Good morning, and welcome to Procter & Gamble's Quarter-end Conference Call. P&G would like to remind you that 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. Additionally, the Company has posted on its Investor Relations website, www.pginvestor.com, a full reconciliation of non-GAAP and other financial measures.

Now, I will turn the call over to P&G’s Vice Chairman and Chief Financial Officer, Jon Moeller..

Good morning. Good afternoon. We’re going to keep prepared remarks on the short side today, reflecting a fairly straight forward quarter, our recent Investor Day and the CAGNY conference coming up in just a couple of weeks.

We'll share result headlines, comment briefly on strategic focus areas, update guidance for the fiscal year and then open the call for your questions. So, getting right to it, we delivered a strong organic sales -- we delivered strong organic sales growth in the October December quarter, putting us ahead of fiscal year targets.

Organic sales grew 4%, driven by volume, pricing and mix. 8 out of 10 global categories grew organic sales, Skin and Personal care in the teens, Fabric Care and Feminine Care high singles, Family Care, Oral Care and Personal Health Care mid-single digits. Each of our top 15 markets grew organic sales with China up 15%, India up 16%, and Japan up 9%.

E-commerce organic sales grew nearly 30%. Our naturals entry continued to drive growth including Pampers Pure Protection diapers, Burt's Bees toothpaste, and Native deodorants, which we recently expanded in the Target stores. We’ve built aggregate market share.

34 of our top 50 country category combinations held or grew value share, up from 26 last fiscal year, 23 in fiscal ‘17, and 17 in fiscal ‘16. Within this strong sequential and absolute progress, we continue to have some challenges. Grooming organic sales were down low singles.

Global Baby Care trends improved but with organic sales only at the level of the prior year. In total though, consumption volume, sales and share are each progressing nicely. We also delivered strong constant currency earnings growth. Core earnings per share was $1.25, up 5% versus the prior year.

Within this, foreign exchange was a $200 million after-tax earnings headwind, about $0.09 per share. So, on a constant currency basis, core earnings per share, up 13%. Gross and operating margins improved sequentially, as expected, net strong underlying earnings progress.

Cash flow also remained strong with $4 billion in operating cash flow and adjusted free cash flow productivity of 103%. $2.6 billion of cash was returned to shareowners, $750 million of share repurchase and $1.9 billion of dividend.

We completed the acquisition of the Merck KGaA OTC assets, significantly enhancing our international presence in personal health care. We also acquired Walker & Company with products designed to serve the unique needs of consumers of color.

In summary, a strong quarter, solid consumption volume and organic sales growth, driving positive market share trends across categories and geographies. Strong constant currency core earnings per share growth and continued high levels of cash generated and returned to shareowners.

All delivered while working to address some category specific challenges and against a very difficult competitive and macro landscape. We continue to accelerate change through our program of constructive disruption to meet the remaining challenges we face and to further improve results. Our strategic focus areas remain constant.

We’ve made a deliberate choice to invest, as you know, in the superiority of our products and packages, retail execution, marketing and value, not just in the premium tier, but in each price tier where we compete, strengthening the long-term health and competitiveness of our brands.

We’re making solid progress on extending our margin of advantage and increasing the quality of our execution, which show in our results, as I mentioned earlier, sequential share progress over multiple years. Additional investment will be needed to continue this progress.

The need for this investment, the need to offset macro cost headwinds, and the need to drive balanced top and bottom line growth, including margin expansion, underscores the continued importance of productivity.

We are continuing cost savings and efficiency improvements in all facets of our business, approaching the midpoint of our second five-year $10 billion productivity program. We’ve consistently delivered $1.2 billion to $1.6 billion in annual cost of goods sold savings.

We’re eliminating substantial waste in the media supply chain, delivering nearly $1 billion of savings in agency fees and ad production costs over the last four years. We see more savings potential in these areas along with more efficiency in media delivery. We’re continuing to drive savings and organization cost.

Total enrollment is down nearly 30% since the start of our first productivity program, about 35%, when including contractor role elimination. P&G is a highly profitable company. Before tax operating margins are among the highest in the industry, behind only Reckitt and Colgate, whose margins reflect their concentrations in health care.

We have significant below the line advantages, operating with one of the lowest interest expense percentages and one of the lowest tax rates, putting us near the top of the industry in after-tax margin, already highly profitable and aggressively driving more savings.

We’re also focused on cash productivity, with significant progress in all areas of working capital. Over the past five years, we have improved receivables by 3 days, inventory by 10 days and payables by more than 30 days, enabling us to fund capital spending needed to transform our global supply chain.

Over the last seven fiscal years, we have averaged nearly 100% adjusted free cash flow productivity and have returned an average of over a 110% of reported net earnings to share owners through dividends and share repurchase. We’re making organization structure and culture changes to strengthen our position to win.

We’re taking steps to simplify the organization structure, focus clarify responsibility, and increase accountability. We’re supplementing internal talent development with experienced external hiring, and we’re building category dedication and mastery. We’re strengthening compensation and incentive programs.

As we discussed in detail at our Investor Day, we’re moving to a new organization structure to further dematrix the Company and provide even greater clarity on responsibilities and reporting lines to focus and strengthen leadership accountability.

