Good day, ladies and gentlemen, and welcome to the Clorox Company's Second Quarter Fiscal Year 2017 Earnings Release Conference. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Mr. Steve Austenfeld, Vice President of Investor Relations for The Clorox Company. Mr. Austenfeld, you maybe begin your conference.

Great. Thank you. Welcome, everyone, and thank you for joining Clorox's Second Quarter Conference Call. On the call with me today are Benno Dorer, Clorox's Chairman and CEO; and Steve Robb, our Chief Financial Officer. We're broadcasting this call over the Internet and a replay of the call will be available for seven days at our website, thecloroxcompany.com. Let me remind you that on today's call we will refer to certain non-GAAP financial measures including but not limited to free cash flow, EBIT margin, debt to EBITDA and economic profit. Management believes that providing insights on these measures enables investors to better understand and analyze our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast's prepared remarks or supplemental information available in the financial results area of our website, as well as in our filings with the SEC. In particular, it may be helpful to refer to tables located at the end of today's earnings release. Please recognize that today's discussion contains forward-looking statements. Actual results or outcomes could differ materially from management's expectations and plans. Please review our most recent 10-K filing with the SEC and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans. The company undertakes no obligation to publicly update or revise any forward-looking statements. So with that said, we'll turn to our prepared remarks. I'll cover highlights of our second quarter business performance by segment. Steve Robb will then address our financial results and outlook, and finally Benno will close with his perspective and then we'll open up the call for questions. So let me start with volume and sales. As our second…

Hey, thanks, Steve, and welcome, everyone. Well, we're pleased to deliver another strong quarter of volume and sales growth, and I feel good that we're on track to deliver solid sales and earnings growth for the fiscal year. Turning to our financial results for the second quarter, Q2 sales grew 5% reflecting 8 points of volume growth, including about 2 points from the Renew Life acquisition and more than a point of benefit from pricing in international. These factors were partially offset by slightly less than 2 points of negative foreign currencies and about 1 point from unfavorable mix. Gross margin for the quarter increased 10 basis points on top of 210 basis points of growth in the year-ago quarter to 44.7% from 44.6% in the year-ago period, reflecting 140 basis points of cost savings and about 70 basis points of pricing in international. Our gross margin results also reflect 210 basis points of higher manufacturing and logistics costs driven by ongoing inflationary pressures and strategic investments to support our brands and our cost savings pipeline. Importantly, we're pleased to see margin improvement in our international business as the team continues to gain traction behind our Go Lean productivity initiatives. At 14% of sales, selling and administrative expenses were slightly lower than year-ago, reflecting ongoing productivity improvements. We continue to anticipate fiscal year selling and administrative expenses to come in below 14% of sales. Advertising and sales promotion spending was about equal to year-ago quarter, and importantly, our U.S. retail advertising spending came in at about 10% of sales, reflecting continued support behind our brands. In the second quarter, we delivered diluted earnings per share from continuing operations of $1.14, flat versus the year-ago quarter. As we mentioned in our press release, this quarter's earnings results include a $21 million…

Thank you, Steve, and hello, everyone. It's great to be speaking with you at the halfway point of our fiscal year 2017. The most important thing I want to leave with you today is that our 2020 Strategy continues to work, which is evident in our Q2 results and performance for the fiscal year to date. We had another quarter of very strong volume and sales growth with volume increases in all segments including international. Our marketing support continues to be strong, including significant support behind a number of meaningful product innovations during the first half of the fiscal year and more to come behind a strong innovation pipeline in the second half. We had healthy gross margins on top of strong margin growth in the year-ago quarter despite inflationary pressures and substantial brand building investments. Excluding the $0.11 noncash asset impairment charge Steve outlined, earnings per share were up strongly on top of 18% growth in the year-ago quarter. We're very pleased with our financial performance for the quarter and for the first half of the fiscal year. From a strategic standpoint, I'd like to highlight two areas, our focus on portfolio momentum and our focus on improving profitability in our international business. Starting with portfolio momentum. As a reminder, this is our strategy accelerator for making more differentiated investments in businesses that have a strong right (25:20) to accelerate growth with a focus on increasing household penetration for the total Clorox Company portfolio. And this focus is clearly working, as we are getting more of our products into consumers' homes than ever before. In fact, over three-fourths or 75% of our businesses have growing or stable household penetration and this is more than twice as many as when we started the 2020 Strategy three years ago. This clearly…

Thank you, Mr. Dorer. We'll pause for a moment. And we'll first hear from Jason English of Goldman Sachs. Jason English - Goldman Sachs & Co.: Hey, guys. Thank you for squeezing in the question. Congratulations on strong results this quarter. Not a lot of conversation around the competitive intensity that you've focused so much on the last couple of calls. So I was hoping you could update us in terms of what you're seeing out there in terms of the competitive environment. And then related to your margin trajectory, there was some concern that the investment, the re-inflation could cause some degradation. I see in your margin bridges that commodities or market movements on commodities remain a modest tailwind. If you could enlighten us in terms of what you're seeing there on the forward, I'd appreciate it. Thank you.

