Good morning, and welcome to Procter & Gamble's Quarter-End Conference Call. Today's event is being recorded for replay. This discussion will include a number of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q and 8-K reports, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. As required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the company will make a number of references to non-GAAP and other financial measures. Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends, and has posted on its investor relations website a full reconciliation of non-GAAP financial measures. Now, I will turn the call over to P&G's Chief Financial Officer, Andre Schulten.

Good morning, everyone. Joining me on the call today are Jon Mueller, Chairman of the Board, President and Chief Executive Officer; and John Chevalier, Senior Vice President, Investor Relations. Execution of our integrated strategies drove strong results in the January to March quarter. Organic sales grew across all 10 categories and in six out of seven regions. Global aggregate market share is holding steady, productivity savings are accelerating and enabling sustained investment in the superiority of our brands. In-market execution across all five vectors of superiority is strong and consistent: product, package, communication, go-to-market and value. Superior offerings continue to pay benefits for our consumers and retail partners and in turn for P&G shareholders. Progress against our plan enables us to increase guidance for organic sales growth and cash return to shareowners, and to maintain guidance for core EPS growth and free cash flow productivity. Moving to third quarter numbers. Organic sales grew more than 7%. Pricing added 10 points to sales growth and mix was a modest positive contributor for the quarter. Volume declined 3 points, including a 1 point headwind from portfolio reduction in Russia. Growth was broad based across business units with each of our 10 product categories growing organic sales. Feminine Care was up low teens, Personal Health Care, Home Care and Hair Care each grew double digits, Grooming, Oral Care and Fabric Care grew high single digits, Baby Care was up mid singles, and Family Care and Skin and Personal Care grew low singles. Growth was also broad based across geographies with six of seven regions growing organic sales. Focus markets grew 5% for the quarter. Organic sales in the U.S. were up 6%, including modest unit volume growth. Europe focus markets were up 8%. Greater China organic sales were up 2% versus prior year, as the market begins to recover from COVID lockdowns and as consumer confidence improves. We continue to expect further recovery as consumer mobility increases over the coming quarters. Longer-term, we expect China to return to mid singles underlying market growth rates for our portfolio of categories. Enterprise markets were up 15% with Latin America up nearly 30% and Europe enterprise markets up low teens. This is the fourth consecutive quarter in which all five sectors grew organic sales double digits in enterprise markets. Global aggregate value share was in line with prior year, with 30 of our top 50 category country combinations holding or growing share. Excluding Russia, global value share was up 20 basis points. In the U.S., all outlet value share was up 40 basis points versus prior year with eight of 10 categories holding or growing share in the quarter. U.S. volume share is up 90 basis points versus the prior year, driven by 2 points of absolute volume consumption growth in a market that is still down modestly versus prior year. Strong U.S. share growth in Personal Care has been led by innovation on the native brand and deodorants, as well as successful extension into body wash. Cascade Platinum Plus has driven strong share growth in auto dishwashing, and Dawn share continues to be up more than 1 point with ongoing leverage from the power wash and easy squeeze innovations. Vicks continues to be a growth leader in Personal Health Care, and we've delivered strong share growth in the Metamucil and Pepto-Bismol brands. In Europe, the new four-chamber Ariel Platinum PODS are driving strong consumer demand in Fabric Care. Fairy Power Spray is growing the dish category and building market share in Home Care. The new GilletteLabs exfoliating razor, male and female intimate grooming innovations and cardboard packaging upgrades are driving strong growth in grooming. Moving to the bottom-line. Core earnings per share were $1.37, up 3% versus prior year. On a currency neutral basis, core EPS increased 13%, good progress as we faced $0.31 per share of cost and foreign exchange headwinds in the quarter. Core operating margin increased 40 basis points, as 150 basis points of gross margin expansion were partially offset by SG&A investments and inflation impacts. Currency-neutral core operating margin increased 160 basis points. Productivity improvements were a 290 basis point help to the quarter. Adjusted free cash flow productivity was at 92%. We returned $3.6 billion of cash to shareowners, approximately $2.2 billion in dividends and $1.4 billion in share repurchase. Last week, we announced a 3% increase in our dividend, again reinforcing our commitment to return cash to shareowners. This is the 67th consecutive annual dividend increase and the 133rd consecutive year P&G has paid a dividend. In summary, against what is still a challenging cost and operating environment, continued good results across top-line, bottom-line and cash for the third quarter. Our team continues to operate with excellence, executing the integrated strategies that have enabled strong results over the past four years and that are the foundation for balanced growth and value creation. A portfolio of daily use products, many providing cleaning, health and hygiene benefits in categories where performance plays a significant role in brand choice. Ongoing