We’re significantly reducing the level of corporate resources, moving about 60% of corporate roles to the business units and markets.

At the same time, we’re leading the constructive disruption of our industry; lean innovation processes to improve speed to market, shots on goal, and success rates of new products; monetizing internally developed technologies to build value and fund even more innovation investment; disruption the brand building ecosystem with digitally-enabled to one-to-one mass marketing; supply chain transformation enabled by robotic process automation; and leveraging digitization and data analytics to drive greater efficiency and effectiveness of all facets of our operation.

We are creating a more engaged, agile and accountable organization, operating at a lower cost, focused on winning through superiority, fueled by productivity, working at the speed of the market. We’re working urgently to sustain our near-term momentum and to position P&G to win over the mid and long-term. Moving to guidance.

Having delivered a strong first half of the fiscal year, we’re increasing the high-end of the organic sales growth range by a point, making the new growth range 2% to 4%. We have strong innovation and support plans for the back half of the year. Gillette SkinGuard in the U.S.

and Europe; upgrades to Tide and Ariel unit dose PODS in North America, Europe and Japan; expansion of Crest and Oral-B Gum Detoxify toothpaste to Latin America; continue the support of Vicks VapoCOOL, NyQuil, DayQuil and Cough Drops through the cold and flu season; Pantene Rose Water Sulfate-Free Shampoo and Conditioner; formula and packaging upgrades on Head & Shoulders; new Olay Vitality masks and creams in China; upgrade on Pampers Cruisers and continued strong support behind the range of Always Whisper Tampax and Always the Discreet innovations we've watched recently around the world.

We're innovating and investing to maintain top-line momentum, but we're also realistic about the market and competitive dynamics that will impact us in the back half of the fiscal year. Pricing should remain positive in the back half, but this will increase volume uncertainty and volatility.

We face highly capable competitors with strong plans of their own; macro uncertainty stemming from issues like Brexit, a crisis of consumer confidence in France, and trade and other policy impacts that can impact both the top and bottom-line.

Our efforts and results fiscal year-to-date and the totality of these tailwinds and headwinds leave us comfortable increasing our organic sales guidance, albeit within a relatively wide range. We now expect all-in sales growth in the range of down 1% of top 1% versus last year, reflecting 3 to 4 negative points from foreign exchange.

We're maintaining core earnings per share guidance for 3% to 8%, having delivered about 4% fiscal year-to-date. The combination of stronger than expected organic sales growth and productivity-driven cost savings are offsetting a significantly larger challenge from foreign exchange and commodity costs than we originally anticipated.

Our fiscal year earnings outlook includes a potential gain on the sale of land at our Gillette side of Boston. The land sale, if it occurs this fiscal, will likely contribute around a point of earnings per share growth for the year. We're currently forecasting a foreign exchange headwind on earnings of about $900 million after-tax.

Commodity costs are expected to be a $400 million headwind and trucking costs will likely be up 25% or more versus last year's levels. Combined, FX, commodities and transportation are nearly a $1.4 billion after-tax headwind, $0.53 per share.

As commodity prices and the foreign exchange rates move, we will take pricing when the degree of cost impact warrants it and competitive realities allow it. There will be top-line volatility with these pricing moves. Competition may attempt to take advantage of our moves for short-term market share gains.

Overall category consumption may be negatively impacted. We'll have to adjust as we go and as we learn. In any scenario, we'll aim to protect superiority building, value accretive investments in the business. We won't allow short-term pressures to derail the progress we're making towards sustained, profitable top-line growth.

Our outlook for items below the operating line is unchanged. We now expect to exceed our target of 90% adjusted free cash flow productivity. This includes CapEx in the range of 5% to 5.5%. There'll be another year of strong cash return to shareholders.

We expect to pay over $7 billion in dividends and repurchase up to $5 billion of shares in fiscal 2019. This share repurchase range factors in the cash required to complete the acquisition of Merck's OTC business and other transactions. Our guidance is based on current market growth rates, commodity prices and foreign exchange rates.

Significant additional currency weakness, commodity cost increases or additional geopolitical disruptions are not anticipated within this guidance. To sum up, the external environment presents many challenges. To address these challenges and further strengthen results, we continue to accelerate the pace of change.

Efforts to extend our margin of competitive superiority to drive productivity savings to fund investments for growth and enhance our industry-leading margins, to simplify our organization structure and increase accountability to constructively disrupt our industry are and will continue driving improved results and will help us achieve our objective of consistently and sustainably growing sales, margin and cash.

With that, I'm happy to turn to your questions..

Thank you, sir. [Operator Instructions] Your first question comes from the line of Wendy Nicholson with Citi..

Hi. Good morning. Could you talk a little bit more about China up 15%, I think is a lot stronger than most of us were expecting? Could you comment specifically on SK-II and Olay in China and how they did in the quarter? And what your outlook is for the next -- for the second half? Thanks..

Thanks, Wendy. It's been a strong first half and the second quarter in China. If you look at annually the organic sales progression in China going back three years, then minus 5, plus 1, plus 7 last year and plus 9 for the first half this year; and as you indicated, above that rate in the second quarter.

