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Clorox Co (NYSE:CLX)
Q1 2020 Earnings Call
Oct 31, 2019, 1:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to The Clorox Company First Quarter Fiscal Year 2020 Earnings Release Conference Call. [Operator Instructions].

I would now like to introduce your host for today's conference call, Ms. Lisah Burhan, Vice President of Investor Relations for The Clorox Company. Ms. Burhan, you may begin your conference.

Lisah Burhan -- Vice President, Investor Relations

Thanks, Sharon. Welcome everyone and thanks for joining us today. Happy Halloween. On the call with me today are Benno Dorer, our Chairman and CEO; and Kevin Jacobsen, our CFO. We're broadcasting this call over the Internet and a replay of the call will be available for seven days on our website thecloroxcompany.com. On today's call, we may refer to certain non-GAAP financial measures, including but not limited to free cash flow, EBIT margin, debt-to-EBITDA, organic sales growth and economic profit.

Management believes that providing insights on these measures, enable investors to better understand and analyze on our ongoing results of operations. Reconciliation with the most directly comparable financial measures determined in accordance with GAAP can be found in today's press release, this webcast's prepared remarks or supplemental information available on our website as well as in our SEC filings.

In particular, it may be helpful to refer to tables located at the end of today's earnings release. Please, also recognize that today's discussion contains forward-looking statements. Actual results or outcomes could differ materially from management's expectations and plans. I would also direct you to read the forward-looking disclaimers in our quarterly earnings release. Please review our most recent 10-K filing with the SEC, and our other SEC filings for a description of important factors that could cause results or outcomes to differ materially from management's expectations and plans.

The Company undertakes no obligation to publicly update or revise any forward-looking statements. I'll start by covering our top line commentary, discussing highlights in each of our segments. Kevin will then address our financial results, as well as our outlook for the fiscal year '20. And finally, Benno will offer his perspective and we'll close with Q&A.

For the total Company, Q1 sales decreased 4%. The results are on top of solid sales growth in the year ago period. Organic sales were down 2%.I'll now go through our results by segment.

In our Cleaning segment, sales decreased 2% for the quarter. Our Professional Products business delivered strong sales growth driven by a successful back to school campaign, particularly in the e-commerce channel. We also continue to see strength and longevity of our innovation in this business with platform such as Clorox hydrogen peroxide and Clorox Fuzion both disinfectants used in healthcare setting, delivering double-digit growth even four years after their initial launch.

In home care, sales were down slightly with volume growth offset by unfavorable mix and increased performance bifurcation between track and non track channel. Shipments of Clorox disinfecting wipes grew solidly for the quarter, with growth in non-tracked channels outpacing track channels by a wide margin. Our investments were fully implemented are working and helping grow the category. Our near term focus is to strengthen our results consistently across all channels.

Additionally, as highlighted in our IGNITE Strategy launch, we have a strong innovation plan based on bigger, stickier platforms with Clorox compostable cleaning wipes launching in late Q2. Our Scentiva platform continues to perform well with high single-digit volume growth three years after its initial launch.

Lastly, within the Cleaning segment, our laundry business sales were down for the quarter, driven primarily by distribution losses of Clorox liquid bleach in select retailers coupled with increased competitive promotion. We're addressing this with innovation on multiple fronts. Including launch of a full line of compacted bleach product in Spring 2020. During the same period, we're also launching a sanitizing innovation platform including a trigger spray, aerosol spray and a liquid laundry additive product , bringing the strong Clorox equity to the fast-growing sanitization segment.

Turning to the Household segment. Q1 sales were down 14% driven mainly by declines in bags and wraps and charcoal. In bags and wraps, Q1 sales were down double-digits, driven by the same factors we discussed previously, wider price gaps as well as distribution losses in select portions of the portfolio. Higher trade investments on Glad trash bags are now in place. We're seeing sequential improvements in volume as well as market share and we're focused on building on this momentum.

As expected, charcoal sales were down double-digits this quarter, driven by lower shipments. The sales decline also reflected higher trade spending, part of an ongoing effort to reduce market inventory from a weak 2019 grilling season and to gear up for a stronger 2020 grilling season. Building on a strong grilling category consumption and a normalized inventory level going into the upcoming grilling season, will be focused on executing our plans to turn this business around.

In RenewLife, sales declined double digits due to category slowdown and persisting consumption headwinds. As part of our effort to return this business to growth, we're continuing to focus on engaging retailers in support of our category growth plans supported by full brand relaunch next calendar year.

Finally, our cat litter business was down slightly lapping strong double-digit sales growth in the year ago quarter. Similar to the other businesses, we're seeing much stronger sales and share performance in non-tracked channels that in tracked channels. Our Fresh Step Clean Paws innovation platform continues to grow strongly beyond its first year. That will lead in further with dedicated advertising and continued trial building activities.

