reason, if you add all those up, to say we’ll give ourselves another year or two on EP to make this thing positive.

Having said all of that, we think there is significant potential to go beyond our valuation and move that up a year or so, but those are the reasons that were compelling to us.

Ali Dibadj - Sanford Bernstein

One question just about [inaudible] five points that you are taking off there, regarding just the fragmentation of the market. Do you have in your model -- do you think about the fact that many people are going towards this organic natural product space and no big player has made a major, major -- but that could change?

Don Knauss

Yeah, well, I think -- and I’ll let John speak to, but let me just kick it off by saying we believe there are and as we did our due diligence here, that there are strong barriers to entry for competitors who want to get into this category. The typical product development approach of mainstream personal care has really been shown to be ineffective at getting into this category. The instability of natural materials makes for a really steep learning curve in reproducing natural formulations and makes frankly, backward engineering really difficult to impossible.

We think Burt’s Bees has a one to two-year lead on potential new entrants, so we feel very good about that.

John, I don’t know if you want to add some additional color commentary.

John Replogle

Sure, Don. Ali, I think absolutely we will see other players move into the category. It is inevitable as the consumer moves there and goes mainstream. By our modeling, consumer penetration in natural today is somewhere in the 12% range. We expect that to double over the coming years, so as this natural market really goes mainstream, more and more of the mainstream players will look to enter this market.

But we have a distinct advantage, really, in a couple of ways. One is we have leadership. We’ve been in the market for 20 years. We have a leadership position. Secondly, we have the most authentic brand. We are adored by consumers and trusted and we’ve built that reputation and that brand over the last 20 years.

And third, as Don mentioned, natural formulations -- we have an outstanding formulation development team, processes within our manufacturer, manufacturing system that allow us to make the highest quality natural formulations, and those are very difficult to replicate.

So we’ve got advantage and differentiation that I think is sustainable on at least three fronts.

Ali Dibadj - Sanford Bernstein

That’s quite helpful. In terms of just the differentiation on the barriers to entry, how is that different than pushing in with Green Works?

Don Knauss

I’m sorry, go ahead. Could you ask that again, Ali?

Ali Dibadj - Sanford Bernstein

Sure. You mention a lot of differentiation, a lot of barriers to entry to enter into the organic and natural categories, particularly that relate to personal care. Is that a completely different dynamic in terms of entering Green Works into the natural household care products?

Don Knauss

I think Green Works is just another example of us internally moving into the same space. We do see the same convergence of these two, health and wellness and sustainability, applying to Green Works as well.

I think the sophistication of our R&D development, our understanding of chemistry, our ability to develop biopolymer technology that uses coconut and lemon juice basically as surfactants to create cleaners that can be as effective as conventional cleaners is something that the smaller players in this space just can’t replicate.

Now, can the multinationals who are in these spaces replicate it? Perhaps certainly they could over time. We do think we’ve got a six to 12-month head start. We also think the brand, Green Works, is a significant advantage going forward.

I think when you look at our R&D capabilities in this space and the fact that we’ve got I think probably at least a six if not 12-month head start will really play to our advantage. I think also as other people get into the category, I think it will just continue to drive the category up.

We are also looking at follow-on products into adjacent spaces that we already compete in, Ali, that we think we can get out there fairly quickly. What you should expect from us on Green Works is every four to six months, you will see new product and package news coming out on that brand to keep it fresh, so we are just going to keep pushing ahead quickly into adjacent spaces to stay ahead of the game.

Lawrence S. Peiros

The only bit I’ll add on that is Green Works is a new brand name but it does carry a Clorox endorsement and we did an awful lot of work with consumers and the credibility of Clorox is an important factor in making sure the consumers understand these product do actually work, whereas other green type cleaners have let them down over the years. So it is an important component of our [inaudible] and a barrier to others.

Ali Dibadj - Sanford Bernstein

Okay, thanks a lot, guys.

Operator

We’ll go next to Amy Chasen with Goldman Sachs.

Amy Chasen - Goldman Sachs

A couple of things; first of all, can you -- you mentioned in passing cost synergies on Burt’s Bees but you didn’t give anything specific in terms of either dollars or where they would come from. Can you talk about that?

Don Knauss

Let me ask Beth and John to respond to that first and then we’ll come back to Dan and myself.

Beth Springer

Amy, we are going to be focusing initially on revenue synergies, as we discussed earlier. We do think there are cost synergies. I think the initial focus will be in procurement. There will be some raw materials, a lot of transportation services and the like, and at this point, we don’t have an estimate of cost synergies that we are sharing.