We do not see a sign at this point of slowdown of the consumer in China, as witnessed by those results. Market growth rates continue to be relatively strong.

Within China, just like the balance of the business, we have our successes and our challenges SK-II and Olay are obviously in the success column with Skin Care, both SK-II and Olaygrowing strong double-digits for several consecutive quarters.0.

The next question comes from the line of Jason English with Goldman Sachs..

Good morning, folks. Thanks for slotting me in so early. I appreciate it. Two questions for you. First, the change on the $1.32 billion to $1.4 billion drag on earnings from cost pressure and currency. I think the $900 million you gave on currency is the same as what you gave last quarter. The $400 million on commodities looks to be the same.

So, it sounds like the bulk -- you obviously put a lot of focus on freight. Is freight the incremental driver? And if so, why -- kind of what changed, because it seems to contrast with what we’ve seen of a bit of an abatement of something like cost pressure? That’s question one.

And question two, another source of strength, and by the way congratulations on the broad-based momentum. Laundry’s acceleration has been impressive. You had a key competitor earlier this week announce plans for a lot of reinvestment.

Can you talk about your own investment plans going forward and how you sustain the momentum in the face of what may be a more disruptive competition? Thank you..

I think, you’re exactly right, Jason, in terms of your interpretation of the drivers of the 1.3 moving to 1.4 in terms of headwind, and that is ongoing premiums and transportation cost.

And I think, the situation has exacerbated a little bit simply by the strength of the business and the demand that we’re placing on that transportation system and it’s just reflective of what we see. We’re managing that I think well and putting steps in place, systems in place that should reduce that burden going forward.

But, for the balance of this fiscal year, that’s what we’re currently seeing. Our laundry business is doing, as you mentioned, extraordinarily well, had a really great quarter and great first half.

And it’s really the poster child in many ways for the strategy that we’re working against, which is performance superiority along with packaging, communication and store execution and value, all working for us in that business with things like unit dose detergents, which continue to increase household penetration and market share.

Our share within that segment, as you know, is very high, 80ish percent.

Items like the fabric enhancer beads growing double-digits; that’s a premium priced item, all of that driving category growth, which is extraordinarily important for both us and our retail partners, and within that ourselves building share as we’ll do if we are the drivers of category growth.

Doing that, through increased investment facilitated by productivity improvement, it’s just as I said, kind of a poster child for the strategy that we’re working against. Henkel and Persil have been strong competitor. If I just focus on the U.S., Persil remains a 2 to 3 value share. We don’t expect competition to stand still.

And going back to the strategy, that is what fuels our deliberate choice amongst other things to invest in the five vectors of superiority, always working to improve those and strengthen the long-term health and competitiveness of our brands.

We continue to innovate across our Fabric Care lineup; we’ve got a strong spring bundle that we’ll introduce to the U.S. markets in the upcoming quarter.

That includes Tide POD upgrades with improved film for better dissolution and perfume upgrades as well as two new scents, also innovating in the liquid space with heavy duty 10x liquid, introducing products and new benefit spaces, Studio Delicates by Tide and Tide antibacterial spray, and there’ll be upgrades on Gain both liquids and flings as well.

So, our competition is not standing still, nor are we..

The next question comes from the line of Ali Dibadj with Bernstein..

So, in the guidance for the year, it certainly seems like you're anticipating, with the risk of a slowdown, a top-line growth. Are you actually seeing anything yet to support that caution? Are you seeing competitive shifts? I mean, certainly you’ve heard from Henkel from a moment ago and before.

But are you seeing competitive shifts, are you seeing merchandising or inventory shifts at retailers? And importantly, are you seeing any fatigue with trade-up among the consumers at this point in the economic cycle, and then how sustainable you think that is? And then, within that, this 4% organic growth number, which you continue to deliver on strongly, is anyway to segregate that a little bit in terms of what is same-store sales sort to speak versus new shelf space, new product launches, you mentioned Native and Target, those types of things, just to give us a sense of new versus old in terms of the growth? Thank you..

So, as it relates to the guidance range, I mean, the move here is a positive move, reflecting more confidence in the business, not a negative move. So, we're increasing the top-line -- the top-end of the top-line guidance range, as you know from 3% to 4%.

And we wouldn't be doing that, if we had obvious knowable issues that were confronting us today and didn't have the confidence to potentially overcome them.

Having said that, as I mentioned in our prepared remarks, the level of volatility and uncertainty that exists across multiple factors which are out of our control, which impact our business, as you mentioned competitive behavior, which we expect will be strong and response to our share gains, but even more importantly, the macroeconomic dynamics and the significant uncertainty that's introduced into the equation when we start moving price significantly, as we've all seen in previous cycles.

So, it expressed increased confidence, not decreased confidence, but with an open eye reality to the volatility of the world that we live in and with the belief that it is too early to declare victory..

Your next question comes from the line of Steve Powers with Deutsche Bank..

Hey, Jon. I focus on Grooming. It's a difficult business to assess the health of from the outside. Clearly, it was a big driver of strength in the first quarter. You had a drag here in the second quarter. And I know promotional timing and quarter-to-quarter mix just tends to be more-lumpy in that business.

