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The Clorox Company (NYSE:CLX)

2012 Analyst Day

May 31, 2012 8:30 am ET

Executives

Donald R. Knauss - Chairman, Chief Executive Officer and Chairman of Executive Committee

Lawrence S. Peiros - Chief Operating Officer and Executive Vice President

Wayne L. Delker - Chief Innovation Officer and Senior Vice President

Benno Dorer - Senior Vice President of Cleaning Division and Canada

George C. Roeth - Senior Vice President and General Manager of Specialty Division

Frank A. Tataseo - Executive Vice President of Strategy & Growth Bags & Wraps of Away From Home

Craig Stevenson

Michael R. Costello - Vice President and General Manager of International

Stephen M. Robb - Chief Financial Officer and Senior Vice President

Dawn Willoughby

Analysts

Wendy Nicholson - Citigroup Inc, Research Division

Dara W. Mohsenian - Morgan Stanley, Research Division

Jason Gere - RBC Capital Markets, LLC, Research Division

Javier Escalante - Consumer Edge Research, LLC

Lauren DeSanto - Morningstar Inc., Research Division

Constance Marie Maneaty - BMO Capital Markets U.S.

John A. Faucher - JP Morgan Chase & Co, Research Division

Linda Bolton-Weiser - Caris & Company, Inc., Research Division

Ian Gordon

Leigh Ferst - Wellington Shields & Co., LLC, Research Division

Donald R. Knauss

Good morning, everyone. If you could take your seats, we'll get started. We have the church phenomenon going on. We have the front pews open. We do collect here first.

I'm Don Knauss, the Chairman and CEO of Clorox. Thanks for joining us this morning.

About 5 years ago, in May of '07, we introduced the Centennial Strategy. I think most of you know the company turns 100 next May, so we're in our 99th-plus year. In 2007, we laid out a strategy. We laid out the fact that we were going to focus on economic profit as the overarching metric to drive the company. And in 2009, we gave you an update on that strategy, really focusing on our 3D capabilities to build demand. Today, it'll be an update of -- what we want to give you today is a lot more detail on how we've built the financial algorithm going forward. Next year, we'll obviously give you a real thorough dipping in the 2020 strategy, which will be the next large tranche. But I think today, you'll come away with an understanding in some detail how we're building the business as we go into that 2020 strategy discussion.

So here's the -- here are the folks who are presenting today. We have really the -- just about the entire senior management team here. So as we get to Q&A at the end of the session today, if I can't answer the question, somebody here will be able to answer the question. You can see that list. Also, you've got the hard copy in front of you. We also have a number of attendees here who run our core functions that are not presenting today. So as I said, we've got basically the entire management, senior management team, here with us today.

Here's the agenda for the day. We're really dividing this into the 3 engines that drive this company: the U.S. retail business, the professional products division, and then the International business. We'll give you an update on all those. Larry is going to talk about growing the core in the U.S. business. We'll take a break and then we'll get Craig Stevenson up who runs our professional products division, which has been our fastest-growing division. That, of course, is where our health care business resides. You'll get some, I think, a real in-depth understanding of that business and how we're trying to shape that business going forward. As you know, we had 2 recent acquisitions, Aplicare and HealthLink, about 5 months ago and we'll give you some detail on how those businesses are going as we integrate those. Mike Costello will come up and he'll update you on International. And then Frank will talk about -- Frank who heads strategy and growth for us will talk about how we're continuing to reshape the portfolio. And then Steve, of course, will -- our CFO, will bring it home with a wrap-up on the numbers. So that's the agenda for the morning.

Let me talk about -- I've got 3 key messages and most of this -- the presentation drives around these 3 key messages. But first of all, want to give you an up-to-date report card on how Centennial has gone. And really there were 4 questions we asked ourselves when we put this strategy together. First, what are the goals and aspirations of the company? We had to start there. Second, where are we going to play? So from a channel category country standpoint, what's the participation strategy of the company? That obviously got into the reshaping of the portfolio. Once we decided that, how do you win? What capabilities do you really focus on to bring that strategy alive? And then how do you configure the organization? How the -- what's the business model?

So it's been largely successful. As we all know, it's been a pretty volatile, difficult environment over the last 3.5 years in particular, but we have delivered solid economic profit growth. I'll show you the detail of that in a minute. And obviously, the total shareholder returns have been fairly solid against our peer set as well as certainly the S&P 500. And I think the 3D capabilities really did some remarkable, I think, remark -- did a remarkable job on progress in terms of gaining share. I'll show you the detail. But in essence, we've gained about 2 share points in all outlets over the last 4 years. None of our branded competitors have gained any share. They've all lost share back in our category, so we'll show you the detail on that.

So all in all, a pretty successful Centennial Strategy. We do believe that as we go forward, certainly kicking off with FY '13, as we look out into the foreseeable future, we can achieve this aspiration of top tertile total shareholder returns with the 3% to 5% top line growth objective that we've kept in place with margin improvement. And I would call it an evolution of the strategy, certainly not a revolution. It has been working.

And as I said, we've got the 3 major businesses driving this strategy, U.S. core, and that really is about -- that's 75% of our business and it really is about driving our 3D and our innovation capabilities and driving about 1.5 to 2.5 points of total growth for the company.

Professional products. That health care business is obviously growing in strong double digits. Just for perspective, 5 years ago when we unveiled the Centennial Strategy, our health care business was $2 million. Today, it's over $100 million and growing rapidly. We think that certainly can be a $300 million business in the next 5 years, so that's one of the key growth drivers of the business.

International. We see International continuing to focus on its current markets. Latin America, I think, as many of you know, is about 2/3 of our International business. That's where we're really going to focus hard. We think that, that International business can certainly grow in the 5% to 7% range on a sustained basis going forward. That adds about 1 to 1.5 points of total growth for the company. So if you add that algorithm up, you'd comfortably get into the 3% to 5% range for the total company.

Obviously, one of the big challenges Clorox has, and everyone else has for that matter is margins. And we'll talk about how we're going to enhance margins particularly with a double-down focus on mix. We talked a lot about mix on the last earnings call, not only domestically but internationally; our cost savings pipeline, which has always been robust; what we're doing with pricing and trade spending and admin spending. So all of those components obviously add up to mix, and we've got a strong focus on all of those components.

So we do think with that focus, with that algorithm built on the U.S. retail, the professional side, the International side, we can comfortably stay in that algorithm.

Then as I said in 2013 next year, we're going to get off-cycle a bit in terms of every other year, updating you with this show and give you a 2020 look at the business as we go forward.

So those are the key messages. Let me dive to the first one, give you a little bit of a report card on how we've done. So as I said, these are the 4 questions we answered. I think any business going through a strategy re-haul -- overhaul has to ask these 4 questions. So let's go to the first one. What our goals and aspirations were? A very simple mission for the company. We are not a milestone company in a sense that we don't sell cars and we don't sell homes. We sell things that interact with people everyday of their life all day long. So it really is about making everyday life better every day, and our people take that very seriously.

I think on those 2 objectives, they do separate Clorox from a number of our peers. Maximizing economic profit. We think that's a responsibility of every business to return above its cost of capital. We selected economic profit because it's the most robust financial metric we could find. It's the only metric we could find that has a P&L component, a balance sheet component and a capital market component.

P&L. Obviously, what's your net income? What's your net operating profit after tax? Balance sheet component. How much capital you've got deployed to get that income? And then third, a capital market component, what's the cost of that capital? And I think any company has to focus on that. That's 100% of our long-term incentive plan and 50% of our short-term incentive plan, so we take it very seriously. And it's the best metric we could find that correlates with stock price appreciation over time. So that, I think, separates us from a number of our peers.

The second is building big share brands in midsized categories. Obviously, as many of you know, 90% of our brands are #1 or #2 in their space, and that clearly separates us. We compete in a number of categories where the big multinationals just don't have the skill to play. We think that again separates us.

If you look at goals and aspirations, just some highlights in each of these: 3% to 5% top line sales; growing market share was critical to us; double-digit EP growth and top third TSR. Those were the goals we set out in the Centennial Strategy.

If you look at some of the choices we made and where to play. Of course, we acquired Burt's Bees about 5 years ago. We divested the auto care business a little over 1.5 years ago. And then we've acquired 3 companies in terms of -- inside the health care space. We've -- on the core business, we've expanded the Clorox equity in Hidden Valley. You're going to hear more about those in detail this morning from George and Benno. We've aggressively built this professional products business, particularly with an emphasis on health care. Repositioned Brita. And when we showed you Glad 5 years ago, it was not returning above its cost of capital. Today, it is returning above its cost of capital. So we feel good about the reconfiguration of Glad.

When you look at how to win, 5 years ago when we talked to you, about 15% of our products had a 60-40 blind in-home use test win versus competition. Today, it's almost 50%. We do think that's one of the -- in an age of where word of mouth is so critical building brands given the digital age, I think it's been one of the major reasons we're gaining share in the last 4 years because of that improvement in product superiority. A record level of innovation this year, we should hit about 3.5 points of growth from new products and new packages. That'll be the best in the last decade. That's as far back as we could check the history books. We couldn't find a higher number, all-time high, as I said. And then superior cost reduction. We've averaged a little over $100 million since 2003 in cost reduction. I think many of you hold us up as an exemplar in that space. We do a pretty good job of grinding waste out of the system.

And then in terms of how to configure. One of the major things we did 5 years ago was we made the strategic business units lead the company in the sense that P&L owners set the agenda. All the core functions, the enabling functions respond to that agenda, not vice versa. So we're not a functionally led company. We're a P&L, EP-led company. Globalizing the functions. We've gotten the core 4 functions of marketing, sales, R&D and product supply much more involved in the International business. And then investing in IT systems. Many of you know we have around $100 million investment going into SAP in Latin America to get those systems on par with the U.S. And then of course, the innovation facilities. By this December, we will have moved about 1,000 people into a new Pleasanton campus where we're bringing together basically everyone who's connected with innovation from across functions, not just R&D. So that'd be something I think a number of you would like to see, frankly. And that, as we get into the 2013 presentation, maybe that's an opportunity to do that.

So that's some of the choices we made, some of the major choices. If you look at what's happened then in terms of achievement against those goals and aspiration, here's the growth rates on the top line. You can see when the economy slowed, obviously our categories went from plus 2 in '08, '09 to negative 2 as we got into '10. We saw the dip and then we stalled. And then of course with '12, we'll see the strongest growth we've probably seen in -- certainly since 2008. With 9 months under our belt so far this year, we're at 5% growth and that's the best growth we've had since 2007. So we feel good about the sales line coming back, the categories having some rebound as we pulled out of the recession.

If you look at the share gains. If you look at the left side of the page, this is -- since '07, we've gained 2 share points, from a 26.2% to a 28.2% in all outlet data. Of course, I think as a number of you know now, the track channels are only about 1/3 of our business. In fact, 7 of our top 10 customers are not tracked. So it really can mislead one if you just look at track data. But if we look at all outlet, 2-share point gain. Of course, this was in an era when private label was supposed to kick our rear end in because of the recession and we've gained almost twice as much share as private label, and we feel very good about the health of the brands. You can see that when you combine our other competitors, the branded guys who compete in our spaces, they've lost in comp in total 3.2 share points.

And then if you look at the far right, it just shows the scale that we have with the strategy. I don't think most people realize we're 3.5 times the size of our nearest branded competitor with a 28% share. Our nearest branded competitor has a little over an 8% share in our spaces. And I think it speaks to the diversity of the categories we compete in. Of course, private label, a little over 16% share in our space. So strong share performance.

If you look at economic profit, a 7% compounded growth rate on profit over the 4 plus-year time horizon. And then if you look at our ROIC, we're pretty proud of the fact that we've gained about 100 basis points a year in the last 3 years. We're up to a 25% return on invested capital now, so we're second in the peer set only to Colgate. So we feel very good about the return on capital that we're giving to investors.

Now in terms of total shareholder returns. We just went back and said here's the last 4 years. So this is from March of '08 to March of '12, so that's basically when we got traction on Centennial Strategy to now. 39%, almost 1/2 of that 39% has been the doubling of the dividend. Of course, 2007 when we talked to you first, we had $1.20 a share dividend. Today, it's $2.56. We just took it up another 7% last -- this month. So if you look at the peer set at 36% and the S&P at 16%, so we obviously feel about the returns that our shareholders have gotten over this time horizon. Obviously, it's had some volatility, some bumps along the way, but that's, I think, a pretty solid progress report.

When you look going forward, you say all right, pretty good success. How do you shape this algorithm going forward to continue that, and in fact improve on that? This is the way we look at the business. U.S. retail is the core. We obviously have to have a healthy core. It's the spine that holds up this company. 75% of our sales. We see a 2% to 3% compounded growth rate in that business. So we don't think that's overreaching by any stretch. We have seen our categories go from plus 2 in '09, negative 2 by the end of '10 and now back to about 0.5 point of growth. So we're seeing some stabilization in these categories. And that 2% to 3% compounded growth rate, you just multiply out the 2% to 3% by the 75%, it gets you about 1.5 to 2.5 points of total company growth. And again, we don't think that's certainly an overreach. If the categories pick up and we start to see 1 to 2 points of growth, we consider that growth above -- we certainly would benefit from that tailwind above that level. So if the categories resurged, we think there's some upside there for sure. What's driving that? You'll hear more detail about it this morning. But clearly, this 3D innovation model we have, we feel very good about it, and we think we can certainly continue to grow share. As I said, we hit an all-time share in April and the trends have been very solid over the last year and the last 4 years. So we feel good about the U.S. retail business.

On the professional side, it's 5% of our sales now. It's growing -- we expect it to grow 10% to 15% and at that growth rate, it adds another 0.5 point of growth to the total company. So I figure it's about $25 million at a minimum of NCS growth per year, and Craig will take you through the detail on how we get to that number. And the core to that, core to that is building this health care business. As I said, we believe it'll be a $300 million business in -- within 5 years, half of that growth coming organically and the other half from bolt-on acquisitions.

And then International, 20% of our sales, 5% to 7% growth. We see the categories internationally, particularly in Latin America, still hanging in the mid-single-digits. So we certainly will grow, we believe, with those categories, if not slightly ahead of it. That adds 1 to 1.5 points of growth. So if you add that up, we're comfortably in the 3% to 5% growth range that we've talked about.

I think one of the changes you'll see today is we're really going to focus on our current markets. As far as the BRIC countries go, we don't see an overreach into those markets. We're going to focus on the markets where we have scale. We don't think -- we think with the competitive intensity we've seen in China and Brazil in particular, it would be an overreach to invest heavily into those markets. We'd rather invest heavily in the core markets where we are today and get that growth level. And then we've got to capture the value from the IT investments, and you'll hear more about that from Steve.

So that's the way the algorithm is set up: 1.5 to 2.5 from the U.S.; 0.5 point from professional; 1 to 1.5 from International. And we don't think, as I said, that those are certainly an overreach at all. And we've certainly sustained that kind of performance, except in that one year when we had the -- the 18-month period when we had that recession in real -- in a deep trough.

I think the big thing across all of these 3 businesses you'll hear more about today is margin. And obviously, we've seen compression in margins as a number of people have seen over the last 18 to 24 months. We are focused like a laser beam on margin improvement. You'll see EBIT margin improvement of 25 to 50 basis points over the next 3 years. That's our objective at a minimum to get that level. And again, Steve will give you some more detail on that as we go forward. So that's the way the algorithm hangs out.

With that, why don't I turn it over to Larry? We'll get into the U.S. core business, the retail business. Larry?

Lawrence S. Peiros

Good morning. I'm Larry Peiros, Chief Operating Officer. And as Don said, I'm going to focus -- actually between now and the break, we're going to focus on the core business, which is 75% of total company and how we're going to grow that by 2% to 3% or deliver 1.5 to 2.5 points for the total company.

We've got a few key messages. First of all, as Don alluded to, if you look at our categories today, we're actually seeing some return to growth. The economy is starting to recover and we're actually seeing the -- the first signs of some positive growth in our categories for the past 2 years -- since 2 years.

Secondly, Don alluded to this as well, we have an unsurpassed track record in terms of growing share. We've now grown share successfully for the past 4 -- over the past 4 years.

We talked a lot about our 3D capabilities over time. These are the capabilities around product: how we delivered -- how we deliver consumable products; the activities around Desire, how we drive demand for our products; and finally, the activity around decide or point of purchase in the store or these days even on a website. And what we would say is that our success around the 3Ds comes really from creative ideas that are the basis for our 3D activities as well as integrating those activities across the 3Ds to gain the scale and the synergy across our marketing elements and building brand efforts.

So these are the numbers that Don alluded to earlier. This is -- looks at all of our U.S. categories combined and what you can see is that in calendar year 2008, we were growing about 2%. If you look back probably for 10 years before that, these categories were growing averagely about 2% to 3%. So that was kind of the historical rate. You can see we slowed down in calendar year 2009, took a fairly deep dive in calendar '10 as the recession kind of kicked in. Saw a bit of recovery in calendar year '11. And it's just in the latest 52 weeks we're seeing the first signs of positive growth in our categories. So our categories are starting to get a little healthier as we get out of the recession, as the economy recovers and consumers get back to buying products.

This is the share in these categories over time going back to OND of 2007. If you look at the last quarter ending JFM, we were 28.0%, a record level. If you take that out one more month for the past 52 weeks ending in April, you can see we reached another all-time share at 28.2%. This is a chart that we obviously are pretty particularly proud of, given that we're growing premium price brands in a very difficult economic environment.

Again, the same chart that Don showed but one that we like to show because we're particularly proud of it. Look at our share growth over that time frame, we've grown 2 share points. Private label grew only 1.2 share points despite the fact that we're in a recession. All of our branded competitors combined actually declined by 3.2 share points. If you look at the branded competitors, there's only one branded competitor that showed any sign of life. So the best branded competitor delivered 0.2 points of share growth during that period.

Again focusing on the 3Ds, just kind of top line, things that have changed over the last several years in our 3D efforts. Certainly on product, we've been very focused on 60-40 wins with current brands as well as driving new products that provide incremental sales growth to the company. In the area of driving demand, that's really been a focus more toward digital space, so it is just common to see one of our brands on Google today as it would be on ABC TV. And finally, in terms of point of purchase, perfecting our packaging so that we represent our brands well in shelf as well as driving merchandising events that drive incremental trial and incremental sales.