Amy Chasen - Goldman Sachs

Okay, so I guess my follow-up would be if we use a mid-teens sales number and the type of margins that you are talking about, at about 5.5%, 6% financing costs, we are not coming up with any kind of significant accretion in FY09, so maybe we’re doing something wrong but if you can walk us through that math, that would be very helpful.

Steve Austenfeld

Amy, obviously there are still a lot of assumptions in these numbers that we are going to have to fine-tune as we get closer to fiscal ’09. I think the message today is that you could roll out the one-time costs associated with the transactions, it’s understandably going to be dilutive in fiscal year ’08. We talked about that on a GAAP reported basis of being in the range of $0.10 to $0.15 as we see it today.

The message for ’09 though is that we see it being accretive. How accretive I think still remains to be seen but the message is it is a very quick -- relatively quick period and we believe it is at least neutral to accretive by ’09 and then moving into solidly accretive by fiscal ’10.

Amy Chasen - Goldman Sachs

Okay, so by -- I’m sorry. I thought you said solidly accretive by FY09.

Don Knauss

If you look through the charges, it is. If you do it on a GAAP basis, it is slightly accretive.

Amy Chasen - Goldman Sachs

No, I’m excluding the charges. So when you say solidly accretive, that means neutral to slightly accretive or does that mean meaningfully accretive? I’m sorry, I don’t mean to be getting into the semantics but our numbers are just showing 1% to 2% accretion in FY09, which to me is not solidly accretive. But I don’t know if I’m doing something wrong or if our definitions are just different.

Steve Austenfeld

For fiscal ’09 on an as-reported basis, I would describe it as neutral to accretive, slightly accretive, recognizing we still have to do a lot of the fine-tuning around final purchase adjustments, updating assumptions and so forth.

Excluding one-time costs, some of which will be subject to those purchase adjustments, we would see it as being solidly accretive.

Amy Chasen - Goldman Sachs

Okay, so my numbers are wrong. Can you tell me where I might be wrong?

Steve Austenfeld

It might be easier to cover this after the call on a one-off basis, just because even for ourselves, actually, we are dealing with assumptions at this point on a business [inaudible] portfolio.

Amy Chasen - Goldman Sachs

Okay, that’s fine. I’ll call you after the call. Just on a totally separate note, on your annual guidance, you obviously beat the first quarter in a very meaningful way. You are getting some ASR benefit, you are getting some benefit from the tax rate as well, and yet -- well, you did include the ASR benefit in your raised guidance but you did not include the higher tax benefit, which suggests that your underlying core fundamentals are going to be weaker than you originally anticipated. Can you just talk about that?

Daniel J. Heinrich

I don’t think our fundamentals are changed. Essentially, the way we view our outlook for the full year is certainly we had a very good quarter in the first quarter and that gives us a bit of a leg up. We will get a little benefit of the ASR, which is in our outlook. The tax rate will be a little bit better than we had anticipated, but the offsetting factor, the waiting factor again is our updated outlook on commodities cost and the updated outlook that we have on that is that we are likely to see between $30 million to $40 million of additional commodity cost pressure over the balance of this year.

We are a little bit better in the first quarter, but we are going to need all of those factors to help overcome the commodity cost impact there. Certainly taking cost savings up from our range of 80 to 90 to 100 will help. As I mentioned, we are going to be looking at admin spending, trade spending, Larry discussed that. So there’s a number of things we are going to need to do to overcome that pressure and until we get farther along, that’s why basically what we’ve done with the outlook is update it for the impact of the ASR.

Amy Chasen - Goldman Sachs

Okay. Sorry, just last thing; is it safe to assume that the most difficult quarter for you out of the next three will be the second quarter?

Daniel J. Heinrich

That is certainly our view at this point, is Q2 we should see the peak, particularly of commodities cost.

Operator

We’ll go next to Bill Schmitz of Deutsche Bank.

William Schmitz - Deutsche Bank

Can you guys talk a little bit about the battlefield categories? You know, Clorox 2, Wipes, and then of course, Glad versus Hefty and what’s going on there and what the defense is, especially against [P&G] on the [inaudible] categories?

Don Knauss

Let me start with Glad. I think I mentioned previously that we feel good about our results on glad. We continue to gain share. We continue to see very strong growth on ForceFlex, which you’ll recall is a very good brand for us from an EP perspective, so we are in very good shape on Glad.