But, as you think about the full-year and the momentum in that business, is the first half run rate indicative of what roughly you expect over the full-year, or do you feel as though the second half can show improved momentum off that first half run rate, given initiatives that that business has underway? I’m just trying to understand how you feel kind of red light, green light, yellow light on Grooming, generally? Thanks..

Thanks, Steve. I apologize. I fell into my usual trap and neglected a few of Ali’s questions. So, I want to go back to those and come back, Steve, to yours. Ali, you asked about, I won't get to all of it, but you asked about fatigue on trade-up, we do not see that. Our premium items are some of the faster growing items in our portfolio.

I described what's happening in laundry, for example. That growth is really being driven by items that on a per load basis are premium priced. If you look at private labels as one indicator of trade-up fatigue, or perhaps even the reversal of consumer desire, we don't see significant changes quarter-to-quarter.

Europe private label shares remained flat as they have the last three years. It’s obviously different by category; I’m talking on aggregate. And the U.S. private label is up 50 basis points, primarily in three categories. Our share is also up in the U.S.

So, there's no indication of a broad scale shift from premium brand superior offerings wholesale to private label. And in terms of the question on, if you will, the equivalent of same-store-sales, I really don't have that data and it's very hard to tease apart.

But, what I'll tell you is, we do not win from a market growth or share standpoint if we don't do both. Our core needs to be strong. We need to innovate in our core, indicate in our core, that's the largest part of our business.

At the same time, we need to meet the needs, the emerging needs of consumers, which are emerging more quickly than they ever have, whether that's new forms, new segments, new needs, and that -- we've stepped up our activity there significantly. Look at the Naturals segment as one example where our pace of activity is as high as anybody's.

But still, if we did student body right, focused entirely on Naturals and neglected our core, we'd be in a very, very bad place. So, I think we've got -- maybe to the spirit of your question, I think we've got a much better balance today than we've had historically. I feel good about that. But, it's the right question to keep focusing on.

Steve, as relates to shaving, first of all, on a global basis from a market share standpoint, we're about flat versus the prior period. So, there's some element of market that continues to impact the segment. As category leaders, we have a responsibility to address that which we're working to do.

I think you're looking at it the right way in terms of pacing over a little bit longer period of time, call it the first half. And I do think the first half in aggregate is representative of what the year should look like. We have very strong innovation in the back half of the year with SkinGuard being launched in both North America and Europe.

We have some exciting news on the female side of the shop as well. And we continue to make progress from a user standpoint on Gillette Shave Club. So, the first half run rate I do think is indicative of what we should be attempting to deliver over the year..

Your next question comes from the line of Dara Mohsenian with Morgan Stanley..

Hey, Jon. So, my question’s around the pricing environment. First, pricing accelerated sequentially for two straight quarters at the corporate level.

Would you anticipate more progress sequentially in the back half of the year versus Q2 in terms of year-over-year pricing? And then, second, in the U.S., wanted to get an update on how the price increases are going so far, both in terms of retailer receptivity and consumer demand elasticity as well as the competitive response you're seeing in the marketplace?.

Thanks, Dara. I would expect on a mathematical basis pricing to be slightly stronger driver going forward, simply because we'll have a full quarter of those prices in effect in both the second -- well, most of them in the third quarter and then certainly in the fourth quarter, or as even in the quarter we just completed.

Take for example a pricing for devaluation of developing markets. There wasn't a full quarter in all markets, so that pricing reflected in our results. So, it's not a statement in terms of increasing price component of top-line; it's not a statement of intent, simply mathematical expectation.

And then, in terms of how that pricing is going, I apologize for this answer, but it really is too early to tell. Typically, it takes six, even nine months to understand exactly what's going to happen from a competitive standpoint.

And we're just getting to the point on some of the initial price increases where we'll be able to understand the full retail response to both our pricing and competitive pricing, both of which have an impact obviously on our result. So, we're going to have to stay tuned on that one.

Having said that, I would offer in broad terms that we have not seen anything definitive that would cause us to have a high level of concern. And I'd make that statement again on an aggregate basis. Across individual products and segments, categories and markets, there are always issues, but in aggregate, we're on track..

Your next question comes from the line of Nik Modi with RBC Capital Markets..

Yes, thanks. Good morning. Just two quick questions.

Jon, maybe you can talk about where the organic sales growth kind of over-delivered versus you're going in expectations, just to kind of get a sense of businesses that are seeing momentum faster than you had expected? And then, the second question is, I was hoping to get an update on some of the innovations that Procter has created that will be licensed out to other industries.

I think you talked about that -- the plastic recycling innovation at the Analyst Day. So, just curious kind of where you are with that particular initiative. Thanks..

Thanks, Nik. Really the outperformance versus our going-in expectations was broad-based and you see that when you look at the segment results. Very strong across the businesses with Grooming more or less in line with where we expected, so with that exception, each outperforming.

And that's true generally as well at a market level, particularly when we look at the first half of the year and the results across that first half. So, I think that's very encouraging. The improvement stool here is not one legged, it's not yet three legged either; it's not one legged.

In terms of -- I'm glad you mentioned the monetization effort relative to our innovation that can benefit multiple categories and industries.