As I said, one of the key success factors in our 3D efforts is simply good creative ideas. Ideas that engage consumers, that create a relationship or bond between our consumers and our brands. And then the second piece is integrating across the 3Ds to capture the scale and synergies across our brand-building efforts.

What I'm going to go through is a few examples on each of the Ds in terms of creative ideas and then a kind of a little case study of how we integrated our effort across the 3Ds in a single product.

So one quick example on Brita. Last fiscal year, we launched Brita bottle On-The-Go, which was a way to get Brita water when you're out of the home. We're building on that success with a launch in July of Brita Bottle On-The-Go for kids. So these are obviously small bottles that fit in kids' lunch boxes with kid-friendly designs.

Another example in the area of Delight is that our creative geniuses on the Burt's R&D team were able to formulate some truly unique, good products. And just a couple of weeks ago, we got this endorsement from the folks on the program called The View.

[Presentation]

So if you haven't used the gud shampoo and conditioner yet, we would highly recommend it.

Turning to examples in Decide. This is an old example, but one quite frankly that's gotten better and better over time. So we've done a terrific job of basically joining up with flu-fighting efforts in the retail environment with our disinfecting products. A lot of wipe activity, a lot of Clorox disinfecting -- or Clorox cleanup activity. And essentially what we do is tie-in with flu shots and pharmacy placements when people are most open to using disinfecting products to prevent flu and other illnesses.

Another example of Decide is we put up some pop-up stores in some major malls around our environmental-oriented products. So Burt's Bees, Brita and Green Works, we had mall presence and got some -- not only some incremental sales, but some good feedback from consumers in terms of how they viewed our products.

Turning to Desire. There's an app for that. So if you have questions about where to take your old batteries or your old motor oil, you can get on Glad Trash Smart and find out the nearest location n which to recycle your problem products.

Another example in Desire is Kingsford, the brand that does a great job of owning holidays like Memorial Day and July 4. We decided maybe we could give a little bit effort around Mother's Day. So this past mother day -- Mother's Day, we actually launched an effort to convince people that barbecuing at home is a lot less hassle than the physical part of the event. Here's the video for the commercial that ran [indiscernible].

[Presentation]

So lots of good examples of creative ideas across each of the 3Ds. Now I'll do a quick case where we've essentially integrated one new product concept across all of the 3Ds and that's in our Liquid-Plumr Double Impact product, which was launched in Q1 of this fiscal year. So starting with the product or Delight. This was a fairly unique product in that it was kind of a 2-in-1. It had a plastic snake, so mechanical action. So the consumer uses the plastic snake to remove as much of the clog as possible. And then pours in this unique gel-like formulation afterwards to clear the clog completely. So fairly unique product from an innovation standpoint.

From a Decide standpoint, we decided it was incredibly important that people understood what this product was at the point of purchase. So an easy option would be to have put this product in a box. We decided to go the extra effort and create this kind of clear cap on the bottle, so that people can actually see both the snake and bottle all at once. We think that has a lot more impact on shelf than putting it in a box or using some other kind of device.

And then finally in the area of Desire, we took a fairly what you might term provocative approach to a what you might term a fairly mundane category of drain cleaners. And I think I'd just let the advertising speak for itself.

[Presentation]

So we got a lot of interesting reactions to that advertising given it was a bit nontraditional. One of my favorites was a little spoof on the Jimmy Kimmel show.

[Presentation]

The campaign also went viral. So actually on YouTube, we had over 1,700,000 people that viewed the Liquid-Plumr commercial online, which is about 1,700,000 people than I would have predicted would have watched a Liquid-Plumr commercial online. So got a lot of good positive reaction out of our advertising. So all in all, a good example of integrating across the 3Ds. Pretty innovative product shown clearly at point of purchase and then a campaign that broke through the clutter and created a relationship with our consumers. And the best part of the story is our results have been pretty terrific behind this. So overall liquid-Plumr retail sales were up 6%. Since we launched this product, the drain category is up about 4%. And our share is up about 0.5 share point.

So to sum up. Again our categories are getting healthier; reason to believe that we can grow this part of the business 2% to 3% per year. Our track record has been absolutely terrific in terms of last 4 years, building share successfully. So clearly, our 3D capabilities are the route to our success and that success comes behind creative ideas as well as integrating those ideas across the 3Ds.

So where we're going to go next is I'm going to turn over to Wayne Delker, who's going to talk about accelerating innovation, which is clearly a big part of our brand-building efforts. And then Benno Dorer will come up and take us through a case study on Clorox Liquid Bleach. And George Roeth will talk about building the Hidden Valley franchise.

Wayne L. Delker

Thank you very much, Larry. Although I'm not quite sure how to follow Liquid-Plumr, but good morning, everyone.

As both Don and Larry talked about, innovation is really critical to our business success and I think that's a theme that you'll see really woven through all the presentations today. It allows us to grow our categories, capture market share and ultimately drive profitable growth for the long-term success of our business. What I'd like to do this morning is kind of frame how we think about innovation; how that thinking has evolved over time, particularly since we talked last about this; and then talk about some specific changes that we've made that we think will allow us to accelerate this growth.

We found there are several key elements to our success. The first is all-around focus. The nature of the innovation piece is that you can really innovate everywhere. But what we found is to get the biggest bang for our buck, we really need to focus on consumer important trends and also make sure we stay connected to our business strategies. This is actually a way of really making sure our teams are their most creative by putting some constraints around them.

The second big theme is all-around discipline. Let's face it. Innovation is hard and what we found is to maximize our success, we need to use a very disciplined process that simultaneously asks and answers 3 basic questions: first, what is the problem we're trying to solve; second, can we gain insights that will allow us to see solutions different from our other competitors; and then third, what are the technologies that we can bring to bear to create truly superior products? It's really by bringing these 3 together that we maximize our chances of success and the ultimate value of innovation.

The third big theme is consistency. We're all about having a track record of success and we really tend to look at innovation through 2 lenses. The first, as Don really talked about, which is how do we use innovation to make sure we have a solid core? And this is all about our commitment to the 60-40 wins. What that just means is making sure that at least 50% of our product portfolio is consumer noticeably superior to the best competitor -- competitive offering. The second way we look at innovation is really in driving growth and here our goal was to make sure that every year we deliver at least 2 points of growth from products that were introduced in the last 12 months. And then our final element is about raising the bar. As Don and Larry talked about, as our category softened, it was important for us to ratchet up the amount of growth we get from innovation. So we've increased our goal from 2 points to 3 points. That required restructuring some of our innovation groups and redesigning some of our processes. And I'm glad to announce, as Don said, by the end of the year, we'll be moving into a new innovation center, which will allow us to bring all of these changes together. So we're really excited about that and what it'll mean for our teams.

What I'd like to do, however, is start with something that hasn't changed, which is all of our innovation is still anchored in these megatrends. The reason we believe that's important is that these trends have lasting impact on our consumers. And by really focusing in these areas, we maximize our chance of our new products having staying power once they're introduced into the market. Now the good news is that these trends are very broad, so there's lots of opportunity we can go after. The bad news is that they're very broad and they don't provide enough focus by themselves for our teams. So what we've done is created a strategic process which we've implemented which starts with the megatrends, synthesizes them down into the business strategies that you're going to hear about later this morning and then creates these brand growth ideas. These are the base -- this is basically the mechanism we use to do that 3D integration that Larry just finished talking about. Coming out of that growth idea becomes our innovation pillars and all that is, is our nickname for spaces where we're going to innovate and then we spin off specific projects off of that.

We think this process is important because on the one hand it allows us to be very divergent and look for big opportunities but on the other hand, it forces us to converge down to making sure that individual market introductions are closely aligned with our business strategy and what our consumers need. Once we have our target, that's when our disciplined process kicks in. And here, you can see are 3 things again: problem, insights and technology coming together to ultimately create a solution that delights the consumer.

I want to first start talking about this is from the problem perspective, and the reason for that is that our consumers aren't very good about telling us what solutions they want, but they're really good at complaining about the problems they have. So we find that's a very lucrative way to start. And what we try to do with problems is we need to go deep enough so that we really get to the root cause because we feel by getting that crystal clarity around what is the problem we're trying to solve, that's where we find the best possible solutions.

I'd like to just illustrate this with a few examples. The first, in the United States, 100,000 people will die of infections they get after they enter the hospital. This is an incredible waste of life and money and a major burden to an already overstretched health care system. We think we can make a major dent in this problem, and Craig will be talking about that later.

Second, a lot of our consumers like the peace of mind they get from using natural products around themselves and their families, but they're not willing to compromise on the total consumer experience. We feel they shouldn't have to compromise. In fact, we think the experience should ultimately be better in using natural products.

Third, our Glad consumers want to do the right thing for the environment by wasting less plastic in their trash bags, but they're not willing to do that at the sacrifice of having a bag failure and spilling gunk all over their kitchen floor. We don't think they should have to.

And finally, all -- everyone wants fresh-tasting water, but nobody wants to pay the extra cost or have the environmental impact that disposing of all those plastic bags or plastic bottles results in.

As you look across this slide, you can see our problems range over a wide range of activities from saving lives to saving the kitchen floor. But the thing that unites them all is that there are areas that people really care about because it's that consumer care and passion that ultimately is what we have to tap into to make innovation successful.

So once we've identified our problems, we then have to go one step farther and come up with these unique insights, which is a different way of looking at the problem and how we might come to a unique solution. Larry just talked about how we integrate our 3Ds, and our entire innovation approach is built around this 3D integration model -- 3D innovation model bringing these 3 together. But before we can do that, we actually have to do the integration of the insights. If we look at insights again in 3 -- through 3 lenses: one from a user's perspective when you've actually got a product out and you're using it; two, from as a shopper; and three, in terms of how do we create Desire even before the consumer goes into the store. And it's bringing these 3 together that allows us to get the 360-view perspective and really get to know our consumer at a level that makes us much better able to target innovation.

Now unfortunately, I'm not going to give you any examples of any of these integrated insights. And the reason for that is these are really the crown jewels of innovation. And unlike technology, which I can patent and protect, the moment we start talking about these, they're lost. So we don't talk about these publicly.

But what I would like to share is some of the processes we use that allows us to continue to find these. The first is about using a really disciplined approach to listening to the consumer and learning from the consumer. We will bring over 1,000 consumers into our consumer learning center every year to work side by side with our design teams, really watching them use our products. We'll go into their homes. We'll go into the stores with them. This is all about trying to pull out and mine for those insights. We've learned to test this and best if it's very cross functional. So we bring our marketing, sales, R&D, product supply people together because everybody will interact with the consumer in a different way and it improves our chances of finding those insights.

The next key step, once we start to get an insight, is how do we test and validate potential solutions, and we've become strong advocates of this idea of fast learning and prototyping. There's something magical about putting a prototype into a consumer's hand, even if it's really crude. It's just opens up a new language between the consumer and the design team that allows us to learn faster. So by the time we reach this part of the process, we're starting to get an idea of what the solution should look like, but that's far from being enough. What we found is in most of our major innovation, buried at the core, is the technology advantage. It's some technology capability that we have that our competitors can't duplicate.

I'd like to bring this to life as well with a few examples. In our health care business, it's all about how do we make our disinfectants superior. We have a very broad line of disinfecting actives, Bleach, Clorox and now we've recently added peroxide. And our approach here is to really understand the science of how these work and then use that understanding to improve their performance and their efficacy against a wide range of pathogens, their speed to kill and ultimately their safety because that's really important, too. And by understanding the mechanisms of how these things work, we think we can bring a really strong technology portfolio to market. Craig will also be talking about this later this morning.

A second major area for us is in natural products. And here once again, it's about understanding the science of how natural polymers interact with skin and hair and then using that understanding to formulate the kinds of products that will cleanse hair without stripping it or drying it out, that will condition hair in a healthy way without leaving a buildup. And it's that sort of product formulation that leads to the kinds of videos that Larry showed from The View where our gud shampoo and conditioner were recognized.

A third area of technology for us is in plastic films. And as I'm sure you all remember, several years ago we formed a joint venture with P&G that gave us access some new technologies. Well, the Glad JV has continued to develop these technologies and has extended their capabilities to allow us to make stronger and stronger trash bags with less and less plastic and always push the envelope in what we're able to do.

And then my final example is in Brita. Here, it's all about how do we continue to improve the filtration media as well as the design of the filter itself to make it smaller, more compact, easier to use and it's things like that, that opens up potentials. Once again, you'll see that the range of technologies we're working on is really quite broad. And what we have continued to be committed to is this concept of technology brokering, which is partnering with others to get exclusive access to a far wider range of technologies that we could ever do on our own. So that's kind of the theme that unites us here.

So once we've done the -- completed the technology, you see these 3 coming back together now: of the problem identification, insights and technology to ultimately create a solution that delights the consumer. Although it's important to hit each of those 3 elements, what we've actually found is we can and should be very flexible in where things start. And what often happens is a team will kind of toggle between those 3 elements as they continue to learn what's important for the consumer. However we go about it, it really comes down to the most important part, which is a solution that ultimately delights the consumer. And for those examples I've given you this morning, these are the innovation successes that we've had this year that came out of the result of this activity. And you'll see these in some of future -- in some of the some of the presentations the rest of the morning.

Now it's important to really target our innovation on delighting consumers because that's how we win. But it's also important to make sure innovation drives our business. And as Don talked about, our commitment to product superiority has been really critical for us. Here you can see the progress we've made over the years, and it's been a good steady gain of improvement. And again, as you recall, we measure this by having at least 60%, and oftentimes it's more around 70% to 80%, but at least 60% of our consumers picked a Clorox product over the next best alternative in a blind, unbranded test. Although there are a lot of factors that go into the market share results that both Don and Larry showed, we do believe that our commitment, the total business commitment to these superior products has been a really important factor.

The second thing we look at is the amount of growth we get. And as Don indicated over the past decade, we've been able to achieve our 2-point goal. I showed you the last few years because this is one we're pretty proud of. Because even during what were some pretty turbulent and tough economic times, we were able to keep our head above water. But it's not enough. In fact, what we're doing now is raising that goal because we need more growth from innovation, which has required some very specific changes.

The first was just changing the goal. Just by increasing the goal from 2 points to 3 points, it allowed our teams to really think about innovation differently and come up with new ideas. The second thing is it was very clear we weren't going to be able to get this sort of an increase in output just by doing more innovation and running faster and faster and faster. We needed to make ideas bigger, and that require that we redesign the front end of our process to really be able to find those opportunities and build them into bigger ideas.

This resulted in some structural changes we had to make. Basically, we've created groups at really driving each of those key elements I talked about this morning. We have a global insights group that does the integration of the insights. We created a new corporate innovation group that really looks further out than across divisions and between divisions to find untapped opportunity. And then we've expanded our open innovation group to not only go out and look for technologies, which has been our history, but also look for ideas or other capabilities that we can bring in to enrich our process.

And by far, the most important is our people. What we found is the key to innovation, when all is said and done, is having the right people with the right talents working in an environment that allows them to collaborate. So we've made significant changes in how we train our folks, the way we recruit and how we allow them to connect and work together, which we think is ultimately starting to pay off.

Now it's still very early, but we are starting to see some promising results. Here, you can see the last 2 years. Last year, we delivered about 2.8 points of growth from innovation, which is at the high end of our 2 to 8 -- or our 2- to 3-point range. And this year, as Don indicated, we're tracking about 3.5 points, which is a record high and I'm sure we could go back 100, almost 99 years, and we would still have that. So we feel really good about that. But innovation is not about having a couple of good years. It's about having consistency year-after-year-after-year and being able to hammer it out and that's what we're really focusing on going forward in the future. We feel good. We have a very strong pipeline that is really well distributed across all of our businesses so -- and that helps us manage our risk, but we can't be complacent. We got to keep moving forward. And the next step in our journey is to really open this innovation center in December. This was designed from the ground up to provide the kind of environment that will allow our teams to co-locate, come together, change their space in a very flexible way depending on what they need to do in their project. And we think this will give us both speed, fast decision making as well as allow our teams to better collide people, insights and ideas to correct -- to create bigger innovation opportunities.

So in summary, the way we look at integration is really pretty simple. It's about focus, it's about discipline, it's about striving for consistency and then it's about stretching for results. But to tell you the truth, what I stand up here and say about innovation isn't very important. What's important is how our businesses use innovation. And I think what you're going to see over the next couple of hours as our general managers talk about what they're doing in their business is these principles really coming to life, and that's where really the fun starts.

So to get us started on that journey, I'd like to introduce Benno Dorer, our leader of our Cleaning business, who's going to talk about one of our major products, the mothership. Thank you. Benno?

Benno Dorer

Thanks, Wayne. Good morning. I have 3 hopefully very simple messages for you today. The first one is that we're very focused on restoring sales growth on Bleach. The second is that we have 3 very solid focused areas that I'm going to cover in detail. And a third message is that as we speak, Bleach actually is growing and I'm confident that it will keep growing in fiscal year '13.

So you know it's sometimes said that at Clorox, people have bleach in their veins. And even though there is no scientific evidence to that, it wouldn't be surprising because after all, that's how it started 99 years ago when 5 guys each chipped in $100 to start a venture that would sell bleach to laundries and breweries and others and that venture would eventually become The Clorox Company.

And through leadership and innovation over the next 99 years, Clorox people have come quite far to turn this brand into an icon. 98% brand awareness, penetration in more than half of U.S. households, those are numbers that very few brands can show. It really says that the Clorox brand is very meaningful today in people's lives. It's also very meaningful to our customers, and the one number that you will see here is that Clorox Bleach actually is, in grocery, the #2 nonedible item in unit sales. In other words, only Kleenex facial tissue sells more units in grocery in nonfood than Clorox Bleach. It's an icon, but it's also able to compete in today's digital world. And you can see that from the fact that there is a very prestigious award called the Appy. And the Appy, of course, is for the best ads in the industry. And myStain app, which I recommend you download on your iPhones or Androids, won the award this year for best Appy in branded content. It was the only CPG brand that won and we beat out DreamWorks Animation for the win. The Clorox brand also has more than 70 -- 700,000 Facebook fans, which is more than big brands like General Motors, Visa or my personal favorite, The Wall Street Journal.