In our Lifestyle segment, sales grew 4% reflecting growth in three of our four businesses. Burt's Bees delivered double-digit sales growth fueled by strength in its core categories of Lip Care and Face Care. Successful innovation in Lip Care, including the new watermelon lip balm. That was the number one overall flavor at a key retailer in mass channel drove share growth for a 19 consecutive quarter and reinforce the brand's position as the number one overall lip balm in the category. In Face Care, there were record shipments of products such as face mask and core cleansers, as well as relaunch sensitive skin care line. The business also has a strong pipeline of innovation including a helpline [Phonetic] as well as men's line launching in Q3. Burt's Bees, a combination of pricing and innovation has been a successful formula in driving strong category growth. Food sales were up for the quarter as well, reflecting higher shipments of dry Hidden Valley seasonings and dressings. The results were on top of strong sales growth in the year ago quarter. The ready-to-eat dips innovation remain on track with plans to increase demand building investments to expand usage occasions. The brand also extended its streak of share growth to 19 quarters.

Brita sales were up slightly for the quarter behind higher shipments of our new Brita bottles and Brita Longlast water filtration systems, which performed strongly in the e-commerce and mass channels. The Brita business continue to streak a solid consistent volume growth dating back a year.

Finally, sales for Nutranext were down this quarter reflecting growth in our strategic brands and a double-digit decrease in our non-strategic brands. Our strategic brands grew behind strong shipments of NeoCell and Natural Vitality. The decrease in the non-strategic part of this portfolio is mainly driven by our decision to exit the private label business that came with the acquisition. Moving past the initial integration phase of Nutranext, we're now working on optimizing the portfolio, focusing on a few strategic brand representing more than 80% of the portfolio. We continue to be excited about the growth prospects of this business.

Lastly, turning to international. Sales were flat for the quarter, with volume growth, innovation and the benefit of price increases, offset by about 8 points of unfavorable foreign currency impact. Despite the strong headwinds, we grew sales in Latin America. And the International segment grew sales 8% on an organic basis. Consistent with our IGNITE Strategy that aims to improve profitability in international, we continue to invest selectively in profitable platforms and see the returns on businesses like Burt's Bees and cat litter.

Now, I will turn it over to Kevin, who will discuss our Q1 financial performance and our outlook for FY '20.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Thank you, Lisah. And thank you everyone for joining us today. First quarter results came in generally, as expected. As we continue to work through the challenges in our bags and wraps and charcoal businesses. Importantly, as we noted in our press release, we remain on track for fiscal year 2020 and confirmed our outlook.

Turning to our first quarter results, sales decreased 4% reflecting about 3 points of higher trade spending, about 2 points of unfavorable mix, and about 2 points of foreign currency headwinds. These factors were partially offset by about 3 points of pricing benefit. On an organic sales basis, first quarter sales decreased 2% primarily driven by our bags and wraps and charcoal businesses.

Gross margin for the quarter increased 60 basis points to 44% compared to 43.4% for the year-ago quarter. First quarter gross margin included a 180 basis points of benefit from cost savings and a 120 basis points of benefit from pricing, partially offset by 180 basis points of higher trade spending. I'd like to note that a portion of the benefit to gross margin was related to timing. First quarter gross margin also reflected favorability and commodity and logistics costs. And while it's still early in the fiscal year, we're encouraged by the cost favorability we're seeing in these markets.

Selling and administrative expenses as a percentage of sales came in at 14% compared to 13.6%, due to reduced operating leverage. Importantly, year-over-year selling and administrative spending for the quarter declined. Advertising and sales promotion investment levels as a percentage of sales were about flat, were spending for our US retail business coming in at about 10% of sales.

Our first quarter effective tax rate was about 22% equal to the year ago quarter. Net of all these factors, we delivered diluted net earnings per share of $1.59 versus $1.62 in the year ago quarter, a decrease of 2%.

Turning to year-to-date cash flow. Net cash provided by operations in the first quarter came in at $271 million versus $259 million in the prior quarter, an increase of 5%.

Now, I'll turn to our fiscal year 2020 outlook. As we communicated in our October 2 press release, we expect fiscal year sales to be down low-single digits to up 1%, reflecting our recently updated assumption of about 2 points of impact from unfavorable foreign currencies, primarily from Argentina. As I mentioned at our Analyst Day, we previously assumed devaluation of the Argentine peso at about 25% and now our expectations are closer to 50%.

Importantly, our fiscal year organic sales outlook remains unchanged, reflecting 1% to 3% organic sales growth, driven by innovation and our expectation for stronger business performance on bags and wraps and charcoal in the back half of the fiscal year.

Turning to gross margin. We continue to expect fiscal year gross margin to be down slightly, reflecting our recently updated assumption on foreign currencies. Our fiscal year gross margin outlook continues to reflect our expectation for additional supply chain investments to support long-term value creation. Including our investment and the rollout of Clorox liquid bleach compaction in the spring of 2020. We continue to expect fiscal year advertising and sales merchant investment levels to be at about 10% of sales. We also continue to expect selling and administrative expenses to come in at about 14% of sales.

Consistent with our fiscal year gross margin assumptions, we expect fiscal year EBIT margin to be down slightly. Our fiscal year 2020 outlook continues to anticipate our fiscal year effective tax rate to be in the range of 22% to 23%. Net of all these factors, we continue to expect this year 2020 diluted EPS to be in the range of $6.05 to $6.25.

In closing, first quarter results came in generally, as anticipated. We continue to work through the short-term challenges we're facing in bags and wraps and charcoals and continue to expect improvement in our overall results in the back half of the fiscal year. We're certainly pleased that our cost savings program is off to a good start contributing significantly to our fourth consecutive quarter of year-over-year gross margin expansion.