We feel very good about the results on Wipes. We’ve regained our momentum. We are up double digits in the quarter, so we did have a variation in the previous two quarters where we had a very significant growth and then a bit of a decline. But over calendar year-to-date results, we are still up strong double digits on that business.

In the last month, given the impact of some of our activity, increase in spending, we actually saw share growth on that business, despite the fact that Mr. Clean is on shelf and starting to gain some share. Their share is a 5% to 6% range, so it is obviously well, well below our share.

The other threat in Wipes has been and continues to be aggressive spending by Lysol. But again, our results on our Wipes are very, very good and healthy. We are growing strong double digits. We continue to have a very strong share in that category.

Clorox 2, we talked about previously. I think we are more disappointed there. We didn’t expect a lot in the first quarter. We expect more healthy results in the back half as we introduce some innovation on that business, so we are still down a bit, both in terms of volume and share on Clorox 2, and we are looking to improve that business in the second half of the fiscal.

William Schmitz - Deutsche Bank

Okay, and then, are you guys done on the acquisition front for the time being?

Steve Austenfeld

I’m sorry, Bill, the question being are we on the --

William Schmitz - Deutsche Bank

Are you done on the acquisition front now that did two [BOs] in fairly quick succession?

Don Knauss

I think we’ve got some time to digest what we’ve got here, Bill. I don’t think that we are out in the market right now looking actively. There may be some things that are modest tuck-in acquisitions, but I don’t think we are active, obviously given with the events of the day.

Daniel J. Heinrich

I would certainly say we are certainly going to focus on integration of this business, of helping John and the team there drive their business plans. That’s certainly going to be a focus of the group, particularly over the next couple of quarters. We are obviously targeting to get back to a 3.0 or lower on our debt leverage, and we are committed to doing that. Our debt ratings are very important to us and so we’ll be focusing free cash flow on that debt paydown.

The good news is we generate, as you know, a lot of cash flow and within about three quarters, we are projecting that we will be at or below the 3.0 debt-to-EBITDA level. So while we’ll continue to look at other acquisitions, obviously we are going to balance any of those points of view with making sure that we get our leverage ratio down to where we would like it to be.

Don Knauss

Our primary commitment right now, as Dan said, Bill, is to integrate the Burt’s Bees business, as Beth alluded, as John as well. We’re going to run this as a semi-independent company because we don’t want to certainly do anything that would negatively impact the culture of Burt’s Bees.

Having said that, the other thing is that we are very committed to getting back to the 3.0 to 1 debt-to-EBITDA ratio within 12 months, and that’s what we are going to make happen.

William Schmitz - Deutsche Bank

Okay, and then this is a random one for you, because I always have one for you every quarter, but is this [bee] shortage impacting the cost structure at Burt’s Bees? I don’t know if you follow this at all, but apparently the --

Don Knauss

Yeah, we’ve been aware of that. John, I’d ask you to respond. Did you hear Bill’s question?

John Replogle

I’m sorry. I couldn’t hear Bill.

Don Knauss

Bill’s question was around the bee shortage in the United States, the dying off of certain bee hives.

John Replogle

Terrific, Bill. It’s an issue that obviously we are quite familiar with. It’s called colony collapse disorder here in the U.S., and it is something we are obviously very concerned about. However, Bill, we source our beeswax from Africa and so we do not expect a commercial impact on our business. But we are taking a very active stance right now on that, trying to educate consumers and build awareness.

And in fact, tomorrow is the release of our first public service announcement. We’ll be doing a national PSA on colony collapse disorders in theaters around the country to build awareness about it and what consumers can do to help understand and remedy the issue.

William Schmitz - Deutsche Bank

Is that going to be conjunction with The Bee Movie?

John Replogle

It’s not in conjunction with The Bee Movie. We just happen to be breaking tomorrow in theaters around the country.

William Schmitz - Deutsche Bank

Thank you.

Operator

We’ll go next to Kathleen Reed of Sanford Financial.

Kathleen Reed - Sanford Financial

Good morning. Can you talk a little bit about on the Burt’s Bees business, is this a very different business than your existing core focus on household products? Is there a lot more SKUs or is it a lot smaller than what I typically think? And what specific personal care categories does Burt’s Bees compete in? I know some of them, but is it hair care, deodorant? If you could just go through.

Don Knauss

Why don’t I ask Beth and John to comment first, Kathleen, and then we’ll come back.

Beth Springer

Kathleen, there are definitely some differences from the businesses we are in today. If you will allow me, I am going to start by focusing on some of the things that are most common, then we’ll talk about the differences and I’ll ask John to dimensionalize a little bit more about SKUs and where we participate.