commitment to and investment in irresistible superiority across the five vectors of product, package, brand communication, retail execution and value, we are again raising the bar on our superiority standards to reflect the dynamic nature of this strategy. Productivity improvements in all areas of operations to fund investments in superiority offset cost and currency challenges, extend margins and deliver strong cash generation, an approach of constructive disruption, a willingness to change, adapt and create new trends and technologies that will shape our industry for the future. Finally, an organization that is increasingly more empowered, agile and accountable with little overlap or redundancy flowing to new demands seamlessly supporting each other to deliver against our priorities around the world. There are four areas we are driving to improve the execution of the integrated strategies: Supply Chain 3.0, digital acumen, environmental sustainability and employee value equation. These are not new or separate strategies; they are necessary elements in continuing to build superiority, reduce costs to enable investment and value creation and to further strengthen our organization. Our strategic choices on portfolio, superiority, productivity, constructive disruption and organization are interdependent strategies. They reinforce and build on each other. When executed well, they grow markets, which in turn grow share, sales and profit. We continue to believe that the best path forward to deliver sustainable top- and bottom-line growth is to double down on these integrated strategies, starting with the commitment to deliver irresistibly superior propositions to consumers and retail partners. Now, moving to guidance. As we work towards the end of the fiscal year, we are cautiously optimistic. We remain confident in our strategies and the organization's ability to execute them with excellence. We continue to expect more volatility in the macro and consumer environment and expect sustained pressure in costs and foreign exchange as we move forward. On the whole, our consumer markets remain relatively resilient, with U.S. and China volume trends improving, but with inflation pressures in Europe weighing more heavily on consumption. We continue to think the strategies we've chosen, the investments we've made and the focus on executional excellence have positioned us well to manage through this volatility over time. Raw and packaging material costs, inclusive of commodities and supply inflation, have largely stabilized over the last few months, but still remain a significant headwind versus last fiscal year. Based on current spot prices and latest contracts, we now estimate a $2.2 billion after-tax headwind in fiscal '23. Foreign exchange is also a significant year-on-year headwind and rates since last quarter have moved modestly against us. Based on current exchange rates, we now forecast a $1.3 billion after-tax impact to the fiscal year. Freight costs have moderated throughout the year, and we now expect them to be roughly in line with prior year. Combined headwinds from these items are now estimated at approximately $3.5 billion after-tax, or $1.40 per share, a 24 percentage point headwind to EPS growth for the year. In addition to these impacts, we are also facing higher inflation in wages and benefits and higher year-on-year net interest expense. We are offsetting a portion of these cost headwinds with price increases and productivity savings. We are continuing to invest in irresistible superiority and we are investing to improve our supply capacity, resilience and flexibility. As noted in the outset, our strong results over the first three quarters have enabled us to raise our organic sales outlook and confirm our guidance ranges on EPS and cash. We are increasing our guidance for organic sales growth from a range of 4% to 5% to approximately 6% for the fiscal year. This would put fiscal '23 in line with the 6% top-line growth we've averaged over the last four years, which were 5%, 6%, 6% and 7% from fiscal '19 through '22, respectively. On the bottom-line, we're maintaining our outlook of core earnings per share growth in the range of in line to plus 4% versus prior year. Significant headwinds from input costs and foreign exchange keep our current expectations toward the lower end of this range. This guidance also reflects our intent to remain fully invested to drive our superiority strategy and increase investments as value-creating opportunities are available. We continue to forecast adjusted free cash flow productivity of 90%. We now expect to pay nearly $9 billion in dividends and to repurchase $7.4 billion to $8 billion in common stock, combined a plan to return $16 billion to $17 billion of cash to shareowners this fiscal year. This outlook is based on current market growth estimates, commodity prices and foreign exchange rates. Significant additional currency weakness, commodity cost increases, geopolitical disruption, major production stoppages or store closures are not anticipated within this guidance range. To conclude, we continue to face highly volatile consumer and macro dynamics. We also continue to see high year-over-year input costs, inflation in the upstream supply chain and in our own operations. Headwinds from foreign exchange, geopolitical issues, and historically high inflation impacting consumer budgets. As we said before, we believe this is a rough patch to grow through, not a reason to reduce investment in the long-term health of our business. We're doubling down on the strategy that has been working well and is delivering strong results. We continue to step forward. We remain fully invested in our business. We remain committed to driving productivity improvements to fund growth investments, mitigate input cost challenges and deliver balanced top- and bottom-line growth. With that, we'll be happy to take your questions.