Yeah, Jason, why don't I take the competitive question and Steve will answer your questions on margins. So competition really unchanged. Remains elevated, certainly in the three categories that we've mentioned in the past: disinfecting wipes, trash bags and cat litter. We think that it'll remain elevated near term as commodities are still somewhat lower and as there just remains a lot of activity in these categories. Now, what's important, though, is that we're winning in all three categories. With wipes, we're seeing double-digit growth and certainly shares are very healthy. In trash bags, we're seeing a rise in sales, in particular in the premium segments, and the market share also in the premium segment of OdorShield products is up. And certainly litter now has become somewhat of a share growth engine for us behind the Fresh Step with Febreze innovation which is off to a great start. We're feeling good about where we are there. So we like the performance in these three categories despite the continued heavy competitive activity. And importantly, we're driving the businesses in these three categories the right way. So while we're responding tactically on the trade promotion side to send the right signal, as a reminder, quite a bit of the trade promotion spend that we have in these three categories is going towards trial and speed to shelf on the innovations. So that's at the end of the day what our strategies are focused on, investing in brand equity building activities that have an eye on profitable and sustainable long-term growth and in investing in innovation. And we have really nice innovation in all categories in the back half. Wipes, Steve Austenfeld talked about the Scentiva line, which is off to a good start with customers. On trash, we're launching a kitchen bag that we like. And on litter, we're doubling down on the innovation that we've launched last year with a new fragrance on Fresh Step with Febreze that we call Hawaiian Aloha. That's a fragrance that's done very well for us in Glad trash bags. And we have a new packaging innovation that is a trade up and a margin premium for us. So we feel good about the plans that we have in all three categories despite the fact that competition remains elevated. And with that, Steve is going to comment on margins.

Yeah, thanks, Benno. So, Jason, on the margin, first let me just say that we're certainly pleased with the margin progress we saw in the second quarter. Our gross margin, of course, was up 10 bps on top of 210 bps in the year ago. And from an operational standpoint, I was very pleased with the operating margins in the quarter. And just looking forward, as I said in my opening comments, we do continue to anticipate even margin expansion for the full year of 25 to 50 bps. And there's a couple of reasons for that. One, cost savings continues to do very well for us. We feel like we've got very good plans in place to lower our selling and administrative costs as a percentage of sales, and I think you'll see that as we go through the year and it will driven by a combination of productivity and more normalized levels of incentive-based compensation. And we're also, as a reminder, going to be lapping a number of one-time items in the fourth quarter year-ago, including the step-up costs on the Renew Life acquisitions. So for a large number of reasons I think we feel like we're very much on track to deliver a good expansion of margin. But I think what you'll see is a meaningful increase in EBIT margin in the fourth quarter and you'll also see us rebalancing our consumer demand-building investments between the third and the fourth quarter. And really, that's just to fully support our new products that we've recently launched and we think there's a great opportunity as they hit shelves to really get the advertising online and start leaning into that. So, overall, feel good about margins and things are unfolding about as we expected. Jason English - Goldman Sachs & Co.: Thank you. I appreciate it. I'll pass it on.

Our next question comes from Bonnie Herzog of Wells Fargo.

Hi, everyone.

Hey, Bonnie.

Hi. I have a question on the sequential improvement in your price mix in the Household segment in the quarter. What drove that? I guess, it doesn't appear there was really a lot of pricing taken in the quarter, so was this driven more by a pull-back in your promo activity, possibly in trash bags?

Yeah, I think, well, from a pricing standpoint, overall, I would say most of this is really being driven by premium innovation. If you look at the Glad business, we continue to see margin improvements over the long term really being driven by a shift to the premium side of that business. And I think also I would point out in the quarter as you look at the segments, our international business had a really nice step-up in margins behind our Go Lean business. So overall, it's the things we've talked about that are driving margins plus some nice improvements in a couple of these segments tied to innovation, our Go Lean programs and other actions that we're taking.

