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Procter & Gamble Co  (NYSE:PG)
Q1 2019 Earnings Conference Call
Oct. 19, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

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'll turn the call over to P&G's Vice Chairman and Chief Financial Officer, Jon Moeller.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Good morning, John Chevalier joins me here. We are going to keep prepared remarks brief, reflecting a fairly straightforward quarter and Investor Day right around the corner. I'll provide headlines on the quarter's results, just a few comments on strategic focus areas, and update fiscal year guidance, before turning in the call to your questions.

We continue enabled by superiority, productivity and creating a more focused agile and accountable organization and culture to make important progress toward our objective of delivering balanced growth, top line, bottom line and cash.

We are accelerating organic sales growth, driven by strong volume and consumption growth, with market shares improving and now growing on an aggregate basis. Organic sales grew 4% driven by strong organic volume growth of over 3%. Pricing was neutral to the quarter with mix of positive 1 point impact to top line growth, nine of 10 global categories grew organic sales. Skin and Personal Care grew in the teens, Personal Health Care double digits, Fabric Care, Home Care, Feminine Care, Family Care and Grooming each grew organic sales mid-single digits. All channel consumption very strong up inline with organic sales and ahead of the underlying market, driving as I said, a return to aggregate market share growth.

Thirty three of our top 50 category country-combination held or grew value share up from 26% last fiscal year, 23% the year before that and 17% in the year before that. So reversing that progression 17%, 23%, 26% 33% of our category-country combinations holding are growing value share. Similar progress in our largest market, the US. In September of 2016, one category growing share over the past 12 months, September of '17, three categories, currently eight categories. 40 basis points of share growth overall in Q1.

While making good sequential and absolute progress, we do continue to face several top-line challenges. We've previously highlighted market level issues in Saudi Arabia and the Gulf markets, Iran, Algeria, Egypt, and Nigeria. We have large businesses in the Middle East and Africa nearly $3 billion in sales. Organic sales in the region were down nearly 10% for the quarter about a 0.5 point drag on Company organic sales growth. We had a very good quarter in Grooming with organic sales up 4%. But we're going to continue to face challenges on this business. As I said, we're making good progress, look at the US, for example, US male blades and razors value share up from a four point decline in fiscal '17 to down 30 basis points in fiscal '18 to nearly a full point increase over the last six months which includes the impact of a major competitive launch during the period.

We're growing all-outlet volume share on a past one month, three month, six month and 12 month basis. But we are going to continue to face challenges from value tier competition in-store and online and several markets. While we expect trends to improve Baby Care sales were down for the quarter. We continue to build on the success of our diaper pant products. Pampers is the global share leader in pant-style diapers, with nearly a 30% share of the form which is growing at a double-digit rate. Taped diapers have been the soft spot mainly in the mid and value tiers. So top-line challenges remain and improvement won't come in the form of a straight line, but the consumption volume sales and share are each progressing nicely.

Moving to the bottom line, core earnings per share were $12, up 3% versus the prior year. Foreign exchange was a $260 million earnings headwind about $0.10 a share. On a constant currency basis, core earnings per share up 11%. This against the backdrop of significant commodity and transportation cost challenges, about an additional 5 points, net strong underlying earnings progress. Core gross margin contracted 150 basis points as the 170 basis points of productivity improvement were offset by a 100 points of commodity cost increases, 60 points of foreign exchange headwinds and 160 points from mix innovation investments and other impacts. Adjusting for currency and commodities, underlying gross margin was up slightly. Core SG&A cost decreased 80 basis points as a percentage of sales, down 150 basis points excluding FX impacts driven by sales leverage and strong productivity improvement. As a result, core operating margin decreased 80 basis points including 250 basis points of productivity savings.Constant currency core operating margin increased 50 basis points excluding currency and commodities, core operating margin was up 150 basis points, cash flow remains dependably strong with adjusted free cash flow productivity of 95%. We returned over $3.1 billion of cash to shareowners , nearly $1.3 billion in share repurchase and $1.9 billion of dividends.

In summary, a very 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 in the most dynamic and challenging environment we've faced in a very long time.

We're accelerating change to meet these increasing challenges and to further improve results. We've made a deliberate choice to invest in the superiority of products, 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 shows in these results.

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 underscore the importance of productivity. We're driving cost savings and efficiency improvements in all facets of our business. Approaching the midpoint of our second 5 year $10 billion productivity program. We've consistently delivered $1.2 billion to $1.6 billion in annual cost of goods sold savings.

We expect to be toward the high end of that range again this fiscal year. 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 and media delivery. We continue to -- excuse me -- we're continuing to drive savings and organization cost. Total enrollment now down nearly 30%, since the start of our first productivity program, closer to 35% when including contractor roles. We're focused on cost productivity and cash. We've made significant progress in all areas of working capital. Over the past five years, we have improved receivables by three days, inventory by 10 days and payables by more than 30 days, enabling us to fund capital spending needed to transform our supply chain.