So this is a big and modern brand. It's also more than $1 billion in sales today and it's actually quite diversified. It started off as a laundry additive. And about 45% of sales today are actually in Home Care, our Clorox Wipes being the most notable example. And of course it started off as bleach, but today 38% are in non-bleach. But my today's presentation will focus on Bleach, the mothership as we call it, which as you look at the past 10 years, actually is growing any way you look at it, both if you consider only Clorox liquid bleach, which is the heart of the business, which has been growing at about a 2% CAGR over the last decade as well as all of Clorox Bleach, which includes products like spray cleaners or toilet bowl cleaners, which has been growing at twice the rate at 4% CAGR. But you guys are analysts, so you do this pretty well. So you can read graphs, so you can see the past 4 to 5 years have been more challenging and growth is flat -- has been more flat.

So we are very focused on bringing growth back to this business and we're doing this with 3 growth platforms. The first one is to revitalize Clorox liquid bleach. The second one is to expand bleach into home care forms, and the third growth platform is to grow bleach with Hispanics. What I'd like to do now is take them in turn.

Let's look at how we're revitalizing Clorox liquid bleach. The first thing to do because this business begins and ends with the consumer is look at consumer fundamentals. And it's very important to note that bleach today is as relevant to consumers as it ever was. Every few years, we do consumer segmentation and we place particular emphasis on whether people are what we call bleach-involved or not. And by bleach-involved mean -- I mean, people who are pro-bleach, people who value the benefits and the quality of bleach. And as you can see, almost 2/3 of U.S. households are bleach-involved. And that number over the last 6 years has actually grown. And only 11% are with we call bleach skeptics. But the important thing here to note is 2/3 of people unchanged or slightly growing continue to be bleach-involved.

So it shouldn't come as a surprise that as we think about growing the bleach franchise, we're not looking at esoteric issues. We're not looking at philosophical problems that we have to solve. The problems are actually quite practical and there are 2 of them. The first one is yes, household penetration is somewhat under pressure and that's causing about 1/3 of the volume loss that we've experienced over the last few years. Why is that? Well, bleach is somewhat inconvenient to use. But more importantly, as you go 10, 20, 30 years back, mothers actually passed on the information of how to use bleach to their daughters or sons as they started new households and that created a wonderful chain through generations. That chain has been broken and we have to step in.

2/3 of the volume loss are actually due to under-dosing. Why? HE machines. HE machines have compartments, compartments where in about half the cases, 2/3 a cup of bleach fits in and about the other half of the cases, half a cup of bleach fits in. HE machines are growing. Penetration grew from 17% in 2007 to 27% in 2009. It's expected to go as high as 64% by 2015. Manufacturers will stop selling non-HE machines. And then if you consider the 2/3 and one -- or only half a cup compartments, our recommendation is actually to use 3/4 of a cup of bleach. So with every use in an HE machine, we're using 15% to 30% of volume. We have to fix that.

So here's how we're going about this. First, we're engaging a new generation of bleach users. New and young parents that are in behavior -- in behavior-changing life stages and that importantly have similar needs for bleach: disinfecting, stain and odor removal, whitening. Those are the same benefits young people like that have been there for 99 years. What we're doing is reducing barriers to use, driving moments of high need and leveraging their openness to change. And the way we're doing this, and we've showed this to you at CAGNY, is through our Bleachable Moment campaign. Bleachable moments are those awkward, weird moments that you wish would never happen and that you just like to bleach away. I'm going to show you 2 examples of what this is looking like on TV.

[Presentation]

So this has been a very successful TV campaign, and 2 examples illustrate that: first, 2 of these commercials were included in TBS's funniest commercials in 2011. And we've actually also just picked up 2 of the advertising's most prestigious awards, the CLIO Awards, in 2012. But it's important because we're talking younger consumers here that were going beyond TV. And this is a truly integrated program that's designed to create an engaging 2-way conversation with this consumer where the consumer is, and that is digital. So the focus here is on social media, the focus is on PR and sponsorships and the focus is on user-generated content.

And I'm pleased to say that even though this is early, initial results are actually quite encouraging. What you see in this graph is what we call base velocities. Base velocities capture about 70% of the total volume sales of this brand. And base velocities essentially contain everything that's not driven by merchandising. Before we started airing this campaign in fiscal year '11, base velocities were down 4%. As we began airing this campaign in the first half of fiscal year of '12, this fiscal year, we gained 1 point. In Q3, we gained another point. And in April, we gained yet another point. So Bleachable Moments is working.

But I talked about under-dosing being the predominant issue here. And on Clorox Bleach, we are no strangers to compaction, having done it once before in 2001. And we will introduce the next generation of compacted bleach starting this August, where we will take the main size, which today is a 96-ounce, down by 33% to 64-ounce. We have a very fast and very efficient rollout plan that takes about half as long as it did take us in 2001, illustrating the strength of our product supply and R&D organizations and that will cover 8 months in 4 regions. Starting in August, we will cover the Midwest and the South. In October, we will roll out in the Southeast. In January, we will roll out in the Northeast. And then we'll finish in March of 2013 in the West. And we will support this rollout with a very strong and very regional marketing plan where spending will be up 30% or about $80 million in year one. This is a win-win and a very significant one for consumers, customers and of course for Clorox. The consumer doesn't just get a compacted product, but this actually is a better product with improved whitening performance and better and more germ removal.

Consumers in our testing also told us that they much prefer this new bottle. It's smaller, it's lighter and it's easier to handle in dose. And importantly, dosage now is going to align with HE machines and will be half a cup.

Both customers and Clorox are benefiting from higher sales and lower logistics costs, and customers will also benefit from improved in-stock levels. As you go to any grocery or mass store today over the weekend, you will often see bleach out of stock because shelf holding power is not enough. We are now able to hold more bottles per shelf space and out-of-stock problems will diminish.

Clorox will also benefit from a significantly reduced environmental footprint as we're able to save energy, water and plastic resin.

So I hope you join me in agreeing that these plans of revitalizing Clorox liquid bleach are strong as you think about Bleachable Moments, which is starting to work in the marketplace, as we think about numerous Decide activities that are either in place or will be in place with compaction, which of course, as you think about Delight, is going to be the cornerstone of next fiscal year.

Let's move on to the next growth platform, which is expanding Clorox Beach in Home Care. This has been a significant source of growth historically. As you can see, between 1913 when it all started and the '70s, we were able to build about a $250 million brand in sales with Clorox Bleach, mostly behind focus in Laundry. As we shifted gears towards focusing on Home Care, growth exploded. But we don't think that growth will stop here because there's significant future growth potential and to get that growth potential, we have to yet again look at the consumer. The majority of the consumers does enter through laundry, 56%. But the vast majority of users then start using Clorox Bleach around the house. So that in fact, the majority of users, 6 out of 10 of those bleach tasks are cleaning oriented. And as we drive cleaning tasks, we're also able to drive more attractive tasks because people use about 30% more product by usage occasion in cleaning versus laundry.

We have a very robust Home Care bleach portfolio, mostly in around the house cleaning and in toilet care. Even though some of us, myself in particular, might say that there's room to grow, this is a robust portfolio and today I'd like to briefly focus on our sprays business.

The recipe on sprays is pretty simple. We're giving consumers the power of Clorox Bleach in a much more convenient form. And we're doing this supported by a strongly integrated marketing plan where we're crossing Desire through advertising; Decide through a lot of focus on improving packaging graphics, in-store messaging; and Delight where over the last 2 years and we expect that to continue, we launched several new benefits and line extensions in sprays.

And the results have been terrific. Over the last 2 years, we've been able to grow market share in sprays by almost 50% or 3.2 points to an all-time high. Growing bleach in Home Care is working, and we think that there's more growth to be had.

The last growth platform is Hispanics. We all know this is a very attractive growth opportunity in this country. We call it a great international growth opportunity without the political and currency risk. But it's not just a great growth opportunity; this is also a very attractive consumer. Hispanics are younger. Hispanics tend to live in larger households. Hispanics have more children at home. And Hispanics are bleach fanatics. On average, Hispanics use 26% more bleach than general market households.

But they're not just bleach fanatics. They also prefer Clorox. In 2010, the Hispanic version of People magazine asked consumers what one household product has had the most positive impact on your life? And on this chart, bigger actually is better. The winner came away -- Clorox came away as the winner. And this is very consistent with our internal research where consumers tell us that they prefer Clorox over the nearest disinfecting competitor by more than 3 to 1. So Hispanics love bleach. Hispanics love Clorox.

So it's our task to create a loyal Hispanic following. And this is not about marketing in Spanish. This is about Hispanic marketing, which of course means that it has to be grounded in consumer insights to get to great Hispanic advertising. It means that we have to give consumers the products to buy where they want to shop, no matter whether that is at the local Wal-Mart or their local bodega. And it also means that we have to give consumers innovation that is tailored to their needs, and we are doing that. You will find Clorox Bleach innovation that you will never see in a general market store in Hispanic stores because it is tailored to the needs of the Hispanic shopper.

And we're not just investing to play, we are investing to win. Clorox is the leading advertiser in our categories to the Hispanic consumer. And if you take Clorox and our own Pine-Sol together as a company in our categories, we're investing almost 70% of the total dollars in this category.

And results are following. No matter whether we look at bleach products or as you can see here with our disinfecting wipes and non-bleach, we have a clear #1 position in all segments that we compete in, in Clorox. So Clorox has a right to win with Hispanics, and we're investing to drive that right to win.

So as I summarize, the key word I'd like you to take away is confidence. I'm confident that we have the right focus in place to drive Clorox bleach. I'm also confident that we have the right focus areas, very solid focus areas that are showing results in the marketplace. And finally, I'm confident that Clorox Bleach will grow in fiscal year '13 and that the new compacted, concentrated Clorox bleach will play a very important part in that growth.

So with that, I'm going to turn it over to my partner in crime, George Roeth, who is the Senior Vice President of the Specialty division. George?

George C. Roeth

Thank you, Benno. Can everyone hang with me until break? Okay. So I'll move through a very fun story here on Hidden Valley Ranch and really talking about how we build a great core franchise leveraging our 3D capabilities. And as I finish the talk this morning, I hope you walk away with 3 key messages. Hidden Valley Ranch has a strong right to win. We've executed a broadened growth strategy on this business across the 3Ds with excellence and the future growth potential with Hidden Valley Ranch is significant.

Now as we think about growing the Hidden Valley Ranch franchise, we really think about it in 3 buckets: how do we grow our core ranch salad dressing business, first and foremost; how do we move beyond the core to grow our non-ranch dressing and other flavor enhancers; and then how do we go beyond the core from a consumer standpoint to focus on Hispanics, which is a corporate priority, Benno talked about the opportunity there, and Hidden Valley Ranch is really no exception.

So this is Hidden Valley. Hope you all recognize it. It's a beautiful place. I think we've made it a beautiful place for a number of reasons: We've invested in creating a powerful equity, we've really had a consistent strategic focus on this business over the years and we have a unique go-to-market model, at least in terms of salad dressing category. And I want to talk to you about that winning formula. It's really pretty simple. We have a superior product that's consumer preferred. We charge a significant premium for that consumer product about -- for consumer-preferred product, about a 25% to 50% premium depending on the size and time relative to our next branded competitor. And then we invest that advances margin back into advertising to have a dominant share of voice.

So today, Hidden Valley Ranch has about 80% share of voice in the category. Superior product, significant premium, reinvestment advertising to drive dominant share of voice, and that's driven growth in this business for many, many years. As a matter fact over the last 5 years, if you look at the blue bars, Hidden Valley Ranch has grown at a 10% annual compounded rate. And if you look at the green line, we've grown 5 share points over this 5-year period.

Now on Clorox. When we think about growing a business, we focus on what we call a brand or category building idea and that's an idea that informs all the functions, how we're going to grow this business over time. And in Hidden Valley Ranch, it's been broaden usage to all salad and vegetable occasions by convincing consumers Hidden Valley makes vegetables taste great. And making vegetables taste great is the operative words here. So we're really going beyond the salad and leveraging health and wellness trends and mother's concern around childhood obesity. She wants her children to eat more healthfully, and Hidden Valley Ranch is a conduit for doing that.

Now as we talk about growing Hidden Valley Ranch, we're going to talk about it in 3 buckets as I said. The first being kind of the core ranch salad dressing business, how do we growth that and how do we grow that leveraging our 3D capabilities. Now the first capability I want to talk about is in terms of driving Desire for the business. We do that in a number of ways, whether it the public relations, prints advertising, online activities. But what I want to share with you this morning is our television advertising that's really driving this message of making vegetables taste great and talking to moms about what it could do for their children.

[Presentation]

This advertising we know from our modeling has been hugely successful in driving the business and has been a key enabler to our growth.

Next I want to talk about driving demand at the point of Decide or working with our customers and how we're going to drive demand in-store. And Hidden Valley Ranch does this in a number of ways, and I'm going to talk about a couple of them. First and foremost, being leveraging our family togetherness platform. We know that mom wants to bring family and friends together at meal occasions, slow life down. At Clorox Company, we definitely have an advantage as that we can partner with Kingsford charcoal, K C Masterpiece, Glad Bags and Wraps, as well as outside partners like Bush Beans and Coca-Cola to create bigger market baskets for our customers -- bigger market baskets for us and our customers. And this has been hugely successful in growing the category, as well as the Hidden Valley Ranch business.

As a matter of fact, we've been so successful at this in our 3D capabilities that most of our key strategic customers identify Hidden Valley Ranch as a category captain and not just salad dressing, but in overall flavor enhancers.

Another key big growth driver in the point of Decide is really this concept of expendable consumption. So Hidden Valley Ranch is not just used on salads or even vegetables. It's used on pizza, potatoes, hamburgers, hotdogs, french fries. And we know people get it in into their homes, they slather it all over everything. I don't know if you have teenagers, but you see them put it on pizza. The use up rates are startling. And much like the ketchup category, as consumers have demanded larger sizes and we know as we get larger sizes in their homes, they use more product. And typically if you go into a grocery set or even a mass merchant set, you'll see 3 if not 4 sizes of the same item as we trade people up to larger and larger sizes. And this has been a huge driver to growth on the overall business.

I'm going to end with Decide, but really one could argue -- I'll end with Delight, but I can really argue it all begins with Delight. The real fundamental driver on Hidden Valley Ranch is we have a superior product, and we blind test that product relative to competition and we know that it's superior. Not only is it superior, we know that if we get in consumers households, their children eat 15% more vegetables than what's not in their household, and that's a fundamental metric to ensuring that our strategy is successful going forward.

Now beyond the core ranch salad dressing, I also want to talk about how we've moved beyond the core to grow in non-ranch dressings, as well as flavor enhancers. Over the last several years, we've launched a number of non-ranch creamy dressings, things like Southwest Chipotle, Roasted Onion Parmesan, as well as more recently in the last several months we've begun shipping new Italian lineup. Things like Pomegranate Vinaigrette, Homestyle Italian. These products have been very incremental to the business and have been key drivers in our recent share growth.

But it's not just expanding beyond salad dressing. We're also expanding beyond salad dressing to a broader flavor enhancing. For example, we've launched salad kits, which allow consumers to make creative salads and accent their salads. We've also licensed our name and provided raw materials or flavor ingredients to a major potato salad manufacturer so they can bring a value-added Hidden Valley Ranch product to the marketplace.

But we don't just move beyond the core and the product front. We move around the core as we thought about our consumer, with a greater focus on the Hispanic consumer. And we pursue the Hispanic consumer across all the typical variables, but I want to share with you our current television advertising that we're talking to Hispanic consumers with, and it leverages a very traditional Hispanic song and the idea of getting around your kids to eat more vegetables and salad.

[Presentation]

Advertising has been very, very helpful and is a key piece and are driving our share with the Hispanic consumer. This chart shows you our share with Hispanics in the general market and channels, and where we can measure the 2 separately. Our share with Hispanic is well over 20% consistent with our all-outlet share on Hidden Valley. And actually in these channels where we can measure the difference, it over indexed 30% versus our general market share. So we've been very, very successful with growing our Hispanic shares, and that's a huge growth potential as we go forward as well.

Now we don't want to rest on our laurels of success. We want to continue to think about growing this business, and how do we do that? When we think about broadening the opportunity, how do we broaden the opportunity to drive additional growth pools above and beyond what we're currently doing on the business? And the way we think about it is if you think about just ranch salad dressing, that's a little over $600 million opportunity. If you broaden it to think about food flavor enhancers, it's almost a $9 billion opportunity. When you get in things like mayonnaise, mustard, ketchup, spices, marinades, barbecue sauce. And that's not to say that we're going to launch products in all those areas, what it's saying is we're going to steal those usage occasions.

And the beauty of Hidden Valley Ranch is we have a right to win and a right to do that. We have a superior product, and consumers are already using our products in these ways. So how do we steal those occasions with our existing product lineup or adapting products or new products in order to steal those occasions over time, and the opportunity is significant. And I want to talk to you about a couple of areas in which we've already begun to do that.

As we thought about doing that and form how we're going to do it, we have evolved the growth idea. And the growth -- new growth idea is we're going to drive household penetration by convincing consumers Hidden Valley's taste and versatility enhances the simple goodness of food. And it's this versatility concept that was really the change. And again, leveraging an existing consumer behavior where they're already using Hidden Valley Ranch on potatoes, pizza, hamburgers, hotdogs, those types of things.

First example on our Dry Hidden Valley Ranch business. We know that people use Dry Hidden Valley Ranch, the packets, the original form, when we bought the business to basically flavor chicken and recipes that they have to bring the goodness of Hidden Valley to the family. So they're already doing this. What we've done through television, online activity and the print that you're seeing here is provide moms simple recipes that she can prepare in under 30 minutes to bring the simple goodness of Hidden Valley Ranch to her family everyday. And the results have been nothing less than startling, and this is a very mature business. It's been around for decades. In the last year, we have grown Dry Hidden Valley Ranch 19%, almost 0.5 share point on less than a 3-point base. And we've drawn our dry dip business 7%. The other beauty of this one is these are hugely margin accretive to the franchise.