Okay. Thanks for that. And I just had a couple of quick questions on Renew Life. Benno, you mentioned you've expanded distribution for Renew Life, but could you provide a little more color on that and where you're at with this opportunity? And then separately, we've seen a lot of media and advertisement surrounding probiotics. So I guess I'm curious to hear how you guys perceive the competitive environment in this category right now and whether it's becoming more or less competitive. Thank you.

Yeah, thanks, Bonnie. So as we said, Renew Life is ahead of expectations for the fiscal year. That's to, not just for earnings per share, which we've mentioned earlier but also in terms of sales and margins. The integration certainly is well on track and like you commented on, we're getting distribution wins with major retailers and we expect that to continue. And that was our hypothesis when we bought this business that, this would be such a good fit with our capabilities in so many ways starting with distribution. And just to name a few in food, we got distribution wins with Albertsons-Safeway, a major food retailer. In drug we're seeing distribution expansion with Rite Aid. And in Mass, we're seeing major wins with Walmart. So it's really across the board. Which tells us that our capabilities are very relevant in this area. And we'll begin supporting these wins with a brand new marketing campaign later in the fiscal year that we're excited about and we're starting to ramp up innovations in the fiscal year back half and certainly expect more to come. So we feel good about the acquisition and it's an example of how we want to operate. We want to keep the core of the business healthy while putting our cash to work if the right opportunity comes along. So the category, of course, commenting on your competitive remark, continues to be growing very nicely and it's a very fragmented category still at this point. So we think that this is going to continue, but the tide is certainly increasing, so right now I look at competition in this category and at advertising in this category as a real positive thing, because awareness and trial behind these categories in the grand scheme of things compared to be some of the other categories that we're in is really low. So this is a good thing and hopefully, obviously also we expect that as we think about the competitive environment, at some points, probably not in the next few years, but at some point there will be more consolidation in this category because it's very fragmented. And our hypothesis is, as we typically do well in other categories, that once this consolidation happens that our company and our brand is going to be a winner. But at this point, competition is good because it raises awareness and trial and at some point, it will be more cannibalistic and there will be winners and losers and we'll do our part so we can be winners.

All right. Thank you.

Next we'll hear from Olivia Tong of Bank of America.

Thanks. On gross margin, the mix has been fairly negative for a few quarters but you didn't call it out this quarter. And obviously, we know about wipes but what was the impact of mix overall to gross margins? And are there any other big movers in addition to wipes?

Yeah. Well, when you look at the – and if you go out our web attachments, you'll see that the all other category, which does include mix, was actually, was nice. It was about flat this quarter. I guess the two things that are worth calling out, first is the incremental distribution of disinfecting wipes at Costco. It's a great piece of business. We're very happy to have it. But there is a bit of a negative drag on that. We'll be anniversary-ing that as we go into the fourth quarter. So that's in the number. But it's being offset by business mix. We were just saying some of our higher margin businesses were growing a bit better in the quarter and as a result it kind of washed that out. I think you're going to see variability in that line item of gross margin as we move through the quarters. But on balance, we certainly feel good about the results for Q2.

Got it. Thanks. And I don't how frequently you measure this but is your availability at Costco and wipes helping to build trial and consumption in anyway?

Yeah. The best way, Olivia, we love to look at this as household penetration. And household penetration over the last year on this business is up almost 20%. So I'd would look at that as a clear signal that, as anticipated, what the club distribution improvement has done is expand the reach of this category. And I'll remind everybody that the total wipes category household penetration is still only at about 50% and the way we look at this is that there's plenty of room to grow. So even though as Steve mentioned, it's a little bit of a negative mix hit that will cycle through in Q4. This is a very good thing for us in the long term and it helps increase the reach in a category that's hot and that we expect to continue to do well even as we will anniversary the distribution win at Costco.

Got it. Thanks. And then just two last questions. First, the Household business, while the mix got better, the margins or the profit margins on that came down, so can you talk about what's driving that? And then also, you mentioned certain businesses have a bigger online presence than others. I imagine Burt's is one of them, perhaps Brita, but probably less so for Kingsford and bleach, but maybe could you give a little bit more color in terms of which of the businesses have the bigger online presence? Thank you.