Over the last seven fiscal years, we have averaged nearly 100% adjusted free cash flow productivity, returning an average of over 110% of reported net earnings to share owners through dividends and share repurchase. We're making needed organization structure and culture changes to position us to win. We're taking steps to simplify the organization structure, clarify responsibility, increase accountability. We're supplementing internal talent with skilled experienced external hires and improving category dedication and mastery. We're strengthening compensation and incentive programs, increasing the granularity of annual bonus awards, expanding participation in both the annual and three year bonus programs, changing evaluation metrics to focus more on performance relative to competition, and performance of local teams.

We're increasing the amount of total compensation at risk and widening the payout range to deliver greater upside reward and downside consequence from over or under performance. Each of these organization and culture changes are aimed at creating a company designed to win in today's market with today's consumer at the speed of the market, more agile, more accountable, more efficient, more productive. We're committed to lead constructive disruption in our industry across all areas of the value chain, innovation, supply systems, consumer communication, and brand building, retail execution, sustainability. Constructive disruption will be the central theme of our discussion on Investor Day.

Moving to guidance. With one quarter of the year complete, we are maintaining organic sales growth guidance of 2% to 3%. Pricing should turn progressively more positive as we go through the year, but this will increase volume uncertainty and volatility. We now expect all-in sales growth in the range of down 2% in line versus last year reflecting three to four negative points of foreign exchange.

We're maintaining core earnings per share guidance of 3% to 8%, where we land in this range will be significantly impacted by FX, by commodity costs, by the competitive and consumer response to planned pricing and by our own productivity efforts. We're not currently at the high end of this range and less than the three months since our last earnings release, the foreign exchange headwind on earnings increased by $400 million after tax, $900 million in total for the fiscal year. The Turkish lira devalued 25%. The Argentine peso more than 40%. The Indian rupee nearly 10%. Commodity costs are expected to be a $400 million headwind. Crude oil, a key feedstock for many raw materials is up more than 50% from this time last year. Trucking costs will likely be up 25% or more versus last year's inflated levels. Combined FX and commodities are now $1.3 billion after-tax or $0.50 per share headwind versus last fiscal. This excludes elevated transportation costs. As commodity prices and foreign exchange rates move, we will take pricing when the degree of cost impact warrants it and competitive realities allow it.

We've already announced pricing in US Baby Care and Family Care. We've also informed retailers that we will increase prices on several products in Home Care, Oral Care and Personal Care coupled with innovation launches early next calendar year. We've announced pricing in several developing markets including Argentina, Turkey, and Russia to offset at least a portion of the FX impacts. There will be 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 simply have to adjust as we go and as we learn. Importantly, excluding the macro impacts, every point of our core earnings per share guidance range reflects strong double-digit constant currency earnings-per-share growth. Our priority going forward will remain protecting superiority building value accretive investments in the business. We won't allow short-term pressures to derail the progress for making toward sustained profitable top-line growth. We continue to expect another year of 90 % or better adjusted free cash flow productivity and another year of strong cash return to shareholders.

We expect to pay over $7 billion in dividends and repurchase shares worth up to $5 billion. This factors in the cash required to complete the acquisition of Merck's OTC business during the year and cash benefit and other deals. 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.

As you consider your quarterly estimates, keep in mind that pricing to offset FX and commodity pressures will begin to go into effect only later in Q2 and accelerate in the back half of the year. So costs and FX challenges will persist and likely worsen as we move into Q2. While we expect to continue making progress on consumption and share, the top line organic sales comp in Q2 is more difficult than we faced in Q1, which will have an impact on reported growth rates.

To sum up, while the external environment presents many challenges, we're making important progress and are accelerating 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 are and will continue driving improved results. We're leading disruption across the value chain to consistently and sustainably grow sales, margins and cash.

We'll talk more about all of these efforts at our Investor Day on November 8th in Cincinnati. We will also ensure you have ample opportunity to interact with Company leadership. We hope, you're able to join us either in person or the webcast. I personally look forward to seeing and catching up with each of you.

With that, we'd be happy to take your questions.

Questions and Answers:

Operator

Thank you sir. (Operator Instructions) Your first question comes from the line of Dara Mohsenia with Morgan Stanley.

Dara Mohsenia -- Morgan Stanley. -- Analyst

Hi, good morning.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Hi Dara.

Dara Mohsenia -- Morgan Stanley. -- Analyst

So this is the best organic sales growth, you guys have had in five years. Clearly, it's probably better than you originally expected and perhaps even in early September at the conference circuit. So -- but at the same time it's only one quarter, the comp was easier, you mentioned some caveats. So just taking a step back and a high level, as you look at the underlying drivers behind this quarter's top line results, how confident are you that you've regained some top line and market share momentum here and the drivers in the quarter are more sustainable, and the culmination of your efforts over the last few years as opposed to just specific to this quarter and also within that answer, the sequential progress you made in the quarter on the organic sales front, can you talk about what geographies drove that and how much of that you think is more P&G market share improvement as opposed to improved category growth? Thanks.