Looking ahead, we'll continue to address short-term challenges while executing against the strategic choices we have made under our IGNITE Strategy. As we said at the Analyst Day, our focus with IGNITE is to create a virtuous cycle of generating fuel to continue investing to drive superior consumer value. We have a long track record of doing this successfully, and I continue to believe that once we work through the challenges, we're facing on bags and wraps and charcoal, Clorox will be in a position to deliver results that are more in line with our long-term financial goals.

And with that, I'll turn it over to Benno.

Benno Dorer -- Chairman and Chief Executive Officer

Hello, everyone, and thank you, Kevin. Here are my three key messages. First, Q1 results came in generally as expected. As we discussed last quarter, we anticipate fiscal year '20 first sales to be lower than the second half, as we continue working through the persistent challenges in bags and wraps and charcoal.

I am pleased, we delivered volume growth and gross margin expansion in three out of four segments and notwithstanding a tougher foreign currency environment, which drove flat sales in our international business for the quarter. Our International team continues to make strong progress delivering 8% organic sales growth and the seventh consecutive quarter of profit growth. But clearly, we are not satisfied with our top line results.

I do want to reinforce that improving bags to wraps and charcoal is a top priority for us. We are actively working with customers to significantly strengthen our business plans, with a keen eye on sustainable long-term improvements. This includes innovation that we believe will deliver meaningful value to our consumers and categories. Importantly, I'm pleased about the green shoots we're starting to see on these businesses and I continue to anticipate improvement on bags and wraps and charcoal in the second half of the fiscal year.

My second message is that we're on track to deliver our outlook for the fiscal year 2020. This fiscal year brings another robust pipeline of innovation led by the compaction of Clorox liquid bleach as well as the launch of Clorox compostable cleaning wipes, Clorox fabric sanitizers, Kingsford pellets and several innovations in bags and wraps and natural personal care. We will drive awareness and trial on these new products, while continuing to invest behind significant upside opportunity and ongoing innovation platforms such as Clorox Scentiva, Fresh Step Clean Paws, Brita filtering water bottles and Hidden Valley ready to eat dips. I believe that consumer and retailer engagement in the strength of our innovation program along with stronger business plans for bags and wraps and charcoal, supported by our commitment to excellent execution will contributes to improved overall results in the back half of the fiscal year.

As I also mentioned previously, our fiscal year 2020 outlook continues to reflect our commitment to balancing our shorter-term focus on addressing the challenges on bags and wraps and charcoal with strategic plans aimed at driving long-term profitable growth.

Finally, my third message is this. I'm confident, our new IGNITE Strategy will guide us in our ongoing pursuit of delivering long-term shareholder value. As we discussed at Analyst Day earlier this month, innovation to strengthen and extend our competitive advantage is front and center in our IGNITE Strategy. The integrated choices we've established for IGNITE create a virtuous circle of fueling growth and investing behind innovation to deliver superior value. By the end of fiscal year 2020, we expect to have begun activating brand purpose on all major brands, laying the groundwork to drive significant marketing ROI in the future. We expect to have engaged all major customers in new ways to create frictionless shopping experiences in store and online leading to meaningful opportunities to drive category growth.

We also expect to have surpassed a 150 basis points of annual cost savings supported by meaningful productivity improvements, moving steadily toward our new annual cost savings target of about 175 basis points. And finally, we expect to have made significant investments to drive stickier, multiyear innovation platforms that differentiate our products and brands with a robust innovation pipeline in the back half of fiscal 2020. Everything we do is in service of superior value because we know it's the key to winning with consumers. And, of course, we'll continue our focus on growing the right way with ESG integrated into our business so that we are also creating value for society. Our recent announcements to join the Ellen MacArthur Foundation's new plastics economy global commitment is an example of this. As we reinforced at Analyst Day, IGNITE innovates for Good Growth -- growth that's profitable, sustainable and responsible.

Operator, you may now open up the line for questions.

Questions and Answers:

Benno Dorer -- Chairman and Chief Executive Officer

Thank you, Mr. Dorer. [Operator Instructions] First question comes from Olivia Tong with Bank of America.

Olivia Tong -- Bank of America -- Analyst

Good morning, Benno. Good afternoon. In terms of -- just near term trajectory. I know you have quite a few initiatives slated for second half across several businesses, but what about Q2. You talked a little bit about green shoots, do any of those help already or are those all sort of second-half weighted?

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Hey, Olivia, it's Kevin. Good morning. Let me see if I can take that one. You know what I expect in Q2, as you'll see improved organic sales growth. Now having said that I expect our Q2 results to look similar to Q1 with a worsening FX environment but improving organic sales growth and really because we're going to see improvement on both Glad and Charcoal as you know, those are the two challenged businesses that we're working to turnaround and I expect to see improvements next quarter.

Benno Dorer -- Chairman and Chief Executive Officer

And then Olivia, of course, that means the growth will come in the back half. First of all, we'll have easier comps. I think everybody is aware of that, but we're also beginning to anniversary distribution losses in Q3. And as you know, we're very focused on strengthening distribution now. Two things are most important, we need Glad and Kingsford to improve and we expect improvement on both. And we're seeing green shoots I mentioned that. Kingsford is growing mid-single digits in consumption lately and Glad is starting to grow share where our plans are implemented for end quarter. So we feel good about that.