Yeah, maybe I'll start there and then Steve can comment on margins. So as you'd expect, so while we don't necessarily comment on all businesses and the presence online, but businesses that skew younger and businesses that from a logistics point of view are a little advantaged like disinfecting wipes, Brita, Burt's Bees, also Renew Life, they're doing very well. But also businesses that have somewhat of a regular purchase pattern like Glad trash bags, as Steve Austenfeld commented on earlier on have done extremely well. So we're seeing strength on this business across the board with businesses that skew younger, like Burt's Bees and Brita, perhaps leading the way as a nice little sound bite on this. Amazon.com on Brita is now our number four customer. So it tells you that that's a business that's doing particularly well and perhaps where the performance in tracked channels that you all are following is not telling the whole story of how that business is really doing. And then, Steve, can perhaps take your point on margins in Household.

Just turning to the Household segment, I would say actually broadly defined by the way, we saw some nice more margin expansion in a couple of our businesses, including charcoal and litter. The one business I would point to is our Glad business. Now, again, we feel great about the strategy to trade consumers up to the more premium segment, which as a reminder is margin accretive to the company. But the margins were down in the Glad business. Part of this is just a reflection of the firming up of commodity cost, but I think the larger component is really the competitive activity that we've talked about for some time in that category and the step up in investment. So I would say overall the business is healthy. Our strategy to drive premiumization in the category is working but there's a lot of competitive intensity and spending around that and that's really what impacted margins this quarter.

Great. Thank you.

Next we'll hear from Bill Schmitz of Deutsche Bank.

Hey, guys.

Hey, Bill.

Hey. The first question I have is if you look at the manufacturing and logistics line on that gross margin bridge, it looks like there's been like 700 basis points of aggregate compression since 2012. So can you just explain what that really is and maybe if there's anything you can do different, like automation or factory closures or something to reverse that level of decline? And then I have a follow-up please.

That's a good question, Bill. Really what you're looking at over the very long-term is inflationary pressures. Keep in mind, we operate in many countries around the world that are experiencing much higher rates of inflation than the U.S. So what you're looking at is a combination of U.S. domestic inflation as well as international inflation. I think that's the largest part of it. Now more recently, you've seen that number increase beyond the historical trend and that's because we've made some choices to make incremental investments to support our cost savings programs, to support margin accretive innovation, to support capacity expansion behind some of our faster growing businesses. I think as you look into the next couple of quarters, at least our plans call for that number to come down a bit but, to be clear, the inflation will continue. And I think the best way to get after that is to keep doing what we're doing, which is drive the cost savings, tightly control our selling and administrative expenses as a percentage of sales, take pricing where it makes sense and where it's cost justified. And as we've said for some time, if we can control the controllables, I think over the long term we'll do well on margins.

Okay. Great. And then the follow up, the $0.11 impairment charge which is embedded in the guidance, it looks like the broad strokes on the guidance, except for the stock-based comp change, is pretty much the same. So I'm trying to figure out how you're making up for that shortfall in the back half unless you already always knew that the impairment charges come in this quarter? And then unrelated follow-up, can you just tell us what percent of sales are e-commerce now and how fast they're growing in aggregate?

Yeah, let me start with your first question. And let's be clear, we did not know about the impairment charge. As I had mentioned in my opening comments, this is related to some communication activity that occurred in mid-December. Okay? And in terms of how we're offsetting this, again, something I opened up in my comments, there's three things I would point you to. The first is just the strength of our base business. I'm very pleased that we've grown 4% in incremental sales growth in the first six months of the year. That's actually about 6% on a currency neutral basis. Our Renew Life acquisition that Benno commented on is actually doing quite well. And while it's early days, we're running ahead of our first-year expectations and that's certainly going to help. And then finally as a part of our international Go Lean efforts, not only are we starting to get traction on our margins but, as you know, we want to not just improve margins on that business but we want to drive economic profit. And one of the best ways to do that is to take a hard look at your asset base and make sure you're the highest value owner. And so as a part of that in the third quarter I'm pleased that we're selling some real estate. And not only will that generate some nice cash flows for our shareholders, Bill, but that will also throw off a one-time gain of about $0.05. So those are three things that I would point out that are a bit different than our previous outlook. And overall, I think we feel pretty good about the performance of the quarter and the year.

And then, Bill, I think you asked about e-commerce. It's now north of 3% of total company sales and it's growing at a 30% clip. So well on track.

Great. Thanks so much.

Next we'll hear from Jonathan Feeney of Consumer Edge Research.