The first question comes from Lauren Lieberman of Barclays. Please go ahead.

Great. Thanks. Good morning, everyone. I wanted to discuss productivity, as it understandably took a back seat during the pandemic and the global supply chain challenges over the past two-and-a-half to three years. However, this quarter has shown a significant change in what you've been able to achieve. I'm curious if we should view productivity as an area where there's a catch-up, with projects that have been waiting to be addressed, allowing productivity to potentially operate at an elevated rate moving forward. It's also interesting to note how consistently you've invested in marketing throughout this period. There isn't a need to rush reinvestment in marketing specifically, but perhaps there could be some acceleration on the productivity front. I would like to hear more about that. Thanks.

Great. Good morning, Lauren. I think, as you said, we are catching up right now to return to gross savings levels that are equal or close to equal to those that we've delivered pre-COVID. We have more line capacity available for us to qualify cost savings or mind space of our teams to be able to identify new opportunities. And as we are able to engage suppliers and get through this inflationary period, hopefully, more ideation and new projects will be created as well. As we've talked on our Investor Day, we see runway on productivity for the next few years, driven by Supply Chain 3.0. We have talked about delivering about $1.5 billion of savings with those initiatives between automation and digital capabilities. And we continue to believe that we can generate between $400 million to $500 million a year from media, programmatic savings both in terms of scheduling and buying capabilities around the world. Those programs will hold productivity, in my estimation, close to pre-COVID levels, which will allow us to continue to reinvest in media, which will allow us to fund innovation and superiority, and that is really the intent of the model. So, to answer your question directly, I would not expect a disproportionate catch up, but I would expect a steady return to pre-COVID levels of net structure savings, both the cost and media.

I agree.

The next question comes from Bryan Spillane of Bank of America. Please go ahead.

Thanks, operator. Good morning, everyone. I actually had just one clarification and then a question. The clarification, the $125 million of, I guess, incremental interest expense, can you just give us a little bit more color on that? And again, is that something we need to kind of contemplate in our models as even we look past the fourth quarter? So, I guess, is net interest expense going up?

Yeah, morning, Bryan. Yes, I mean, obviously, it is, right? Markets are getting more expensive in terms of credit and we are not immune to that. So, the $125 million we've quoted for this year, I would expect the trend to continue to go up into next year. Now we are still well positioned relative to our peer group because we're able to borrow not only in the U.S., but also in euro, in pounds and in yen. So that keeps us very competitive. But nevertheless, we're not immune to those increases, so they will continue to go up into next year.

And just one piece of perspective there, Bryan. This is Jon. We've understandably, because it's been the primary driver of cost increases, focused our discussion on commodities. But that's not the only cost increase that we're seeing. We've just talked about interest expense. Andre mentioned in his prepared remarks, wages and benefits, which continue to increase. So, I would just encourage us all to gain confidence from what's happened here, but to realize that there are still, as Andre said, many headwinds that we're working against and we'll continue to work against as we move forward through next fiscal year.

The next question comes from Dara Mohsenian of Morgan Stanley. Please go ahead.

Hey guys, can you hear me?

Yes, we can.

So, on the gross margin side, you were up significantly year-over-year in the quarter for the first time in a couple of years. Obviously, some nice sequential progress with the outsized cost savings and the strong pricing, but also your full year commodity assumptions and freight assumptions are a bit better than they were previously. So, just wanted to get a sense if we start to see this sustained improving gross margin environment, what's your perspective on the bias to sort of reinvest that upside back into marketing versus letting it drop to the bottom-line? This quarter, obviously, with the magnitude of gross profit upside, you could do both. But just want to get a sense on how you think about that going forward? And if I can slip in a second part, are you comfortable you're getting a strong ROI on the higher ad spend? Presumably, obviously, you did this quarter, but how do you think about that going forward and sort of ROI on any spend that may be opportune or incremental to what you originally expected?

Good morning, Dara. We would expect progress on the gross margin side. Actually, we're encouraged by the productivity numbers that have helped us on top of pricing to deliver the first modest increase in gross margin after a very long period of heavy cost headwinds impacting us negatively. And as we've done this quarter, we will continue to look for value creating opportunities to reinvest. We firmly believe the reason why we are able to grow the top-line at the range we are growing, the reason why we are able to hold volume share and value share globally in a very tough environment is because of our superiority-driven innovation across product, package, communication and retail execution. And we believe that as pricing goes into the market and the consumer is even more, I think, sensitive towards the value equation that they are being offered, continued investment across all of those vectors is going to create value and serve us well going forward. So, we will maintain the flexibility to do so, but we will do it in a disciplined and in a very ROI-driven way as you say. As to your second part of the question, as ad spending becomes more efficient with our ability to in-house both scheduling and buying of media, more digital capability to be more targeted, that increases the ROI of every dollar we can spend. So, it actually makes investment in media spending more attractive. At the end of the day, we will maintain the concept of balance between top-line growth, bottom-line growth and cash generation to stick with our ongoing growth model and value creation model.