Jon Moeller -- Vice Chairman and Chief Financial Officer

All fair and good questions, though many. I feel very good -- we feel very good about the quality of the top line growth in the quarter and the quality of the number that we're reporting. We feel good about that for several reasons. As I mentioned, consumption is up in line with our top line progress, which is very encouraging, that's reflected in improvements in market share, which I talked about both in the US and globally. The breadth of the growth is encouraging with nine of 10 categories growing sales in the quarter. I mentioned some of the growth rates in our prepared remarks. Importantly, also just the early read in October, you know roughly 55% of the way through that month -- a month means even less than a quarter. But we haven't seen a drop off that you would expect to see in terms of shipments or consumption if the quality of the first quarter number was lacking. Also important is the growth in our largest market -- largest and most profitable market the US, where we are up 4%, on volume growth of 5%. Also that the impact of pricing both in the US and broadly, now neutral versus negative, so all of that leads to our confidence in the numbers for the quarter and the results that we're seeing. There are though some things that are very important to note as we try to project that forward. One, we face very strong competition both multinational and local, who are very active in the marketplace. Two, the pricing that we need to implement to offset commodity and foreign exchange costs is largely not in the marketplace today. There's very little that's actually on the shelf. As I mentioned that will come into play later in Q2 and as we go through Q3 and Q4 and we know that that will introduce volume volatility and uncertainty.

So we're happy with the numbers. I don't think there's anything that's suspect within those results but we still have a lot of work to do as we go through the balance of the fiscal year.

Operator

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

Olivia Tong -- America Merrill Lynch. -- Analyst

Thanks. Good morning. Following on my question, I mean -- maybe we can turn a little bit to the emerging markets because clearly, you saw a strong acceleration of organic sales, I imagine in emerging markets too which sort of contrasts with the theories (ph) in the market over GDP growth slowing and the impact of FX depreciation, so can you just walk through what you think drove the improvement in that particular area. Are you mixing up or upwards -- have you started to take price in some cases where inflation has warranted it. And are there particular markets or categories that are particularly surprised for the better, and what are you doing to keep that momentum going? Thanks.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Thanks, Olivia. Against the backdrop or the broad question on the strength of emerging markets, as always those markets are extraordinarily dynamic. I mentioned some of the challenges we're facing for instance in the Middle East and Africa and I would be not serving you well to overlook those. Having said that, the large developing markets where significant future growth should present itself continue to perform fairly well, double digit growth -- high double digit growth in a market like India, Brazil doing well in the quarter. China, if you still consider that as developing market up 7% the past 12 months, which is a significant acceleration from where we were at negative 5% just two years ago. Encouragingly, that progress in those markets reflects the Company progress across the breadth of the portfolio. So it's not just one category driving sales. I get the question quite frequently, you know, what if we excluded SK-II and what impact would that have. There isn't a piece of our beauty business that isn't growing, right now most of it growing at very attractive rates. Several of our categories in China are growing at double digit rates and a couple of high singles. So I continue to believe that this could change tomorrow. But as we sit here today, the setup in developing markets is relatively strong, absent those markets with significant geopolitical disruption and absent the markets where we've seen significant devaluation and their pricing will -- will be obviously required.

Operator

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

Ali Dibadj -- Bernstein -- Analyst

Hi, guys. So how should investors think about the profit pool of your whole HPC sector right now? So pricing is not keeping up with inflation and even going forward with the incremental pricing, it sounds like you want to take -- you won't keep up with inflation. So gross margins will be down but gladly for you guys, you have drastic (ph) cut, you're doing well in productivity, you can deliver on the bottom line pretty well. But how do you foresee that looking for kind of the HPC category overall, your competitors in terms of the profit pool. I guess, many of us are trying to figure out if your -- you know, again kind of this nicest house on a deteriorating HPC neighborhood. And we'd just love to hear your perspective on that.

Jon Moeller -- Vice Chairman and Chief Financial Officer

As I think about it in aggregate, I'm not in a terribly different position looking forward now than I would have been this time last year or this time three years or four years ago. There is -- in terms of pricing relative to inflation that's just beginning to be brought into the marketplace not just by us but you've heard most of our competitors both multinational and local talk about the same thing. And that will work its way through the income statement as we go through the balance of the next calendar year and the end of this calendar year. I don't know how that's going to play out, but I don't have any definitive indication that it's going to play out negatively.

Innovation continues to be a significant source of margin and profit expansion within the industry. That is alive and well. And you see it in items like unit-dose detergents, in fabric enhancer beads, you see it in adult incontinence, you see it in some of the naturals launches Pure Pampers as an example. So I continue to believe that that is a significant source, and an important source of both category growth for us and retailers and margin opportunity for both us and our retail partners.

