The Procter & Gamble Company (PG) Q4 2011 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. [Operator Instructions].

Good morning, and welcome to Procter & Gamble's Quarter End Conference Call. Today’s 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, P&G needs to make you aware that during the call, the company will make a number of references to non-GAAP and other financial measures. Management believes these measures provide investors valuable information on the underlying growth trends of the business. Organic refers to reported results, excluding the impacts of acquisitions and divestitures and foreign exchange where applicable. Free cash flow represents operating cash flow less capital expenditures. Free cash flow productivity is the ratio of free cash flow to net earnings. Core EPS refers to earnings per share from continuing operations excluding certain items. The effective tax rate on core earnings represents the effective tax rate on continuing operations less non-core impacts. P&G has posted on its website, www.pg.com, a full reconciliation of non-GAAP and other financial measures. Now I will turn the call over to P&G's Chief Financial Officer, Jon Moeller.

Thanks. Good morning, everyone. Bob McDonald and Teri List join me this morning. I'll begin today's call with the summary of our fiscal year and fourth quarter results, Teri will cover business highlights by operating segments then Bob will provide his thoughts on our strategy and focus areas going forward. And I'll conclude the call with guidance for fiscal year 2012 and the September quarter. We'll take questions after our prepared remarks and we'll be available following the call as always to provide additional perspective as needed. We entered fiscal year 2011 with 3 clear objectives. First, to continue executing our purpose-inspired growth strategy to touch and improve more consumers lives in more parts of the world more completely. Second, to grow market share by growing organic sales 1 to 2 percentage points ahead of underlying global market growth rates. Our third objective was to grow core earnings per share in the range of 7% to 9%. We delivered on each of these objectives despite significant external challenges, including the rapid increase in commodity and energy costs, little to no market growth in developed regions and market disruptions ranging from political instability in the Middle East and North Africa to the natural disaster in Japan. And we did this while strengthening investments in our innovation and advertising programs. First, relative to our strategy, we've accelerated the expansion of our product portfolio vertically, horizontally and to new geographies. We entered 32 new category country combinations last year. We entered 78 new category price tier combinations, and we entered 75 new category channel combinations. In additional, we launched a large number of important product upgrades across the world. Each of these moves enables us to serve more consumers in more parts of the world more completely. We generated strong organic volume growth…

Thanks, Jon. Given the amount of information we'd like to cover during the call, I'll keep business comment relatively brief, focusing primarily on the results in the biggest businesses. As Jon indicated, we delivered strong top line growth across our businesses this quarter and very importantly, we returned the positive price mix. We had request for a bit more perspective on market growth rates below the company level. In the last quarter, Beauty and Grooming market was up about a little more than 4%, while Household Care grew a little bit below 3%. This average is out to the underlying market growth of about 3% that Jon mentioned earlier. Now touching on each of the segments briefly. Organic sales in Beauty grew 3% and 2% organic volume growth. 2% positive pricing was offset by geographic and product mix. Within the segment, Retail Hair Care volume increased low-single digits with value share up nearly 0.5 point. Volume declined in North America were more than offset by mid single-digit volume increases in developing markets with Asia and Latin America both up double digits. In Latin America, Brazil had another strong quarter with shampoo and conditioner value share increasing more than 3 points and Pantene shipments growing more than 30%. Female Skin Care shipments grew mid-single digits with strength in developing markets, offsetting modest declines in developed markets. North America volume declined low-single digits, primarily due to the Olay UV reformulation and restage that began in the March quarter. We now have all Olay UV skewed back to full spot. In developing markets, Olay volume nearly doubled in India and Saudi Arabia and more than doubled in the Philippines behind Olay Regenerist and Natural White. Our Prestige business was mixed. SK-II grew high-teens with strong growth in China behind distribution expansion into 5…

