If you look at many of our businesses, they are variable versus the market share they had in the past. But in aggregate, we mostly returned and some businesses were higher, for example, on our cleaning business. We made significant progress on market share, even though we had COVID and then, of course, multiple rounds of pricing. And our brands have held up really well. So my evaluation would be heading into the cyber that we were in the right place from a market share. We had plans to grow market share. Cyber has unfortunately caused another place where we took a step back, and we have to rebuild, but I’m confident in our ability to return and then we’re working on plans in fiscal year ’25 and beyond to deliver that market share growth we aspire to.
Javier Escalante: Thank you. And then the follow-up, and it’s a little bit in the line of Chris’ question. It seems — rarely you are seeing consumer businesses, and it could be accounting that you have negative pricing and negative volumes at the same time in the quarter. So what gives you confidence that you didn’t take too much pricing and the value players are gaining share in trash bags and pet litter and I believe most recently in Glad that you don’t need to reset prices into 2025.
Linda Rendle: Yes. I would say, first of all there is a price mix in a trade component of Q3, and certainly, Kevin can walk through that in more detail. But if I just take step back and say, what were the dynamics in Q3 that give us confidence and what were the dynamics that negatively impacted us? It’s pretty clear. We weren’t able to fully supply on a couple of those businesses that you mentioned, Glad and Litter in particular. And that means we weren’t fully available for the consumer, which we don’t like. But the good news is, as I’ve said, we recovered that ability to supply by the end of Q3, and we feel good heading into Q4. And also, there were more competitive dynamics, given that fact that we couldn’t fully supply. We saw more merchandising from competitors, et cetera.
As it specifically relates to private label, if you look — there was a stressed consumer prior to the cyber event, and we didn’t have any material loss to private label and share during that time, nor have we, in any recessionary time lost any material share to private label. We offer brands with great value. We offer innovation, the consumer trust us, they love our products. They love our brands, and we spend behind those brands to ensure that they understand the superior value we deliver. And we see that beginning to take hold and work in Q3, as we restore distribution and inventories. We saw private label share come down versus Q2 and heading in the right direction back to what we would expect it to be in a more normalized environment. We expect to continue to make progress as we restore distribution in Q4.
So I think it would be pretty understandable to say — when you are not fully on the shelf and you don’t have all your distribution, a consumer is going to choose what’s on the shelf, and they did. And — but we feel confident in our brands, confident in our spending plans that we’ll restore that back. And history would tell us when we were out of stock in COVID that happens. When we’ve had product issues where we’re out of shelf on time sell, we came back. We restored our share in distribution. We have a long history of doing this, and I remain confident in our ability to do it in Q4 and beyond.
Javier Escalante: Thank you very much.
Operator: Our next question comes from Filippo Falorni of Citigroup. Your line is open.
Filippo Falorni: Hi, good afternoon guys. I first wanted to ask on the recovery from a shelf space standpoint. In prior earnings call, you sounded very confident that you’re going to recover the full of the TDP that you still haven’t recovered the distribution points. Is that still the expectation and in the quarter, and in the year, I mean? And was the weakness in the quarter? Like does that change a bit the full year expectation versus what you had expected, particularly for Glad and for the Cat Litter business? Thank you.
Linda Rendle: Thanks, Filippo. We fully expect to recover in Q4, the distribution against our plan that we had fiscal year ’24 that we lost. We view that as temporary. And we have seen the shelf decisions from retailers. They are now in the process of converting their sets. As we speak in some of our categories and some will happen throughout the quarter. So we have strong confidence that we will restore that distribution. And that really was not the Q3 story because we always knew most of that distribution would come back in Q4. That’s really more of a supply and service level issue story in Q3. And again, we have fully recovered from that, and we are heading into Q4 in a great place. We’re able to fully supply that distribution that we will recover.
I’d also just note, I did a recent roadshow with all of our top retailers. And they want our business pack on shelf-two. We are the brand that leads their categories. They’re very invested and growing with us. Our conversations we’re focused on growing, moving forward, our innovation plans, what we want to do to unlock our joint digital plans now that we’re well underway on our digital transformation, now that we know 100 million consumers, how can we personalize better to them. The conversations were very growth-oriented, future focused and they’re looking forward to having our full distribution back as well so that we can grow their categories.
Filippo Falorni: Got it. That’s helpful. And then maybe, Linda, just a longer-term question. I remember when you updated your long-term outlook to 3% to 5% from 2% to 4%, a component of that higher outlook was the international business. Obviously, you made the decision to divest Argentina. So maybe you can review what’s left in the international business and how that contributes to your long-term target?
Linda Rendle: Sure. You are absolutely right that we talked about international being a portion of that growth. And if you look at the performance of our International over the last couple of years, it certainly has played a role where it’s growing faster. But we also talked about having a more consistent less volatile business. And Argentina was a high source of volatility and variability. And certainly, you saw the FX impact play out, and you heard Kevin talk about what we expect moving forward. So that was definitely on our minds to reduce the volatility and variability that we had and then be able to grow from a very solid base. And you might recall from a few years ago, we had purchased the majority ownership of a JV partnership we have in the Middle East, was a good example of looking at markets that we could grow faster in that were more stable and predictable and that has played out very well.