You mentioned productivity, there are additional tools available today to US and others that offer unprecedented opportunities in terms of automation and digitization to improve cost both on the manufacturing floor and on the office floor. Tax rates for US companies, the tax outlook is significantly better than its ever been with lower rates than have been the case. We are seeing and this is important I think, modest increases in market growth rates including and most importantly in the US and that has a big impact on behavior both across the manufacturing environment and the retail environment as you would expect. There are definitely headwinds, interest rates are a headwind for US borrowers that differential in interest rates between the US and other countries is leading as we all know to significant strengthening of the dollar, which is a real challenge that we've talked about. And commodity costs and transportation costs are up significantly. But if I look back over the past decade and different years all of those factors have been present. So there's nothing unique other than perhaps the very significant macro impacts, which hopefully will be short term in nature that preclude HPC companies for -- from building value for shareholders as we go forward. Although the long term fundamentals that you'd have to believe in that support market growth, which is the most critical driver of growth, top line and bottom line are in place, population growth, income growth -- an industry that largely continues to focus on innovation as a way to grow its business and it's early in the earnings cycle but I just look at other competitors that have reported J&J and Unilever as two examples. I'm very happy to see significant progress on the top line in those companies as well. That is not indicative of an environment that is problematic for any of us.

Operator

Next, we'll go to the line of Wendy Nicholson with Citi.

Wendy Nicholson -- Citi -- Analyst

Hi, good morning. Just -- first a housekeeping question on Gillette. Those numbers, the Grooming segment was a lot stronger than I had anticipated based on the tracked channel pickup (ph) in the US. So can you talk about the Gillette performance in the US specifically and how much is the Gillette Shave Club growing versus what we're seeing in tracked channels? And then another question if I can, is just the pricing conversations you're having with retailers, there's been a lot of skepticism I guess among investors I talk to about whether you're going to be able to get those prices through, whether retailers are going to push back, whether you are going to have to do more promotion to offset that, et cetera, et cetera. But if you're taking more pricing in Home Care and Personal Care maybe the conversations you're having with retailers are more productive. So can you comment on that just at a high level, how easy is it going to be for you to realize that pricing in the market? Thank you.

Jon Moeller -- Vice Chairman and Chief Financial Officer

The Grooming business in the US, let me just -- well it continues to -- it is very strong plus 10% sales growth in the quarter, on volume growth that's higher than that in the face of the competitive expansion. As I was very careful and hopefully clear to describe in our prepared remarks, there will be challenges ahead but it gives us a lot of confidence that the strategies we're putting into the marketplace are in fact working as we expected them to. As it relates to offline versus online that's much more than a Gillette Shave Club dynamic. That's a broader channel switching dynamic and we continue to do reasonably well. So we have more work to do offline in that business -- excuse me, online in that business versus offline. We believe based on the data that we have, we're seeing significant growth in Gillette Shave Club users and believe based on the data that we have that we're the only one growing users in the US. That's not a global comment. So generally, I mean, we're very cautious. We have a lot more work to do. The competitive activity in the space is very strong and early in its lifecycle. But we take a lot of encouragement from the progress we saw in the quarter.

Operator

And next, we'll go to Nik Modi with RBC .

Nik Modi -- RBC Capital Markets LLC -- Analyst

Yes, thanks. John, I was hoping you can talk about just the Skin Care business in general. I mean, that's -- that's an area that outside of China and SK-II has struggled for a number of years. And I was hoping, you could just kind of touch on it in the context of A, what's going on with the Skin Care category in China because it's not just you guys that seems to be a lot of the beauty players are having some pretty nice success there, right now. So just curious about what you're seeing from the consumer standpoint and then maybe you can touch on Olay Whips and kind of what that has meant to the overall Olay franchise.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Right. Nik, I'm going to come to that. I'm actually going to step back. I apologize, I'm not good at keeping track in my head at multipart question. This isn't your fault, isn't my fault and so I neglected Wendy's -- to answer Wendy's question on pricing, and I want to come back to that, and then I'll come to Skin Care and Olay, Nik.

Sorry about that Wendy. In terms of support for pricing, the commodity cost impacts we're talking about are significant. So I talked about oil as an important feedstock for many of our raw materials being up 50% year-on-year, transportation cost being up 25% after a year, where they were up significantly before that. And those are all costs that retailers see and understand in large part because they face the same cost increases in their private label brands. And certainly from a transportation standpoint, they're seeing all the -- all the impacts that we are in and more. The questions that investors are raising relative to all the questions that you mentioned, relative to pricing are the right ones to raise and I wouldn't dismiss any of them. But the conversations to-date have been encouraging. What we don't have visibility on to-date are the whole array of competitive activities. So it's -- I am certainly not sitting in here today declaring victory. There's a lot of work and volatility ahead of us. But so far nothing, as I said earlier, that's definitive that has me overly concerned. Now, Nik, going back to your questions.