Thanks, Teri. P&G is focused on touching and improving lives, now and for generations to come. This purpose is tightly linked with our financial goal of sustainably delivering total shareholder return in the top third of our peer group and it also informs our strategic choices. Our overarching growth strategy is to touch and improve the lives of more consumers in more parts of the world more completely. This is a demanding aspiration. There are nearly $7 billion people on the planet today and we want to reach all of them with products and services that make their everyday lives just a little bit better. This strategy is fundamentally right for P&G because it inspires our people and our partners, it focuses us on the greatest growth opportunities and it leverages our core strengths of consumer understanding, innovation, brand building, go-to-market capability and global scale. We know that if we execute this strategy well, we'll be rewarded with sales and profit growth, market share leadership, a strong company reputation that attracts partners, employees and consumers. Ultimately, we will create value that allows our people, our shareholders and the communities in which we live and work to prosper. The 3 important enablers of this strategy, enablers we call how to win choices. And they are, innovation, integration and simplification. Innovation continues to be at the heart of our success. It's how we serve consumers and it's the engine that drives our growth. As Jon mentioned, we spend about $2 billion a year on research and development. This is about 60% more than our next closest competitor and more than most of our competitors combined. We are constantly working to increase the benefits of our brands and the benefits that they provide to consumers serving them more completely. In 2011, we launched…

Thanks, Bob. Before getting into the guidance details, there are just a few points of context to discuss. This is the first guidance we've provided for fiscal year 2012 and July, September quarter. We're providing guidance on the basis of our current operations. As we discussed earlier, we have 2 pending transactions, exiting the Snacks business and creating the new OTC partnership with Teva Pharmaceuticals, which will impact fiscal 2012 results. We'll update guidance for these transactions when the deals close. Our guidance ranges will be a little bit wider than normal this year, reflecting a broad policy uncertainty, ongoing high levels of volatility and market growth rates, input costs and foreign exchange, as well as uncertainty both upside and downside related to pricing across the portfolio. For fiscal year 2012, we expect organic sales growth in the range of 3% to 6%. This is based on the assumption of global market value growth of 3% to 4%, comprised of 1 to 2 points of value growth in developed markets and 6 to 8 points of growth in developing markets. We again expect to grow ahead of underlying market levels and build global market share. We estimate the net impact from pricing and mix will contribute between 1 and 3 points of sales growth for the year. Within this, we expect pricing and lower promotion levels will add to 3 to 4 points to sales growth and that mix will continue to be a sales growth headwind of 1 to 2 points. We estimate foreign exchange will add 2 to 3 points to sales for the year, which bring all-in sales growth guidance to a range of 5% to 9%. On the bottom line, we expect earnings per share in the range of $4.17 to $4.33 for the fiscal year.…

[Operator Instructions] Your first question comes from the line of Bill Schmitz from Deutsche Bank.

Can you just talk about the difference between the U.S. growth and the emerging markets growth because it seems like most of the margin challenges relate to the U.S. just being really soft because market share wise, it seems like things are pretty good but then you look at some of the report sales growth in the U.S. and it's pretty disappointing. So I mean is there a way to kind of triangulate that because we all know that U.S. is a very, very high margin business?

Well, I can comment on the market size and maybe Jon can talk about the margins. In the fourth quarter, we said that global market value growth was about 3% based upon our geographic mix of business. Developed markets were flat to slightly positive for the quarter and developing markets continue to have solid growth of about 8% on average. Our expectations for 2012 are to have global market value growth of 3% to 4%, Bill. This assumes developed markets grow 1% to 2% and developing markets grow 6% to 8%. So we're expecting essentially no growth in developed markets on a volume basis with any value growth, driven by higher pricing as Jon discussed in his remarks.

And if you just look at sales for the last quarter, Bill, your observation will be correct. In developed markets, we grew about 1 point, developing markets we grew about 14 points and so that is part of the dynamic going forward.

Your next question is from the line of Nik Modi from UBS.

Bob, just at a very high level, P&G's stock is up about 5% in total over the past 5 years, and granted the environment has been tough but the stocks underperformed, almost every one of its peers and the broader staple universe, do you think more drastic action need to be taken to deliver the type of returns that you aspire to? Can you just provide any general context around that?

Well, Nick, I think we have the right strategies now and I think you're seeing them have an impact in the marketplace. Our purpose has always been to touch and improve lives but I think now we are much more deliberate about executing our strategy in order to reach more consumers, more parts of the world more completely. And in areas where you see that we're doing that, we're being very successful. As Jon talked about, over the last year, we've been through -- entered 32 new category country combinations. We've entered 78 new category price tier combinations, and we've entered 75 new category channel combinations. In addition to that, we've launched a number of upgrades and these things are having a dramatic impact on the competitive situation in the marketplace. We talked about the recent launch of our Oral Care in the United Kingdom and we talked about the fact that the week 3 share was about 16%. Well, we just got the week 4 share this morning and it's 19.5% per case, which takes us to leadership of the Oral Care category for the first 4 weeks with our share of 30%. So these things take time to have action, but we're being much more deliberate about it. I'm quite encouraged actually.