And then, of course, we have a robust innovation program in the back half as stated. So the back half is where improvements are expected, we realize we have work to do this, but there is enough there to give us confidence.

Olivia Tong -- Bank of America -- Analyst

Got it. That's helpful. If I could ask a question about tracked versus untracked. I mean, the spread between the two seems to be increasing, obviously online continues to be a big driver. But is it growing even faster than it had been. Is that accelerating? Or are there more efforts or just more opportunity across a broad spectrum of non-tracked channels, whether it's club, online or other retailers.

Benno Dorer -- Chairman and Chief Executive Officer

Yeah, what we commented on is that the spread between tracked and non-tracked is indeed widening, right. And I think that's for two reasons. First, and it was probably most evident in Home Care, where we've seen the business down slightly, but growing double-digits in non-tracked channels. First of all, I would say the consumer in part in our categories is migrating toward non-tracked channels. That's where a lot of the category growth is. We do know that our performance also market share wise is better in non-tracked channels and you know perhaps at this point as we think about the post pricing bumpiness that we talked about. You will find more of that which relates to distribution losses in perhaps less merchandising in tracked channels than in non-tracked channels.

And what that gives us is our confidence in the expected back half turnaround, because we know that where our brands are able to perform they do , and that's why the gap between tracked and untracked has been widening of late.

Olivia Tong -- Bank of America -- Analyst

Got it. Thank you.

Operator

Next question comes from Kaumil Gajrawala with Credit Suisse.

Kaumil Gajrawala -- Credit Suisse -- Analyst

Hi everybody. Couple of questions. I think first on the issues over the recent period has been in trash bags and in wipes and such, but you're now -- where you mentioned distribution losses in bleach as well, some tough comps as opposed on letter. But it looks like the -- some of the issues are expanding beyond some of the categories that were kind of initially the area of focus. Can you talk about what's going on there if there is something connected between the various categories that we should be aware of.

Benno Dorer -- Chairman and Chief Executive Officer

Thanks, Kaumil. No. The issue remains in Glad and Kingsford. If you think about the rest of the portfolio there is actually quite a -- quite a bit of strength. Burt's grew double-digits, food 19 quarters of share growth, the professional business growing high single digits. Brita is now our fastest growing business in terms of share, parts of Home Care are seeing strength. Toilets, which is a strategic segment has an all-time high in shipments, international performing well. So it's really Glad and Kingsford. If you take out Glad and Kingsford, actually, we grew organic sales for the quarter.

Now, I will tell you that if you just look at share, of course, you know there is always ups and downs. Right. But what I'll tell you is, if you look at it over the longer term, which I think is perhaps helpful. We track eight businesses in terms of share and six out of those eight if you compare the last quarter against three years ago are in-line or higher. Home Care is in line coming off of 14 quarters of share growth, bleach is higher than three years ago. Hidden Valley is higher than three years ago. Brita is doing well. Litter -- litter is about in line. Burt's is higher, it's really collagen and trash.

So no news on the portfolio front, clearly not everything is performing as well as we want to, but much of the short-term noise can be attributed to the well illustrated issues around lower merchandising and distribution losses post pricing and as such, we believe that they will be temporary.

Kaumil Gajrawala -- Credit Suisse -- Analyst

Okay. Understood. And then just finally on this -- on the expectations for the back half. It seems to be rooted in the return of distribution from some of the losses from last year. At what point do you know now if you are going to be put back in or at what point will you have a good sense on before going -- to be going into a period where there's distribution gains as opposed to distribution losses?

Benno Dorer -- Chairman and Chief Executive Officer

Yeah, back half clearly does assume that some of the distribution losses which were anniversaried in Q3 will be mitigated and that will start to make progress there along with easier comps and a strong innovation program, categories generally are healthy. On the distribution side, we commented that we're not, we haven't been where we want to be in the last 12 months, post pricing and our focus is to make those a temporary. Discussions are happening this quarter. So that's all work in progress. At this point reasons that give us optimism as we're focused on achieving these improvements starting in 2020 is that we have -- do have a long track record of partnering with retailers. It's obviously a very strong organizational focus area. Right now, I'm looking at our business plans for '20 in particular on Glad and Kingsford. They need to be better, and they will be better including robust innovation. And then our new IGNITE Strategy of course gives us plenty of partnership opportunities around creating categories for the future to drive profitable growth for retailers. So work in progress. Many of them are happening as we speak, but a big area of organizational focus now .

Kaumil Gajrawala -- Credit Suisse -- Analyst

Okay, got it. Thank you.

Operator

Next question comes from Jason English with Goldman Sachs.

Jason English -- Goldman Sachs -- Analyst

Hey, good morning, folks or good afternoon, I should say. But at this point, the day is -- it's all blending together now. A quick housekeeping question. The logistics and manufacturing line in your gross margin bridge and it's been sort of a persistent drag for quite some time, but it's now moderated for two consecutive quarters to be reasonably marginal now in the first quarter. Is that a trend line, we can expect to continue?