The Skin Care, if you look at Skin and Personal Care, which is how we look at the business. Organic sales increased in the quarter double digits about 13% and very, very encouragingly that growth is broad-based. So SK-II, up over 20%, the balance of the Skin Care portfolio up close to 20%, Personal Care up mid to high single digits, deodorants growing as well. If you take the 7% Beauty segment growth and exclude SK-II, you would have seen growth of 5% in Q1. So again that's reflective of very broad growth in the beauty portfolio. We are growing share across that total business with all segments either growing or holding share.

In terms of China, we delivered across the (inaudible) the Skin and Personal Care portfolio 22% growth in Q1, SK-II did lead that as you would expect. But Olay was close to 20% growth, Olay Skin has now delivered six orders of double-digit growth in China led by both innovation, things like Olay Whips but also the revitalization of the in-store experience and the Olay beauty counters. So we also are seeing good growth not just offline, but online in the skin business where e-commerce sales if we look at the past 12 months of Skin Care up 60%, they are up 50% calendar year-to-date ahead of the market. So it's a broad success story not simply SK-II.

Operator

And your next question comes from the line of Stephen Powers with Deutsche Bank.

Stephen Powers -- Deutsche Bank -- Analyst

Hi, good morning. Thanks. Maybe just to build on -- Jon on your response to Wendy's question on pricing. I want to drill down a little as it relates to baby and family if I could just because that's been where I think the pricing discussions been most in focus given your pricing announcements last quarter. And on the one hand, I think we're all expecting some improvement there which is obviously constructive but on the other hand, as you've called out, there continues to be investment in value tier products and in particular loves (ph) for you. So I was hoping, you can address any potential tension that you're seeing there and how you see aggregate net pricing trends unfolding as a result both in baby and family and in other categories as you take incremental pricing. I'm just curious if this is something specific to baby that we should think about or if this sort of tug of war if that's the right label, is something we should extrapolate to other categories? Thanks.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Steve, my answer will likely frustrate and I apologize for that in advance but it's really too early to sort this out in a meaningful way for you. All signs -- early signs are positive both in terms of retailer acceptance of the price increases and importantly of competitive announcements both branded and private label manufacturers of their intent to take pricing. But it's not in the marketplace broadly. There are some -- some of the Baby Care pricing is in the market but it's really, really early. We'll know a little bit more by Analyst Day but not a lot given that's only three weeks or four weeks away. So this is a conversation we're going to continue to want to have, as we go through the end of the calendar year and the beginning of next calendar year. I apologize for what may rightly appear like a non-answer but it is just because I don't have one yet.

Operator

All right. Next, we'll go to Lauren Lieberman with Barclays.

Lauren Lieberman -- Barclays -- Analyst

Great, thanks, good morning. I wanted to just ask again about the US, because at our conference in September, Jon, I feel like you really went out of your way in several forums to discuss the disconnect between the strength that we were seeing in Nielsen and what you expected to see in terms of reported results. So mentioning things like long term inventory destocking in the retail trade, dynamics and year-over-year kind of couponing cost to implement some of the in-store activity that you're doing in to improve display and support for your innovation. So if you can just talk about what changed frankly between early September, where again you really made a point of saying -- don't look at the scanner and helping shaped up and as we look forward, those three -- really the two dynamics, the long term inventory destocking at retail and costs that have a better presence in store to support your innovation. How do you expect that to impact US trends going forward? Thank you.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Fair question, Lauren. Part of the discussion that we had on retail inventory destocking, you'll recall was -- and frankly the largest part of the question had to do with channel mix, and the relative mix of online versus offline with online being generally lower inventory carrying channel. And one of the things that occurred as we went through the quarter is that some of the significant investment that online retailers were making in consumer acquisition decreased relatively significantly and so while still growing ahead of offline, the growth rates in online at a market level as the quarter worked its way through ended up being significantly less than had been the case for instance the quarter before -- the quarter before that.

And that's one of the drivers of the impact. There was also a fair amount of channel mix beyond just the offline, online dynamic that changed as we went through the quarter which had an impact on where we actually came out. We were -- we try to be very clear that the investments we are making with retailers were in assets not just additional trade spending and that we hoped that those investments in assets whether that was displays whether that's placement would earn the return that we expected it to do and that has largely occurred. And we had even greater strength than we expected on some of our innovation launches, Pampers Pure for example which now leads the natural segment in diapers in tracked channels. So a number of relatively favorable things came into play. Can those reverse themselves over time? Certainly. But I also look at the progress that we made in market share as indicative of relative strength that should continue working for us as we go forward.

Operator

Your next question comes from the line of Joe Altobello with Raymond James.