Fundamentally, we are talking to many of the same consumers. We are talking about building great brands. We have significant channel overlap, particularly as we look to the future where we grow distribution.

I’d say the greatest points of difference, if you will, in how we add value, these are personal care products, all natural formulations. That’s why we would not have entered the space organically. We wanted to acquire a leading player like a Burt’s.

You will find that we have more SKUs and the brand is already fairly broad in its participation in personal care. I am going to ask John to elaborate on that.

John Replogle

Kathleen, our business is really focused in two areas; one, we have a core care business. We are also then in cleansing categories. And our core strength is in care. We play in lip care and skin care and baby care, and those are leadership positions we have in each of those. And we are quickly growing our share in our position in the cleansing areas of hair care or hair cleansing and body wash and personal cleansing, and we see those as very good growth opportunities for the business going forward and we’ll look to continue to grow into white space areas where we don’t play today, really in the oral care and deodorant space.

Kathleen Reed - Stanford Financial

Also the current distribution of Burt’s Bees is it primarily in specialty organic stores? Or can you just walk through where it is now? Is there a risk that you will alienate your core consumer if you move a lot of distribution out of specialty stores into mass or is that not the problem because more consumers are adopting the trend and so they shop in mass anyway?

John Replogle

It’s a great question and I’ll go back to a dynamic I talked about earlier which is really the increasing penetration or household penetration in consumer adoption of natural personal care.

It has doubled in the last three years in terms of household penetration. We expect it to double again in the next call it three to five years. So this is really becoming a mainstream consumer choice and so we are just moving with the consumer. What we continue to do is make the best, most efficacious high quality products that we can and they continue to be available in those channels where we started and grew the business; where if you will, the core natural consumer tends to shop.

But we are increasingly reaching more and more new consumers and moving into those channels where that consumer shops on regular basis.

Donald R. Knauss

The only thing I would add to what John and Beth have said Kathleen, is if you look at some of the larger customer footprints that Burt’s Bees has done over the last 18 months, some of those large customers are our large customers as well; I mean Target, Walgreen’s, the chain drug channel in general, grocery. Clearly there is opportunity to accelerate it in grocery but a lot of these customers are the same types of customers that we call on every day.

The specialty and gift and the natural side is actually an add to us so I think it will give us some increased capability and exposure for our other brands. For example, Green Works. So we think there is a nice synergy at play here between both customer-facing organizations.

Steve Austenfeld

Kathleen just one other thing, for you and the other listeners, I would encourage you to go to our website. We have presentation deck, probably 15 pages or so of really good reference information related to Burt’s Bees business, the strategic fit for Clorox and in addition, Burt’s Bees has a fantastic website that provides a lot of great information that part of the business.

Kathleen Reed - Stanford Financial

Also on your full year revenue guidance, raising it 1 percentage point, I think there was a lot of discussion or some confusion on your last conference call with the 3 to 5. Did that include the bleach acquisition? Did it not include the bleach acquisition? Now it’s up 4 to 6; is that with 1% on the bleach business? Is the raise then due to stronger organic volumes in a certain area?

Donald R. Knauss

Kathleen, there is certainly a higher confidence given the first quarter performance across a number of categories and brands that the organic side of this business, the fundamentals of it, we think are healthy. The 4% to 5% uptick does include the roughly 1 point, slightly less than 1 point in volume from the bleach acquisition. Obviously anything that Burt’s Bees would be additive to that so that would take that 4% to 5% range more like into the 6% to 7% range with Burt’s Bees.

Kathleen Reed - Stanford Financial

With the Burt’s Bees business closing at the end of the calendar year and the $0.10 to $0.15 dilution then for fiscal ‘08, is that spread pretty evenly for the last two quarters and are you going to break that all out in the restructuring line or will it be embedded?

Daniel J. Heinrich

Kathleen, we still have some work to do exactly the timing and sequencing of when this closes and which quarters all these things hit. So the $0.10 to $0.15 that we have will be probably on our next call will be able to provide more information as to how that is going to sequence. A lot of the one-time charges are things like the write-up in inventory that you are required to do. Then there are some other transaction costs and then some compensation programs we are putting in. The inventory will hit very fairly quickly. Some of the compensation programs will be over time. So probably on our next call we’ll be able to give better information as to the exact impact and the timing.

Kathleen Reed - Stanford Financial

It will be broken out separately or you still don’t know?