Building on Andre's points, which I fully support, I want to emphasize the importance of balance and our dedication to it. I've discussed this multiple times, but it's important to clarify how we're approaching this. We utilize a chart with our leadership team during our meetings that illustrates what needs to be believed to achieve the highest total shareholder return, whether that's entirely from the top-line or solely from the bottom-line. To achieve top-line growth alone, one would need to believe in an 8% increase in organic sales every quarter, which we consider unrealistic. Conversely, achieving this solely through the bottom-line would require the assumption of expanding margins by 180 basis points per year, which translates to a total of 10 margin points in a competitive industry where we've taken 187 years to build 22 basis points, making this equally unlikely. Therefore, we are committed to fostering growth in both top-line and bottom-line, as we believe it's the only viable route to success. We have a saying we refer to occasionally: 'Top-line with no bottom-line is a waste of time. Bottom-line with no top-line is just a matter of time.' We will continue to operate under this principle, aiming for top-line growth through appropriate investment and striving for bottom-line growth along with modest margin expansion. Additionally, regarding our advertising return on investment, we have numerous categories where we have yet to reach our target levels of reach, which presents significant opportunities. By reducing wasteful frequency and reinvesting in expanded reach, we achieve excellent results, as we've witnessed over the past four years. Our approach remains unchanged for the foreseeable future.

The next question comes from Steve Powers of Deutsche Bank. Please go ahead.

Hey, thanks, and good morning. So, overall volume this quarter came in roughly in line at least with our expectations, but both price and mix delivered upside, which I think implies just better structural elasticity than we were expecting. And I guess the question is, as you balance everything, just your relative confidence that that can continue? On the one hand, you have some tailwinds for sure as China comes back and service levels seem to be improving, your reinvestment rate is admirable as we've been talking about. But there's obviously uncertainties out there. And so, I guess, maybe just a little bit of perspective on your overall confidence and where that confidence is more versus less elevated?

Good morning, Steve. I'll try a careful balance here between giving you perspective on the global basis and not letting you get ahead of yourself in terms of expectations. But the volume decline is better than we would have expected, as you said. Our elasticities remain favorable on an aggregate basis. And if you look at global markets, we actually see a volume consumption stabilizing. So, you would have seen in previous quarters global volumes across our categories down roughly 3 points to 4 points. In our most recent read, which is the past one month, volumes were actually down 70 basis points. This is market volume. And if you exclude Russia, probably more around flat. That's with China returning to some level of growth, and it's also with pricing moving into the base. So, we'll see as pricing becomes more annualized, we'll see that stabilization. I don't know if it's going to continue to be neutral. I would expect some level of negativity in terms of overall market volumes, but certainly improving sequentially. Within that, I think we're taking comfort in the fact that we are able to hold global volume share and global value share despite significant pricing that we have taken, which has enabled, as we said, we believe by our superiority strategy, a strong vertical portfolio, both tiers and price points and being present in all channels where consumers want to shop. In our biggest most important market, as we had in our prepared remarks, we were able to grow volume and volume share, 90 basis points over the past three months. So that's the positive side. On the negative side, Europe continues to be a high-pressure environment. We've been able to grow sales 8% in focus markets, but that it was a very strong pricing contribution with negative volumes in the range of 7%. And the European consumer is trading into private label. We see the price differential between private label and branded competitors increasing as private label is delaying price increases. The consumer continues to be under pressure there. So that's going to be a continued headwind, I think, from the volume side. Overall, I think our outlook is balanced. As we said, we expect market growth to return to 3% to 4% on the value side and there has to be a positive volume component to that going forward, but it will take a few quarters before we get there.

The next question comes from Kevin Grundy of Jefferies. Please go ahead.

Great. Thanks. Good morning, everyone, and congratulations on another strong set of results. I thought maybe we could spend a moment on China and the reopening there. Of course, given the importance of that market for you guys, being the second largest market behind only the U.S., so up 2% sequential improvement, which is encouraging, we see that in the China retail sales, including cosmetic continues to show sequential progress. You've been consistent about your target of mid-single digit growth for that market longer term. However, it also seems plausible that you potentially exceed that level of growth at least in the intermediate term here given easier year-over-year comps and then maybe the potential for some inventory rebalancing at retail as consumer demand improves. Can you comment a bit more on what you're seeing in China? And then, perhaps offer some broader views on the pace of the recovery, and how you see that playing out? Thank you.

Hey, Kevin. This is Jon. I'll hand it over to Andre to give some more numerical perspective. But I thought it might help just to share briefly the trip that myself and a large contention of our leadership team were able to make to China in the last three weeks. We spent more than a week there. It was wonderful to reconnect with our organizations, who are doing a tremendous job. We spent time in consumer homes. We spent time with our retail partner leaders in their stores and in their offices. And of course, we spent time with various government authorities. And without getting into all the details, the bottom-line conclusion was a very positive one, and much more than I was expecting even, and I'm kind of a China fan having worked there many years ago and having lived there. So, my expectation has already started high, and those were exceeded. Having said that, and we talked about this on the last call, this is not going to be a vertical restart. And there will be a number of twists and turns, including some of the ones that you've mentioned along the way. As Andre said in his prepared remarks, we expect China to continue to contribute at a meaningful level over the middle- to long-term. But everything looks reasonably positive and constructive. Andre, do you have any other perspective on that?