We're also, as I mentioned, Nick, looking at opportunities relative to the Pringles divestiture to increase the savings component that's delivered by restructuring so we're very cognizant of that opportunity as well. And I apologize, this will sound a little bit defensive but I can't leave out our significant dividend as you think about returns from our stocks so it's more than just price appreciation. We're throwing off a pretty large chunk of cash here.

Your next question is from the line of John Faucher with JPMorgan. John Faucher - JP Morgan Chase & Co: So Jon, in terms of looking at your guidance, there's no question that you highlighted the fact that the raw materials should be ending up being on the negative gross margin line and you've got all these below the line items which have been favorable in terms of tax in corporation, which will be probably less favorable looking forward. So I guess what it really boils down to is FX a little bit but mostly the SG&A ratio. And so can you talk to us a little bit about how we should map out the SG&A ratio over the next year in terms of how much leverage do you think you can get there? And what's the brand investment growth like relative to some of the cost saves that you think you can pull out?

Well, I would expect, John, that in terms of -- in the last couple of years, you've seen increases in investment levels in the advertising component of SG&A that are disproportionate to sales growth. Those should be proportionate going forward, so we'll continue to maintain very strong levels of support but it shouldn't be a drag on SG&A leverage. And then, we're going to continue, as we've talked about, to focus on productivity and we expect to be reducing the non-advertising, non-R&D portions of SG&A as a percentage of sales, fairly significantly, as we move forward here. And then, there's obviously sales leverage that drives all of that. So we would expect the SG&A as a percent of sales number to continue to come down pretty meaningfully.

Your next question is from the line of Lauren Lieberman from Barclays Capital.

Just to follow up on that. I guess, when we think about developed markets, when you think beyond 2012, it's like do you know you guys think about the business in more than 1-year increments for sure, are you starting to kind of build into your assumptions that we are in a sort of sustained very low single-digit kind of volume growth or flat to 2% volume growth environment going forward in developed markets, and if that would inform how you want your cost structure to look going forward?

We're actually working against 2 possible scenarios. The obvious thing we're doing is we're continuing to invest in innovation. We talked about that, the $2 billion we spent on R&D, which is much more than our competition. And we're working to develop new categories that we don't even -- we aren't even in today. And we know when we do that our North America and Western European and Japanese businesses grow very strongly. So we are working to innovate in order to get top line growth. At the same time, we're looking at no market growth kinds of scenarios and making sure we put together a cost structure that will allow us to deliver our profit guidance, if there is no market growth in these markets. As you know, our goal is to grow 1 and 2 points above the market, but if the market doesn't grow, we've got to have a cost structure that allows us to deliver the kind of returns we were promising.

Your next question is from the line of Chris Ferrara from Merrill Lynch.

So Jon, I guess some of the languages you used around the pricing I guess struck me a little and I just want to see if it should, right? I mean the fact that you're kind of reiterating that or noting that you would deal some of the stuff back or you even rescind the price increases, if necessary, so can you characterize what you've encountered so far, right, I mean, has pricing been a tougher go than what you thought it would be or has it not?

There's been no change in terms of our expectation, so I apologize if I unintentionally communicated that. I'm just stating the 2 points of intentionality. One, is to get price increases reflected, which we're working to do and making good progress on. And second, that with -- over reasonable periods of time, we have to continue to make sure that we remain competitive in the marketplace. Those 2 things are not opposed to each other, they're part of one activity system and I just thought it was important that both parts be understood but there is no -- we haven't encountered -- things are going pretty much as we expected so far, but it's early.

Chris, as you reiterated the alternatives for effectively moving pricing up, one that you left out is reducing promotion spending. And we are doing that in parts of our business as well.