Daniel J. Heinrich

Well the inventory adjustments certainly would go through the COGS line but we will be able to call that out when it occurs and provide additional detail on that. Some of the other transaction costs and compensation programs go likely through the SG&A line but there is likely to be some impacts on several lines of the P&L. After we have done our work and know exactly when it is going to close we will be able to provide more information.

Operator

Your next question comes from Nik Modi - UBS.

Nik Modi - UBS

Don or John or Beth, can you provide a little bit of content on the ACB penetration for the Burt’s Bees business? Where are the brand indexes today relative to your business?

Donald R. Knauss

Let me start now and ask Beth and John to comment. Burt’s Bees distribution today is about 54% of the ACB of food, drug and mass Nik, and of course we have 100% ACB coverage there. And in that 54%, well over half of it is the drug channel where they’re extremely well developed relative to food and mass. Given that Target, not Wal-Mart, is the presence in mass.

So in terms of store count, Clorox is in 4 to 5 times as many stories as Burt’s Bees is right now and clearly that is where we see some of the upside. So John or Beth, if you want to add to that?

Beth Springer

We absolutely see upside and roughly half the stores that we’re in today Burt’s is not in and belongs in. Beyond just getting the distribution, we are very excited about the opportunity to continue to build on what you know us to say as AMPS, particularly the assortment and the shelving. Burt’s has done a great job there, has innovated with their hives and has more opportunity. So we think combining their capabilities with ours, a big upside there.

I do want to reiterate also the excellent presence in the natural channel which is above and beyond the roughly 50% number that Don quoted and of course a lot of specialty distribution like bookstores where you probably were first introduced to the lip balm.

Nik Modi - UBS

Just on the drug store it seems that is where Clorox has the least amount of penetration in the traditional channels. Is there any opportunity to use Burt’s ACB in the drug stores to kind of push some of your other products?

Lawrence S. Peiros

Well we think there could certainly be an opportunity around Green Works. For example, we think of drug stores as a convenience store for women and when we look at brands like Green Works, we think it has real application there and gives us a real entry and a brand that is really relevant for that channel. So I think there could be some synergies there for sure.

Nik Modi - UBS

[Kick] Corporation was as we all know bought by private equity I think eight months ago or so. Have you noticed any changes in the marketplace on the pricing side?

Do you think it makes sense to maybe put Glad through a SKU rationalization program to really trim down the commodity based business and focus more on ForceFlex?

Donald R. Knauss

With respect to [Kick], I haven’t seen any change in pricing so if you looked at Clorox liquid pricing versus your guiding to the same relationships between Clorox and private label whether it be the tracked channels or the untracked channels or Wal-Mart. So no change there, no change in behavior from [Kick].

Nik Modi - UBS

What about SKU rationalization?

Donald R. Knauss

The SKU rationalization, I would say very specifically that we are very focused particularly in trash on building the higher EP items. So in the trash business that would include both ForceFlex as well as our odor control products, both of which have much, much higher EP than base trash. So you will see that our advertising for example is very much focused on ForceFlex and the added-value products and most of our trade promotion programs are focused on that as well.

Operator

Your next question comes from Connie Maneaty - BMO Capital Markets.

Connie Maneaty - BMO Capital Markets

As I was looking at the additional cost you are going to pay for raw materials over the next three quarters, assuming no offsets, is it a good calculation that the gross margin may decline about 50 basis points year over year?

Donald R. Knauss

I’m sorry, could you ask the question again Connie?

Connie Maneaty - BMO Capital Markets

I was taking the $30 million to $40 million in increased raw material costs and just calculating that could force the gross margin to decline about 50 or 60 basis points year-over-year, assuming that you don’t have any offsets. Is that a reasonable assumption?

Daniel J. Heinrich

Connie, the commodity component for the last couple of years as you know has been so volatile, we have really tried to shy away from being too specific on gross margin change. I think what we are clearly indicating today is that we are going to look at a number of things to try and offset the commodity pressure not only that we have seen but we think is still in front of us, particularly this next quarter, the second quarter. We are looking at more efficiencies around trade, SG&A spending and potentially pricing as well.

One of the other things that Dan noted is we have taken our cost savings target up from $80 million, $90 million to about $100 million for this year. So assuming we can achieve that, that will certainly help.

But with that said, the commodity pressures right now are pretty significant and that’s going to cause certainly some material gross margin dilution versus what our earlier expectations were for the year, which is why we’re now signaling that we do see gross margin to decline.