No, I think you said it. I think the other component we're not yet seeing is any return of Chinese consumers to travel retail. That is a significant negative for us in the SK-II business specifically. So that, hopefully, we see a more positive trend there in the near future. That's the only other upside that I think we have. But as Jon said, I think the recovery at 2% organic sales in the quarter is very consistent with what we would have expected.

The next question comes from Robert Ottenstein of Evercore ISI. Please go ahead.

Thank you very much. I would like to clarify some of the numbers before asking my main question. You mentioned that the sales mix positively impacted sales but had a slight negative effect on gross margins. I'd like to understand that better. My main question is about the U.S. business and the U.S. consumer. You noted improvements among U.S. consumers, so any additional details on that would be helpful. Also, could you provide an update on pricing in the U.S.? What did you see in the last quarter, how much more is expected in the next quarter, and what kind of impact have you observed? Any specifics on that would be appreciated. Thank you.

Good morning, Robert. The connection between gross margin and sales is influenced by product mix. When consumers engage with our P&G portfolio, they tend to choose higher-value items. This trend has been consistent over recent quarters. As they opt for higher unit sales, it positively impacts our top line. However, while these higher unit sales items yield greater total profit, their gross margin percentage is somewhat lower. For instance, in categories like adult incontinence and fabric care, single unit doses compared to liquid detergents show lower gross margin percentages but higher unit sales and unit profits. This results in a favorable effect on both the top line and the bottom line, even though the percentage mix is lower. The U.S. consumer seems to be holding up well. Our observations indicate that consumers are still favoring P&G brands. We're gaining volume share in a market that is experiencing volume declines and we've seen absolute volume growth as well. There's been a consistent growth of 90 basis points in value share, along with 40 basis points growth across different periods. We also observe that private label shares have remained steady at 16%, showing no significant movement in the past several months, indicating we don't see any substantial trade down among consumers. We are monitoring this closely, and much of this stability is driven by our focused strategy to enhance product superiority. We continue to make investments in innovation and product packaging and are increasing the frequency and reach of our communication where we believe it will yield good returns. We're also collaborating with our retail partners to ensure that the presentation of our brands both online and in-store remains strong. Lastly, our supply chain and on-shelf availability remain stable, which supports our overall market position. I would characterize the situation as stable, but we are keeping a close eye on it.

And just one additional point, the 6% top-line organic sales growth that the team delivered in the quarter, and as Andre said, sales share, value share growth and volume share growth, we still have a couple of categories where we are not supplying full demand. That will be resolved fairly quickly. But as you consider the strength of the U.S. consumer, if you look at those key measures and realize that while there are both opportunities and risks within the number, there are opportunities as well as risks, which continue to indicate a relatively healthy U.S. consumption pattern.

The next question comes from Peter Grom of UBS. Please go ahead.

Thanks, operator, and good morning, everyone. So, I wanted to ask about the changes in the commodity and freight outlook. Second straight quarter that these headwinds have moved lower, which is nice to see. Can you maybe just give a sense what you're seeing within that bucket? Where are costs moving lower? Where are costs still sticky? And while I don't expect you to comment on '24 at this point, but maybe just conceptually how you see inflation evolving as we look out over the next 12 to 18 months? Thanks.

Good morning, Peter. Freight is currently stable, as noted in our prepared remarks. We anticipate that our freight, transportation, and warehousing costs will be similar to last year. This stability reflects a more balanced capacity situation, with the driver to load ratio moving back to historical norms. Given the fuel prices and other factors, I do not foresee any significant changes ahead, but we are at least stable. In terms of commodities, we see a mixed picture. We are benefiting from some improvement in resin-based commodities and some support in pulp, although that is tempered by planned and unplanned mill shutdowns for maintenance. However, for high-energy materials like caustic soda and ammonia, prices have increased. Thus, the moderation in costs is limited and inconsistent across the board, with only $100 million after tax being apparent at this time. We are also experiencing pressure in the supply chain, as our suppliers strive to recover their rising input costs and labor inflation, leading to ongoing discussions. As mentioned at CAGNY, some of these contracts will roll over in 12 to 18 months, meaning these challenges and discussions will persist. Overall, we expect spot rates to remain stable, which underpins our planning for next year and our guidance for this year.

The next question comes from Andrea Teixeira of J.P. Morgan. Please go ahead.

Thank you. Good morning. How should we view the potential growth in Beauty? Both Jon and Andre briefly mentioned that travel retail could be a growth area in Asia. What about other factors, such as the impact of the triple pandemic and the benefits you saw in healthcare? It appears there have been recent advantages in digestive health as well, but how should we assess the other segments? To clarify, the embedded organic growth in the fourth quarter is at 4%. However, it seems, as Andre noted, that your volume exit rate may be flat, considering the potential risks in Europe. Should we expect a higher quality in organic delivery, meaning that despite a 300 basis points slowdown on a sequential basis, volumes could remain stable or only slightly decrease, along with a 4% price component? Thank you very much.