Joseph N. Altobello -- Raymond James & Associates, Inc. -- Analyst

Hi guys. Good morning. So I guess, first, Jon, earlier you did allude to a modest acceleration in market growth both here as well as internationally. I was curious, what was driving that. Is it more volume-driven, are you seeing more trade up or is this more reflective of less emotional activity. And then maybe secondly on Grooming. Obviously, that stood out and I know it's one quarter, I know you've gone to great pains this morning to say it's one quarter, but what would we need to see for you guys to declare that that business is fixed. Thanks.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Drivers of the increase in market growth are all of the above, Joe, So if you just look at our business as representative -- the 4% sales growth in the US was on the back of 5% volume growth. So there is some acceleration in unit consumption. We continue to see the premium parts of the portfolio in many cases growing at a faster rate than the balance of the portfolio. So with innovation and mix up, that's occurring. The promotional levels aren't significantly different quarter-to-quarter or year-on-year. I mean, you have the Nielsen data. The percentage of our volume that moved on consumption on promotion is not significantly different from either the prior quarter or the year ago quarter. And fundamentally, we have -- as we all know a very low unemployment rates. Some increases in wage rates generally strong, consumer confidence and it's playing through across all the drivers at a very modest level of acceleration of market growth that you would expect to see. On Gillette, I'd like to see four quarters to six quarters to eight quarters of continued progress and that's certainly what we're working to achieve.

Operator

And next, we'll go to Bonnie Herzog with Wells Fargo.

Bonnie Herzog -- Wells Fargo -- Analyst

Thank you. I wanted to circle back to China with a couple of quick questions. What was your total organic sales growth in the quarter. And then how did that compare to category growth and then as you look out, how sustainable do you think category growth in China is and wondering if you guys have any concerns about consumer push back on US brands and manufacturers due to tariffs? Thanks.

Jon Moeller -- Vice Chairman and Chief Financial Officer

We haven't seen any appreciable impact of the tariff situation on consumer attitudes toward brands. We certainly didn't see that in the quarter, again with very strong growth rates across several of our brands. There's nothing that we've seen that would indicate a significant drop in the market growth rate across categories either consumption levels or appetite for premium products, in fact the categories again that we continue to divest on are the categories that were best positioned from a premium offering standpoint and the categories that we're struggling more with that's less the case. The organic sales growth in China for the quarter was 4%. Again, if you flashback to minus 5%, couple of years ago to plus 1%, plus 7% last year, there's fair amount of volatility within the quarter, so if we look at underlying consumption and market share growth. Market share actually improved quarter-to-quarter in China. So I expect over a couple quarter period, we're still solidly in the mid-singles to high single-digit growth rate there. I know, there's a lot of concern that's been expressed not just with regard to our categories but more broadly. I understand the GDP figures were down that were released today. But GDP at 6.5% is still -- offers significant opportunity. So there's nothing that we are aware of today that has significantly changed our outlook for our business in China.

Operator

Next, we'll go to Andrea Teixeira with JPMorgan.

Andrea F. Teixeira -- JP Morgan Securities LLC -- Analyst

Hi Jon. So just following up on pricing and couponing. So you spoke about the plans to increase pricing before on a few more categories but you were also planning on reducing coupon in the US going forward as you probably got more of a conversion ratio than I think you probably expected. And so, how are you thinking of net pricing premium against your branded competitors and private label going forward. And related to that are you concerned on pantry stocking because of couponing, in particular into Costco couponing in the month of September. And also in SK-II in Asia. Thank you.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Well, I don't want to get into a lot of details. The business in October and the momentum that it continues to indicate is not indicative of a situation where that would lead you to the belief that the July, September results were driven by a lot of pantry stocking either here or in China across the brand portfolio. So I don't think that that is the case. In terms of our spread versus others on price, net price -- I don't expect significant change. You're right, we have reduced couponing in a couple of categories. And you're right that was because those coupons over-redeemed and we wanted to pull that -- dial that back a little bit. There were also -- we go through cycles and it's different by category, by market, where we're introducing new products for example, and you'll see an increase in the rate of couponing and promotion to drive trial. But there's nothing that is systemic either up or down that I see relative to our desired net price premiums viz-a-viz our competitive set.

Operator

Next, we'll go to Mark Astrachan with Stifel.

Mark Astrachan -- Stifel. -- Analyst

Thanks. And good morning, everybody. Wanted to ask about private label or retailer brands -- however you want to think about that. It seems like 12 months ago or more, there was certainly a lot of talk, increasing amounts of shelf space -- emphasis being put on the category partly just because it -- had under indexed especially in the US and partly because it could put pressure on pricing.

Fast forward to today, it seems like it's far less pronounced, I guess. One, do you see that from a retailer standpoint in your conversations, and two, if yes, what do you think has driven that? And do you believe that that can ultimately result or should ultimately result in AMP (ph) spend and sort of more of a traditional sense continuing or ultimately increasing off of current levels to sustain, what seems like some momentum against that shift.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Private label, as you know is primarily a European and US dynamic, not entirely but primarily. In Europe, private label market shares are down slightly after three years of basically flat performance. In the US, in a couple of -- in the US, the percentage of private label that are sold in a given category varies dramatically from almost nothing to 20% to 30% of business that's moved in the category. So as a result of that, and you would expect us that the dynamics are different -- very very different by category. There are categories where we see continued retailer interest and increase in private label presence.