The other broadening opportunity I want to talk to talk to you about is the concept of Hidden Valley for everything, which I think you've all heard about. And the way we think about this, again, is we're leveraging existing consumer behaviors where they're using our product on hamburgers, french fries, potatoes, et cetera. And we're taking it to the next level. And really the goal here is to be the condiment of choice and steal, basically, ketchup occasions.

The way we're doing this, we're putting the product in the ketchup aisle. We're putting it in packaging that has the functionality and look of ketchup. We're modifying the product, for example, making it thicker in order to use it in these occasions far easier. And we're communicating on the package in a marketing communications to the consumers about the occasions where they can use Hidden Valley Ranch for everything. And we have a lot of optimism about this project -- product going forward.

Now all this activity has made Hidden Valley Ranch the #1 salad dressing across all flavors, all flavors of salad dressing. And we've really done that through strategic focus, broadening how we thought about growth on the idea and executing across the 3Ds with excellence. And we believe the future is bright, very bright on Hidden Valley.

So that's the story of Hidden Valley growth opportunity. We're going to go to a break now. What we're going to do is take about a 20-minute break. I believe there's food in the back of the room, as well as displays where you can look at different Clorox initiatives going on. We hope you have a chance to look at those. And 20 minutes from now, I think, is 10:15. So if everyone could come back into the room at 10:15, we'll pick it up from there. So thank you very much.

[Break]

Frank A. Tataseo

Good morning. Welcome back. We'll go ahead and get started. The balance of our day will be comprised of 2 discussions around growth beyond the core, our Professional Products business and our International business. I'll be back to talk with you about progress we've made in reshaping our portfolio, and then Steve Robb will update us on our Centennial performance and the outlook, and Don will close the meeting.

The 2 businesses beyond the core of Professional and International combined will be delivering at least 1.5 points of growth in the growth algorithm that Don shared. Hopefully, more than 2 points over time. They're really a tale of 2 businesses in that they're both strong top line growth stories. But as you'll hear in Michael's discussion of International, we are margin challenged and we have a margin improvement opportunity in that business.

We will begin with our Professional Products business. And as Don highlighted, health care, in particular, is a growth priority for the company. So I'd like to introduce Craig Stevenson, our VP and General Manager of our Professional Products division. Craig?

Craig Stevenson

Good morning, everyone. As Frank said, I'm Craig Stevenson. I run the company's professional products division. I've been running this for about 7 years. So this is my first meeting. So I'm finally -- they're finally letting me out to meet the public, which is -- and I'll try not to destroy their faith in me in my presentation.

If you take nothing away from -- other than these 4 things from my presentation, then I will have done my job. The first thing is, is that the role of the Healthcare business within the Clorox Company is really multifaceted. But the first and foremost thing is, is we believe it's a higher calling and it has a real motivational impact on our people by helping save lives, by stopping healthcare-acquired infections. That's a really important thing. And as you heard Wayne talk about earlier, 100,000 people die every year from healthcare-acquired infections that are really preventable. And that's what we see our role in doing.

Second, this is a great category for Clorox to be in. It's large, it's growing and as you'll see later in my presentation, has excellent tailwinds. Third, this is an area where Clorox's core capabilities in disinfecting and sanitizing technologies, as well as our strong 3D capabilities can be deployed against a new market and can give us a differentiated right to win. And then lastly, our role within our total portfolio is to deliver profitable double-digit growth. So we are a growth engine for the company, and we see lots of runway still available on this business for the company.

Before I get more in-depth in health care, I want to acquaint you a little bit with what the Professional Products division is. We are really an amalgamation of 3 businesses. I'm going to talk a lot more about health care later today or later in just a few minutes, but we have 3 businesses. We have health care that services the needs of primarily hospitals and physicians' offices in disinfecting and sanitizing products, as well as some new areas that we've just got into with our acquisitions, which I'll talk later. We also have a Cleaning and Sanitation business. So janitorial, cleaning things like hotels, schools, malls, things like that. And then we have a Foodservice business, which is really selling cleaning products but mostly food products, Hidden Valley Ranch being the primary one of those to restaurants, contract caterers, those kind of establishments.

We have a goal for the overall Professional Products division of being a $500 million business for the company within the next 5 years. That is the challenge that has been given to me by Mr. Knauss here in the front row, and I think it's a very achievable goal. And I'll walk through some detail on this, particularly the role that the Healthcare business is going to have on that.

We believe of that $500 million, $300 million of that is going to come from the Healthcare business, and I'll walk you through a growth algorithm as I close this presentation on how we're going to get there. But we really believe that this is an achievable objective for us in the next 5 years. And we believe that based on these reasons, and I'm going to go more in detail on all of these.

First is, this is a global business. This is a global trend stopping the spread of infection, whether it's bird flu, whether it's C. diff. infections in hospitals, whether it's anything like that, this is a global megatrend that we think we can capitalize on.

Secondly, the domestic category. So this is the North American infection prevention category. As we have defined it, it's about $2.5 billion. So it's a large category for the Clorox Company to play in, and it's growing. Now the overall category is growing at 5% plus from publicly available data sources, but actually there are subsegments of this category that are actually growing much faster.

Third, as I've already said, I think Clorox has a differentiated right to win, and I'm going to talk a lot about that in some ensuing slides. And this has been an area of keen focus for us from an inorganic standpoint as well, and I'm going to talk to you about the 3 acquisitions that we've made and what unique contributions all of those acquisitions have made to -- not only to growing our business, but providing capability to be a springboard for the future.

All right. So let's talk first about tailwinds. This is, I guess, a large and growing market, 5% of annual growth and in some segments, even more. We're seeing some areas with mid- to high-double-digit growth, especially in the areas of hard surface disinfecting.

Some of the things that are driving it, and I didn't list everything, but some of these are really readily apparent. The aging population. As you have 20% of the U.S. population by 2050 is going to be over the age of 65, the need for caregivers to provide medical services and products to that population is going to grow.

Second big megatrend that's driving this is the increased regulatory and cost pressures to reduce healthcare-acquired infections. Now before I tell you about those, I want to define what is a healthcare-acquired infection. A healthcare-acquired infection is something that -- is an infection that you get when you're in a hospital that has nothing to do with your primary course of care.

So some examples of that might be you go in for surgery and you get a MRSA infection, that would be a surgical site infection. Or let's say you're on a ventilator and you get ventilator-associated pneumonia, that's a healthcare-acquired infection. Or let's say that you have a catheter and you get a CAUTI, which is a catheter-associated urinary tract infection. Those are 3 examples of what a healthcare-acquired infection is. And again, those have nothing to do with the reason why that particular patient was in the hospital.

And these have become so important for hospitals to get control of because they're no longer being paid if these kind of occurrences happen by the big payers. And of course the biggest payer for health care services in the United States is, of course, Medicare. And they're no longer reimbursing for, say, surgical site infections. So the hospital then has to eat that because they can't, of course, refuse care. Many private insurers are also following this. And they're doing that because of the unbelievable cost burden that, that provides for them, and they're saying these are preventable incidences so you should work to prevent them. And what that's manifested itself in is heavy investment in the areas of prevention by health care institutions even in light of what we know has been challenging economic times. So we feel like the tailwinds on this business are really, really good.

So why can we, Clorox, win? Well, we can win because of our cool new health care logo, number one. Marketers like logos, right? So we have great equity, and I'm going to talk about that in a little bit. We have great technology. We've been able to take our consumer capabilities in 3D and translate those to the professional environment. We have a great organic pipeline of innovations and we have a really strong, not only track record of buying businesses and integrating them, but also we have a great pipeline moving forward.

So let's talk about the equity. Benno talked a lot about this. This brand is synonymous with disinfection. And so when we went to hospitals, we entered this business, as Don said, 5 years ago, and we had $2 million in sales. You know what nurses said to us, "Finally! Finally, you're back in health care." And we were really excited about that because we knew that, that brand was going to open doors for us that maybe we wouldn't have gotten in if we had just any old plain brand. So we love the fact that we have this great trusted equity. And in fact, if you read this original label, the first word on it right here says germicide. So it's clearly core foundation on this brand is about killing germs.

As I said, we have really strong 3D capabilities on the consumer side, and we've been able to leverage those by bringing talent from the consumer side of our business over into the professional side. I'm going to go through some reasons around Desire, Decide and Delight of why we think we've been so successful on this and why we can be successful in the future.

On the Desire front, this is really different to create Desire on the professional medical environment than it is in the consumer side. And you do that primarily through the science and your association with professional organizations. And we have excellent capabilities in the regulatory world that have been with the company for a long time. So getting products approved by the EPA, getting products approved through the FDA and also influencing with the CDC.

We have several joint projects going with the CDC right now to prove the efficacy of our products, and those partnerships generate real credibility with caregivers. We are a title sponsor for both the Association for the Health Care Environment, as well as the Association of Professionals in Infection Control, whose convention next week is in San Antonio, if any of you would like to go, I'm sure they will appreciate it.

And then this little sentence down here, this is probably the most important thing on the whole slide. We ground everything we do on a Scientific Advisory Board. We have a team of about 15 scientists who inform everything we do to give us a rooted belief in science that our products are going to work, and we translate that into selling presentations that we give to nurses and caregivers that give us a real credibility. So we've done an excellent job in creating this basis for Desire through the scientific community.

So then you have to convert those people at the shelf. And for us, the shelf is in the hospital. And we do that by building a direct sales force. So 2 years ago or 5 years ago when we had $2 million in sales, I had 2 sales guys. I had a guy in the East and a guy in the West. Now we have a sales force that has enough people in it, both contract and direct, that we could hit every single acute care facility in the United States. And that selling capability gives us great belief that we can win in the future. Five years ago, we had no distribution with the key health care distributors in the United States. Today, we have full distribution with the key health care distributors in the United States. People like Cardinal Healthcare (sic) [Cardinal Health], Owens & Minor, Medline, McKesson, people like that.

And then lastly, 5 years ago we had no contracts with group purchasing organizations. And if you are familiar with group purchasing organizations, about 80% of all U.S. health care spending is managed by group purchasing organizations and the biggest of which are mentioned on this slide. We are now on contract with all of these group purchasing organizations, and this is a huge enabler for us to sell our products not just to caregivers, but to the purchasing people who support them. So we've really done a great job in building the foundation for Decide.

And then lastly, Delight. If you're going to create Desire, if you're going to create Decide, then you better Delight them when they have products. So we started this with a foundation in our bleach products. And many of you who've been covering the company for a while know that we were the first company to get a C. diff, Clostridium difficile, that's difficile to pronounce. Pardon the irony there. But that claim is really important. That pathogen alone is responsible for 10,000 deaths in the United States, of those 100,000. And bleach is uniquely efficacious against that pathogen. So we have that, and we're continuing to expand our claims. And we've been using those claims on some of the consumer side. I don't know if you saw Benno's slide earlier, but we're adding a norovirus claim to our core bleach business on the retail side. Well, that kind of efficacy also translates over into the professional side.

We're now, though, moving beyond just bleach-based disinfectants. As Wayne talked about in March, we launched our line of peroxide disinfectants, which offer efficacy very similar to bleach but with a lot better aesthetics around things like odor and surface compatibility. So bleach is still the mothership, but we needed to surround that hospital and we needed to empower that sales force who's walking into those acute care facilities to sell all of their disinfecting needs, not just their bleach-based ones. And one of the things I'm most proud of is that we were able to use our open innovation network to source the technology to make these things happen. So that core technology that we got on our bleach business was developed in partnership with a third-party company.

So why are these things important? I'm going to show you something that is a little scientific looking, but it's important. So think of it as really easy to kill, really hard to kill. And if you can do -- kill the guys on the top and you can do it really fast, you have a winning product. Well, here's how our products look on that. Our bleach-based disinfectants kill everything that's on that chart, and most of them within 30 seconds to 1 minute. So if you're a caregiver and you're cleaning a hospital room and you've got 4 minutes to turn that room, you need something that's going to kill things and kill them fast, and that's what our bleach products do. But let's say you can't use bleach for whatever set of purposes. Well, now we have our peroxide line, which does almost everything that the bleach line does with the exception of killing the C. diff. spore. And then lastly, our broad spectrum of quat products, which quaternary ammonium are the most prevalent disinfectant and now Clorox has a very efficacious line as well. So we feel great about our ability to innovate this and take the capabilities that are built in Wayne's R&D organization or in the -- and the 3D organization and bring those to bear on the professional side.

So that's what we've done organically, but let's talk about inorganic. So we have made 3 acquisitions in the last several years. The first one was starting with Caltech. And I'm not going to go through everything that we've done in there, but I'm going to give you the core benefit that we achieved from each of these. First with Caltech, we bought the #1 bleach break product that was selling to acute-care facilities in the United States. We had the #1 Wipe business. So in combination, we had a #1 Spray and the #1 Wipe. That was really terrific. We also bought a fabulous R&D organization that to this day is continuing to support our business. So we've got real capability out of that deal.

The second business that we just acquired on January of this year is the Aplicare business. What this gave us was world-class manufacturing of FDA-regulated skin antisepsis products, and will provide the foundation for us to continue to move into the skin antisepsis market. And we're really, really excited about that acquisition. On the same day, because we're gluttons for punishment, we bought a second company called HealthLink. This is a fabulous company down in Jacksonville, Florida. And the primary benefit that we got from that was access to the physicians' channel. They have a dedicated sales force assigned to a portfolio of products into the physicians' channel, and that added capability that we're now going to plug our base portfolio into as well and start to generate real cost savings. So we're super excited about those 3 acquisitions and what they've meant, and we're going to continue to look for areas where we can bolt on more businesses in the future.

So I've talked to you about what we're doing, but we're not done. So we're playing in areas like acute care and physicians' channel, and we're playing in surface disinfecting and we're playing in skin antisepsis, but the runway is not complete for us. There are other product channels like dental offices that we're not touching today that we believe that we can touch in the future. There are product categories that we're not playing in today like instrument sterilization or diagnostics that are really core to infection prevention that we're not playing today. And we're really excited about potentially moving into those areas and continuing to be a full-service provider in infection prevention.

So how will this manifest itself in financial performance for the company? Well, Don's talked to you a little bit about where we started way back in '07 and yes, I was here in '07. Well, today we're going to be north of $100 million. And we believe that within this next period that we can get to a $300 million business. What that will mean is we need to grow this business organically at about 15% per year. And the balance of that is going to have to come from targeted, effective, cost-efficient at bolt-on acquisitions, of which we have a very robust pipeline in-house right now and we're continuing to work. So we feel very confident in our ability in leveraging all the things that we just showed you, that we can build this into a $300 million business for the company.

So I asked you to take 4 things away from my presentation. First was -- this is a great thing to do from an emotional standpoint, from an employee engagement standpoint and we're hoping to solve a societal problem that's really important, and that's a really, really cool thing. Secondly, this is a great business for us to be in. It's an attractive category. Third, Clorox has real capabilities in this area to win. And lastly, we are committed to driving growth for the company.

So I hope this was -- if this is your first dipping into the Clorox Professional Products company, I hope you're excited about the process for the future for us, because we are.

And with that, I'm going to turn it over to my colleague, Mr. Costello, to talk about the International business.

Michael R. Costello

Thank you, Craig. So I'm Michael Costello, Vice President and General Manager of our International business, and I'm going to talk to you about the third box of our growth algorithm, International, which is targeted to drive the 1 to 1.5 points of total company growth.

What are the key messages? International has been a strong contributor to the company's sales growth. We expect International to continue the sales growth and to outpace our domestic businesses, with a focus on our current geographies and our current categories. That means entering the BRIC countries is not one of our strategic priorities. We have had some recent profit decline that I'll talk about a little farther in the presentation, driven by inflationary pressures and our SAP investment. But we're focused on profitable growth and we're going to continue driving solid sales growth, but with that focus on profit. And you're going to see beyond FY '13, we expect profit growth will therefore accelerate and outpace our sales growth.

So just to kind of double-click on the International and where we are. It's about 21% of total company sales, 2/3 in emerging markets. The other big markets for us are Australia, New Zealand and Canada. We have presence in over 100 countries.

Where do we play? We play in 3 main segments very similar to our Domestic business. We're in Laundry, we're in Home Cleaning and we're in Bags and Wraps. Some other businesses, but these are very similar to our Domestic businesses. It allows us to leverage the scale from our domestic businesses. And nearly 90% of our brands have #1 or #2 market shares, as you can see from this chart.

In those 3 categories, Bleach & Laundry, you see businesses from the lows of a 40% or 50%, really, all the way up to 95% in Saudi Arabia, 76% in Puerto Rico. Home Cleaning was a little bit more dispersed category, we again have #1, #2 brands in many of the countries we compete in. Sitting in the 25% all the way up to Peru and Chile, worth 45%, 60% of those segments. And in Bags and Wraps, leading brands in Australia and New Zealand, Hong Kong, in Canada and then the core markets for our Bags and Wraps.

As we talked about it, International has been driving growth for the company and it's outpaced the U.S. From '05 to '11, we've had about a 7% annual category growth or annual category growth rate, and it's faster in the U.S., most years consistently above the U.S. Where do we expect going in the future? Same thing. So we expect International top line growth. We're going to accelerate profit, post SAP. But right now, I'm going to talk about 2 of our core areas on how we're going to grow by focusing on our current geographies and categories. The first Latin America, where we have a lot of scale, and then I'll talk about one of our global platforms, which is Stop the Spread of Infection.

Let's talk about Latin America. It's 2/3 of our business in International. We have healthy categories and we've been gaining share. As much as the U.S. has been proud of their share chart, we have a competition going, but we're feeling good about our share growth, too, at 1.7%. The key here is the way we're winning is the same way we are winning in Professional Products within the U.S., so applying that 3D demand building model. You see in Latin America, we've been able to grow 7% over the same time period FY '08 to FY '12.

Double-clicking on Latin America, where we compete and where we play? Argentina, Venezuela, Chile, Colombia, Caribbean, Mexico, Central America, Peru. These are markets where with our strong #1 brands and our strong 3D capability, we are able to compete and typically one of the larger players within those markets.

We feel good about the growth rates of our categories. Bleach and dilutables are growing about 7% -- 5% and 7% over the last 3 years. The more nascent categories, though, that we're entering in with a lot of our adjacencies, air fresheners, specialty cleaners growing double digits. Smaller categories where we see lots of growth ahead for those. And you see for us, where we compete, bleach with a 46% share, dilutables with a 21% and with air fresheners and specialty cleaners 17% and 13%. Importantly, over the last -- from fiscal year '08 to fiscal year '12, we've been gaining share in every one of these.