Thanks very much. Just a couple of questions. When I think about volume clearly coming in, you talked about price mix being pretty nice, at least sequentially, and volume coming in which clearly has to be maybe somewhat better than expectations. I'm trying to understand why maybe there's not a little bit more natural lift to the gross margin line. I get reinvestment at the SG&A line. So it'd be my first question, like what are the big pieces for that across the company? Because you said price mix was positive. And then secondly, I was kind of blown away to see charcoal as a callout in December. A pleasant surprise here in front of the Super Bowl where I'm going to be smoking some meat. Can you frame the relative size of that business typically in Q2? And I know you called out some distribution gains, but is there something else trend-wise going on there? People buying, smokers getting trendy or something like that that could maybe create a permanent bigger base for that business going forward. Thanks.

Yeah, well, let me clarify my comments on charcoal. It was up nicely in the quarter, but it's off-season, okay? So it helped with the margins within the segment, I think that was the question, but I don't want to overemphasize the impact that charcoal was having on the quarter. As it relates to the margin drivers, obviously, we're feeling very good about the volume growth. Of course, included in that volume growth we do have our disinfecting wipes distribution at Costco which generates more volume than sales just because it's a lower price point, but it's still a very attractive business. Renew Life is also included in that. But I would again just reference you to the web attachments where I think we do a very nice job of really detailing out all the puts and takes on margins.

And then, Jonathan, longer term on charcoal, yeah, there are tailwinds and we're taking advantage of them. One thing we're seeing is that millennials are getting into grilling and they love charcoal. So right now the sale of charcoal grills is actually up. So remember about five years ago charcoal grilling was supposed to be dead and it was all going to be about gas grilling and that trend pretty much has reversed. So we think that creates a natural tailwind. People love grilling. Increasingly, people love grilling year-round. You mentioned Super Bowl and there's certainly certain states around the country where weather-wise charcoal grilling is very feasible year-round and we're taking advantage of that trend. For instance, with partnerships that we have with the NFL and ESPN, but also other things that we're doing with retailers to encourage impulse purchases pretty much year-round. Even though, as Steve said, Q2 is a smaller quarter, but as we now start to get into the season again in the spring, we certainly feel good about the plans that we have in place with retailers to continue to leverage that tailwind that we have in the category.

Thank you very much.

Next we'll hear from Ali Dibadj of Bernstein. Ali Dibadj - Sanford C. Bernstein & Co. LLC: Hey, guys. Just a few things. One is, if you go in and exclude the impact of the better-than-expected Renew Life and then the expansion of wipes in Costco, is it fair to now say that the underlying organic sales growth was something like 3%? Almost 3% I guess is the math that I get to, not quite. And how does that work longer term in the context of your 3% to 5% organic sales growth target, given everything you're investing in right now?

Well, Ali, for perspective, let me take the first part of that. Renew Life contributed about 2 points to growth for the company in the second quarter, so if that helps you do the math. I would just say longer term we continue to feel good about the 3% to 5% top-line sales growth. The biggest challenge, as you well know, over the last year or two has been currency headwinds. Now, we do anticipate those are going to be maybe a bit less than what we've been seeing. Time will tell. And if that's the case then I think you should see the sales growth for the company, as long as we continue to deliver good momentum, which we believe we can, I think we can be solidly in the 3% to 5% over the long term. Ali Dibadj - Sanford C. Bernstein & Co. LLC: Okay. I was talking about organic sales and you have to add the 1% back roughly from the wipes to get you to the 3%, but I get where you're coming from. On margins, so the 25 to 50 basis points EBIT guidance, I get the $21 million Aplicare. I get the somewhat of a reversal from the international sale of real estate. Renew Life getting a little bit better. But it still feels like there's a hole to plug, especially if the A&P is going to be flat between R&D and SG&A. And you mentioned a couple times even a couple of quarters ago that's where the back half of the year, we would see the SG&A come down significantly. It feels like it's going to be very significant. So I want to get a sense from you how much you expect SG&A, R&D together to come down in basis points roughly in the back half of the year. And you guys have always been very, very thoughtful in terms of your benchmarking. Can you give us a sense of where you think an endpoint might be longer term for at least the SG&A part of that?