Hey, Andrea. On the category specific questions, yes, we see SK-II as a potential beneficiary of travel retail reopening. Overall, SK-II is recovering well outside of that channel. In China, Mainland, we saw 8% growth in the quarter. In Japan, we saw 46% growth in the quarter. But the overall results are still held back by travel retail. So, I think we will see a sequential improvement, but there are many gives and takes in the overall Beauty Care sector. So that needs to be seen in context with a lot of other dynamics that are going on around the world. On the Personal Health Care side, we continue to be very pleased with the results the team is delivering there. And we see sustained growth in this space across respiratory, digestive, nerve care. There are many parts of that portfolio that have very high growth potential. And in some of these areas as we've talked before, we're still held back by supply constraints, which might provide upside in the future. But again, we have a combination of 10 categories across multiple markets. Some of them will do well in a period of time, some of them will be held back by negative headwinds. So, we continue to strive for a balanced top- and bottom-line growth picture. It will be driven by different parts of the portfolio over different times. From a volume versus price component standpoint, what is important to understand is quarter four, we will start to lap price increases for the first time. So, we had about 8% of pricing in the base. So that will be a negative headwind to the top-line growth in quarter four. And while we see stabilization of volumes, I would expect that there still will be negative volume component to the growth in the near future. We have still in the Russia portfolio being with us as a negative headwind. China is slowly recovering, but not yet in positive territory from a volume perspective. And as I mentioned earlier, the European consumer is under a lot of pressure with private label pricing not yet following the branded competition in those markets. So, pricing will come into the base. That will be a headwind to the top-line. I would expect there's still a negative volume component in quarter four.

Yes. It's important to note that we've recently adjusted pricing in both the U.S. and Europe. I do not believe that the current quarter's data reflects the potential impact on volume from these pricing changes. Therefore, I expect volume recovery to gradually improve over time, although it will not happen immediately.

The next question comes from Filippo Falorni of Citi. Please go ahead.

Hey, good morning everyone. Thanks for the question. Jon, clearly you've gone through a lot of transformation over the past five, six years that the company bought from a portfolio standpoint, organizational standpoint, superiority. Can you help us understand how you think internally these changes can help you navigate a potentially weaker consumer environment if what we're seeing in Europe were to extend into the U.S. and some other parts of the world? Thank you.

Sure. I appreciate the question. What I find compelling about the strategic decisions we've made and our current approach is that it represents the strongest strategy I can conceive of. This strategy remains relevant whether we are in a strong or challenging economic climate. For instance, our emphasis on embedding productivity into our core values is beneficial in both scenarios. The significance of delivering superior products to consumers holds true in both positive and negative economic conditions. Our focus on daily-use categories, where performance influences brand selection and excellence exists across product offerings, packaging, communication, market strategies, and value for consumers and customers, is something I wouldn't alter even if circumstances change. Naturally, there might be minor tactical adjustments, but the overall strategy positions us well, especially if we face a tougher economic situation.

The next question comes from Olivia Tong of Raymond James. Please go ahead.

Great. Thanks. Good morning. I wanted to follow up on pricing, especially the new pricing. Have your views on elasticities compared to previous pricing rounds changed or remained similar? Also, can you compare markets where pricing is now starting to lap with those where you're still implementing price hikes? What are you observing, particularly now that you're noticing some modest volume growth in the U.S.? Thanks.

Good morning, Olivia. The latest pricing changes took effect in February and March, particularly noticeable in Europe and the U.S. As Jon mentioned, it's challenging for us to assess the outgoing elasticities at this time. However, I can confirm that the elasticities are stable and favorable. This stability is also a result of ongoing investments and continuous innovation. Most price increases are tied to meaningful innovations for consumers, which ensures retail support. We have focused on strong value communication, as seen with products like Ariel Coldwater, Tide Coldwater, Charmin rollback, and Olay value communication. This is significant for consumers, especially when they feel financial pressure. Many of our products are in categories where consumers prefer to avoid mistakes; they don't want to wash their clothes twice or experience diaper failures. All these factors contribute to the favorable elasticities we are observing. The key takeaway for us is that, as demonstrated in Q3, we need to maintain our level of investment and seek opportunities where our value is at risk. For instance, in Europe, private label pricing has been increasing at a slower rate than branded competitors. It's crucial that we uphold our investment levels to sustain our value proposition. In areas where we experience pricing lapping, along with a robust portfolio and effective innovation, we are seeing favorable outcomes. The U.S. exemplifies this, as excellent execution in the market, paired with a strong portfolio and innovation, is yielding positive results and contributing to market growth recovery.

The next question comes from Chris Carey of Wells Fargo Securities. Please go ahead.

Hi. Good morning. Can you discuss your strategy in Europe? You've mentioned that European private label has postponed price increases several times during this call. We've heard similar remarks from others in the Staples sector. If the price disparity in private label remains significant, will you accept the new level, or will you take action to address it and close the gap? I'm referring to Europe specifically, but also as a way to gauge potential price competition that could emerge globally in the coming months and quarters. How do you plan to navigate through such dynamics? Thank you.