I talked about it, the key to this is the key exactly what you heard, by getting tired of the chart, but we never tire of this, it's the 3D demand building model. It's Decide, Desire and Delight. And I'm going to take you through the example that we did in Latin America, where we really executed this to drive growth beyond the category.

So some of you guys might have seen the bottles out there, the Poett and Mistolin. This is the brand, Mistolin, we bought this brand in various countries, bought Poett in others. And you see it doesn't look very attractive. Not very exciting here. We took that and we were able to expand it, modernize it, make it a lot more attractive based on a lot of the consumer insights that I'm going to talk to you about. But we've been able to take this basic dilutable cleaner, bring it into toilet bowl cleaners, bring it into fragrances for your clothes, bring it into fragrances for your car. Wherever the customer wants to use this fragrance, we're there and ready to deliver. And that's resulted in a 12% growth rate from '07 to '11, and we've taken this #1, #2 dilutable brand in the countries where we compete and we're able to drive it across the adjacencies and drive the fast growth for the brand, faster than you see in the dilutables category. So again, we love this 3D demand building. It's all about the execution.

The Latin American consumer. She cleans and she makes sure that the house is disinfected and cleaned and grease removed. But the end, she has a second step. And she wants to add fragrance and shine and really make the house her home. And she does this by adding various different fragrances. With the Poett and Mistolin brand, we want to be the preferred brand to bring that to life. And so our growth idea is that we're going to meet consumers' strong fragrance affiliation by transforming an environment. When you transform an environment the way she wants to, the holistic sense, real experiences. We do that in Desire, with an ad that you'll see in a second, that really shows her transforming her home. You'll see the whole house transformed to the house that she wants.

We do it in store. Our brand Casa Poett or Poett house, so the consumer can show up and see the air fresheners, the fragrances for her clothes. She can see all of the things that really can make her house her home, whether she wants the same fragrance in multiple different places or different fragrances in different parts of her house.

And we're bringing it alive with Delight, with longer-lasting fragrances, with things that make it enjoyable. These fragrances are youthful spirit, right. It brings you energy. There are bosque de bambú or bamboo forest, which is relaxing. There are baby scents that really reminds her the time when she had that nice baby smell that she could pull towards her. These are the fragrances that she's looking for. We also have the basic fragrances for when she wants kind of more classical lavender or spring scents.

[Presentation]

Michael R. Costello

So without an English translation, did you all get the fact that she transformed her house? All right. She turned it into the house that she wanted, and she did that with our brand.

I'm going to talk now about Stopping the Spread of Infection, which is something we really bring globally. And why? Because our bleach platform or our Stopping the Spread of Infection, SSI, is a strategic focus for us anywhere we have a disinfecting equity. The bleach-based cleaning is a strong tailwind for us. The other thing is Stop the Spread of Infection is a growing global concern. That's driven by the fact -- increased urbanization and most of our emerging markets, consumers are moving to the cities. They're growing -- there's growth, they're changing their habits. That's one area.

But we also see episodic elements like the H1N1, other worries that consumers have and they turn to one of the strongest disinfecting equities in the market, the Clorox Ayudin, the brands we have that have been sitting and really been the disinfecting equity there for decades. And we bring them it alive through our 3D capabilities. I'm going to walk you through a story in 3 different countries.

So first of all, we typically start with the bleach brand that consumers know and trust disinfects. Again, just like you saw with Poett, we were able to bring that out into adjacencies, toilet bowl cleaners, wipes for the consumer for convenience, cleaners for her kitchen, cleaners for the bathroom, ready-to-use cleaners. So that she's able to make sure that she can disinfect and clean her house. Once we have the products, we bring it alive through our 3D execution, we're going to see some ads from both Peru, as well as the Middle East that really shows how we bring some of these things to life. But the important piece is it's a strong cleaning and disinfecting. She's going to both clean and disinfect.

In store, talk about Decide, we bring the whole portfolio to consumer. Teach them that yes, we have the brand that can help give them a promise of disinfecting and keeping their home healthy and their families safe. And Delight, we can -- we continually bring products out based on very similar technologies you saw in the U.S. but also with a very strong value focus from many of our consumers as they're entering these categories for the first time.

I'm going to walk you through 3 countries right now. Let's start with Argentina, one of our largest countries, where Ayudin, which is our Clorox of Argentina, has the highest household penetration of any consumer brand in Argentina. I'm going to repeat that. Ayudin has the highest household penetration of any consumer brand in Argentina. 7 out of 10 households have an Ayudin product in them. You see we've grown it about 15% from '08 to '12. And we do it in the same way, bring in the 3D capabilities alive, driving the fact that the consumer can disinfect her home, have a total clean, launch adjacent products so that consumer meets all of her needs, but really focusing on driving that base brand.

Slightly different way in Peru. Peru, as many of you know, strong macro economics over the last few years, really had the consumer purchasing power has been going up. But still starting from a fairly basic category. What have we done? We actually -- you see that blue bottle there, kind of a weird-looking bottle for Clorox in terms of colors, that's because we've designed the bottle and the product to be affordable and at the mom-and-pop store. So this bottle can go all the way up the altitudes, all the way in the bottom, is able to be put out in front of a mom-and-pop store, not a lot of space, and it's at a price point that a consumer with just enough money, who just got paid today, can take that money out, can pay for her food, pay for the other necessities but has money left over for bleach. And you're going to see one of the ads, when we teach her how to use that bleach to keep her home healthy.

The growth continues. We've been growing 19%, pretty good, but we've been growing now by also upsizing. As the economy keeps improving, we know when it's next time to take the bottle and get the next higher ml. We know the next price points we want to hit. And by doing that, we continue to drive category growth for us and for the retailer. It results in a 64% market share, and we're continuing to gain share.

Let me skip to the other end of the world. So we're going to go to the Middle East, and we've been in the Middle East for over 50 years. We've had strong partners in Saudi Arabia and in Egypt, and we have our own business that we go through distributors in many of the other countries. The core here, though, is that the scale we have by leveraging our partnerships within our JVs gives us the ability to launch new products and drive the same kind of 3D capability so we can drive in Latin America or drive within the U.S.

I'm going to double-click on one of the countries, the UAE, where we've seen some great -- where we go direct and we've seen some great growth. Again, it's all based on insights. The consumer bleach usage for cleaning, they're looking for the same thing. They're looking for disinfecting for a total clean. Our bleach, the category has been growing 7%, and Clorox is the #1 bleach with an 89% market share. We've been growing slightly ahead of the category at 8%, which is tough when you're already at 89%, but that's because we're able to continue to drive into other categories and other adjacencies in the marketplace.

I'm going to play some videos from -- we'll see one from Peru where we teach the consumer really how to use the product and how much to use and then the UAE, a laundry ad.

[Presentation]

Michael R. Costello

So who wants to go home and disinfect their house now? That's the point of that commercial is we're helping drive category growth. We're teaching the consumer that this category is important for them and we're seeing nice category growth because of the consumers are learning about how to really use these products [indiscernible]

[Presentation]

Michael R. Costello

You guys get that, too? Pretty clear? So we talked about the growth. We talked about the fact that we continue to expect outpace growth, now I'm going to talk about the profit side. Very important. So our recent profit declines have been driven by inflationary pressures in our SAP investment, but we're focused on continuing to drive profit growth while driving the sales growth that we've had in the past. And beyond FY '13, as I said, we expect really to start driving profit growth higher than sales growth.

Let's talk about the reasons why. FY '08 to '11, sales up by 13%, margin though, operating margin down 300 basis points. And we've been pricing in the markets where we are. We have strong brands. We're able to take pricing to the consumer and we're doing the cost savings that Clorox knows how to do. We put the same kind of cost savings rigor with International. We've had a lot of headwinds, though, with commodities and inflation in some of the markets, with some of our country mix and with our SAP investment. These are all going to continue, we know that. But we're going to do things differently to really drive the margin going forward.

Number one, we're going to continue to price recover commodities and inflation. We're going to really drive up our cost evasion. You've seen a lot of this talk about in the past in the U.S., which is really taking one of our base products, figuring out how we can both take cost out, while at the same time adding in consumer benefit. So it allows you to both price, as well as get a lower cost driving margin. It's been one of our key focus areas. I want to leverage a lot of the knowledge we have out of the corporate group to help us really increase our focus here.

We've also changed our strategic product plan, our new products to really look at margin-accretive products. We're focused on how we drive the margins through new products, not just how we can grow top line sales. They have to do both. And we're going to capture value from SAP implementation. We've been focused over the last 2 years, the next year, in FY '13, really making sure that the SAP is implemented correctly, and I'll talk a little bit more about that. The implementation is going smooth. As we go forward, we're going to focus on how do we capture value from the new system, how can we change our business, our business processes in the way that will allow us to have a lower cost?

So double-click on SAP. We're implementing SAP in Latin America, which I talked about is 2/3 of our business, so the majority of our International business. We're up and running already in 5 out of 12 countries, and those 5 have gone smoothly. We're targeted for completion by the end of FY '13. But all it does is get it done, get an IT system in place. The key piece is the change in management going forward, and that's where we're going to get the value. We're going to get value by the fact that our future growth, we don't have to add people all the time as we add growth, while the system that's scalable. In these fast growth markets, that's important.

We have better decision making. We don't know -- with our current ancillary [ph] systems, we don't necessarily have all the data we want to look at to make the right decisions in time. We've done well so far, but we know we can do better with the better decision making. And we're going to improve cash flow management. We know -- we have targets internal of how we're going to lower working capital based on some of the changes in process, not the system, changes in process that the system is enabling us to do. It allows us to collect cash flow faster, to work with our customers in making sure everything is ticked and tied, so we know how much money is out there and how fast we can get it. SAP, though, remains a key area going forward of how we're to capture value.

So let me kind of wrap it up, which is key messages. We're going to keep growing. As International is rolling the portfolio with a third block. And we're expecting International to continue to outpace the total company with mid- to high-single-digit top line. That contributes to the 1 to 1.5 points of company growth in the company growth algorithm. We're going to focus on current geographies and categories, where we have scale and leading shares. A lot of growth there, a lot of growth in the future and it also allows us with that scale to really be able to drive profitable growth. And that's where we're going to accelerate growth after the SAP implementation FY '13, we really see International starting to deliver faster growth on the bottom line, even on the top line.

So with that, I turn it over it Frank Tataseo.

Frank A. Tataseo

Thank you, Michael. Thanks, Michael. Thanks, Craig. We first shared our 2013 Centennial Strategy in 2007. So as in any good strategy approach, constancy of purpose has been, first and foremost, in our effort to really deliver against these key choices that we make. Now having said that, about the same time in '07, we initiated a strategy and growth group that meets bimonthly for a couple of days, and we're constantly reviewing the businesses and our progress against our strategic choices, and adjusting action steps and our plans as we go forward. What that's resulted in is some meaningful progress in how we've reshaped our portfolio. We regularly apply tools as we go through that work to optimize our results. And then we also have very clear strategic choices that we've made in terms of priorities against our strategies.

In the portfolio reshaping, we've taken a number of actions that you're familiar with, some of them rather significant, to include the acquisition of Burt's Bees, the sale of our Auto business and you heard a couple of stories today about expanding equities around Clorox and Hidden Valley, as well as the reconfiguration of our Brita business and Glad.

Craig has just summarized our Professional Products division, and our business there with particular focus on building the Healthcare business. And you've heard a lot about SSI, Stopping the Spread of Infection. And we also made 3 acquisitions in that business. And in International, as Michael just summarized, we've been focused on our core markets and categories. We acquired Colgate bleach business in Canada and in Latin America, and we are driving SSI across International as well. This repositioning has resulted in a fairly significant shift in our portfolio. In 2007, businesses representing 4% or greater of growth in our company; the share of pie was 34%. Today, it's now 47% represented by businesses growing at 4% or more. We feel very good about this progress. There's more to be made.

The tools we use, a number of which you're familiar with, and I think you heard many great stories today that represent and show and demonstrate the power of these tools are consumer megatrends, adjacency mapping and portfolio segmentation. You're very familiar with the megatrends because we share them in every discussion we have, health and wellness, sustainability, multicultural and affordability. Now again, going back to 2007, convenience was in the place of affordability. But again as a result of the recession, we chose affordability as superseding convenience. While convenience is still important, affordability is much more important in this environment.

Another tool, adjacency mapping. I think you've heard a number of great examples today of our ability to take advantage of adjacencies, the oldest of which is the Clorox story that you heard, where Clorox equity moved from Laundry to Home Care, and from not only bleach-based Home Care but then non-bleach based disinfectant. Similarly, Stopping the Spread of Infection has been a key growth platform for the company, and we continue to look for that platform to expand and grow the business.

The takeaway I'd like you to have on this particular approach with adjacency mapping is that while SSI has been important for us and a focus for the last 5 years, we've reinvigorated the adjacency approach. We took a new approach this past year, and we are very excited about new growth prospects that we've identified 2 significant platforms or adjacencies as a result of this work. And we will be expanding this tool across more of our businesses. You've also seen many examples of capabilities that we're either acquiring in the health care space and other businesses through partnerships as a way to grow -- continue to drive growth.

Now back in '07 we also shared with you the segmentation, the portfolio segmentation approach that we take, and this is a traditional 6 box with -- on one vector, SBU growth potential and then the other vector being the economic potential that the business represents. The extremes, lower left optimize for cash-type businesses and upper right, fuel strategy for growth. And again demonstrates the dynamic approach to our strategy process. In '07, we shared the fact that Brita and automotive were lower left-hand businesses, and I think there were some surprise about some of those but bottom line, as you know, due to weak trends, weak growth potential in the automotive category in particular, we decided to sell that business.

By the same token, Brita, almost -- it seemed like we weren't even back to San Francisco and it had moved to upper right box. The bottled water backlash and sustainability was in progress when, of course, health and wellness had been a long-standing trend that Brita was standing behind. But then affordability also came into play with the recession. And you saw us advertising against all those components, and Brita has been a growth story for us since.

And then more recently, the adjacency that Brita On-The-Go represents that was mentioned earlier. So again, a very dynamic process. As a result, our growth priorities going forward for U.S. Retail and the core, Stopping the Spread of Infection at the top of the list, probably no surprise after all you've heard today. Natural Personal Care with Burt's Bees and natural cleaning. And natural cleaning may be a surprise, but we believe in the long term, and we believe we're very well positioned with Green Works and Burt's for the whole natural space long term. And then Water Filtration, for all the trends I just highlighted a second ago, Brita's very well positioned. A number of adjacency opportunities exist for that business as well.

In Professional Products, it's SSI again with Healthcare, and we're all about preventing infections in the health care space. And then finally, in international, Stopping the Spread of Infection is a priority and Natural Personal Care with Brita -- our Burt's Bees rather, now in 35 countries. And I might add that these priorities span both organic and inorganic opportunities. And then finally, 3D innovation across all our businesses as a way to drive growth. You heard that. You heard great examples throughout today's session about the power of 3D and 3D innovation.

So in summary, we made meaningful progress in reshaping our portfolio to 47% of growing 4% or faster, regularly apply tools to optimize our portfolio growth and we have clear priorities going forward for how we'll grow both in and beyond the core.

So with that, I will turn it over to Steve Robb, who will take us through our Centennial.

Stephen M. Robb

Thanks, Frank. Well good morning, everyone. We're on the home stretch. So it's time to go through the numbers. We've heard a lot this morning about growth and the strategies that we've been putting in place, and I think you got a pretty good sense of what we're doing is working for us and growth has been accelerating. What I'd like to do now is just talk a little bit more about what we're doing to drive profitable growth and importantly, rebuild our margins.

Three key messages I would leave you with. One, I think as you've seen this morning, what we're doing to accelerate growth is working. Second, we are intensely focused on rebuilding our margins, and we have a plan to do that, and we're going to share that with you this morning. And then finally, our uses of cash remain essentially unchanged and very shareholder friendly. So with that, let me turn to sales.

If you go back to fiscal '08 through fiscal '11, you can see that we've driven about 2% sales growth and what amounts to a very difficult economic environment. I think more importantly, as you look to fiscal '12 and even beyond, you're seeing that accelerated sales growth come through. In fact, fiscal year-to-date through March 31, we've actually delivered 5% sales growth, which feels very good, not to mention the record high shares that I think you saw earlier this morning.

Now turning to earnings per share. Can we go back a slide, please? Turning to earnings per share. For the earnings per share growth over this period, we've grown about 14%, which feels good. And we fully expect that earnings per share is going to continue to grow obviously through fiscal '12, as well as into fiscal '13.

Now our outlook for fiscal '12 remains unchanged. We expect about 4% sales growth. We expect categories to remain flat to up slightly, and we continue to see consecutive improvement in the categories. Gross margins is probably the biggest challenge that we've got. Gross margins for the year expected to be down about 125 to 150 basis points. The #1 problem here is inflation and commodity pressures, and I'll talk more about that in a minute. And then our earnings per share outlook remains unchanged at $4 to $4.10.

For fiscal '13, outlook is for 2% to 4% sales growth, that's on top of the 4% that we're delivering in fiscal '12. We believe that our categories will be flat to up slightly, call it a point. We believe that innovation will continue to deliver 3-plus points of growth in the company. And as Wayne pointed out to you earlier, this is an area where we're particularly proud. Innovation is expected to add about 3.5 points to '12, and we're certainly on track to deliver a solid 3 points of growth into fiscal '13.

But even margins are expected to be flat, we do expect modest improvement in gross margins. But we also expect SG&A to be a little bit higher, call it about 15%. And the reason for that increase is because we're completing the work that you heard earlier from Michael around our IT investments in Latin America, as well as rebuilding our facilities for R&D in Pleasanton. And as we complete those, we would expect SG&A cost to start to trend down again.

And then finally, we expect earnings per share in the range of $4.20 to $4.35. I would point out 2 items to you included in that outlook. Number one is we do anticipate a onetime gain of about $0.05 to $0.07 associated with optimizing some of our Bay Area real estate in fiscal '13. Now that's going to be more than offset by a higher effective tax rate. The tax rate for Clorox is typically about 34% to 35%. In fiscal '12, it's actually on the low end; it's about 32% because we have some onetime tax settlements that came through that we're not anticipating to repeat. Okay. So that's the outlook.