Your next question is from the line of Ali Dibadj from Bernstein. Ali Dibadj - Sanford C. Bernstein & Co., Inc.: I just have a quick modeling question and then kind of a real one. On the modeling question, given the kind of repeated, at least, for us, unexpected occurrence of nonoperating drivers like taxes and non operating income to EPS delivery, could you maybe give us more guidance about those going forward? And that's kind of the modeling part. Then the real question is, is -- I mean, that going to say, you're big. You're supposed to get scale but relative to your competitors who are leaner, you are not really on the cost base. So have you thought about going the other direction in terms of becoming more focused, I understand it's tougher, I guess, in other words, you can choose to get scaled leverage in something like a cost-cutting, restructuring above what your competitors are doing. That sounds like you're finally contemplating or you can choose to be more focused by breaking up, I guess how do you think about the trade-off to better touch and improve investors life as well?

Let me start with the second part and maybe Jon will want to talk about the modeling, Ali. One of the things that we've done over the last few years is we've become much more deliberate about turning that scale or our size and to scale and turning that scale into growth. We've talked about -- I talked about in my remarks, integration and the fact that we're going to market as one company in the categories in country combinations where we've done that, we basically have doubled the growth versus historic levels. I also talked about the fact that now when we build a new factory and we have 20 under construction roughly, that they're multi-category factories rather than single category. We're at the early stages of this, and I think what you're going to see over time is this is going to become more and more important to our business. For example, in 2012, we have our sponsorship of the London Olympics. We'll be sponsoring every Olympic team in the world, we'll be thanking mothers all over the world and when we did that in Vancouver, it was our highest rate of return marketing activity virtually ever. So I think you're going to see accelerated growth. At the same time, we're working very hard to get this company restructured and ready for the future. Last year's restructuring spending, I think, was about $250 million or so. That was relatively low. But we're always looking to flatten the hierarchy of the company. If you look at what we've done, relative to the hierarchy of the company, we flattened the hierarchy of the company, we're trying to simplify our operations. And as I said, we're trying to deliver profitability in the top third -- TSR in the top third of our peer group even in a no market growth scenario in developed markets. So I don't -- I think in the end, we will convince you by the numbers we deliver rather than the statements that we make. But we are very serious about becoming the most productive company and taking advantage of that size to turn in a higher growth rates.

In terms of the first part of your question, Ali, I talked in my remarks about the impact of tax year-to-year and the rate that we're forecasting for next year, which is 25%. John Chevalier can walk you through more of that as we both have time. And from other and a nonoperating income standpoint, we will continue to have some level of minor brand divestiture activity as we have for each of the last 10 years, so there will be nonoperating income there. I don't expect it to be a big driver of our growth in anyway going forward, if anything it should be down a little bit. Again, John Chevalier can take you through that.

Ali, maybe I'll give you more facts on what I was describing over the last 3 years, we've reduced our general management by about 16%. The next level down, we reduced by about 10%. Certainly, we've got more work to do to become more productive but we've reduced our enrollment by about 5% over the past 5 years and I think you're going to see us work very, very hard on productivity as we go forward in the future.

Your next question is from the line of Joe Altobello from Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc.: Just a couple of quick questions. First for Jon, I'm just trying to put together a few things you said this morning about the higher tax rate next year, et cetera, and Bob mentioned earlier one of his goals this year is to accelerate operating income growth, it was down a bit last year. Is that what you're saying is you're actually expecting operating income growth for fiscal '12 to actually exceed EPS growth. Is that the case? And then secondly, you mentioned promotion spending is going to be down this year, can you sort of quantify for us how much roughly promotion spending will be down?

On the first one, we'd expect the operating earnings growth to be about in line with earnings per share growth. Tax will be a headwind and then share repurchase tailwind to get you back to the EPS numbers. And then, we're not going to comment on line items within line items so we're not going to give guidance on promotion. What I would tell you is that generally, we would expect promotion levels to come down as part of the pricing mechanism that Bob described. The reason I'm hesitant to give you an exact number though, this is something we look at on a daily basis, and it's going to depend in part on how competitors respond to our price increases. There may be situations, as I detailed in my remarks, where we might have to temporarily increase promotion to stay price competitive. So it's something we look at on a daily basis. The general directional trend, certainly the desired trend is down as we're fond of saying, promotion wins quarters and innovation wins decades. We much rather spend the dollar on innovation or equity building than we would have on promotion.

Your next question is from the line of Connie Maneaty from BMO Capital.

