The Clorox Company (NYSE:CLX) Q2 2016 Earnings Conference Call - Preliminary Transcript
Feb 04, 2016 • 01:30 pm ET
Thank you, Mr. Dorer.
[Operator Instructions] Here is your question from Jason English with Goldman Sachs.
Hey, good afternoon, folks. Thanks for letting me ask the question. You've been talking for a while now about the risk of stepped up competitive aggression, the need to maybe dial back or reinvest some of your prior price increases. Based on the tenor of your comments, it sounds like that may be becoming a reality now, with higher trade spend this quarter the caution of that and intense -- more intense competitive activity in the back half and the need to reinvest. Is that a fair statement and can you elaborate further in terms of the shape of the reinvestment?
What do you expect your PE to look like for the year? And as you step up trade spend, is there a risk that the price might actually reverse into negative territory for the US?
So Jason, this is Steve Robb, let me lead off on this. So, first to provide some color, just like we said at the end of the first quarter, we do anticipate stepping up the level of consumer demand, building investment pretty significantly in the second half, I think you're going to see a split for that investment, some is going to go into trade promotion spending. And then I think someone's going to go into advertising to dimensionalize it over the long term, we talk about advertising being at this 9% to 10% of sales level. I think it's likely will be above 10% in the second half of the fiscal year.
And a lot of this is to support our new products. One of the things we know is we've got these preferred products so if we can get trial, we get repeat. So you're going to see us continue to lean in on both the innovation as well as some of our base products. And then -- this then should start to ramp up as you move to the second half of the fiscal year.
So real quick, just to clarify the -- preparing for more intense in store competitive activity in the second half, is that a reality you are beginning to see? Or is this just the same cautionary language that we've been hearing from you for a while?
I would say, as we said, in the last quarter, we anticipated a step up in competition, because what we know is that when you build share quarter after quarter, typically the competition at a certain point leans back in. So at this point, we're starting to see a couple of categories, Glad where you've got lower commodity costs, people are spending back in the market. And so we think it's prudent to step up our level of investment in particular, because they've got good things to advertise. And we've got preferred brands, so we continue to anticipate it. We're seeing a little of it now. We'll have to see how the second half unfolds.