So turning to EBIT margin trends. If you go back to fiscal '08, our EBIT margin was about 15%, and we were successful over the coming years increasing that to about 18%. And in fact, we're able to hold that through the recession at about 18%. Now more recently, it's actually come down 1.5 to 2 points. And this next slide just gives you a sense for some of the factors that we're facing. Now what you're looking at here is our fiscal year to date through March 31 EBIT margins, fiscal '12 versus fiscal '11. So in fiscal '11, we had an EBIT margin of about 17.6%. For the 9 months ending March 31, it came down to 16%. The number one driver that were causing margins to come down was inflation and other commodity pressures; over 400 points of compression. So that's a pretty big headwind.

That's the bad news. The good news is our pricing, our cost savings are working. And when you look at those 2 in total, we actually offset most of the inflation under pressures, but the margins are still down. And they're down because of one, mix. And we talked this at length, I think, on our last conference call. This is a continued shift to larger, more value-oriented sizes we're seeing from consumers. In addition to that, we've seen some unfavorable country mix, in particular coming out of Venezuela. We do not expect that mix is going to continue at these levels. So it will continue to be a headwind, but it's not likely to continue at a full point, which is what we're seeing.

In addition to that, we're making some one-time investments, as we've discussed, in infrastructure. And that also has been a little bit of a drag on the gross margin. So what are we doing? We're taking 4 actions. Number one is pricing. And I'll talk more about this in a minute, but we fully anticipate pricing to recover commodities and other inflationary pressures. Second thing is we're going to take a sharp look at SG&A. Our SG&A to date to be clear is very much in control. We think it can be better, and I'll walk you through that. We know that we need to improve mix, and we've got a plan to do that. And finally, we're going to continue to drive cost savings hard. It's been working for us, and we need to keep pushing hard in that area.

So let me talk about each of these. First, turning to pricing. The thing about Clorox that I think gives us a lot of pricing power is our brands. As you heard this morning, we have over 90% of our portfolio with brands that are #1 and #2 in their categories. And when you combine the strength of those brands with our innovation programs, that translates into pricing power. Since 2005, we've taken 63 price increases across the U.S. That's almost 70% of the portfolio. Of those 63 increases, 61 are still in the market today. That's a 97% success rate. Maybe more important, during the same period that we've taken these price increases, we've got record-high shares. Again, this is pricing power and we believe we have pricing power going forward. It's going to enable us to take pricing when we need to take pricing to rebuild these margins.

As I mentioned, we're also going to take a look at our SG&A costs. Now I want to be clear. Our SG&A costs today are about 15% of sales. And I think as you can see from this chart, that's actually pretty darn good. It compares very favorably versus the peer set. But it's also about 1 point higher than we've historically seen. And most of that is being driven by these infrastructure investments. While we believe 15% is good, we think we can be better. We think that as we anniversary the infrastructure investments, as we continue to tightly control these costs, that we can get SG&A to 14% or less. That represents 1 point of margin, and we believe that that's going to be one of the things that will help us build our EBIT margins over the coming years. In addition to that, we fully recognize that we need to take actions to improve mix. Again, mix has been about a 1 point drag on our margins fiscal year-to-date. And while we don't expect it to continue at those levels, it's certainly going to continue to some extent.

So we're doing 4 things. Number one, trading consumers up through innovation. The one thing that we've learned in this recession is if you bring consumer-meaningful products to the consumer, she'll pay. Best example of this is our Glad business. Our Glad business, no surprise to this group, is -- has margins that are less than the company average. But when you look at the premium trash piece of that business, which has been growing significantly faster, it's actually got margin-accretive margins. And so things like OdorShield with Febreze, ForceFlex, these are parts of our business that actually have margins well above the company average. And so we think using innovation is one of the levers that will enable us to bring new products to market and build the margins.

The other thing is what Frank talked just about a few minutes ago, reshaping the portfolio. Burt's Bees, one of the fastest-growing businesses in our company and it's margin-accretive. Brita, again very fast-growing business, margin-accretive. As we reshape the portfolio, we're going to benefit from SBU mix over time; that's going to help us rebuild the margins.

But you know the other thing we know is that this shift to larger value-oriented sizes and different store formats, it's going to continue. It's not going to change. And we absolutely have to improve the margin structure of our larger products. So there's 2 things that we're going to do. Number one is when we look at innovation, we need to make sure we're bringing innovation to the larger sizes. And I don't know how many of you have cats at home. But if you do, I hope you use our products. And if you ever bought one of our products a couple of years ago, it was a 40-pound bucket, okay? It's actually a great product, but it's 40 pounds, it's a lot of plastic. And it was pretty expensive to make. And one of the things we're able to do is to take the product from buckets to cartons. Not only was it a better consumer experience because she could pick it up, pour it, use it more easily, but it was also from a cost-saving standpoint, it was very accretive to margins and it was a great example of improving the consumer experience while building margins at the same time. And we think there's more of those kinds of ideas out there. Benno talked to you earlier this morning about bleach, compacting bleach. Not only is that going to drive top line growth, but it's margin-accretive because we've got less plastic, less corrugate and we're just shipping less water across the country. As we take pricing, we're also going to look at our price curves and to make sure that we're fully recovering our costs over time through pricing. And then finally, we'll continue to optimize trade spending. We manage this area very tightly as a company, but where we have investments that we're making on shelf, if we've got a good ROI, we're going to double-down on it. And if it's not paying out or doesn't have the kinds of returns that we want, we're going to want to pull back from those. So these are the 4 things that we're doing to drive mix. We believe that over the intermediate to long-term that these are going to help us overcome the cost headwinds for mix.

Next area I want to talk about is cost savings. I love talking about cost savings. At Clorox, what maybe makes us a little bit different, cost savings for us is not an initiative, it is not a project. It's what we do every single day. I think many of you heard me say before that we've got a different approach. We have dedicated teams around the world, and their sole mission in life is to identify and pursue cost savings and they do it very well. To do that, they focus on a 3-year pipeline of ideas. So today, we benefit from things that we did 2 and 3 years ago. And we are working on projects today that will benefit us well into the future. We're not afraid to invest. If we can get a good return on investment with a good payback, we'll make investments to support our cost savings, and I'll talk about that in a minute.

And finally, and this is really important. To get cost savings of 150 basis points of margin improvement every year, you absolutely have to look at every line of the P&L. Leave no stone unturned. And when you look at the Clorox Company, we've got over $4 billion of addressable spend. And every year, we challenge the company to find 2 points of productivity. And surely we can find 2 points out of $4 billion every year, and every year we do that. And so we think we have a unique approach to this in terms of how we manage it, the fact that it's embedded in what we do. And it's continued to deliver very well over the last 10 years, and we believe it will deliver well into the future.

Just an example of some of the projects that we've done over the last couple of years, I think you can see we've looked at everything from how we buy product to how we manufacture product, and we've made significant investments in our Atlanta operations to expand that. We even look at how we ship product. Do I want to put it on a truck or do we want to put it on rail? Rail is a whole lot cheaper. And we also look at our SG&A expenses. Is there a way to take costs out and improve productivity and efficiency? So a lot of activity every line of the P&L, and this just gives you some examples.

As I mentioned, we're not afraid to invest to drive productivity. Historically, we've invested $20 million to $25 million to get the productivity improvements. Now more recently, you've seen that number increase to about $50 million to $55 million for both fiscal '12 and fiscal '13. And really, the increase is being driven by the investments we're making in our facilities in Pleasanton and our IT systems in Latin America. We fully expect that those projects will be completed in fiscal '13. And as we complete those projects, we'll anniversary the expenses. And what you'll see is that the spending will go back to the historical range of, call it, $20 million to $25 million.

And we do expect to get benefits for these investments. One thing about Clorox is we scorecard everything, we track everything and if we give somebody a dollar and a promise is made, promise is kept, we expect to get paid back for those investments. And in the case of SAP, we're expecting better growth, better decisions, better working capital management, bottom line is more cash flow. Same thing from innovation. As we bring all of our people together into a single innovation center, we're expecting better insights and better growth and better asset utilization. So we will continue to expect the value from the investments that we're making.

Now all of this translates into strong returns. And as Don showed you this morning, our economic profit through fiscal '11 has grown 7%, which is a solid return. In addition to that, you can see that our return on invested capital is about 25%. And by the way, that compares very favorably with the 16% that you can see across the peers and certainly puts us in that upper quartile of all companies.

So let's turn to strong cash flow. One of the best indicators of a company's health is its ability to convert sales into cash. And it's a real hard way to do things and it's the right way to focus. And every year, we target to deliver free cash flow of about 10% to 12% of sales. Now just as a reminder, free cash flow is defined as operating cash less our capital expenditures. And you can see over the last couple of years, we've constantly delivered about 10%. Now more recently, the number has been closer to 9% to 10%. And the reason it's down 1 percentage point is for 2 reasons. Number one, the incremental investments we're making in infrastructure and the second has been the recent compression of the margins that we're looking at. But we fully expect as we anniversary the infrastructure expenses, you'll see capital spending return closer to the level of depreciation and amortization. You'll also see us improve margins and that will also bring the cash flow up.

Now when you generate strong cash, you have an opportunity to do things with that cash. And we have 4 priorities. Number one is to support the growth of our business. That's both organically, as well as inorganic through bolt-on acquisitions. Our second priority is to support the dividend. And we'll continue to do that. And then finally, as we do these first 2 items, we're going to have a short buy on our leverage ratios. We target debt-to-EBITDA about 2 to 2.5x every year, and we think that's a sweet spot for the company. Now I want to be clear. This does not mean at times we won't flow above 2.5x. We may, as we do bolt-on acquisitions. But what it does mean is if we go above the 2.5x level, we would work to bring that number back down within this range. And then finally, if we do have extra cash, we would look to return that to our stockholders in some tax-friendly way. And that could include share repurchases.

Now this is a slide I actually like, it's pretty interesting. Go back over the last 7 years. We've actually repurchased 40% of our outstanding shares, returning over $5 billion in cash to our shareholders at what we think are some fairly attractive prices. So it's a pretty powerful example of strong cash flow being returned back to the shareholders.

During that same period, we've also doubled the dividend. A couple of years ago, the dividend was $1.20 and recently, it was at $2.40. And we just recently announced a 7% increase in our dividend, so it's now $2.56. And by the way, that gives us a current yield of 3.7%. This morning I checked the numbers. The 10-year Treasury is about 1.6%, so this is actually looking pretty good versus the 10-year Treasury. And it actually looks pretty good versus the peer average, and we'll continue to support the dividend.

So turning to our expectations beyond fiscal '13. We believe that our portfolio of products, our strategies and the work we're doing in innovation, all of that will translate into 3% to 5% sales growth. We believe EBIT margins can expand at the rate of 25 to 50 basis points annually as we focus on pricing, cost savings and aggressively focus on SG&A and bringing that back down to the historical levels. And then finally, we will continue to manage our cash very tightly and believe that we'll have strong free cash flow in the range of 10% to 12%.

So I would just conclude with 3 messages. I think as you've seen this morning, we continue to deliver very strong top line growth combined with record-high shares. We have a plan in place to rebuild our margins and while it will take time, we're confident we can do it. We've done it before. And finally, our uses of cash remain shareholder-friendly.

So with that, I'll turn it over to Don Knauss.

Donald R. Knauss

Thanks, Steve. Well, folks, just 2 slides to sum up. First of all, I think you've got a pretty good report card on the Centennial Strategy and how we performed against those 4 questions, so I won't belabor that point. I think that strategy has been fairly effective in this environment.

I think the important thing I'd like you to take away from this morning is you should walk away, I think, with looking at these 3 growth pillars of the company, U.S. core, professional and International, that we've got a very strong, focused strategies. I think we've got very strong 3D capabilities in each of those businesses. And I think maybe most importantly, I hope you'll walk away with the sense of the power of the management team here, the leadership of these businesses and the functions. I think at the end of the day, people make this thing happen. And I think you can see a real high energy and I think a real positive vibe in this company for executing these strategies. I think there's a lot of excitement and engagement in the company about the ability to grow in our markets. And then of course as Steve just said, there is a laser-like focus from our management team on margin expansion. And one thing Clorox does very well is when we get focused on something, we deliver on it. So I hope you walk away with that sense of energy.

Now the last thing on 2013, as we get to the 2020 vision, one of the options we want to entertain is we'd like to actually have people out into the Bay Area and take you through this new innovation center next year. Now as an added benefit, we'll try to schedule this on a Thursday, so you can spend the weekend in wine country or in San Francisco. But I'm sure I won't get too much pushback. But if we can get -- we'll give you some lead time, but we'll certainly solicit your feedback on the likelihood of doing that. But we really think it's important for you to see this capability we're creating in Pleasanton because it's not just an R&D center, it is a real innovation center that brings about 1,000 people in our company together to really continue to drive this 3-plus points of innovation.

So with that, why invest in Clorox? If you're sitting here from the sell side or sitting here on the buy side, why invest in this company? I think first, it is a company that has delivered over a long period of time. And one of the things that's not mentioned up there in this difficult environment is I think the strength of the leadership team in this company is really a resounding benefit. I think one of the other things about this company, I hope you got a sense of this, this morning is this is a company that is large enough to have world-class capabilities, but small enough to be more agile and nimble than our competitors. And we think we can act much more quickly on opportunities than some of our competitors and make decisions much more quickly. And we think that's one of the key reasons, for example, we're growing 5% year-to-date in the United States when a lot of our peer companies can't accomplish that. So I think it's a real testimony to the strength of the team.

Second, it's all about the brands at the end of the day. And I think one of the things we've really demonstrated this year is the pricing power of these brands. When you can take over 400 basis points of pricing, even 12% pricing, as Benno showed on the Clorox Bleach, and still see base volume trends improving, I think it really does speak to the fact that we've got tremendous brand strength. And one of the things we've learned is when you've got that brand strength, if you can hook innovation to those pricing actions, you can really mitigate the impact on the consumer. I think that's one of the reasons we've accelerated our share gains. So terrific brands, and I think it only bodes well for us as the categories continued to improve. As Steve said, as we look out at the assumptions going into FY '13 and beyond, we don't expect much category growth. If we get a little bit more category growth, we've got that much more of a tailwind behind that innovation.

Looking at the margin improvement opportunity. Again as Steve said, in FY '10 and '11, we've got our EBIT margins back almost historical highs, around 18%. I think with the 4 actions he laid out, we will be laser-like focused on those margin improvements. You'll start to see that, especially as we move through FY '13. And I think again, those strategic investments do really bode well for the long-term future of this company.

And then lastly, we are, I think, one of the more shareholder-friendly companies in terms of getting cash back to shareholders. Steve just went through that, I won't belabor that point. But 35 years now of dividend increases, we're very proud of that 3.75% yield that we've got. We'll continue to support that. And just in the last 5 years, we've returned almost $3 billion to shareholders.

So we feel very good about clear strategies, focused strategies, terrific capabilities to grow share. I think we've uniquely demonstrated how to do that with these brands over the last few years. Then again, I would just say that a lot of this gets down to the leadership of the company. And I think you should walk away, I hope, with the sense of the energy and the engagement of this group to drive growth going forward in a very profitable way for our shareholders.

So with that, why don't we do this? I've got about 11:35. Why don't we take a 20-minute break? We're going to have lunch, boxed lunches in the back. If you would take a break, grab a lunch, come back in, in about 20 minutes and we'll -- those of you who can stay, we certainly welcome to stay for Q&A. We'll go right into Q&A about 5 to 12:00. How's that? So that would give everybody about a 20-minute break. Thanks, everyone.

[Break]

Donald R. Knauss

Okay, folks. If we could go ahead and start the Q&A. Could I get the Clorox management group up here? I want to introduce the people that didn't present. Laura, you want to get up here? Then we'll go ahead and start the Q&A. But just so you know who all the players are in the room here -- go ahead, folks take a seat. Some of you are going to have to stand. But let's see.

So on the end here, you see Nick -- Chris, I'm sorry, Chris Lamson on the end. Chris is our Vice President in charge of the Walmart team. So Chris lives in Bentonville, so if you've got any nice Walmart questions, there's the guy. And Chris has been running that team for about 3-plus years. Nick Vlahos, next to Chris. Nick used to run the Laundry business for the last year or so. He's now running the Burt's Bees business so he's living in Raleigh, where we're headquartered in Durham there. Benno, you know Michael. James Foster is our Senior Vice President of Products Supplies, so he's our Chief Product Supply Officer. Craig you know. Dawn Willoughby. Dawn runs our Glad business, so she reports into George. So if you've got any Glad questions, Dawn is the person. Laura Stein is our Senior VP and General Counsel. George you know. I think -- Grant LaMontagne is our Chief Customer Officer in the back. And everybody else I think has either presented, so you know who they are.

So with that, why don't we just open it up for questions? I think Michelle, we've got a mic. Because we have a webcast, so we need to use the mic. Yes, Wendy?

Question-and-Answer Session

Wendy Nicholson - Citigroup Inc, Research Division

Sure. It's Wendy Nicholson with Citigroup. My first question is on the professional products business and the risk potentially of having acquisitions built into the long-term growth forecast. Is there a risk that, that forces you to acquire businesses or grow the business in an inorganic way that you wouldn't otherwise if you didn't have that hard target?

Donald R. Knauss

Yes. Let me start, Wendy, and then I'll turn it over to Craig. I don't think so in the sense that we've built this out as a 5-year plan. And one of the interesting things about this business is that we can't find anybody with over a 5% share of that $2.5 billion that Craig spoke about. It's such a fragmented business with literally, if not hundreds, dozens and dozens of small companies in this range of $20 million, $30 million, $40 million in revenues that are basically family-created businesses. We've got a very robust pipeline. We certainly don't think there's any issue over the next 3 to 5 years of getting those. We only need about 2 or 3 more, just like we just did the 3 in the last 2 years. So I don't think there's much of a risk. And the acceleration in the current off this space, we think, even could propel us over the 15% growth rates. So I don't think there's risk. I don't know, Craig, but...