Daniel J. Heinrich

Connie, the other factor which makes it a little difficult to know exactly what the net impact will ultimately be is, we’ve talked in the past about we are qualifying a broader spectrum of resins into the mix and that we hope will help offset some of this. Certainly, we are continuing our discussions with many suppliers and that could impact it as well.

Again, the 30 to 40 is sort of kind of an estimate out there right now that we are working against, but we are working against various factors that ultimately may bring that down.

Connie Maneaty - BMO Capital Markets

With the flow of new products in the second half of the year, I imagine that advertising will really ramp-up then as well? Does it make sense that most of the earnings growth for the balance of the year will take place late over the next nine months?

Donald R. Knauss

With respect to the second half advertising revenue, I don’t think you will see an appreciable ramp up in advertising in the second half. Yes we do have new products in the second half but we had new products in the year-ago period as well. We were doing other things in terms of advertising so I wouldn’t expect much of change from this overall range of 9% to 10% on the advertising line. As we’ve talked previously, you’ll probably continue to see some ramp up on trade spending side.

Daniel J. Heinrich

In terms of earnings flow, we have a tough comp from Q3 year ago that we will be up against in the third quarter where a lot of our product launches are going to be. So we would expect to see a greater earnings accretion in the fourth quarter than the third versus year ago, simply because of the comp we are up against and the launch.

Connie Maneaty - BMO Capital Markets

That makes plenty of sense. Over to Burt’s Bees, I only know the company or the brand because of the lip balm so I’m going to ask to an uninformed question. Is it the biggest product and what percentage of sales does it represent?

Donald R. Knauss

John why don’t you jump in?

Beth Springer

John and I are both looking at each other and Connie, John’s going to test me to see how much I have learned. Lip balm is currently, the lip line I should say, lip care is a little bit less than 40% of revenue. It is the original lip balm, some extension of it and the lip shimmers. There is another 30% of business in face and body care and the remaining 30% is split across several categories including baby, outdoor, some gifts and kits. So the business is really diverse. It has certainly moved beyond the original lip balm.

Is that about right John?

John Replogle

You have done well.

Beth Springer

All right.

Connie Maneaty - BMO Capital Markets

What part of the product line is growing the fastest?

John Replogle

Well we have been innovating quite rapidly over the last few years. We see tremendous growth in the cleansing area, in personal cleansing and hair care, so we’ve seen some very nice growth in that area. We have a wonderful face care portfolio that is growing and we’ve got some terrific innovation coming in Q1 of next year, which should drive our business a good bit.

Of course our core remains very, very strong; our lip business continues to grow in double-digits and we expect it to continue to do so as we both innovate there, but expand our distribution.

Our lip business, especially our lip balm, is an expandable consumable and we find that if you put it within arm’s reach, you can really drive sales growth. So it continues to be a real engine for us as well.

Donald R. Knauss

The only thing I would add, Connie, you know, when we looked at this business as well, one of the things that really excited us about it is the innovation that John and the team have brought to the baby care section and that’s a relatively underdeveloped part of the Burt’s Bees portfolio and the category, but we think that’s going to continue to build significantly over time.

Connie Maneaty - BMO Capital Markets

If I could just ask one final question, since it’s going to be in theaters tomorrow, what can consumers do about colony collapse disorder?

John Replogle

Well thanks for asking. First and foremost is we need to build awareness for the issue. It is pretty dramatic; 30% of the food that we eat relies on a pollinator, namely a honeybee, to produce that food.

First of all, really we don’t have an answer. We need to find a solution. Burt’s Bees is investing in research to help find an answer or find the cause of colony collapse disorder. I think the more consumers are aware, engaged and really provoking a debate for an understanding here makes a difference.

We can support local farmers and organically grown food and we can plant seeds that will create the natural habitat and environment for the bees to flourish. So those are a couple of things. Consumers can also visit our website tomorrow, www.burtsbees.com and they’ll learn more about it. We’ll have a special page there on colony collapse; they can learn more and what they can do. We’ll also send consumers a seed packet that they can plant to create that environment for the bees to flourish.

Operator

Your next question comes from Joe Altobello - CIBC World Markets.

Joe Altobello - CIBC World Markets

First, on the Burt’s Bees deal; was that negotiated or was it an auction?

Beth Springer

Dan, how would you say we should describe it? I know how I would describe it, but being a little bit less of a technician in this area, I’m going to actually defer it back to Dan.

Daniel J. Heinrich

It was a competitive bidding environment that we were engaged in on the business.

Joe Altobello - CIBC World Markets

Rough number of other bidders?