Yeah. I'll start, Chris, and then I'm sure Jon will add. I think the team is accepting the reality of an extended or expanded price gap versus private label as the challenge they need to deal with. And as Jon frequently says, we wake up every Monday morning and deal with the reality in front of us. This is a reality we need to deal with. So, what that means is we need to create innovation. We need to create product and packaging innovation, communication strategies and in-market executions that are able to provide value to consumers and retailers. And that's what we're focused on. I don't think that trying to eliminate the price differential is a meaningful and helpful strategy for us. But if we can generate growth via innovation and via superiority, that's both helpful for us and the market, and the path forward we're choosing.

I couldn't agree more. And frankly, while Andre rightly points to a difficult consumer environment, if you look at our results thus far in Europe, they're very encouraging, not just in the last quarter, but through last fiscal year as well. We're achieving growth rates in Europe that are higher than we've seen in a long time. And so, now is not the time to back off. It's time to move forward and strengthen the execution, just as Andre described. That doesn't mean we have our heads in the sand. We've made several adjustments to price gaps, not just versus private label, but versus branded competition as we've gone through this period of pricing, and we need to continue to be sensitive to that. But first and foremost, we need to delight consumers and customers with the offerings that we're bringing to market and go from there.

The next question comes from Jason English of Goldman Sachs. Please go ahead.

Good morning, everyone. Thank you for having me, and congratulations on the strong results. I have a couple of quick questions. First, regarding pricing, could you provide more details about the breadth rather than just the magnitude? When combining everything, what kind of organic sales contribution should we anticipate at the consolidated level moving forward? Secondly, I appreciate the reinvestment back into the business for SG&A. However, there has been a significant sequential change in SG&A, both year-on-year and in terms of the dollar increase. Could you explain where the additional investment is being directed?

Yes. Good morning, Jason. The most recent pricing changes are consistent with previous ones but are customized for the market. I would estimate that the latest increase falls in the mid-single digits range. Over time, pricing should become a factor contributing to revenue growth, though not the only factor. We need to reach a balance in the market in the coming quarters to achieve modest volume growth and for pricing to help restore these categories to mid-single digit growth. That is our goal. Regarding SG&A, much of our reinvestment is influenced by the timing of innovation, determining when the right initiatives are ready to be implemented. This is also related to pricing timing, focusing on how and when we can support our brands while adjusting prices and driving innovation. Recently, our management team has concentrated on our effectiveness in Europe to see how far we can push, particularly in media and communication regarding value messaging across the region. This has been a significant focus for us over the past three to four months.

I want to emphasize that our category leaders influence the level of investment we make at any given time. In the past, there were instances where we couldn't fully meet demand, and those situations required us to invest in awareness without increasing that investment due to supply limitations. However, as we entered a better supply environment last quarter, we were able to resume spending at a level we can support. This is part of the overall dynamic, alongside what Andre mentioned.

The next question comes from Mark Astrachan of Stifel. Please go ahead.

Yes, thanks, and good morning everyone. Wanted to ask sort of related two-part question more about the U.S., but I suppose you could talk globally if relevant. How sticky do you think this strategy of irresistible superiority is in terms of volumes? Obviously, we see that you're gaining share if you look at the U.S. So, you're effectively trading consumers to higher-value products that work better than peer sets, right? So, it would suggest then there's a stickiness here that perhaps didn't exist in kind of prior cycles. So, I'd be curious how you think about that and how it flows through from a volume standpoint going forward? And related to that on just the volumes, what's your best guess as to why volumes are down from a consumer standpoint? Is the pantry destocking, unloading? Does that imply that they're potentially as reloading at a later time if and when consumer sentiment improves? Thanks.

Hey, Mark. I'll take the first crack. I think the concept of irresistible superiority is: A, dynamic and must be dynamic; and B, is relevant across value tiers. So, as consumers get more careful with their spending for example, that just means we need to double down on our view of what superiority and some of our lower value tiers means. So, if you think about diapers in the U.S. for example, we have Luvs, which is about half the price of a Swaddlers diaper. And that means that we need innovation on Luvs, because we're now competing with private label and we need to make sure as consumers look for value, that brand can stand on its own from a product, packaging, communication and retail execution standpoint to provide value to those consumers. So, it's really not a strategy that by default drives trade up. It's a strategy that follows the consumer and is grounded in what the consumer needs and wants over time, so if we get more stress, that just means we need to double click on the type of innovation and investment we need. From a consumption standpoint, as pricing goes into the market, we generally see consumers reacting with what you've described. If there are pantry inventories available, they, for a period of time, draw down those inventories. And recall coming out of the pandemic, I think Jon mentioned this earlier, there were increased pantry inventories available across multiple categories. So, I think that's part of the effect that we've seen. I wouldn't expect any major restocking because I think we're just returning to our normal levels. As supply stabilizes, it's kind of the COVID pandemic goes more into the past, I think consumers return to their normal behaviors. The other element we're seeing is more careful usage. If you're overall made aware of inflation in everyday media, every day, you look twice before you use another paper towel et cetera. And partially, that's part of our value communication, right? When we talk about Charmin rollback because the product is more absorbent and has more strength, we explicitly talk about the ability for consumers to use less. So, it's really driven in those elements. Again, I think the job that we have as market leaders in many of our categories is to drive volume growth back to sustainable levels. And there's many levers. We still have huge household penetration opportunities around the world in many of our categories. We can create new usage occasions, create regimen use across many of our categories. Those are the things we're focused on.