I'm very excited about that as an opportunity to both create value -- really three things, to create value; to create fuel for even more P&G innovation, which is incredibly important; and to make an even broader difference in important areas like sustainability across multiple industries and for the benefit of a wide range of constituents.

So, that is a -- when we talk about constructive disruption and changing our approach to doing business and thinking about new ways to create value for all the constituents we serve, that's a program I feel very, very good about. And we'll talk more about -- we'll provide some more color to that when we're at CAGNY together in three or four weeks..

And your next question comes from the line of Olivia Tong with Bank of America Merrill Lynch..

In terms of the organic sales growth outlook, I’d like some additional color on what gets you from one end of the range to other, because obviously the first half trends were clearly very encouraging, but you get the low end of the range. So, a couple of things.

First, where do you think retail inventory stands now? Is there any concern around forward buying ahead of the price increases, particularly in emerging markets? And was there something -- anything significant in terms of promo timings.

And just trying to better understand, if you could break those particular buckets out a little bit? And then, just secondly, if you could parse out the price contributions [Technical Difficulty]? Thank you..

I would really look at the first half top-line results Olivia as clean, if you will. If you look at -- if we look at consumption levels relative to our shipment and sales levels and triangulate with market share, everything is in line.

We don't see any significant -- of course, again, at the detailed level, there is always some variability but on average level, we don't see any significant inventory distortions or promotion distortions. Again, at the category level, there can be some differences there.

But generally, we look at the first half run rate as representative of the business. And we wouldn't have taken up the top end of the guidance range had we felt otherwise. And then, we come back to what I was talking about earlier, which is just significant volatility that exists.

I mean, you've seen some of the competitive statements between Henkel yesterday and KC today. Who knows what the trade situation is going to present to us. What it’s going to be and what that's going to present to us in terms of not so much tariffs, though that is an impact.

But the ability to, frankly, import and export products really across markets, that has an impact on our sales. Another big driver of uncertainty is the pricing that we're taking and the impact that that has on market.

So, I mean, to give you a sense, if you think about markets like Turkey, Argentina, some of the more pronounced devaluations, we're talking about 30% to 50% to 70% price increases. And those are kind of unprecedented, and they have a big impact -- they can have a big impact on market consumption.

And depending on how competitors respond, they can have a big impact on market share. So, we're simply trying to be responsible in the breadth of our guidance range to reflect the range of outcomes that we see as possible.

And as I mentioned earlier, there's a -- we're just not at a point -- if we had every business growing slightly above the market, I think we’d be much more confident in bringing up the lower end of the range as well. I mentioned in the prepared remarks, we’re not there yet in either Baby or Grooming, which are two large businesses.

So, again, our change in guidance range is a positive one, it's built on confidence but also informed by open-eyed objectivity in terms of the difficult deal environment that we face.

In terms of pricing -- kind of price mix across developing and developed, as you'd expect, given the devaluation levels of developing market currencies, pricing level is higher there. The combination of price mix is call it 5% to 8% kind of range.

In developed markets, it’s more even with price positive and mix a slight negative, given for example, the relative performance of Gillette versus some of the other businesses. So, no different pattern than I think you'd expect to see..

And your next question comes from the line of Lauren Lieberman with Barclays..

Thanks. Good morning. Jon, I was curious, if you could talk a little bit about enterprise markets and the organizational structural changes, and you shared this to the Street now couple weeks back.

If you could just give us a little bit of color on sort of practical steps that are underway for changing operating structure of those businesses? And also, if going forward you'll be willing to talk about kind of growth rates you are seeing for enterprise markets versus focus markets? And I guess even this current quarter, what growth looks like for the U.S., what looks like for developed markets in total and then developed non-U.S.?.

Okay. A lot in there, Lauren, which I will try to deal effectively with. As you mentioned, you used the word weeks, which is the appropriate word to use of the time spent since we first started talking about the new structure, and we've been working hard since then to bring that to life.

As we indicated, we want to go into next fiscal year, July 1st with that structure fully alive. And, we spent a fair amount of time defining what the -- what role each organization is going to play.

And I want to be clear that there's -- the design intent here is to drive global categories but approach that growth opportunity in two different ways, one in large and largely developed markets and another that we think will be more effective in the enterprise markets.

But, it's not -- the enterprise markets, I expect will -- not expect, I know their strategies will be driven by the global strategies of the categories, our supply chains will be global, managed by the global categories. Our pricing strategies will be informed by global pricing categories.

And really the enterprise markets job becomes maximizing the opportunity given those parameters on a daily basis, making decisions real time in the markets without having to do a lot of internal transaction processing to get decisions made. And we'll be clear about that as we get closer to implementation. But I think it really holds promise.

When you operate everything one way, by definition, you play to the least common denominator everywhere. And we want to move off of that and we think this is a much stronger approach.

We are not going to change our segment reporting but we will continue to give color on what's happening in important markets whether they’re enterprise markets or focused markets, just as we have today.

And in terms of the growth rates for the quarter we just completed, if we look at developed markets, classically defined organic sales growth was 2%, there's some variability within that, I mentioned Japan at 9%, the U.S. was a little less than 2%, developing markets growing in the last quarter at 7%..

Your next question comes from the line of Andrea Teixeira with JPMorgan..