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Yeah. Jason, I would say, I would separate transportation from manufacturing. On the transportation side. As you mentioned, we're pleased to see favorable transportation rates for the first time in probably the part of two years. We had about 20 bps of favorability as we're seeing a decline in the spot carrier market. I think we've talked about this before, but just as a reminder, about 85% of our transportation is contracts with our eight carriers and those rates are set. But we are seeing a reduction in spot market that I believe will continue. It also bodes well that as we renegotiate rates in the future that that may generate ongoing benefit as we look out to fiscal year '21 beyond so.

I started the year thinking transportation to be up low-single digits than what I'm seeing right now. I suspect it will be flat to down low-single digits, so a nice improvement there. And then manufacturing, little favorable at this time, we had some delays in some of our investments for our new litter plant, you'll see that play out later on in the year. As I mentioned, we're going to have about 20 bps to 25 bps of investment in the supply chain. It was pretty light in Q1, but I still expect to setting out running the year. So we'll pick that up later in the year.

Jason English -- Goldman Sachs -- Analyst

All right, that's helpful. And I guess I want to come back to the question of everything excluding charcoal and wipes, which don't seem to be really a whole lot worse than I was expecting, but your Cleaning segment. It's one of the weakest quarters in a very, very long time and if professionals growing high singles, it implies that the consumer-facing side of that business is now contracting somewhere in the 3% to 4% range. I would love some context and color on what's causing that business to kind of get derailed. And as we look at the data, I think your biggest innovation platform in recent years has been Scentiva and in Nielsen, Scentiva is now declining high singles even with sort of a 14 point benefit coming from the sweeper refills. And if here is a question of whether or not the issue there is just a lack of innovation effectiveness. I love your opinion on all those fronts. Thank you.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Yeah. First of all, Jason, I strongly disagree with the statement that the business has derailed. I'm actually OK with -- with where the business is at this point. And let me maybe take the two in turn. First of all laundry additives. The sales is down behind post pricing distribution losses, we have anticipated those. We have commented on those several times and talked about them consistently. if you look at the bleach share for instance, our quoted shares versus three years ago, because sometimes it helps [Phonetic] to look at the ForEx but not look at trees [Phonetic]. Bleach share is up 0.5 [Phonetic] versus three years ago. I hope that provides perspective.

And now we're gearing up for significant innovation in the spring and which includes bleach compaction and a new platform in the fast growing laundry sanitizer segment behind this -- an equity that is particularly well fitting there. Home Care, if you just look at shares, it's coming off of 3.5 years of share growth. It's normal to have some up and down, especially post pricing again, losses and distribution well documented. At the same time volume grew in Q1, sales is down to non-tracked channels. They outgrew tracked channels by a wide margin, out -- non-tracked channels grew double-digits and absolute. So that's a negative mix effect.

Wipes is growing mid-single digits. Scentiva for the record is growing, which perhaps helps you understand the strength in non-tracked channel. And if you look at the past 13 weeks, track channel shares lower than a year ago but it's higher than past 52 weeks, and we're making progress. I'll focus on this category, obviously an important category for us is profitable growth. We will continue to activate the Clorox brand purpose, which has been working so well and of course we have a lot of innovation that I know you're well aware of lined up in the back half, including our compostable cleaning wipes launch, which is starting to go out in Q2 and then widely available in Q3. So ups and downs. But I feel solid about where cleaning is and optimistic about the back half, with all the innovation coming in.

Jason English -- Goldman Sachs -- Analyst

Okay, thanks a lot. I'll pass it on.

Operator

Next question comes from Wendy Nicholson with Citi.

Wendy Nicholson -- Citi. -- Analyst

Hi, good afternoon. My first question just housekeeping. How much longer do we think the private label exit in the Nutranext business is going to continue to be a headwind. I know you said it's like 80% of the business is healthy and good, but just, when should we expect that headwind to go away. And then my second question is just taking a step back. The fix it [Phonetic] initiatives you're undertaking for Glad and on Charcoal are obviously huge and important and between the two of them, those are I think what 15% to 20% of your revenues. And so I'm just surprised that your guidance both for the S&A line on the P&L and advertising isn't higher than normal. I know 10% for advertising and 14% for S&A are kind of your long-term objectives. But I'm kind of questioning why in this year, where it's so important to get those two big businesses really back on track. You wouldn't sort of take a holiday from your long-term targets and just say, this year we're going to spend more and absolutely make sure we get those businesses right at. Thanks.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Hey, Wendy. Maybe I'll take the first question you had on RenewLife and how long as we exit some of that businesses, both private label and contract manufacturing. I would expect to see that a drag for the balance of this year, we will continue to step out of that business over the next several quarters. And that's a pretty natural sort of transition out as we use that capacity for our own needs. And so you should expect to see that drag for the next several quarters.

Benno Dorer -- Chairman and Chief Executive Officer

And then the second part, Wendy. More money is not the option here certainly on the people and on advertising side. If you think about Glad, what we're trying to do is fix the widened price gaps and we feel good about the progress that we're making and toward the end of the quarter. And also in October, where the plans are now fully implemented, which they are. We're seeing a return to share growth, but the increased spending there is going into trade, where we are spending more. But we feel good about advertising and certainly people. On Kingsford, it's all about better plans. As we've commented at Analyst Day, it's less of a money issue and again, we certainly spent quite a bit of trade money this last quarter to get rid of excess inventory, but we're pleased with the amount of money that we're spending behind those two businesses. As we've commented in the past, we're always willing to look at spending. We're also willing to lean into spending where that's indicated and important and necessary, but we don't think that more advertising or people is the solution here, we're certainly spending more trade but the progress starts to be evident and we expect more progress to be had in the back half.