The next question comes from Nik Modi of RBC Capital Markets. Please go ahead.

Yeah, thank you. Good morning, everyone. I just wanted to follow-up quickly on China. Jon, maybe just given that you were there recently, just on the ground, consumer behavioral insights, like what are they going through right now? Are they just hesitating? And it's kind of like a choppy, 'Hey, maybe I'll check out outside and see if I get sick?' I mean, just any perspective on kind of how the consumers are actually behaving on the ground?

You can envision the situation many people are facing. There's a sense of confusion because for three years, I was warned that being outside was risky, and now I'm being urged to step out. I live in what is probably a small home, often with multiple generations, and I want to ensure I don't negatively affect my family. As a result, there is some hesitance and uncertainty. At the same time, I also feel a strong sense of freedom and hope. I remember being in Beijing one sunny Saturday afternoon, where the streets were bustling, and it felt truly joyful. I remain optimistic about the mid- and long-term prospects that China has to offer. A growth rate of 2% is certainly an improvement compared to the negative figures we observed over the past few quarters. However, I anticipate some fluctuations ahead. A little anxiety could hinder the resurgence of growth. My overall impression is positive, but I advise some caution in the short term.

Our final question comes from Edward Lewis of Atlantic Equities. Please go ahead.

Yes. Thanks very much. I guess, I'll just cover a little bit of ground, but I'd be interested just on the enterprise market performance. Just looking in particular at Latin America, I think you said Andre somewhat 30% growth this quarter. And I think that'd be an acceleration around 20% in the first half. Assuming there's a healthy element of price behind that, but I'd just be interested here what's driving this improved performance in that region.

There is a very healthy element of pricing there like in every other region, because we're pricing not only for commodities but also pricing for foreign exchange rate exposure in all of these markets. I think the positive effect is the volume is holding much better than in some of our focus markets. The consumer strength is there. I think the overall strength of the brands is better than we've ever seen. In-market execution is better than we've ever seen. Retail partnerships are better than we've ever seen. So, all of that I think is contributing to a strong price component with a positive volume component and that drives the 30% results of Latin America.

Yes. Just for perspective, in our two largest markets in Latin America, Brazil and Mexico, as Andre is saying, we're seeing volumes high single digit. So, I don't want you to take away that all of the sales growth, as Andre has already said is pricing. It's a healthy combination. And I also need to give a nod to the team in Latin America who's just doing a fantastic job. I want to conclude with a few thoughts and reflections. First, I want to discuss our past and what it suggests for our future. Following that, I will provide more details about the quarter we just completed. If we had spoken three or four years ago and you had said to me that we would face a global pandemic with significant casualties, closed borders, restricted access to major markets, challenges getting our colleagues into manufacturing facilities, innovation centers, and sales offices, I would have found that daunting. You also mentioned the largest land conflict in Europe since World War II, combined with foreign exchange and commodity cost inflation that would deplete half of our earnings. You said we would see a major shift in consumer shopping behaviors in key markets, and afterward, struggle to get people back to work. My response back then would have been to question whether we could still achieve growth in both sales and profits, while also generating cash and returning value to shareholders. Without diving into specifics, I can say that our team has indeed accomplished this despite those challenges. Over the past four years, we generated $13 billion in additional sales and $5 billion in extra profit. Looking at our recent quarter, we experienced widespread sales growth, sequential improvements in shipment volume, market share advancements, a rebound in gross margins, productivity savings, and robust reinvestments in our top-line strategy, enhancing our competitive advantage and household penetration. If our investors are looking for those indicators, we delivered them abundantly in this latest quarter. Lastly, I promise this is my final point. We have discussed the genuine challenges that lie ahead, which are undeniable. Our commitment to serve consumers, customers, one another, society, and our shareholders remains unwavering. However, as has been the case, it will likely be somewhat unstable. We are adopting a long-term perspective. If making decisions that favor long-term success results in short-term challenges for our bottom line, we will proceed with those decisions. We will provide further details as we approach next year's guidance. For those considering the mid to long term, I believe we are well-positioned with a sound strategy and exceptional capabilities to effectively serve the stakeholders I mentioned. Our focus is on long-term results, not just quarterly outcomes. Thank you.

Thanks, everyone.

That concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.