Thank you. Good morning and congrats on the quarter. So, Jon, I wanted to go back to the pricing but layer it with the A&P spend. You had about 200 basis points benefits on price mix on the top line but about 50 basis points gross margin benefit.

So, is that a result of the change in accounting for promotions or increasing support to the brands as you introduced the price increase and that gap should narrow going forward to your benefit? And if I can squeeze in a second question on the China diapers, can you update us on what happened this quarter? So from the declining volumes in the previous quarter due to pricing, did it normalize, and what should we expect going forward? Thank you..

Let me handle the second one first. We had a difficult quarter in China in the first quarter as you alluded to with sales down double digits. The quarter that we just completed, sales were up double digits, up about 12%.

We performed very well in the two major online events in the quarter, which were our 11/11 and 12/12, becoming the number one diaper brand on both JD and Alibaba. The premium part of our business there continues to do extremely well, about a 280 index versus year ago; that's taped and pants.

And that's encouraging because that's the fastest growing part of the market. Our overall share grew past three months by a little over a point. Again, most of that in the premium segment of the business, up about 3 points overall, up about 5 points online.

We do continue to experience significant softness on the mainline taped business, which is down about 25%, and we did lose a little bit of value share there. But, that shift largely reflects market shifts in terms of preference for premium offerings.

You can look -- the obvious question, as you look at those two quarters is, which one is -- which one represents the future. And we're fairly confident about back half growth in China; we’ve got a very strong program with Chinese New Year and strong innovation plans.

I apologize on your first question, which is why I went to your second question first. I'm not quite sure what you're asking, but I am happy to talk to you later in the day, or you can talk to John, and it's my shortcoming for not catching it at all.

But, relative to mix, the fastest growing portion of our business is -- was just indicated in the discussion, on Baby Care and also in the discussion we had earlier on Fabric Care, has tended over the more recent periods of time to be driven by the premium part of the portfolio.

And what I think sometimes gets misunderstood is that doesn't necessarily mean the higher margin part of the portfolio. So, take laundry as an example.

If you assume just for a second, and we don't assume this, but assume we have a fixed number of loads that are done across the world every year, if we can do -- if we can receive more revenue for each one of those loads and generate more profit for our shareowners on each one of those loads, I don't care a whole lot about margin.

We've -- we're creating value. And so, what you see in some of those premium offerings is higher per unit, per use profit, albeit at a slightly lower margin. And as those items grow faster than the balance of the portfolio, you see that reflected in margin mix, for instance, on the gross margin line.

I'm not sure that's what you were asking, but that's one of the drivers and at least the gross margin mix currently..

Your next question comes from the line of Steve Strycula with UBS..

So, given your recent success in a lot of market share gains, particularly in the United States and private label also gaining share, how are the retailer conversations evolving as planograms are getting reset? Is there a difference in the category assortment conversation, meaning that Procter continues to consolidate number one, and number two and number three brands get displayed? How does this also shape their outlook for the ability to lean in for store-brand offerings? Thank you..

As you can imagine, an aggregate level answer to that question is not terribly relevant, it's very different across categories and across retail partners. I mentioned, first of all, just from a premise standpoint, the private label growth, that's occurring largely in 3 of our 10 categories.

And even the level of private label market share that exists is very different across the categories from relatively well-developed to almost non-existent. So, the conversations are different and varied. Having said that, a couple generalities that I would draw.

I can't imagine -- well, at least in my experience, which is somewhat limited in this regard. But, I can't recall a conversation with a retail partner that wasn't interested in category growing, category driving premium price items.

They're very interested in that as a quickest way for them to grow their market basket and their organic sales line and do it in a sustainable, constructive fashion. I think there continues to be room, just given the diversity of consumers for both types of offerings and most retail outlets. I don't see this being an either or type of game.

I do think the point that you made about market leaders and drivers of market growth; and items on the other end of the portfolio is kind of bipolar, if you will, growth strategy is in play at some retail customers. And as a result, I think the least attractive place to be right now is in the middle. And that relates both to performance and price..

Your next question comes from the line of Bonnie Herzog with Wells Fargo..

Thank you. Good morning. I wanted to circle back with the question on your guidance. And while you raised your top-line, you did maintain your EPS growth and you called out a few headwinds that will impact your bottom line.

But, could you talk further about the cost of growth as you see it and then your expectation for this going forward? And then, in other words, is it a fair statement that in this environment it's simply costing you more to generate faster growth?.

I don't necessarily -- I understand the nature of the question and I have an appreciation for it. I wouldn't say though that broadly that's the case. If you look at the quarter we just completed, our growth was among the highest of recent quarters. That's now true for two quarters.

And if I look, for example at our marketing spending as a percentage of sales, because of all the productivity initiatives that I described earlier, that number -- while we have a stronger marketing program than we've ever had with higher reach that we're investing in as we reduce access to frequency, reduce agency and production costs, et cetera, so very strong advertising program, it's not costing us more per, if you will, dollar of revenue gained.

Also, I know there was a lot of concern and justifiably so, a couple of quarters ago across the industry relative to promotion levels, and those have generally are come down, both in our case and in the case of competitors, which you would expect as you are generally in a cycle of price increases.