Yeah. So you have a lot in there. Let me try this, Ali. Starting with the S&A. As we have said I think for some time, we anticipate getting that below 14% for the full year. I think we're making good progress against that. As you look at the latter part of this fiscal year, particularly the fourth quarter, we've got two things, as I mentioned earlier, that are going to work for us. First is just ongoing cost savings and productivity and then the second is going to be more normalized levels of incentive-based compensation which were elevated last year because we had a fabulous year. And I think everybody felt very good about those numbers. So those are the reasons we believe SG&A is likely to continue to come down. For absolute clarity, the other things that I would point to particularly in the second half is, again, about a $0.05 gain associated with the sale of some real estate in international. And, again, Renew Life, this is a full year number but it had been anticipated to be $0.05 to $0.07 diluted. We now think it's about flat, call that about a $0.06 change. So those are the big drivers that I would call out. Ali Dibadj - Sanford C. Bernstein & Co. LLC: Okay. So you've made that clear. I'm just suggesting that SG&A is going to have to come down a lot more. Okay. Then last thing is on international, clearly margins got better there, the business got better quite a bit. Can you just describe the actual actions, besides the real estate sale, which I understand the impact on EPS, what kind of changes are you making in that business just on an operational execution level? As detailed as you can get. Thank you.

Yeah, thanks, Ali. We're really encouraged by the progress in international, profit up 27% in Q2. Specifically, I would say we have talked about the bottom line actions for a while and we dubbed that Go Lean and the specific actions we're taking on pricing, making our operations leaner, and the Australia real estate sale is just an example of that. Making sure that we only spend against activities that deliver return. Employing our strong cost savings machine that you are very aware of from the U.S. also against international. And we're seeing that now really shine through. But also on the top line, I would say there are things that we're doing that are clearly helping. One is where the pricing that I described also leads to sales growth. Renew Life is working very well, in particular, in Canada. It's a very meaningful and profitable, mind you, contributor and has done extremely well since the acquisition. Investing in higher-margin future opportunities like Burt's Bees Asia, as I'm talking about shifting mix and shifting investments towards profitable items. We're feeling very good about the progress that we're making in Burt's Bees. And then Laundry certainly is quite a profitable business in international and we have innovation that we're driving in the Middle East and in Latin America that's quite successful. So that may serve as a few examples of specific activities that lead us to be in an environment that is certainly going to continue to be volatile and full of headwinds near-term. We're quite optimistic that Q2 will be perhaps the start of somewhat of a turnaround in international and that we'll see profit growth for the rest of the fiscal year and going forward. And as we've also commented on in the past, we're optimistic about this business in the long-term as Argentina, hopefully, will continue to do better as the government has taken all the right actions and that headwind turns more into hopefully a tailwind and importantly the strength of our brands and the operations that we have in international. Ali Dibadj - Sanford C. Bernstein & Co. LLC: Great. Glad to see that start turning. Thanks, guys.

Our next question comes from Joe Altobello of Raymond James. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Hey, guys. Thanks. Just want to go back to gross margin for a second. Obviously, a nice sequential improvement quarter-over-quarter. You did call out mix earlier as one component of that, but trade promo was included, obviously, in that other line. It was up pretty significantly last quarter. So curious what happened this quarter in terms of overall trade spend? It seems like it decelerated a little bit.

Yeah, that's a good question. You know, I would say, as we had planned, we stepped up the level of our trade spending in the quarter to support our brands. So trade spending was up versus a year ago in the quarter and again, that was per plan. And I think what you'll continue to see us do is invest heavily to get the trial and repeat on our innovation. So I think you'll see that trend continue into the third quarter as well as a step up in our advertising in the third quarter, in particular. And some of that will come out of the fourth quarter. We're just rebalancing the quarters.

I think, Joe, this is Steve Austenfeld, just building on Steve's comments. I would point to two things in that all other line that helped not be as dilutive as has been in recent quarters. One is that foreign currency wasn't as bad on a year-over-year basis as it had been previously, so that helped. And then secondly, the mix effect, which I think Steve talked about in response to an earlier question. Whereas we're still seeing some product mix related to some club volumes as we've discussed. We did have much more favorable business unit mix, mix across the franchise that helped us out there. And since you're looking at this gross margin reconciliation page and I appreciate you doing so and we've gotten a lot of questions on this. If you just fast-forward for a quarter or two and compare versus the second quarter, I think big picture – and there's always going to be movements across these different drivers, but for market movement, our prediction is it's going to start to be a little bit more dilutive, as we've said. We think commodities are probably going to rise after having certainly been a tailwind over the last year or so. But alternately, the manufacturing logistics line we think will become a bit more favorable. So gross margin may still be challenged for a little bit in Q3. Q4 may look a bit better, but that's the way I'd look at this table in terms of the major drivers on this, in terms of what may change going forward. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay. Thank you, Steve. And just one second one. In terms of the bleach category it sounds like obviously still a struggle there. One, did your shares hold up this quarter and two, what's the strategy to reaccelerate that category?