Daniel J. Heinrich

We don’t have those details, necessarily.

Joe Altobello - CIBC World Markets

Secondly, if you look at your EBIT on a company-wide basis, year-over-year it was up about $30 million, but the segment EBIT was flat. Was there a significant reduction in corporate spend this quarter versus last year?

Daniel J. Heinrich

Well, EBIT is impacted by our charges.

Joe Altobello - CIBC World Markets

Over the line, though?

Daniel J. Heinrich

Not the way we report out EBIT.

Donald R. Knauss

No in fact, if you do this on a pro forma basis, our EBIT was up over almost 15% year-over-year, if you exclude the charges.

Steve Austenfeld

Joe, there’s a schedule on our website that reconciles EBIT from our pre-tax earnings and to your point, it is about flat, but that includes $27 million of one-time costs for restructuring this quarter. So if you add that back, you actually get some pretty healthy EBIT.

Donald R. Knauss

It’s about 15% when you exclude the charges.

Joe Altobello - CIBC World Markets

I thought I did that, but I’ll just follow up with Steve after the call.

Operator

Your next question comes from Jason Gere - Wachovia.

Jason Gere - Wachovia

I wanted to talk about the international piece. I know it’s 11% volume growth, but 18% from the acquired business. So it seemed like you had some pricing in there and I was just wondering about 3% organic volume growth and how you looked at that internally?

Daniel J. Heinrich

On the international side, I’m trying to remember all the details. The total increase in sales for international was 18%. I think about 4 points of that were foreign exchange and I believe 8 points were the bleach acquisition so that’s about 12. So, the core organic piece of that is probably about 6 to 7 and then pricing as a component of that. You know generally, our pricing practices international are to follow inflation, but call it maybe 2 points, probably, on the international piece. But again, I don’t know that that’s the right number; Steve can always check me on that.

Jason Gere - Wachovia

How did that measure to what you were planning internally in terms of the 6%?

Steve Austenfeld

I think the 6% organic volume growth was pretty close to what our target was. I think we had a little bit of upside on currencies as I think everyone did, obviously the weak dollar helped the top line from that perspective. The bleach acquisition continues to exceed our expectations. In total company numbers, it isn’t that material, but in the international segment, it was probably a couple points ahead of what we might have anticipated in the end of the quarter.

Daniel J. Heinrich

You know, we’re really pleased again with international; it’s continuing a long string of quarters of nice growth for us and as Steve said, probably the two areas that were better, certainly we’re in currency and we’re pleased that the bleach acquisition is ahead of expectations

Jason Gere - Wachovia

Over the last couple of days we’ve heard the mantra being the health of the consumer and if you look at the consumption in food, drug and mass, two things: one, can you just talk about overall, how you feel about your price positions versus private label and your branded competitors? Two, just in terms of the trade spending, maybe versus last quarter and going forward; any thoughts there?

Donald R. Knauss

I guess the best indicator for us is share growth and category consumption. Overall category consumption is about flat, which is actually a little bit healthier than what we’ve seen in previous quarters. So we feel good about that. Our total Clorox share is up slightly, which is also an improvement in trends, so we feel very good about that. Three of the eight categories that we look at in track channels are growing; three are flat and two are down which again, is better than the trends have been.

So feeling very good about our share performance, certainly relative to the last year or so and feeling like the categories are in good shape.

Jason Gere - Wachovia

Just in terms of trade spending, maybe looking ahead, just the overall magnitude versus maybe what we saw in the fourth quarter and then just for this quarter as well?

Donald R. Knauss

You’ll see the trade spending increases continuing; it’s hard for us to predict when we may pull back on that lever it really depends on what’s going on, both in terms of our results as well as what the competitors are doing. But we do see it continuing at this point.

Daniel J. Heinrich

You will see an uptick in the third quarter behind the new product launches.

Jason Gere - Wachovia

With the new Hidden Valley products that are refrigerated, in terms of distributing that, do you have to go through a DSD system or it’s kind of different than what your core businesses are.

Donald R. Knauss

Yes; we’re using a partner. Refrigerator Warehouse System.

Operator

Your next question comes from Linda Bolton Weiser - Oppenheimer.

Linda Bolton Weiser - Oppenheimer

I was kind of interested in the comments you were making about Brita and I was wondering if your projections for the future economic profit growth of that business is changing, because you had highlighted that as one of the three businesses with the lowest projected economic profit growth back at your analyst meeting. So I’m wondering if you’re changing on that and is your thinking changing on any other of the categories you talked about?