One simple question first and then I guess the real question. What was battery sales growth in the U.S. I didn't see it in the press release or hear in the comments? Then on the simplification effort you're going through, what level of restructuring is already embedded in the fiscal '12 outlook? And is it likely that as you close Teva and Pringles, you get to a level of restructuring that envisions a separate restructuring charge?

First batteries in North America, I honestly don't know that number. Jon, will so feel free to follow up with him. In terms of restructuring, as I indicated in my remarks, we're still formulating our restructuring thoughts for the year ahead. I mentioned Folgers for a reason. You remember that at that point, when we divested the Folgers business, we increased restructuring fairly significantly and we did have a separate non-core charge as a result of an effort to eliminate the stranded overhead and minimized dilution, and we're contemplating something similar on Pringles. We don't have it fully baked yet but we'll update you on that when we announced the closure of that deal.

I don't think there's any question, given the number of questions we've gotten about this but I don't think there's any question and if someone looks back at our company 10 years from now, they'll wonder if the leadership of the company at this time took the right steps to move the center of gravity of the company more towards Asia, more toward Africa, where the babies are being born, where the new households are being formed. And certainly, we've been in the midst of that and you're going to continue to see us make announcements and do things to get ready for the future because that's where the future is as we try to get to all the people on the planet and have products for them to improve their lives.

Your next question is from the line of Jason Gere from RBC.

I guess I want to talk about the reduction in the trade spending and obviously as part of the driver to getting net pricing. Can you talk maybe a little bit about the laundry category I know that's one area where you're trying to reduce the levels, one of your competitors kind of showed some doubt whether that's coming through. I just -- if it's possible that might be just at the low end of the spectrum but I just wanted to get your thoughts on your goal to kind of reduce some of the trade spending in laundry and how that's playing out?

I think you're referring to conversation with Church & Dwight yesterday. They did say the increase in promotion in the liquid section of the laundry market and I believe they attributed that to Henkel. Our desire continues to be again from a strategic standpoint, to prioritize investments in equity building and innovation and really saying anything more than that, on a very specific granular question, would be inappropriate.

Your next question is from the line of Javier Escalante from Consumer Edge Research. Javier Escalante - Weeden & Co., LP: If you could please revisit the SG&A line for us for 2011 and what's your plan for 2012? You just gave already advertising, I think, about 8% to 9% in '11, didn't trigger the volume lift that you expected, given the lack of market growth in the U.S. and Europe, so that is over. But I would like you to discuss more about the strategic, more long-lasting investment that you are making in go-to-market capabilities as you entering new channels, categories, all these matrix that you talked about it and the push in Brazil and India that I believe you may now be for free in the SG&A line. So if you could ballpark for us the growth in selling and distribution expenses as opposed to G&A itself in 2011? And how we should think about that in 2012?

I think in terms of total go-to-market expenses, the selling portion of SG&A, you're absolutely right that we're increasing our investments in markets where we're expanding distribution, expanding our portfolio, you mentioned India, you mentioned Brazil those are clearly 2 cases where that's true. We're also working on productivity initiatives though in markets that are slower growth. And so net, we would expect to see selling costs increased in line with sales or maybe fall a little bit below the sales line, while building the infrastructure that we need in developing markets.

Your next question is from the line of Per Ostlund from Jefferies & Company. Per Ostlund - Jefferies & Company, Inc.: Jon, I wondered if you could just provide a little bit of an order of magnitude on the commodity cost headwind. I think on the March quarter report, I think you kind of characterized that there's about $1.8 billion after-tax hit. I'm just curious as to maybe where that came in for the year and then sort of how you look ahead at where that shapes up currently for fiscal '12? And then sort of where your confidence lies in terms of how to improve in the second half vis-à-vis the first?

So first of all, as has been pointed out many times internally here, I misspoke on last quarter's call and referred to a BT number as an AT number. So the $1.8 billion is the correct number, that's a BT number, my fault for confusing you. We're looking at the same type of impact 2012 versus 2011, so another $1.8 billion, roughly $2 billion before tax. In terms of how that falls out by quarter, I took you through some of the specific input costs dynamics and how those play through, we basically base our forecast on spot markets, I'm not talking about spot that happened yesterday but maybe the spot of last week. And if you just do the math, and take spot in a quarter this year, first through 4 and compare it to first through four last year, you still have a very negative comparison in the first quarter and a very benign comparison in the fourth quarter. For a perspective, one additional piece of perspective, as we mentioned, the commodity cost impact in the quarter we just completed was 350 basis points negative on gross margin, that's the same kind of dynamic you're dealing with in our first quarter but it should be again very minor or even positive by the time we get to the fourth quarter.