Look, if we look at sodium hypochlorite bleach, which is I think what you're referring to, Joe, our strategy has always been to trade up to the more profitable items and that continues to do well. Splash-Less is a very profitable and a higher dollar-ing, a category that's doing well and will continue to drive that. And then, when we talk about bleach, though, I'd encourage us all to continue to think about bleach also as a broader category. That includes bleach-based sprays. That includes toilet bowl cleaners. Those show up in Home Care. But if you look at those, those are all growing and in part we have record highs in some of those categories and we've had record highs for several quarters in a row. So I would argue that perhaps all the trade-up efforts that lead to higher sales and higher profits in bleach aren't fully reflected in the Laundry category progress, but that if you look at total Laundry and Home Care together, the bleach category is actually doing very well and our strategy in that is working. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Got it. Okay. Thank you, guys.

Our next question comes from Wendy Nicholson of Citi Research.

Hi. Just a couple of things. First of all, was the pipeline sale of Scentiva material at all in the quarter? Is that something we have to think about as we sequence second quarter going into third quarter? And then also on wipes, it sounds like you're going into a category which is awesome, but can you remind us when you went into Costco, did you replace another branded player or did they simply add to the category? Because I'm wondering if, as you come up on anniversary-ing that distribution, I know Costco is sometimes in and out with various brands, is there any risk to you losing any distribution there?

So to your first question, Wendy, Scentiva pipeline volume in Q2, the answer is no. So not significant. On wipes, this was a permanent replacement of the number two player in the category. There's always risk of distribution gains and losses in club, right, but in general we've done well and we don't expect to lose that business again because the business is doing very well in Costco and elsewhere. And as a reminder, the business, while we expanded distribution in club, also continued to do very well in food, drug, mass. In fact, the business for the most part was up double digits in food, drug, mass as we expanded distribution in club. And that just tells you that fundamentally the programs that we have to increase household penetration with strong marketing, with innovation and certainly with a little bit of trade promotion to counter the competitive activity as they lost distribution in club, is working very well and we continue to be optimistic about the prospects in wipes.

Okay. And in the context of wipes but also in a couple of other businesses where you've talked about unfavorable mix, I know there are a lot of moving pieces. But calling it out, hey this is the strongest volume growth we've seen in a really long time, it's also a couple of quarters where you're seeing more negative price mix than we have in a long time. And I just want to understand if you think there's been a change in the cost of doing business, or as we go into fiscal 2018, do you think we'll be looking at a scenario where overall price mix returns to being positive?

Yeah, it should normalize, Wendy. Certainly, again, wipes in Costco, that's a significant driver. If you look at volume versus sales, or net sales ratio across the segments, you can certainly see that the spread between volume and sales is most explicit in cleaning, and I would point to wipes as a significant driver there. And as Steve mentioned earlier, we're going to cycle through that in Q4 so that for fiscal year 2018, that mix headwind will go away.

Got it. Terrific. Thank you so much.

Next we'll hear from Steve Powers of UBS.

Great. Hey. Thanks. Just a few cleanups, if I could. First, back on the SG&A in the back half question, just to clarify, given the productivity and the normalization of performance-based incentive comp that you mentioned, is it fair to think about that line running kind of flat Q3 versus Q4 in dollar terms? Or do you still expect Q4 to remain notably elevated versus Q3?

I'm not going to get into that fine detail, but what I can tell you is this, is we fully expect that our selling and administrative expenses are going to be down on the year. Now you can go look at the first half fiscal year-to-date, look at the math, and then kind of run it. We typically true up some of those accruals in the fourth quarter so you might have more benefit in the fourth quarter than the third quarter, but, nonetheless, I think you're going to see those numbers in the second half, in total, come down year over year and that'll be a nice contributor to EBIT margin and should get the S&A line down below 14% of sales. That's certainly what the plan calls for and what we're executing against.

All right. Fair enough. And then you may have mentioned it but could you offer how much you returned to shareholders through repurchases this quarter? Any expectations going forward for further buybacks that may be in the second half outlook?