Private label market share in the quarter we just completed in aggregate, was up about 40 basis points. Our share was also up about 40 basis points in aggregate. The category that's seen the most increase in private label sales is the Family Care business, our market shares are also doing very well and are increasing in that business. Though, I hesitate to tell an overarching private label story because I don't think there is one but it is definitely something that's of -- continues to be of interest to retailers across channels. That's been the case for many, many years and oftentimes the increase in private label, which leads to a reduction in branded assortment. It's very rare that that comes out of the number one or number two position brand in the market. That doesn't mean we're immune. Private label manufacturers are doing an increasingly good job at delivering quality products to consumers. So I'm not dismissive of it in any way, but also I think we're well positioned to deal with it.

Operator

Next, we'll go to Kevin Grundy with Jefferies.

Kevin Grundy -- Jefferies -- Analyst

Thanks, good morning. Jon, I wanted to come back to the pricing discussion and I apologize if I missed this part, the two-part question. What specifically came in better in the first quarter. You had been -- been guiding to declines in Q1 and then gradually getting better. But what very specifically by region by category came in better. That's the first part of the question. And then the second part is there still seems like there's a little bit of a wait and see from your perspective on where you can take pricing, what categories et cetera. So specifically in the US, do you view this as a retailer receptivity issue. Walmart recently speaking unsurprisingly so about maintaining its lowest price positioning in the marketplace or do you more see this as a competitive dynamic, whether this is what's going on in North American Fabric Care with Persil et cetera? So any commentary there would be helpful.

Thanks for both of those.

Jon Moeller -- Vice Chairman and Chief Financial Officer

The first question, what changed in terms of our pricing outlook? Frankly, not a lot. So when we were talking about negative pricing in the first quarter in our own minds that was kind of a minus one point impact, where we ended up rounded to neutral. So there wasn't a massive change that occurred as we went through the quarter. We did take some additional steps to reduce both inefficient trade spending and couponing, that improve things a little bit. And then there were price increases that we took in different parts of the world particularly the developing markets. As -- as the quarter progressed, the FX situation deteriorated rapidly and that caused us to make moves that we wouldn't have anticipated at the beginning of the quarter. In terms of the uncertainty looking forward, that is much more in my mind a competitive related concern than it is a customer related concern. And it's not -- concern is probably not even the right semantic to use. It's just the reality. When prices start moving in the marketplace not everybody moves in lockstep and there are different dynamics that are -- that are introduced and capitalized on differently by different manufacturers. So it's just very hard to look forward with a euro clean (ph) crystal ball and say -- here's what's going to happen. That would be disingenuous.

Operator

All right, our next question comes from the line of Steven Strycula with UBS

Steve Strycula -- UBS Securities LLC -- Analyst

Hi, good morning and congratulations on a good quarter. So really quick question on the sales inflection that we saw from this quarter versus the fiscal fourth quarter, a nice step up, the way we cut the numbers. It seems like price mix was a key contributor in the inflection and also Grooming and Fabric Care. So my question is, what in your mind really drove the price mix inflection that we saw quarter-on-quarter. And then at a segment level, what drove the improvement in your view in Fabric Care and any update on China diapers. Thank you.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Price mix continues to benefit from our innovation efforts in our efforts to increase our level of superiority and advantage and solving fundamental consumer problems. So the fastest growing parts of our portfolio as I've indicated before are some of the premium price more innovative segments, where we've brought real performance difference into the marketplace whether that's unit-dose detergents, whether that's fabric enhancer beads, whether that's adult incontinence products, whether it's some of the natural products, the net within hand (ph) benefit efficacy and natural. So all of that, reflective of the strategy that we've described and we'll talk about more on Analysts Day, are playing themselves out in the marketplace. The other difference that I just mentioned in response to the last question is that we are starting to put price in the market as relates to both commodities and foreign exchange.

And I apologize, I've once again failed to remember parts of the question but that's the answer to the first part, at least.

Operator

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

Jason English -- Goldman Sachs & Co. LLC -- Analyst

Hi good morning, folks, thanks for squeezing me in. Jon, I'll keep this simple for us and stay focused. I want to delve into the mix drag on gross margin. It was a lot bigger than we've seen the last couple of years and certainly a lot bigger than we expected. I think, you mentioned in your prepared remarks a couple of things around it but I was hoping you could give us a little more detail -- unpack the components of it. And it's especially surprising to see it in context of the US strength. I guess, I've always assumed that part of that mix drag was US weakness, why are we seeing the acceleration. It sounds like there's maybe some transitory stuff in there. Can you unpack it and give us the magnitudes and expected duration. Thank you.