Your next question is from the line of Tim Conder from Wells Fargo Securities.

Just broadly a clarification, Jon. In the guidance that you gave, you're saying again that you should see operating profit growth in line with EPS and therefore, implying operating margin expansion and that is prior to anything that you're doing with Pringles or Teva. So just more of a clarification from that perspective if you could, sir?

Given the gross margin dynamics, we're not -- why we're expecting operating earnings increases along the lines that you say, that we're not expecting operating margin expansion again held back by that gross margin line.

Your next question is from the line of Alice Longley from Buckingham Research.

My question is about the nature of innovations that you're planning in developed regions where the markets aren't doing so well and the consumers' weak. You've done well over the last couple of years in some categories like tissue towel by putting up value versions along with your premium-priced versions. What are you thinking about doing something similar to that in some of your other categories, blades comes to mind because you're doing so badly in blades now? Also, detergents and shampoos. Might you push mid-priced or value versions they had more than you have?

Well, I think, Alice, what we said is we have a stated strategy of our company to have a value tier of portfolio. So no matter the price point the consumer wants to spend we have something there. In the case of blades, we do have a full portfolio from Fusion ProGlide on the top 2 disposables on the bottom, all priced very differently. I think what we've done in the past is we've supported the high end, probably more than the low end and what we need to do is make sure that we get appropriate support across that portfolio so that every consumer we want to reach gets the appropriate blade and razors. So in that, when I think we have the portfolio but we may not have executed the marketing yet to get to grow share consistently. Secondly, in laundry, again, as I said in my remarks, we got Tide Total Care on the top. We've got SHEER and Era on the bottom, again we have the portfolio there. Again, what we need to do is develop the big ideas to get that portfolio into the hands of consumers and grow that business. So on those cases, I think we have the portfolio. In the Hair Care, we probably have a portfolio brands but, I think, we need to separate the pricing a little bit more so I think the pricing is probably, too, bunched up. So it's rather a 3-step process. One is get the portfolio in, number of brands, number of selection; number 2, spread the pricing enough that consumers see the difference; and number 3, market those discrete items to the consumer group that it's attractive to. And as you say, that's what we've done in tissue towel and many of other categories quite successfully.

Your next question is from the line of Jon Andersen from William Blair. Jon Andersen - William Blair & Company L.L.C.: I just had a quick question on the multiyear innovation pipeline. Bob you talked about the new category country combinations, price tier combinations and channel combinations, achieved in 2011. I was wondering, if you could kind of characterize the portfolio expansion plan for fiscal 2012, both in terms of kind of the quantity and the quality relative to what we saw in the last year?

It's very similar to what we had this year. And as we laid out in our analyst meeting, by the time we get to 2015, the average number of categories in each country in Procter & Gamble territory will go from 19 to 24. And we'll be reaching 5 billion people versus the 4.4 billion we're reaching today. And as we increase the number of categories in each country, you should assume that, that is a full vertical portfolio of priced products, not just a single product. At the same time, we're also working on innovation program to develop a whole new categories similar to when we launched the Swiffer some years ago.

Your next question is from the line of Linda Bolton-Weiser from Caris & Company. Linda Weiser - Caris & Company: Just one quick question on guidance clarification. You had said for FY '12 that operating income growth would be roughly in line with the EPS growth. How does that work out for the first quarter, is that kind of the same for the first quarter of FY '12? And also a bigger picture question more on M&A, Bob, your thoughts on -- I was interested in your thoughts on how your Home Care business ranked these days in terms of strategic priority, clearly Beauty and Personal Care continues to be the top strategic priorities but given the Cloraxin[ph] should a little bit more in play here, do you think you have adequate scale in Home Care with the Ambi Pur acquisition? Or do you think that there could be other things that would add scale to that business, which is less big than the other strategic areas? And also on M&A, maybe you could comment on your organic growth efforts in Prestige Color Cosmetics and whether you're happy with those efforts or whether you could use some more M&A activity there? There are a lot of brands in that universe and maybe you need to pick up the acquisition activity to start building more presence in Prestige Cosmetics?