Donald R. Knauss

Well I think in New York we talked about three and as you know, that was one of them. Brita has always, from an economic profit standpoint, always had extremely attractive margins. The issue is we couldn’t grow the business the last five to seven years. I think we’re certainly changing our outlook in terms of the Brita business and the tailwind that appears to be behind it right now. That’s why we’re stepping up marketing spending behind that brand.

The partnership with Nalgene we think will continue to go through the second half. So, if Brita can continue on this trend, which we currently think it can given the sustainability focus of consumers, it’s a terrific brand to have on a growth trajectory because the EP margin is one of the best in the company.

Linda Bolton Weiser - Oppenheimer

So it sounds like you’re thinking of changing a bit?

Donald R. Knauss

Well, we are certainly thinking the growth trajectory of that business has a lot more to it than we did nine months ago to a year ago.

Daniel J. Heinrich

Linda, it’s in early days, so we’re certainly encouraged by the trends we’re seeing and we’re hoping that those trends will continue and we’re certainly investing behind those trends with Nalgene and other activities that we’re doing. So we are encouraged and we’re looking forward to see if we can drive that higher level of growth.

Donald R. Knauss

I think just as a finishing comment on it, I think it’s amazing what’s happened in the last four or five months in terms of consumer awareness around the bottle waste issue and the fact that we’re throwing 38 billion bottles in landfills every year is starting to really gain some momentum out there, not only with consumers, but I’m hearing it from retailers. I’ve been out with a number of retailers the last 90 days and some of those retailers are now giving more and more section space in bottled water sections to Brita.

Traditionally, we’ve been stuck over in the small appliance aisle or somewhere else buried in the store; you get over in the water section and you get a lot more consideration from consumers.

Steve Austenfeld

I’ve got to build on this. We’re seeing an incredible wave behind the sustainability issue on multiple fronts. It appears to be driving our Brita business in a big way; it definitely is helping the reception on our Green Works introduction and obviously it will play into the Burt’s acquisition. It doesn’t seem like any of it is going to stop anytime soon; it feels like something that’s going to build and build and build. But it’s really helping us on multiple fronts right now.

Linda Bolton Weiser - Oppenheimer

one question on the Burt’s Bees: Clearly, Wal-Mart is a big retailer you mentioned that it’s not in. Are there imminent plans to take this into Wal-Mart or is that not an appropriate retailer for this type of product?

Donald R. Knauss

I don’t think we want to comment on exactly where we would go for competitive reasons. So, I guess I would have to punt on that question.

Linda Bolton Weiser - Oppenheimer

Is it possible you could consider extending the brand into cleaners, or is there no applicability there?

Donald R. Knauss

I think we’re going to stay true to the core of that business, which is natural personal care. We see so much upside there over the years to come, I think we’re going to focus there and with Green Works, we have a significant platform, we think, already to take into the natural cleaning space.

Lawrence S. Peiros

I do think there is some synergy between these businesses that share those kind of sustainability and health promotion platform. There’s probably some learning we can get on natural ingredients that could potentially help our Green Works product, for example

Beth Springer

Just to build on that in our conversations with the Burt’s team over the last several months, and particularly today, first we affirmed that we share a common consumer for Green Works and Burt’s and our gaps and breadth of insight is going to grow there. Second, we’re very interested in learning more about the natural channel, where products like Green Works would get extra cachet and Burt’s has clearly established several relationships there.

Third, we think, particularly in sustainable packaging and just general waste reduction, Burt’s has done some innovative thinking that they can bring to us and in turn, we’ve done some innovative thinking we can bring to them.

Steve Austenfeld

I want to thank everyone for their questions today. If there is anyone who we were not able to get to in the interest of time, please feel free to either contact myself or Lee May. With that, let me turn it to Don to wrap up.

Donald R. Knauss

I will just summarize by saying we’re feeling very good about the performance of our core business; we obviously had a really solid quarter. We’re feeling good about a solid start to the second quarter as well and as you look to the second half of the year and our innovation pipeline, we feel very good about that.

On Burt’s Bees, we think, look, we’ve got a great brand and a great team with John leading it to take that business to the next level; extremely high growth in that natural personal care category, which is certainly accretive to our growth rates. The margin structure of the business we feel terrific about; we think that’s sustainable and as Larry just talked about, we think we have a new business platform here where we can actually learn from each other around the whole natural sustainability spaces and leverage both of these companies’ capabilities.

So we feel like we are off to a new day here. So thanks, everyone, for your participation and we’ll talk to you at the end of next quarter.

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