Craig Stevenson

Yes, I think that's -- the key thing that I would say is that yes, there is a lot of opportunity for bolt-on acquisitions of reasonable size. But let's not lose focus on the fact that we also believe that we can grow this to mid- to high single- or double-digits in the teens for the next several years without any acquisitions as well, and that's pretty significant growth.

Wendy Nicholson - Citigroup Inc, Research Division

But then following up on that, I know it's still a very small business. But is there any thought to breaking it out as a separate segment so that we can track both on the top line and from a margin perspective how it's trending kind of the same way you do International?

Donald R. Knauss

Yes. Where's Steve? Any point of view on that?

So I would say this, Wendy, before I turn it to Steve. So far as you said, it's been too small to break out. I think that's been the primary issue.

Stephen M. Robb

I think that's still right. I think it's not something we would look to do. At this point, it's certainly not large enough that we would ever break it out. And I think what you will see is that in meetings like this is that we'll go ahead and appropriately provide some color around it so you can see how the business is performing. And certainly as we discuss the results of our operations, we'll call that out as appropriate. But I don't think you should expect at this point we're going to break it out as a separate division. I think it'd be very premature to do that.

Wendy Nicholson - Citigroup Inc, Research Division

And then my last question is just on Glad. You've talked about how the margins on Glad, I think, are still well below the corporate average even though there's been all of that innovation and there's been positive pricing. Is there a hope to close that gap? Or do you think that that's a sort of permanent situation, that that's just always going to be dilutive?

Dawn Willoughby

Sure, I'll go ahead and take that. We continue to close that gap and that is the plan in the long-term. Our strategies are all around driving trade up. And so you see our ForceFlex and OdorShield, Febreze, that's driving growth. And as I think Steve mentioned, those are higher than company average margins. And so we'll continue to focus on that. The other thing to talk on the Glad business is that we talked a bit about innovation today. And I'm glad our mantra is cost-o-vation, so how do we innovate and create those 60-40 wins but also drive the costs out of the bottom line at the same time. Our last innovation was on our base bag. You saw, I think in the reel, some commercials about that. But we created a stronger bag with less plastic. It's actually 7% less resin. And those are proprietary technologies, so we don't see competition following. So we really see a right-to-win with Glad in the long run, both from the innovation on the top line, but also at the same time being able to pull cost out. Some of you may have seen in a recent Consumer Reports article that, that specific bag we just launched, the stronger with less plastic was ranked first. The second bag was a Hefty Gripper and then the third best bag was our own ForceFlex bag. Well, the Hefty Gripper has a lot more resonance than any other bag in the marketplace, so the only way competition has been able to follow on quality is by putting more resin in. So we feel like we have a formula that works for us in the long run.

Donald R. Knauss

I think the only 2 things I'd add, Wendy, to what Dawn said is on the 7% reduction in this latest innovation, I think with the Procter alliance, we've got visibility into 2 more generations, if you will, where we can take even more resin out. So I think that bodes well for the margin structure on the base, as well as the trade-up. The second thing is I think if oil -- our assumption on oil is we're in this $90 to $110 range. If oil gets suppressed, who knows what's going to happen in Europe over the next 3, 6 months? We're starting to see some compression on resin pricing. But we have baked none of that goodness in. So I think we can't control that, but we certainly can control the pipeline. And the technology looks pretty promising.

Stephen M. Robb

Just to build on Dawn's comment there as well. I think as we've talked before, resin is not directly linked to oil prices. So we are actually feeling good that energy prices are starting to tick down for the first time because we think it's good for the consumer and we certainly think it's not bad for Clorox. But for us to really get any kind of benefit, you'd have to see prices come down and stay down for an extended period of time. So at this point, as we look at our outlook, which has about 1 point of headwinds from commodity pressures in fiscal '13, we still think that's about the right outlook.

Dara W. Mohsenian - Morgan Stanley, Research Division

Dara Mohsenian, Morgan Stanley. A couple of years ago at your analyst meeting, you raised your long-term margin expansion target. And if we look over the last couple of years, you've actually seen some margin compression here. And here today or at least last Friday, you're coming out with longer-term targets that are below what you outlined a couple of years ago. So why is that? Why shouldn't we see more margin recovery from this compression we've seen in the last couple of years and from this outsized commodity pressure?

Donald R. Knauss

Steve, why don't you start and I'll build...

Stephen M. Robb

I think if you go back to when we originally came out with those goals, if somebody had said as a country we would have the worst recession in 75 years in recent memory and at the same time energy prices, commodity costs would rise this fast, this far, I think we would have been surprised. Normally when you go into a recession, you actually see prices come down and stay down for a period of time. So I think maybe the one thing that's been eye opening for us and everyone else in CPG is how much of the commodity headwinds we've faced. I think, nonetheless, we think 25 to 50 basis points is a reasonable goal. Obviously, we'd like to beat that internally. But we think that is a reasonable growth for us. I think, focusing on those things with pricing and cost savings and SG&A management, it feels balanced. And we'll have to get through the next couple of years, see how the global economy performs and watch commodity prices carefully, and we'll see how this comes together.

Dara W. Mohsenian - Morgan Stanley, Research Division

Okay. And on the cost-savings front, can you discuss if you expect to see a similar level of cost savings going forward as you've seen over the last few years, given you already have a lean operating structure? Particularly on the IT investments and the Latin American SAP investments, what's the magnitude and timing of the payback there from a cost-savings perspective?

Stephen M. Robb

Yes. So every year, we continue to target about 150 basis points of margin improvement from the cost-savings programs. And I think as you saw earlier today, we've been very successful in doing that. As we look out to our current 3-year pipeline, we continue to anticipate delivering about 150 basis points and feel very good about it. I think as Michael talked to you earlier this morning about International and the investments we're making at SAP, similar to the kinds of things we saw a few years ago when we put it in for the U.S., we would expect as we go into fiscal '14 and '15 and really the system is up and running and working, we would start to see a whole series of benefits coming back, everything from enabling growth to lowering working capital to just giving our people better tools so that when they're targeting these cost savings, they have a better line of sight as to where the opportunities might be and can pursue them. But we would expect all those projects to start throwing off benefits beginning in '14 and beyond.

Donald R. Knauss

Is that Jason? I can't see with the light. Here, there you go. Then we'll come back to you, Javier, in just a second.

Jason Gere - RBC Capital Markets, LLC, Research Division

Okay. Jason Gere with RBC. Just a couple of questions. One, I guess, talking about the commodity pullback and really kind of the pricing that you're taking. I think, what is it, 47 out of the last 50 times pricing has stuck? So I guess maybe if you could talk a little bit about the categories. Some of your competitors out there, maybe not in the categories that you're in, you're hearing about pricing being rolled back to some degree. So can you maybe talk about the competitive set or the categories themselves, why you feel confident and what level, if oil stays down in the $80 level with some of the uncertainty out there, that your pricing will stick as opposed to you have to give that back to the retailers?

Donald R. Knauss

Maybe I'll ask George and Benno and Nick to kind of opine on this. Go ahead, Benno.

Benno Dorer

I can only really speak from experience. So I think this speaks to the power of having 90% of brands as being #1 and #2. And in my categories, most of the categories operating are market leader. And typically what happens in the categories is that competitors are following the market leader. That's at least what we've seen historically. And I have not seen a lot of evidence that as commodity prices ease up, that #3, #4 brands would behave differently. So we have no intentions to pull back on pricing. We like where it is. As you've seen, we're growing market share. The categories have started to turn around. And I think the important thing for us is as we continue to combine pricing with strong investments in our brands. As we continue to combine pricing with innovation to get that 60-40 win and also on the branded side maintain our status as the superior brand equities in the marketplace, we can shield ourselves from any potential competitive moves to take pricing back down. But again, experience from recent years, going back the last 5 to 10 years, I have not seen any competitors sidetrack and take competitors back -- take pricing back in our categories. George?

George C. Roeth

And the only thing I'll add in my category is the same has been true. As a matter of fact, we've seen competition follow even more quickly than historical. That's been true across food, litter, Glad and charcoal, private label included. The only thing I'll add as well as is we don't typically price to the peak of the commodities. We price to our kind of mid-term projections, where things are likely to land. So as commodities come back down, a lot of that's often anticipated. And we don't expect price rollbacks as that occurs.

Jason Gere - RBC Capital Markets, LLC, Research Division

Okay, great. And then the second question, I guess, trying to think about the trade-off between A&P spending versus just promotional trade spending. And I think you highlighted optimizing trade spending as one of the levers in terms of EBIT margin growth. But with the focus on innovation now being 3 points of growth going forward, you're in that 9% to 10% sweet spot for A&P for, God, I think since I've been covering you guys. So I guess, I'm trying to think about -- do we think about it as kind of a zero-sum game, that better promotional spending will go back into the A&P with a focus on innovation? Or will there be of that 25 to 50 basis points of margin expansion, this will be one of those drivers that will get you there, given that there's so much uncertainty with commodity out there?

Lawrence S. Peiros

So if I've got the question, I would say that the trade promotion efficiency is probably part of the margin building story primarily. As I said to you earlier, we're very committed to keeping advertising in that 9% to 10% range. It is quite different across the portfolio. We have brands of businesses that spend at double that rate and some that spend half that rate. So we do allocate across the portfolio. In fact, we even optimize across the portfolio for payback. But I think we feel very comfortable at this point with that 9% to 10% rate being about right for our categories. The one other thing that I did mention is as we buy more professional products kinds of businesses, they're obviously less advertising-focused from a demand-building standpoint, so there is -- relatively small now, but there's a bit of difference in terms of the spending structure in those businesses, and that will perhaps bring our advertising rate down a little bit.

Javier Escalante - Consumer Edge Research, LLC

Follow-up on pricing then another on health care. On pricing, do you think that after taking price increases last year that we've seen this negative mix getting worse? Do you think that the pricing architecture favoring high-volume purchases is just too much and you need to basically re-tweak the pricing points that you have, particularly for bleach? And how the compaction is going to play out in the way you're going to control the negative margin mix?

Lawrence S. Peiros

I think the answer is no. They're really different kind of phenomenons. The primary phenomenon of the big sizes is the growth in the value channels. Consumers are smart, they're looking for value. That's been going on for, quite frankly, probably 10-plus years as people migrated to either club channels or dollar channels. And we're seeing the same kind of level. There may be ups and downs by quarter, but the same kind of level of migration toward those larger sizes. I think that's separate from a pricing discussion. I think we feel very comfortable with our pricing and the fact that it's stuck in the marketplace in a relative value versus other brands. So in some ways, they're not totally tied even though they're obviously both value pricing-oriented phenomenons. But really the mix story has been going on for quite a long time.

Javier Escalante - Consumer Edge Research, LLC

The other question is on health care. If you can comment, as a follow-up on Wendy's on the margin structure. And should -- when you make an acquisition and you are paying for cash, shouldn't these acquisitions be accretive? Or is it that the margins of these businesses that you are acquiring are in the single-digits?

Stephen M. Robb

So I'm going to go ahead and take that one. I think as we talked before, when you think of the Away From Home business, as Larry mentioned just a few minutes ago, it doesn't carry the advertising load. So we look at those businesses to over time be accretive to the company's operating margins. And that's certainly what we see when we look at our businesses today. Now for Aplicare and HealthLink, the cost of integration, the step-up in inventory values obviously that you do when you acquire businesses for all of these reasons in the very short term, they're not accretive to our margins. But we would expect as we bring cost savings to those businesses, as we fully integrate those businesses and anniversary some of those one-time costs, that they will be at or above the company's EBIT margins over time.

Javier Escalante - Consumer Edge Research, LLC

[indiscernible] not on a margin basis.

Stephen M. Robb

Well, they're certainly expected -- if I understand the question, are they accretive to sales, we would expect to get 1 point to EPS. We would expect them to be accretive to EPS over time. And I think what we've said is we would expect them, as we integrate and invest to accelerate the cost savings, that they will be modestly dilutive in '12 and '13. Although it's early days, we'll have to get into it. At this point, we're certainly integrating ahead of schedule. So the numbers may be better. But certainly, by the time we're in fiscal '14 and beyond, we would expect them to be accretive to the company and it could potentially be faster than that.

Donald R. Knauss

And one other point I'd add to, Javier, is the gross margins in general on the health care business in total are above the company average. So it's a healthy business, no pun intended, in terms of the accretion to the company. Yes, Lauren?

Lauren DeSanto - Morningstar Inc., Research Division

Two things. First is just on SG&A. Steve, when you've mentioned sort of aggressively attacking SG&A to bring it back down to historical levels. I'm just not sure why it would have to be an aggressive attack if the change year-over-year kind of '10 and '11 to '12 and '13 has been more about this very clearly identified incremental investments in SAP in the R&D facility.

Stephen M. Robb

In part because we think there's cost savings opportunities there, and in part because we think the investments we're making in IT facilities in other areas are expected to generate value. Some of that value is actually expected to come through the SG&A line. So to be clear, the 15% SG&A is a good number, standalone. But when you look at historically where we've been as a company, we've been closer to 13% to 14% SG&A as a percentage of sales. And we just want to hold ourselves accountable over the long term to get SG&A back into those levels of, call it, 13% to 14% because we think it's right for the company. At the end of the day, I'd always rather spend $1 on advertising and driving innovation and growth than spend $1 in SG&A.

Lauren DeSanto - Morningstar Inc., Research Division

Sorry. What I'm sort of getting at is that I just would've thought that 15% would naturally go to 14% when those incremental investments were done. So are we talking about that you think 13% is more the natural level or where you can get to -- you got to work a little harder to get it from 14% to 13%? But it's more that 15% to 14% to me feels like it should happen automatically.

Stephen M. Robb

14% and below. Yes. Some of the costs, to be really clear on the IT investments, I think as people kind of appreciate, are sitting on the balance sheet because you make an investment to implement this, and then you have ongoing amortizations. So some of the costs will naturally anniversary, some of the costs will continue in the form of amortizations flowing through the SG&A line. But at the end of the day, our goal is to be 14% or less.

Lawrence S. Peiros

So I think you're trying to get to a question of why is it so difficult given that we've got these one-time events. And the reality is we also have these ongoing inflationary factors, things called merit increases and wage inflation in international markets that keep elevating these numbers. And our growth rates over the last several years have been less than they were historically. So we're growing faster than the rate of sales growth. And so there is going to be -- have to be some energy brought to the party beyond just waiting for the one-time events to go away.

Donald R. Knauss

One example of that, Lauren, 3 years ago, the market rates for merit increases was about 2%, now it's gone back to 3% to 4%. So to Larry's point, there's more wage inflation that we've seen even in the U.S., forget about Latin America, where we've seen double-digits in some cases. So that's some of that inflationary pressure.

Lauren DeSanto - Morningstar Inc., Research Division

Okay. And then just on mix. So you guys talked about that you're expecting mix has been a pretty significant drag. And you expect it to get -- to be less of a drag even before sort of the 4 actions that you've outlined. So I just wasn't sure why. Like what's the natural progression that you think mix will be less of a drag as we kind of move forward than we saw in the most recent quarters?

Lawrence S. Peiros

I don't think we're going to eliminate negative mix because again, this is a trend going on in the marketplace. But I think we can mitigate it. And the mitigation factors are things like when you take pricing, you don't do such a traumatic decrease in price on your larger sizes. So you get less of a margin hit as you go up in size. You can also reconfigure products. So I think Steve talked about the litter project, for example, which brought dramatic savings to the bucket that was in club sizes and improved the margin dramatically versus the rest of the line. Also when we do the concentrated compact bleach, we'll improve the margin in the club channel relative to the baseline. So there are things that we can do that can improve the equation.

Lauren DeSanto - Morningstar Inc., Research Division

Okay. Sorry, I'm being like crazy unclear, I guess again today, so 2 times in a row. It seems to me like there were 2 separate things. There was a comment on the slide where you identified how much of a drag mix has been to margins and saying almost like naturally you didn't expect it to be that bad going forward. And then separately, there was the proactive things you were doing to help mitigate it as a long-term challenge. Maybe I just misunderstood that you don't expect it to become less of a headwind on its own. That, that was the piece that I was...

Donald R. Knauss

I think a couple of things I would add, Lauren. One is it's in the base. So I think the increment off the base is less. I think the other thing is we had some extraordinary -- if you look at mix accelerated in the third quarter, it was 140 basis points, 2/3 of that was U.S. and 1/3 was International. In the U.S., we had some dramatic merchandising events that really focused on large sizes in the club channel, as well as the home improvement channel. We have to do an even more surgical job of making sure that the products that are in those events going forward have the right cost price curves. And I think we're going to really double-down on doing that. So I think that's one of the reasons we're saying we're going to get much more surgically focus of those cost curves in general, but also in these massive -- in these big merchandising events we've had in some of these channels, we can do a better job of making sure that the trade-up is acceptable but not off the chart for the consumer. Yes, Connie? Connie, and then John. We'll go back to John.

Constance Marie Maneaty - BMO Capital Markets U.S.

I was wondering if you could discuss a little bit the results you saw from the Liquid-Plumr advertising because you started the presentation with it by saying it was a little bit edgy, and then you showed the commercial. And then it went viral and all of that. And then you showed the sales results. Were the sales results above plan? And then secondly, what does the -- if they are above plan, then what does the success of that advertising tell you about what you could be doing in the rest of the portfolio?

Benno Dorer

Can you clarify the last question, the rest of the Liquid-Plumr portfolio or the entire portfolio?

Constance Marie Maneaty - BMO Capital Markets U.S.

The rest of your product portfolio, the way you might use edgier advertising to build demand in a sleepy category.