So I'll handle the first quarter question and I'll turn it back to Bob. We would expect operating margin to be down in the first quarter and operating earnings to be growing not as well as on a fiscal year basis, again, given that significant gross margin impact and Jon can help you more with that as we go through the day.

Linda, relative to M&A, we don't comment on specific opportunities of either acquisitions or divestitures. What I can tell you is this, is that we work hard to develop growth plans that meet our goals, long-term goals, organically, and when I look at the growth potential of the plans that we got, I'm very happy with it. When I look at the innovation program we've got, I'm very happy with it as well. While we do, do acquisitions and certainly Ambi Pur was a wonderful acquisition for us because it expanded our footprint in Air Care from roughly 17 countries to over 80, the acquisitions are difficult for us to do. Typically, we don't do hostile takeovers, number 2, the value has got to be right because we're trying to be good stewards of the cash that our shareholders give us. And number 3, it's got to make strategic sense for our business. So acquisitions tend to be a relatively high bar for us, we do, do them but it's relatively a high bar. And certainly, it's not an excuse for any of our businesses not to have growth plans that deliver the growth goals, organically.

Your next question is from the line of Mark Astrachan from Stifel, Nicolaus. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: One clarification and one question. So Jon, is it fair to assume that input cost pressure peak is in the September period? And then on the Beauty business, can you talk a bit about in the context of sort of mix results and turnover on personnel, how you think about whether P&G is the net share gainer or loser, longer term?

So on the first question, yes, the comparison on commodities should be the worst in the first quarter and then it should improve from there forward.

Relative to the Beauty business, Mark, I would never say we're doing well enough in any of our businesses whether it's beauty or household. Beauty has delivered 8 consecutive quarters of organic sales growth. Our big brands grew globally in 2011, including Pantene, Head & Shoulders, Olay, Venus and SK-II. Importantly, the global Pantene business continues to perform well. Global shipments grew with mid-single digits over the year with double-digit growth in developing regions. And market share is growing on a global basis including good share progress in Japan, Brazil and India. And in Japan, Pantene just became the leading Hair Care brand. Olay is also driving strong results outside North America, where, of course, we have the UV recall. Skin Care shipments in developing markets increased double digits in the June quarter as the geographic and portfolio expansions of Olay continues to deliver strong growth. In the U.S. where we had a few design and assortment issues on Pantene, we responded by launching 7 new 2-in-1 SKUs and 5 new large sized SKUs with a new marketing campaign, which have all gotten strong, retailers support so far, and we're also working to rebuild the Pantene equity. But that will take time and it will take time to return the share and consumption to historic levels. Olay is driving strong results outside the North America. Skin Care developments in developing markets increased double digits in the June quarter as the geographic and portfolio expansion of Olay, as I said, delivered strong growth. And as I said, the reason U.S. Olay declined in P&G was due to the Olay UV reformulation restage that began in the March quarter but we resumed those Olay UV product shipments by the end of June. So I think, overall, we would be in that share gainer in Beauty and Grooming, no question in my mind.

And your next question is from the line of Caroline Levy from CLSA. Caroline Levy - Credit Agricole Securities (USA) Inc.: I just was wondering, if I could have a little color on China, overall. You did give some category growth but really if you would compare and contrast China, Russia, Brazil, the total portfolio if you could talk about how you're doing in those 3 major growth markets?

Well, in China, Caroline, we are the leading consumer goods company with about, in Greater China, about $5 billion in sales. That's about 3.5 to 4x the next largest competitor. Having said that, we're only in about 15 categories in China. I think we entered 3 over the last year and we have plans to continue to enter new categories there. And the average Chinese spends less than $3 a year on Procter & Gamble products but in the United States, the average American spends nearly $100. So while we're leading, while we're growing, we're growing strong double digits, we still have work to do to get the rest of our categories in there and to accelerate the growth. And we go market-by-market -- in Brazil and India also continue to be extremely quickly growing. They're growing actually faster than China. Think of that as 20%-plus growth rates where China is somewhere in the low double-digit to mid-teens level. And we'll continue to see all 3 of those markets offering significant opportunities for profitable growth going forward.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

Thanks, everybody.

Thank you.