So, the data that I have while I'm sure I could make a use case to support your point, broadly doesn't seem to be representative of the world that we face. Now, I do think the premium that’s placed on excellence of execution has increased.

There's no room for anything other than excellence, which is why we continue to bang the drum internally and externally on superiority but I don't -- if you do that well, there continues to be a strong appeal as witnessed again by the faster growth and some of the premium priced items within the portfolio.

So, I don't think in aggregate, we're in a place where the cost of growth has to be higher..

Your next question comes from the line of Bill Chappell with SunTrust..

Thanks. Good morning. Jon, just coming back to Grooming, we're about to hit the two-year anniversary of the price cuts in the U.S. on the systems. And so, I'm trying to understand with where you stand now with seeing still some organic growth declines with kind of market share being relatively flat.

As you look back, was that a good idea, is it something you would have repeated? And does it say something about the category that having to do that kind of cuts two years later still keeps you just status quo that the category really has more challenges beyond price that you're facing?.

If you look at the first half growth rates in Grooming, the business is essentially flat versus a year ago with much better volume share and value share trends than was the case prior to the pricing. So, we've basically stabilized the share position on the business, which is important.

Which leads you to your second question, which is the right question, and there is a lot that's impacting the categories that's outside of that pricing dynamic. And the biggest impact is the societal impacts in the incidence of shaving, both in -- both here and in Europe.

The good news is, the market decline across manufacturers that's occurred as a result of that is waning. So, the drag on a quarter-by-quarter basis is lessening. The good news is, as I mentioned that our share positions are stabilizing and strengthening.

And that's why relative to an earlier question, we talked about a reasonably strong business in the back half of the year. Big innovations come in as well with SkinGuard, both here and in Europe. So, I called out that business as one that requires more attention and more effort to fully turn. That remains the case.

Looking back in one person's judgment, were we wrong and taking that pricing? Absolutely not. And has it been effective in terms of stabilizing our share position? Yes..

Your next question comes from Joe Altobello with Raymond James..

Thanks. Hey, guys, good morning. Since we’re talking about Grooming, I guess I'll start there. First, was weakness that you saw in response to the emerging market pricing this quarter worse than you expected or in line? And secondly what was U.S. organic growth in the quarter? And I think you mentioned the U.S. market growth was below 2%.

So, what did market share trends look like versus the 40 basis-point gain you saw last quarter? Thanks..

So, I'm not sure Joe that I can give you precise answers across all of your questions on the call but you can follow up with John and get the specifics. Generally though, the trends were difficult in the U.S. with the first full quarter of the Harry's expansion et cetera, and better in other parts of the world.

And John can give you a further breakdown of that..

Next, we'll go to Robert Ottenstein with Evercore ISI. .

Great. Thank you very much. In past quarters you've talked about the disproportionate market share gains that you're getting in e-commerce. And I'm wondering, and you talked a little bit I guess about that in China diapers. I’m wondering if you could give us a little bit more details on how you're doing in e-commerce in the U.S.

and China by category, and how that's playing out in terms of share? Thank you..

Generally doing very well in e-commerce, 30% growth last quarter, now approaching about 8% of our business. We're finding success across e-tail customers. And across categories, obviously there's a degree of variability there. But, I think the general message and the takeaway is broadly successful. We don't take that for granted for a nanosecond.

It's a very fast-growing part of the business that we're constantly adapting our offerings to serve.

And that's everything from the way that offering is communicated to a consumer, to the size of the package, to the ability of the package to survive the journey to a consumer's home and our relevance to the individual e-tail partners, but broadly, very successful..

Next, we'll go to Jonathan Feeney with Consumer Edge..

Two questions real quick. First, picking up on a comment you made in the very opening statements.

You mentioned that the highest margin competitors you have, I think Reckitt, Colgate you called out, cited their exposure to health care as the reason for the segment to the higher margin? Is that true of your own segments and does that tell us something about the maybe the direction? What kind of dynamics are present that maybe are present in your health care portfolio or elsewhere that maybe are instructive for your direction? And second question is, oil is down 35% in the quarter -- end of your last fiscal quarter into this fiscal quarter that you just reported, historically that's been a reasonable indicator of prospective costs.

Can you give me a couple of big clouds for why that might not be the case of this time? Thanks..

Consumer health care margins, to your first question, are generally very attractive. We find that to be an attractive business. It's both a business that has historically grown at very attractive rates and it's done so at very high margins, relatively high margins.

And that does explain part of our interest in that category and does explain some of the actions we've taken to increase our presence in that category.

And I've been talking for a long time, when asked about where we're interested in adding to our portfolio, I've typically mentioned OTC health Care and Skin and Personal Care as areas that we have both the freedom from a category concentration standpoints and generally the financial attractiveness to at least responsibly explore opportunities to add to our portfolio in those categories.

And I would not expect that to -- that should continue. In terms of the question -- your question on oil price, two quick points to make there. One is, and I know this wasn't your question, but just for clarity, given the opportunity.

About 1% of our commodity exposure is kind of directly oil; about 5% of our commodity exposure is highly correlated to oil in relatively short periods of time.

There's another big chunk of our commodity exposure that is to the petro complex, but that is not highly correlated in short periods of time to the price movements of oil, it's more driven by demand and supply dynamics within those individual supply chains.