Wendy Nicholson -- Citi. -- Analyst

And I'm just surprised. I guess the feedback from the retailers. I mean, there is always the hope I know is to regain some lost share. But there is also a hope I assume of growing the category particularly in Charcoal and I'm surprised that part of the conversation with the retailers isn't, hey Clorox, you've got the biggest and most well-known brand. Please spend more money on advertising to get people to stop ordering their ribs from Grubhub and cook them at home. That -- is that not part of the conversation?

Benno Dorer -- Chairman and Chief Executive Officer

So part of the conversation certainly is engaging a consumer and like I said, Wendy, we spent quite a bit against the consumer and we're making sure that the money counts with retailers as well. But if you think about the Charcoal category, the Charcoal category past 13 weeks I believe is up double digits and our business while it's still a little softer in shares is growing mid-single digits. So the conversations that we have are starting to bear fruits and we're certainly seeing in this category as well as in other categories like Glad and in wipes the strong correlation between the health of our categories, and the health of our brands. If our brands are doing well the categories generally tend to perform better if our brands are not doing well the categories are performing worse and that very part certainly is a key component of our discussions with retailers.

Wendy Nicholson -- Citi. -- Analyst

Got it. Thank you.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

And Wendy, if I just broaden out a little bit from just Kingsford and Glad, the other perspective, I'd offer, as you think about our IGNITE Strategy. We want to create fuel and we want to reinvest that back in the business and I feel really good. If you look at our gross margin performance, now we've expanded gross margins for each of the last four quarters. And at the same time, we've increased advertising levels for each of the last three quarters. So very consistent with our long-term strategic intent is we're going to drive waste out and we're going to reinvest that in the brands to drive superior consumer value and I think you are really seeing that over the last several quarters.

Wendy Nicholson -- Citi. -- Analyst

Got it. Thanks so much.

Operator

Next question comes from Lauren Rae Lieberman with Barclays.

Lauren Rae Lieberman -- Barclays -- Aanalyst

Right. Thanks. First, I had two clarifying questions. First is just a follow up, Wendy, I think had asked about Nutranext but I believe, Kevin, you responded as -- talking about RenewLife. So I just want to go back and even when you acquired Nutranext, I mean, to what degree did you have an understanding of the portfolio and that there'll be this decision to cut so much of the business because some other brands that were held up. I think they are described as kind of core, seem to be what you're de-emphasizing. So just sort of almost like a postmortem on where we stand on Nutranext would be great? That's the first follow up. Thanks.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Yeah, it was on Nutranext, I apologize, Lauren. That was a Nutranext answer. So when we acquired the business and this is typical when we acquire businesses in many cases, it comes along with pieces of the portfolio that we don't have any interest in strategically. In this case they had done a number of acquisitions and [Indecipherable] pick up private label has some contract manufacturing. They have a number of minor brands in DTC that don't, we don't see it having long-term value and so pretty difficult for the first year and two year, we will clean that up and get the portfolio focused on what we think has long-term value for our shareholders and that's certainly what we're doing. So we're stepping out of the private label, we're stepping out of the contract manufacturing, certain aspects of DTC as well and really getting us to the core portfolio that we believe has long-term value.

Lauren Rae Lieberman -- Barclays -- Aanalyst

Okay, great. And then the second thing was just about the second quarter. You've talked about things will improve. But then you also said the growth will come in the back half. So I just want to be clear, second quarter sales are expected to be down, albeit a bit better than what we saw in Q1?

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Yeah, Lauren, that's correct. I expect second quarter to look fairly similar to the first quarter in terms of sale, but the drivers will be different, the FX environment is getting worse. Keep in mind the bulk of our FX exposures in Argentina and probably are 70%, 75%. The big step down in the peso happened late in August and so you got a partial impact in Q1, you'll get a bigger impact going forward, and then that will be offset by improving organic sales.

Lauren Rae Lieberman -- Barclays -- Aanalyst

Okay, all right, great. And then the other thing I was curious sort of post Analyst day, I sort of look back and was -- then thinking back a few years prior to I guess it was maybe four years prior Analyst Day, where I mean you had introduced the concept of fuel versus grow brands and sort of thinking about the degree to which that approach kind of got you to where you are now on some of these big more challenged businesses. So I just want to talk about sort of there is these steps to improve the short-term challenges, but also maybe a structural change in how you address businesses across the portfolio, is that sort of a fair thought process because it feels like maybe these businesses are just star for like good a four years or five years and that sort of how we got here. And also what maybe led to some of the pricing decisions being as I'll call it stubborn as they sort of prove to be?

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Not really. So if I think about Glad trash that's a growth business and Kingsford as a fuel business. So there is no correlation there as I look at those two businesses. I think it makes perfect sense for us to disproportionately invest in businesses that are faster growing and that are more profitable. And I feel good about that. Brita is returning to grow, Burt's Bees has had a strong run. The food businesses had a strong run and many of those businesses are performing better than they did before we started the concept of fuel versus grow.