Jon Moeller -- Vice Chairman and Chief Financial Officer

Yeah. First of all, Jason, it's wonderful to hear from you without your barking dog. Just kidding. In terms of gross margin, I want to make a couple of things clear both here and going forward. When you're in these and this isn't addressing your next question, I will come to that in a second but I just want to take advantage of your question to make this point.

When you're in an environment of increasing commodity and costs and foreign exchange, it hurts. It's almost inevitable that you're going to see margin compression both on the gross and operating line. And that results from the simple fact that even if you're a 100 % successful with your pricing plans, you're typically taking pricing to recover costs. You're not taking pricing to recover margin. It's not that you wouldn't like to take pricing to recover margin. But that's not typically what you can accomplish. Though, I do expect that that as we go through the cycle, we're going to continue to see some pressure. We'll see if productivity cost overcomes it but we'll continue to see some pressure on margins.

Relative to mix. I mentioned earlier that some of the fastest growing portions of our portfolio are the premium priced segments. There's a very understandable belief though it's not accurate that those higher-priced segments are higher margin. In fact, what's true about that belief is that generally, they are higher penny profit per unit. So we want to sell as many of them as we can. But they often come at a lower margin. So the math of a shift in the business to unit dose detergents to adult incontinence products to pure natural products is a positive one from a value creation standpoint but it leads to a negative margin mix, and I expect that to be with us as well as we continue to implement our superiority strategy again with productivity. There too will offset a significant portion of that. And in a benign commodity and FX environment, I would expect us to continue to grow margin but that doesn't mean that that negative mix component would go away.

Operator

Your final question comes from the line of Jonathan Feeney with Consumer Edge.

Jonathan Feeney -- Consumer Edge -- Analyst

What portion of your total global volume will see a price increase planned as of right now by the end of this fiscal year? A rough number would be fine. And more broadly, could you comment about how the pricing process has changed over the past five years or 10 years with maybe more data-driven and sometimes more adversarial or in some cases maybe better relations or more transparent relations with retailers. How that game has changed and what it means for us as we look at the revenue impact of these price increases? Thank you.

Jon Moeller -- Vice Chairman and Chief Financial Officer

I don't think anything significant has changed in terms of how we think about pricing and some of the important components of that are we want to whenever possible link pricing to innovation move, so that the total value that we're offering to consumers is accretive not dilutive. And that will cause -- that has a significant impact on the timing on which pricing is taken. I mentioned, that the categories in the US, we've announced additional pricing will be linking that to innovation which will come in the second half of the year. And generally, that's a much more successful way to think about this. Short of that and a continued emphasis on that dynamic, no significant changes going forward. In terms of the percentage of -- you know for very understandable reasons probably 80% of this conversation has been about pricing, and ability to take pricing and ability to keep pricing. Again, I understand that I'm in no way frustrated or surprised by that. But if I think about the percentage of volume of our internal conversations and planning and what I really think is driving our business, pricing is a relatively small percent of that dialogue. We need to take pricing in some markets and in some categories, we'll do that behind innovation when we can. But the much bigger driver of success both in the quarter we just completed and going forward is the execution of the broad strategy.

Products -- first of all, the category choices that we're playing in were performance, determinants, brand choice, commitment to deliver superior performance in a superior package, communicated in a superior way, executed with excellence in store at a good value for both consumers and our retail partners. All underpinned by productivity and significant changes in the way that we're organizing ourselves and strengthening our culture to be more responsive to emerging consumer needs, more efficient in those responses, more accountable in those responses. Those by far are the much more important things to think about as we think about both the quarter and the year going forward. We'll continue talking about pricing as we should at Investor Day. But you'll see the focus much more on that strategy which again I think is much much more fundamental in terms of what actually happened in the quarter that we just concluded and what the outlook is going forward.

Operator

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

Duration: 62 minutes

Call participants:

Jon Moeller -- Vice Chairman and Chief Financial Officer

Dara Mohsenia -- Morgan Stanley. -- Analyst

Olivia Tong -- America Merrill Lynch. -- Analyst

Ali Dibadj -- Bernstein -- Analyst

Wendy Nicholson -- Citi -- Analyst

Nik Modi -- RBC Capital Markets LLC -- Analyst

Stephen Powers -- Deutsche Bank -- Analyst

Lauren Lieberman -- Barclays -- Analyst

Joseph N. Altobello -- Raymond James & Associates, Inc. -- Analyst

Bonnie Herzog -- Wells Fargo -- Analyst

Andrea F. Teixeira -- JP Morgan Securities LLC -- Analyst

Mark Astrachan -- Stifel. -- Analyst

Kevin Grundy -- Jefferies -- Analyst

Steve Strycula -- UBS Securities LLC -- Analyst

Jason English -- Goldman Sachs & Co. LLC -- Analyst

Jonathan Feeney -- Consumer Edge -- Analyst

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