Typically, the bleed through effects, if you will take 6 to 9 months, which is why in this update you don't see us making big changes, because within the forecast period we're talking about, which is the next five months, but we're not expecting big changes.

But, clearly, to the extent that those prices stay low, we would expect some bleed through to our commodity costs over time, obviously things like pulp are unaffected by that as are some of the other materials.

I know this wasn't part of your question either, but for completeness, lower oil though is not necessarily a net positive from a holistic earnings per share standpoint. It will have some impact on commodity costs, as we’ve just discussed, but it also has impacts on consumer confidence and on personal budgets in producing countries.

And it can have a significant impact on the ability to purchase products in our categories in those countries. So, you need to be careful as you look at oil, both relative to its direct cause and effect on our commodity structure, but also the impact it has on the demand environment..

Your next question comes from the line of Mark Astrachan with Stifel..

Thanks and good morning, everyone.

I wanted to ask you just first, broadly, any change in how you think about category growth on a global basis? And then, depending on I guess the answer to that, are you seeing any increasing distance between your growth or maybe even broadly kind of the haves and have-nots across various categories and geographies? In particular, if you go back to a couple of years ago, local and regional competitors, I think have generally done a better job than they did maybe 10 years ago.

Is that gap narrowing between the multinationals and local and regional? If not, is it some of the bigger multinationals are kind of stepping the game and pressuring some of the others? And I say that more on a developing market basis, just given that you’ve had much stronger growth in that business than in developed markets, but feel free to answer kind of how you see it across whatever geographies makes sense..

Category growth is improving slightly, which is very encouraging. And we see that fairly broadly. We see that in the U.S., we see that in developing markets. So, that has been a positive dynamic and is a recent dynamic. Don't get me wrong.

We're not talking about categories moving from a 2.5% growth to 5% growth; we're talking about categories moving from 2.5% to 3% growth on a global basis. But all good, all good. In terms of the near-term competitive environment.

The local and regional brands are continuing to perform extremely well from both the growth rates -- primarily from a growth rate standpoint, but also, if we look at who's gaining share, in many cases, they are the share gainers, where we've lost business and lost share that has typically been -- and obviously this is a highly general aggregate statement, but has more frequently been to those local and regional competitors than to our global multinational competitors.

So, there are clear exceptions to that. So, the gap continues to narrow. That is -- that explains a couple of things in terms of our own strategy.

One, again is to redouble our efforts on meaningful obvious superiority and that's not just versus branded manufacturers, that's versus private label manufacturers; that's not just against global competitors, that's against local competitors. And that is extremely important that we maintain a positive position there.

The other, as we have made our real effort to distribute resources more in market as opposed to at regional or global headquarters.

China is very good example where we’ve been very intentional in doing exactly that for exactly the reasons you cite, being as close to those consumers as we possibly can, being as close to the evolving competitive environment as we possibly can and its’ made a real difference.

So, again, we, as you know in the quarter we just completed, are in a share growth position. But we don’t take any of that for granted and are considering the entire competitive set as we calibrate the sufficiency of our efforts..

And your final question comes from the line of Jon Andersen with William Blair..

Hi, everybody. Thanks for fitting me in, and this is a bit of a follow-on to the last question.

Jon, can you give us kind of a broad-based update on the global supply chain work that you’re doing? And the reason that I am asking is, I am wondering whether you’re considering this work more kind of table stakes in terms of serving retailers and channels and end consumers or whether you’re working towards the infrastructure you think can be that can be truly differentiated and kind of a source of competitive advantage, maybe through better unit costs, speed to market, service levels, et cetera? Thanks..

Good question, Jon. and I would say, the intent is both. Retailers are demanding more in terms of service levels on the part of manufacturers, and we need to restructure and retool ourselves to be superior in delivering against their needs.

I do believe that in addition to that -- to those table stakes moves, as you described that we need to make that there are real sources of competitive advantage that we’re creating through our supply chain transformation.

A simple aggregation of multiple categories within a site has a huge impact on unit costs, 50% of the cost of manufacturing facilities, the infrastructure of that facility, the roads, the rail spurs, the utilities et cetera.

Even more importantly, the service we can provide as a multi-category supplier with full trucks at -- and quantities for each category that work for individual retail partners at very effective costs because we can combine both products that cube out truck and products that weight out of truck, and can deliver those products on a daily basis to our retail partners is a real competitive advantage.

I think the ability to, if you will, white paper our processes and manufacturing platforms, I talked about robotics and the digitization that’s recurring at our factories. We will make step function improvements -- exponential improvements versus where we were and I think where most of our competitors, not all but many of our competitors are.

So, thanks for raising the question. I think it will serve both. We’re still midstream in our efforts here, so there is more work to do and there are more savings to come. I want to thank everybody for your time this morning.

Again, we’re very excited about the first half of our fiscal year and the progress we’ve made, but are not declaring victory, have more work to do to further improve results and are committed to do that.

Please take the increase in the topline guidance as indicative of confidence, not fear, but wanting to be very realistic with you about the environment that we see and we operate in. And hopefully we'll continue to make progress. Thanks a lot..

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