I would point to post pricing issues on those two businesses, we feel good about pricing. We have always said that this is a short-term versus long term trade off. It's absolutely necessary for us to offset cost increases through pricing to be able to ensure that we're able to drive long-term shareholder value. We continue to manage our business with an eye on the long term and as difficult as these, some of these distribution losses and certainly challenges on Glad and Kingsford are the reality is that we must power through them as part of our focus on long-term profitable growth.

So feel good about the fact that we're offsetting pricing aggressively, feel good about how we're managing the portfolio as a whole and see, none of this related to the choice that we made four years ago.

Lauren Rae Lieberman -- Barclays -- Aanalyst

Okay, great, thank you so much.

Operator

Next question comes from Kevin Grundy with Jefferies.

Kevin Grundy -- Jefferies -- Analyst

Hey, good afternoon, guys.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Hi Kevin.

Kevin Grundy -- Jefferies -- Analyst

First, a housekeeping question for Kevin. So first quarter obviously a bit soft sounds like second quarter challenged as well, although contemplated in your guidance to some degree. Kevin, I apologize if I missed this. Is it your preference to kind of level set expectations toward the lower end of the 1% to 3% organic sales guidance for the year or you still see it possible to do the higher end, which would imply something like 5% organic sales growth in for the balance of the year which feels a little bit ambitious.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Yeah, Kevin. Thanks for the question. What I would say is I am comfortable with our 1% to 3% organic sales, I don't plan to provide any more insight in terms of high low. I think that's a good solid range for us and feel comfortable with where we're at, at this point.

Kevin Grundy -- Jefferies -- Analyst

Okay, all right. And then a follow-up question on the margin structure in the household business, understanding the significant price investment in advertising and marketing going on there, but the margin in the quarter about 6.5% call it for operating margin was one of the lowest that we see in that segment in a very long time. This had been a low 20% operating margin business. Not going back too far, how do you see that the margin structure for that business now going forward, how much of this is sort of a permanent impairment, higher cost of business, higher advertising marketing, trade promotion levels with some of your big important businesses charcoal, trash bag, litter etc. Do you see this is more sort of a permanent impairment or you think that kind of out of the woods after a challenging year this year and I'll pass it on. Thank you.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Yes, thanks, Kevin, you know, what I think about in terms of margin in household, one thing to keep in mind the two businesses that are challenged Glad and Charcoal, they are most capital-intensive businesses. And so when you lose volume in those two businesses, you've got a lot of fixed costs that gets spread over a lot fewer units and have an outsized impact on margin. So my expectation is, as we get those businesses back on track and growing, you'll see that reflected more positively in the margin line.

Kevin Grundy -- Jefferies -- Analyst

Okay. Thank you, guys. I'll pass it on.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Thanks Kevin.

Operator

Next question comes from Ali Dibadj with Bernstein.

Ali Dibadj -- Bernstein -- Analyst

Hi guys. So I have a few questions, but one, Benno. I just want to take a step back around the pricing strategy. So I -- look, I get the bumpiness commentary. I get the, we've seen this before commentary, but honestly, I guess I would have thought the bumpiness was going to be more from the consumer elasticities which has certainly been the case historically, but they're just, there are many perhaps too many instances of the retailers reacting badly to the price increases and I guess, I just want to ask a very simple question and part of this is naive but why do you think the retailers are kicking you off the shelf now when you're taking the price increases?

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Yes, so as you. So Ali, consumer elasticities are good. Right. So we have commented that they're largely unchanged versus before price increases. We've also commented on the fact that the consumer value measure actually is really positive, with 54% of our portfolio being seen as superior, which compares to 53% before price increases. So our pricing generally is performing as expected. You know why do -- why are we experiencing these distribution issues. We certainly went out early and confidently, I so would perhaps point to that. Other than that, you'd have to ask retailers. But clearly, what we're seeing in some categories is that some competitors didn't follow where we might have expected them to follow. And as a result, we get an outsized reaction. But look, I understand this. In many cases, categories where we've lost distribution are softer too. I commented on the correlation between our performance and category performance. And that's really what we're focused on right now. Losing distribution as hard as it was is water under the bridge. We're focused on getting distribution back and we're working with retailers now to make progress in 2020.

Ali Dibadj -- Bernstein -- Analyst

So I guess it's still helpful. But I just because I just -- I don't. I'm sorry. I just don't -- I don't understand. So if elasticities are good, the consumer doesn't respond poorly to this. And that's all great. I mean their brands are good. So why are the retailers making -- it sounds like a mistake, like what's going on. [Speech Overlap]

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

I am sorry.

Ali Dibadj -- Bernstein -- Analyst

Is it that they disagree and there they view elasticities as worse. So they don't think you're brands are good enough or why did they kick you guys off-shelf in many instances now when you are taking prices up, if elasticities are good and consumers are OK with it. It helps our comps, so I just -- I don't get it.

Benno Dorer -- Chairman and Chief Executive Officer

Let's take Glad as the best example perhaps. We took pricing before resin flipped. And then the question -- there were questions about the cost justification of pricing. To be clear, pricing continues to be cost justified. But that doesn't mean that retailers like it. So that part, while it isn't something that is helping the category. It's also pretty consistent with what we've seen in the past with the one exception that resin flips after we took pricing. But this is not uncommon, Ali, it's worse. But in part it is that we took pricing early and perhaps very confidently whereas some of our peers did not.