Benno Dorer

Okay. So first of all, I would say the results were about in line with plan on this. So we expected both category growth as well as volume and sales growth from this initiative. And we're seeing results about in line with expectations. This is the second initiative that -- innovation initiative that we had on Liquid-Plumr over the last 18 months. And we're very committed to delivering better solutions to the consumer that allow for trade-up. If you think about the drain category, the choice essentially is you pay $5 for a product that works okay or you pay $80 to $120 for a plumber to come in, who most of the time doesn't quite look like the plumber in the commercial to be clear. I also want to say that both the VP of Marketing and the head creative for this agency are female. But that's a separate subject. But anyway, so we believe that there's a sweet spot where people are willing to pay $7, $8, $9, $10 for a product that truly makes the plumber obsolete and that does the job in a perfect way for the first time. And with Liquid-Plumr Penetrex, which was launched last year and now with Double Impact, we are proving that that's in fact possible. So I would say that's in line with plan. And we like our strategy and we think that there is upside to that strategy going forward, and we're planning that way. As to advertising more edgy, do I -- that's a case-by-case, I would say. I do think that our advertising, as I think about the number of awards not only on Liquid-Plumr but on Clorox, on Hidden Valley, other brands that we've won over the years, our advertising is terrific. I love our advertising agency. I think we have one of the best marketing departments in the world. And I think our advertising certainly has certainly kept up with the times and in some cases, maybe is a little bit ahead of its time in terms of its edginess, both in terms of advertising content, as well as where we do advertising. The minority of our advertising today is actually on TV and we spend a lot more emphasis on going where the consumer is, which is increasingly online. So I'm pretty happy where our marketing department is. But if that's an encouragement, Connie, for our advertising to be more edgy going forward, I'll happily pass it on to our VP of Marketing. She will be quite happy.

Donald R. Knauss

Well, when you think about it, though, the Clorox, the bleach advertising panel show, Bleachable Moments, that's probably the edgiest, rather than 2 white socks, which one's whiter. That was a little more edgy.

Benno Dorer

Yes. We talked about it. We have the 3Ds and we also talk about it as the 3 Ps. Don't know if I can say them in public, but there's pet, puke and poo. So if that isn't edgy enough for you, I don't know what. That's pretty edgy for some at Clorox.

Constance Marie Maneaty - BMO Capital Markets U.S.

Okay, now a different topic. Could you talk about in the Healthcare business some of the results you've had with the lead medical institutions that you're working with to actually show that the incidence of infection declined?

George C. Roeth

Yes -- I actually have a mic on. It's actually been the foundation of our success. It's actually converting some very high-profile institutions. We've published studies, and this is the only thing that I can reference publicly, with 2 major facilities: one is the Mayo Clinic, where we saw significant reduction in C. difficile infection rates across our facility after adopting a Clorox Bleach wipe protocol throughout the facilities. That is a publicly available research paper that we could certainly get you, Connie, if you'd like to see it. And secondly, at the University of Pittsburgh Medical Center Group, which is I think somewhere near 13 facilities throughout Pennsylvania, we've also published studies there. But our general strategy beyond that has been to go to the most influential acute care facilities in the country with the science that we have and our belief in our bleach-based portfolio to drive down rates of infection and we've been able to see that across-the-board, but those are the 2 examples that I can talk about.

Donald R. Knauss

John?

John A. Faucher - JP Morgan Chase & Co, Research Division

Thanks. John Faucher with JPMorgan. Two questions. First off, Steve, as part of your guidance for 2013, you're taking, I think, $0.05 for Venezuela, which by the rough numbers we have would suggest somewhere let's say 25% to 50% of your operating profit in Venezuela sort of flowing out. And I guess the question would be what is embedded in that assumption in terms of devaluations, what have you, demand scenarios? And then the second question would be to Frank, which is in your section, you showed that 47% of your businesses are growing 4% or faster and that's sort of getting you to this 2% to 3% top-line growth rate. And then the question is in order to get to the 3% to 5% -- to be at the higher end of the 3% to 5% that you guys are looking at longer term, what percentage of your business units need to be growing sort of at those faster rates? And is that a category thing, is that a market share thing? Just a little bit of sort of conceptual viewpoint there.

Stephen M. Robb

So, John, let me take the first part of that and then I'll have Frank address the other. In terms of Venezuela, it's obviously a pretty volatile situation. We've got a range of potential scenarios and outcomes that we've been modeling. At this point, we think a $0.05 EPS drag, which is about $10 million in profit, a little more than $10 million is about right. Now underlying that is the assumption that the price controls that were put in place in April that they will continue for some period of time and that means it will be more difficult to take pricing to offset inflationary pressures. So you're going to have, at least in the short term, a margin squeeze, so we'd certainly model that in. We also anticipate some level of devaluation, but I would say it's more modest in nature. We have not yet modeled a complete reset of the currency. I think at the end of the day, until we get through the election and we see how that plays out, it's going to be difficult to know exactly what's going to happen in Venezuela. I think we feel good about our outlook and feel good that a $0.05 dilution is about the right number at this point, but we're going to continue to closely monitor the situation and we will give people an update as we know more.

Frank A. Tataseo

John, on the growth, we've had tremendous success growing share, but share growth and the leverage there is finite. So really, it's about where to play in the right categories, the adjacencies that we referred to and you heard a lot of stories today about our pursuit of growth through adjacencies. So it's a combination, but again, a 95% share in Saudi on Clorox Bleach, the growth from just growing shares is going to be limited. So the higher leverage choices are about where to play, growing our categories and as you've heard throughout the day, 3D innovation, keep innovating as a way to keep driving the road.

John A. Faucher - JP Morgan Chase & Co, Research Division

And then just sort of again, if you're 47% today, let's say to get to the sort of midpoint to higher end of that 3% to 5% range, what percentage of your businesses do you think need to be up there? Is it sort of -- because certain of these businesses just aren't going to grow, so you need 2/3 of the businesses grown about 4% in order to get there or...

Unknown Executive

It really depends, I guess, on both sides...

Unknown Executive

Both sides.

Lawrence S. Peiros

Both sides of the equation, because if we see some stabilization, John, in some of these other categories and we don't see the falloff on the other side of that pie chart, then obviously it offsets some of the need for even going beyond the 47%.

Frank A. Tataseo

And as Larry showed, I mean, the good news is the trends have reversed. They're becoming more positive on our core categories. But no secret to you guys, we are growth challenged in a number of our U.S. categories so we have to continue the shift of portfolio, as well as in -- strengthen that base.

Lawrence S. Peiros

Yes, I think the interesting thing, though, as we laid out those 3 pillars, U.S. retail, Professional and International and with basically flat to 1% category assumptions, we feel very confident that we're in that 3% to 5% range. When you look at -- we need 2 to 3 out of the U.S. retail business that we certainly have demonstrated that, and that's 1.5% to 2.5% for the company. The Professional side -- and I guess baked into that, John, is Burt's -- Burt's is growing 8% to 10%. That's when you -- that's part of the U.S. retail now. So that actually takes even more pressure off the legacy businesses. So we're very confident and as you look -- as Steve pointed out, FY '13 and beyond, that we're in pretty good mid-spot in that 3% to 5% range with those 3 pillars. Yes?

Linda Bolton-Weiser - Caris & Company, Inc., Research Division

Linda Bolton-Weiser with Caris. Can I just ask for some clarification on something Larry had said about the channel and the margins. I had always thought that in the dollar channel, that price per ounce is actually higher, but maybe I'm wrong. And also, can you just comment, too, on other channel dynamics besides the shift to the club channels that may be affecting your mix issue? And also, I think a few years ago you had talked about trying to gain more share and doing better in the grocery channel. And maybe could you update us on that? And again, is that some kind of an effect on mix or not?

Lawrence S. Peiros

So we're kind of speaking in generalities, but I would tell you that brand by brand, the margin picture is quite different. We actually have at least one brand which is very margin accretive to the portfolio and the club channel. The dollar channel typically is about average. It's migrated over time where the sizing is really no -- typically no different than what you see in the mass channel. The grocery channel has gotten healthier and it's more than -- more kind of a flattish versus historically it was a declining channel, and generally is more profitable for us. Walmart being a big part of the portfolio is about at the average, but again pretty high variability by SKUs and by brands. So does that give you...

Linda Bolton-Weiser - Caris & Company, Inc., Research Division

Yes, that's helpful.

Lawrence S. Peiros

The one thing I want to say, this is -- it's a blessing, right? So there are examples where we feel great about growth in these. I mean -- and what we've got in home hardware, for example, behind our Kingsford business, so the folks at places like Home Depot and Lowe's are using Kingsford as a big loss leader, investing their own money to get people in to buy Charcoal and then buy an expensive drill or saw or something. So we're a loss leader for them. They're investing the money. We're getting incredible sales out of that and benefit out of that. It is hurting our margins, but gee, we like the business.

Linda Bolton-Weiser - Caris & Company, Inc., Research Division

Okay. And then try and just ask on the whole health and hygiene thing. Kimberly-Clark also has an initiative to grow in that area, but I think they're positioned a little bit differently. Can you just, to the extent you can, like do you come up against them when you look at these small-company acquisitions or are you completely focused in a different way? And also related to that, like I'm seeing is like a company like Ecolab that serves these institutions like hospitals with cleaning, germ-killing things and I'm wondering how can you compete against that? And if your product is superior because it kills the virus better, why can't you just develop a partnership with an Ecolab or something to use your product with their channel of distribution or something?

George C. Roeth

Well, I think Dawn mentioned it a little bit earlier. I think one of the reasons why this is such a great place for us to play is that there's great fragmentation in the marketplace. And so even though you do have some strong companies like Kimberly-Clark or Ecolab playing in there, no one has enough of a dominant position across the not only fragmented business as a whole, but then the categories are so fragmented across different types of use indications that it allows a lot of space for somebody like Clorox to come in and be very, very effective, especially in the things that we do really, really well like surface disinfection. And then to address your comment around could we be faster if we allied ourselves with somebody who has more scale than we do today? I think you know we've looked at that in the past and we rejected that as an option. And we've decided to pursue both an organic and a targeted inorganic approach because we think that's the profit maximizing solution for our company. But we have looked at it.

Donald R. Knauss

Yes. I think the only thing I'd add to it is if you look to your point, Kimberly is focused a bit differently than we are. They don't have -- they're more tissue-oriented or gallon-oriented or equipment-oriented. We obviously have the chemistry capability, the hard surface disinfection they don't have. So we are playing in different spaces. The other thing is it's interesting on these bolt-on acquisitions. Most of these companies are in the $10 million to $15 million revenue range. They're too small for Kimberly, actually, to get excited about, frankly. So our lack of massive scale plays to our benefit here, where they're important to us but not so important for them, and I think that helps. And of course with Ecolab's massive acquisitions they just made, they're sort of out of this game. And they're more of a gen san type focus than they are getting into surgical centers or disinfecting rooms. It's more of a cleaning the floors, if you will. But it's a little bit different than our focus. Yes, Connie?

Constance Marie Maneaty - BMO Capital Markets U.S.

Just a follow-up on what you think the risk to your fiscal '13 outlook might be. What's out there that is difficult to quantify. I think the devaluation, potential devaluation in Venezuela's out there as a risk. Is there the same for Argentina? And what are the other big risk factors that you can see?

Stephen M. Robb

Yes. I think the large risks that we've seen over time that are out there: one, we feel good about the category recovery, but it's still in recovery. So there's always a risk and while we don't predict it and we certainly don't anticipate, but if we were to go into a double dip recession, where if something was to happen within the economy, particularly the U.S. economy, obviously that would put the top line at risk. In terms of margins, the thing that we know is we've been reasonably accurate in calling the direction of commodities. But it is extraordinarily difficult to control the -- to understand what the magnitude of that change might be. So while we will all hope that the commodities will come in as expected or perhaps even better, you don't know. And there's always a risk, there could be a worldwide event of some kind or another and that, that might create a shock to commodities and that might compress margins. I think for Argentina and Venezuela, Venezuela's a big unknown again. I think we feel like the $0.05 of earnings drag, it is fairly representing what we know today and what we anticipate. Argentina as a business remains healthy. It's certainly moving in the right direction. We're not anticipating any major significant devaluation or other change there, but that's something we'll have to closely monitor.

Donald R. Knauss

Any other questions? Yes?

Unknown Analyst

Two somewhat unrelated questions. One is a follow-up to the conversation we just had about channels. I'm wondering if there are some channels where you feel that you are underpenetrated, not doing as good a job, where it presents a potential opportunity as you go through dollar stores, supermarkets, club stores, et cetera? And then my second question is a longer-term one. We've been talking about the costs associated with SAP and Pleasanton. Beyond that, could you maybe outline for us what you think is going to happen in terms of your capital spending and depreciation and obviously there for cash flow beyond the completion of those projects?

Donald R. Knauss

Larry, do you want to take that?

Lawrence S. Peiros

Let me take the channel one. So one of the very interesting emerging channels for us is e-commerce and off the top, you might not think that our products going to lend themselves to e-commerce trade, but we're finding that we actually have a fairly significant e-commerce business, even in some of our basic products like Glad. And obviously, we are pretty well developed in product lines like Burt's Bees and Brita. We've also discovered that the influence of e-commerce channels on brick-and-mortar purchases is very significant. So we've seen some data that says someone shops on Amazon.com and that affects purchases 6x in brick-and-mortar stores. So e-commerce is today as best as we can calculate it because some of the -- it's hard to break out some of the sales when they go to a place like Walmart that doesn't break out Walmart.com versus Walmart brick-and-mortar. But we think it's now a fairly substantial business, probably about 3/4 of 1% of our sales, growing at what we think is something like 30%. And so we're trying more and more to get good information on e-commerce channels to pick up that business, as well as to influence people outside of those channels. We're also seeing the in between kind of translation of that, which is particularly grocery retailers that you order online to pick up in-store and again, it's pretty critical that we have the right products at the right price and the right kind of information around our products on those channels in order to influence that purchase.

Stephen M. Robb

Just to build on what Larry said not just within channels, but within the retail environment. So we have a very, very significant opportunity in the retail environment to ensure that Burt's lip balm is on every single register in America, big opportunity, making significant progress. But when you turn around and talk about putting a product at the point of the side with the consumer, 35,000 registers, 50,000 registers at Walmart, the opportunity to grow that business is incredibly significant. And so if you take a look at every register in America, that's enough an objective for us on Burt's. Every pharmacy in America should have a display of wipes. So although you find wipes in a lot of cases bought in the center store in the cleaning category, how do you get into pharmacy space, which is actually different retail space from a metric standpoint in the store? How do you get that guy in that area to look systemically at how the consumer shops? And so every single pharmacy in every single store in America should have Clorox wipes in it. So we do have some significant opportunities across our portfolio that go horizontally across all of our categories.

Benno Dorer

To answer your capital spending question, for fiscal '13, we would anticipate capital spending in the range of $230 million to $240 million. And again, that is elevated versus what you've seen us spend historically because we are completing both the IT investments in Latin America, as well as the facilities rebuild in Pleasanton. Looking beyond fiscal '13 to '14 and on, I think you'll see that capital spending should return to a more normal level, call it, at the rate of depreciation. That's probably $200 million to $210 million. Obviously, if we've got good cost savings projects and offer high returns on investment, we might spend more, and if there's less opportunity, we'll spend less. We'll adjust it. But I think you'll see it come into something in that range.

Donald R. Knauss

We have 2 more questions here? Right here.

Ian Gordon

Ian Gordon from S&P Equity Research. I just wanted to ask about -- in light of the New York Times article, I think, about the potential ban of large sizes of sugary drinks. So focusing on the increasing focus of obesity in this country and with Hidden Valley Ranch, anything that your research has suggested about how the brand is perceived, particularly the traditional product and the full fat and what you're doing differently now versus in the past to address that and how it might impact your business?

Donald R. Knauss

George?

George C. Roeth

So the overall perception of Hidden Valley Ranch is quite good. People see that as very down-to-earth, almost natural. Obviously, our label is not completely consistent with that, so we do have a reasonable fat content in Valley Ranch. We do know it's using a small amount with vegetables. Overall, it's a net good thing and actually, fat helps with the digestion of the vegetables. Having said that, though, we're not blind to the trends around childhood obesity and looking on our label. And we're constantly looking for ways and formulations that will allow us to get that fat levels down, salt levels down, sugar levels down in our products, while still delivering the taste that consumers demand.

Donald R. Knauss

Yes?

Leigh Ferst - Wellington Shields & Co., LLC, Research Division

Leigh Ferst with Wellington Shields. You didn't talk much about the Green cleaners, but you did mention it for about a split second. You promoted it in the ladies room, but I haven't researched the mens room. But could you give us an update on that brand?

Donald R. Knauss

Yes. Benno, do you want to do that?

Benno Dorer

So we're pleased with the Green Works business. As you remember, it was off to a really rousing start in 2008 and then it was somewhat affected, like all the Green categories in the following years. What we've been successfully doing is ensuring that we have a stable and solid business and that we have a profitable business that forms a really good basis for us to grow off of. And that's what we were in the process of doing. So we remain focused on the business and as Frank said earlier, we believe that this is a businesses that has a very solid long-term potential. If you think about it in many ways, as we launch this, and I was on the business as we launched it, we thought that this was going to be a slow burn. And then it took off. As people were very focused on sustainability prior to the recession. But then in the recession, it ran through a more difficult time and now, essentially we are in the process of seeing what we thought would happen all along, which is a slow burn and steady increase in consumer adoption. So continues to be a very important business for me. It's not a business that's make or break for my division. So it means that we've been able to weather the storm over the last 2, 3 years pretty well. But we like the trends. We're seeing increasing distribution, for instance, in club where a lot of the shoppers are and where we're able to, in this case, sell very profitable Green Works products. And we have plans to continue to nurture the business going forward.

Donald R. Knauss

I think one of the big strategic shifts on the business that Benno's led is when we launched that product, we had about a 25% price premium to traditional cleaners. Today, we've engineered that back to about, what you said, Benno, 10% to 12%.

Benno Dorer

Yes, and in many cases, actually, it's even less than that. It's in the range of 5%.

Donald R. Knauss

You can actually go into Walmart, for example, and find Clorox all-purpose cleaner at about the same price, I think, Chris, as 409 or Tilex now. And I think that's one of the keys over to Benno's point over the slow -- over the long term to build the acceptability that brand has. People love the brand when they try it, so you get high repeat rates. It's just getting them to try, and I think the pricing is one of the key issues.

Leigh Ferst - Wellington Shields & Co., LLC, Research Division

Do you think the price premium will return?

Donald R. Knauss

I think with the reengineering that R&D's done around those products, the cost debate, if you will, on those products, I think we can make acceptable margins at the lower price points, which is what we want to do. We have time for one more question, if there is one more question. All right. Well, I think we'll see a number of you over the 1.5 days, but really appreciate your coming this morning and we'll keep the updates coming. Thanks, everyone.

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