I think as we've said for some time, we'll periodically go into the market to offset dilution. We did a little bit this quarter. There wasn't a lot because, quite frankly, we're not seeing much option-exercise activity over the last quarters so there just hasn't been as much dilution to offset. I think on a go-forward basis, if you look at the company today, our debt to EBITDA on a gross basis is sitting at about a 2.1. So we're at the low end of the range. And as I mentioned in my opening comments, we're throwing off a lot of cash so I think over the next year or two, it's likely if we start to build up excess cash in partnership with the board, we'll have to look at either additional inorganic growth opportunities which we'll continue to look for, obviously, or some way of returning money back to our shareholders. But what we will try to avoid because it's not good for our shareholders or economic profit is building up cash that we just don't need.

Okay. And then lastly, just on the wipes discussion a moment ago, as you lap the Costco win and as you lap, as you said, a lot of activity in the category across all channels looking back over the last three quarters or so, what's the outlook for that category and for your business, again, as you're cycling all this?

Yeah, Steve, so like I said earlier, we expect this category to continue to grow and we expect our brands to continue to lead to sales growth in the category. So there are some things that we're lapping. Certainly, the Costco distribution win is one, but I will remind everybody that sales also in food, drug, mass and certainly in other non-tracked channels is up quite nicely. And I think you've heard us talk about Scentiva as the latest innovation that's been received by customers very favorably to date. We'll continue to support the business with innovation. We'll continue to support the business with strong marketing programs. And this is a business that continues to have a tailwind. Like I said earlier, household penetration in the total category hovers right at around 50%, and we look at that as glass half-empty and think we have a lot more to go given that household penetration in several of the other Home Care categories is significantly higher. And the reality is that the wipes product form is beginning to be the most preferred product form by consumers, and we're leveraging that tailwind. So expecting continued solid growth in the category even post Q4.

Perfect. Thank you.

Next we'll hear from Lauren Lieberman of Barclays.

Thanks. Good afternoon. I was hoping you guys could talk a little bit about Brita. I thought the conversation around coming innovation, particularly in filters was really interesting. So, one, is this the first time that you've had this sort of magnitude of innovation of news and so on, on the filters? Two, do the filters fit in existing pitcher? Does it come with a pitcher kind of trade out dynamic? And then three, are they generally at a price premium to what's in the market today? Thanks.

Yeah, Lauren, if you think back about the conversations that we've had with you and investors over the last year or two, we've always said that on the two businesses where we think we can do better, litter and Brita, we want to turn those around, but we want to do it the right way, meaning profitably and in ways that are sustainable. And certainly, in litter, we've done exactly that and we've also said that in Brita it would take time until we have innovation, and that time is now. So we'll invest in the back half quite significantly behind strong innovation plan, which has two components. First of all, what we call Brita Stream pitchers, which by the way, has Stephen Curry on packaging, which pops at shelf really nicely. And these pitchers address a barrier in the category and that's convenience. So you can filter as you pour and it makes the filter experience much faster. You can filter water about 10 times as fast as with traditional filters in the category. So great design, very contemporary and upbeat and filter as you pour. So I feel good about that. And then second, as you mentioned, Longlast filter, they last 3 times as long and are going to specifically target those consumers who aren't replacing their filters as consistently perhaps as we would like them to. The filter also removes lead, 99%, so we can make that claim, and it's a much better value compared to a branded and also on a relative term private label filters in the marketplace. So that, of course, addresses value as something that has held us back in share a little bit over the last few years in the category. And we expect that the two innovations together in addressing the two major opportunities in convenience and value should do quite well on top. We have a new ad campaign, again, featuring Stephen Curry, the NBA's MVP, that was very well received in premarket testing and that will go out into spring. So as a result, clearly we want this business to do better. It is doing much better in non-tracked channels than it is in tracked channels but we're feeling positive about the plans based on innovations both product as well as in other areas and the support that we get from retailers behind those.

Okay. Great. And, sorry, the new filter, sorry, the long-lasting filter, the one that removes lead, does that also fit in the new pitchers?

Yeah. I missed out on that. It does not fit with the Stream pitchers. That's a separate filter, but it does fit with all the other pitchers that we sell.

Okay. Cool. Thank you so much.

Thanks, Laura.

Why don't we take a question from one last caller?

And actually this concludes the question and answer session. Mr. Dorer, I would like to turn the program back over to you.

Yeah, thank you. In closing, we're very pleased with our results for Q2 and the fiscal year-to-date. And that, of course, reflects continued investments in support of our 2020 Strategy. Our strategy is working and we're staying the course with our focus on accelerating profitable and sustainable growth. So thanks again for joining us today, and we'll see you all at CAGNY. Bye, everyone.

And this does conclude today's conference. Thank you all for your participation. You may now disconnect.