We continue to have a really healthy consumer there. Innovation is working well in that marketplace. And so what I’d say is, it’s very consistent with what we’ve said before. We have continued business in Latin America that we feel good about, and we’ll continue to grow business in Asia, Europe, the Middle East. And we continue to have growth pockets on businesses like Litter, et cetera, our cleaning business, which is the majority of our business is international and we continue to expect international to be a strong contributor, but it will be much more profitable and stable versus what it was before.
Filippo Falorni: Great. Thank you.
Linda Rendle: Thank you.
Operator: Our next question comes from Lauren Lieberman of Barclays. Your line is open.
Lauren Lieberman: Great. Thanks. Just a couple of things. So first was just in the release you specifically called out that part of the increase in the gross margin outlook was a more favorable outlook for raw material cost or for input. So just curious on a little bit of color there. And then secondly was thinking about Argentina, I know we are not going to do business planning guidance for ’25. But just thinking about when you lap Argentina, like Argentina FX is such a huge impact, for example, on gross margins even this quarter, last quarter. Do we like reverse that? Or is it just the impact disappear because the business is gone. I’m just kind of thinking ahead. Again, not about the totality of gross margin, but just how to think about the absence of Argentina moving forward and the margin impact on the business.
Kevin Jacobsen: Yes, Lauren, happy to take those. As it relates to gross margins – I’m going to start there and kind of what we’re seeing from a cost perspective. We are seeing costs continue to moderate, I think as you saw in Q3, is a fairly small impact, particularly if you look at commodities, we are seeing some commodities become deflationary. You see that a bit in soybean oil, which is something we use in our food business. You’re seeing it in other categories, substrates, some chemicals. We are seeing still some cost increases, particularly on petroleum-based products, solvents, diesel. Resins up just a little bit. That’s more supply-demand driven more than input costs. And so I’d say, it is definitely going in the right direction.
It is a fairly modest hit for us in Q3, and that’s certainly been an ongoing improvement. I would say, on the other piece of inflation, which is more wage driven, it’s generally playing out as we expected. That tends to show up in manufacturing and warehousing. We’re still seeing ongoing inflation there. But on the commodity front, it is certainly easing and as we step out of Argentina, which is a source of inflation, I expect it will be fairly benign by the time we get to Q4 on the commodity side, and then we’ll continue to deal with the wage inflation. And then [how] (ph) thing about Argentina next year, I think you said exactly right, is — as we move forward, a number of the areas you talked about, you will not have that impact going forward.
So let me give you an example. You highlighted FX this quarter, to your point it was about 180 basis point hit to margin. That was almost entirely Argentina. As I look forward, even starting in Q4, we should have almost no FX hit to gross margin. So you get that benefit. But keep in mind, that will be offset by other areas, things like pricing, but pricing you see in Q3 was primary Argentina, that will also go away. So you’ll strip all that out. Ultimately, the net impact of all that is Argentina was a margin-dilutive business for us. So by stepping out of that, all the different lines, when you look at it in totality, our margins will go up as a result of exiting Argentina. But you’ll strip out each one of those elements that Argentina drove.
Lauren Lieberman: Okay. And that impact from Argentina from the exit and just going back to it’s actually a pretty small business. It is a small net impact when you put all these pieces back together on the year-over-year margin like in this quarter next year for example?
Kevin Jacobsen: Yes, that’s right. I mean you look at the business, it is 2% of sales, and you can probably do the math pretty quickly. It is a very dilutive business to us that when we owned it and represents 2% of our sales. So you can probably do the math, you see there is some modest benefit to our gross margin going forward now is out of the portfolio.
Lauren Lieberman: Okay. Great. And then one thing I just want to clarify. I think I figured out the call in on, but there were two conflicting statements in the release in the prepared remarks about supply chain constraints being a problem in the quarter, but having resumed normal service levels. So I didn’t know if it was a timing difference, like normal service levels as you exit the quarter, but constrained by supply chain during the quarter. I just wanted to make sure it’s clear on how those two statements fit together.
Linda Rendle: That’s right, Lauren. So we were not able to fully service our retailers throughout Q3 until the end. So at the end of Q3, we restored normal service levels and we entered Q4 with them back to being normalized and that marries with the supply chain comment that we had some constraints, which impacted those service levels throughout the quarter.
Lauren Lieberman: Okay, all right. Thanks so much.
Operator: Our next question comes from Olivia Tong of Raymond James. Your line is open.
Olivia Tong: Great, thanks. I wanted to ask you two questions around margins. First, on gross margin. Obviously, the EPS outlook for this year is now higher than where you were pre cyber-attack and much of that is due to the gross margin expansion of about 100 basis points ahead of where you thought you were going to be at the beginning of the year. So in the past, you’ve talked about 200 basis points of gross margin improvement annually, as you recover from the post-COVID decline this year, now [$2.75] (ph). Last year, obviously, a lot more than that, despite all the ups and downs with the cyber-attack. So, can you just talk about ex-Argentina, ex the cyber, all these things, the ability to keep outperforming on gross margin, what you learned from this year last year, what capabilities continue versus some of the one-offs that are helping and hurting this year? Or just sort of the ongoing recovery on gross margin relative to the post-COVID timing? Thanks.