Ali Dibadj -- Bernstein -- Analyst

Okay. Okay. And then so on this -- on the confidence going forward, confidence in the second half. Is lapping distribution losses in your second half guidance? Kevin, or is it actual kind of new distribution gains, which is in your guidance.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Yeah, I'd say, it's a combination of both. Certainly lapping distribution losses is a big element. When you look at our comps we will be lapping in the back half of the year particularly Q4. And then as Benno commented, to a certain extent, we're obviously working on rebuilding distribution and have some expectation in terms of how that will play out, but as we said earlier, those decisions are being made right now over the next quarter or so. So we will have to see, how that goes. It's still fairly early, but there's certainly an expectation that we make progress there as well.

Ali Dibadj -- Bernstein -- Analyst

Okay. And just my last question around cleaning, you went through it in detail. Thank you, Benno for doing that. Are the laundry -- shelf space losses or laundry issues. Is that anything in anticipation of the compaction of the product or was it just an isolated different, different incident.

Benno Dorer -- Chairman and Chief Executive Officer

No, I wouldn't call that related to compaction, Ali. It's losses of distribution, post pricing as we commented, but nothing related to comparison. No.

Ali Dibadj -- Bernstein -- Analyst

Okay, all right, thanks very much for the help.

Operator

[Operator Instructions] And we have a question from Steve Strycula with UBS.

Steve Strycula -- UBS -- Analyst

Hi, good afternoon. So, Kevin quick question for you on the gross margin. You talked about timing and cadence, a little bit, saying the first quarter was a little bit better. Can you walk us through some of the puts and takes for the gross margin? Should we expect it down for the next several quarters of the year for the balance of the year. That would be my first question.

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Sure, Steve. As you think about gross margin phasing, as you know, for the full-year our outlook, it will be down slightly. This was the easiest comp we had. We were down a 150 basis points in Q1 last year. So we had a pretty easy comp. The other items to think about though is on cost savings. We had a very strong quarter, we delivered a 180 basis points of benefit to margin. That was the strongest quarter, we had in five years. I am pleased with the performance, but we have a big number we're trying to hit this year and quite a bit of work ahead of us. So while I'm pleased with Q1. I don't expect to be taking the number up at this point. As I've said previously, our expectation on cost savings will be close to last year, maybe a little bit better as a 150 basis points. So you kind of phase that through the year.

Also, as you think about pricing. The bulk of the pricing we took last year was front-loaded. And so in Q1 with a 120 basis points of benefit. I'd expect to see that decline as we move through the year. Same with FX. We have a partial impact this year -- excuse me, this quarter. So as you get the full impact from Argentina plus the ongoing devaluation. I'd expect FX impact to be more negative going forward. And then finally, as I mentioned earlier, the supply chain investments we're making fairly light in Q1, we will make those investments over the balance of the year. So you will see that pick up in the manufacturing line over the course of the year.

So when I play all that out. I still think it's a, it's a balanced view about down slightly for the year and I would suggest, you will see negative gross margins going forward with our plus 60 basis points begin the year.

Steve Strycula -- UBS -- Analyst

Okay and then Benno. A quick question. As we lap last year's weaker flu season. Have you seen retailers start to build back up for the cleaning and the wipes business as they think about arguably an easy flu season compare. And then can you remind us, and it's been a few years since we've had a compaction cycle, just to think about the various -- whether it's volume or margin implications that investors should think about as we move through that period in spring. Thank you.

Benno Dorer -- Chairman and Chief Executive Officer

Yeah, thanks, Steve. On flue season, we are always working with retailers to prepare for flu season. No matter whether flu season is good or bad. So we will be prepared to serve consumers as they look at for more disinfecting products. And on compaction, typically what you see if we can repeat what happened in the last few times, the way we did compaction was one, gross margin expansion. So we would expect that. I think that's a pretty obvious as logistics and packaging material costs are lower predominantly. And then what you often see is consumers migrate to larger sizes, and with that usually comes an expansion of consumption, which in the previous flue times, also had a positive topline effect. So the primary benefit is on gross margin, but it does have a top line effect that can be persistent for the first 12 months to 24 months post launch.

Steve Strycula -- UBS -- Analyst

Thank you.

Operator

This concludes the question-and-answer session. Mr. Dorer, I would now like to turn the program back over to you.

Benno Dorer -- Chairman and Chief Executive Officer

Yeah. Thank you and thank you for joining everyone and wish all of you a Happy Halloween and we look forward to talking with you again in February, when we report on -- on Q2.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Lisah Burhan -- Vice President, Investor Relations

Kevin Jacobsen -- Executive Vice President and Chief Financial Officer

Benno Dorer -- Chairman and Chief Executive Officer

Olivia Tong -- Bank of America -- Analyst

Kaumil Gajrawala -- Credit Suisse -- Analyst

Jason English -- Goldman Sachs -- Analyst

Wendy Nicholson -- Citi. -- Analyst

Lauren Rae Lieberman -- Barclays -- Aanalyst

Kevin Grundy -- Jefferies -- Analyst

Ali Dibadj -- Bernstein -- Analyst

Steve Strycula -- UBS -- Analyst

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