Procter & Gamble Co  (NYSE: PG) Q2 2020 Earnings Call Transcript

Procter & Gamble Co  (NYSE: PG) Q2 2020 Earnings Conference Call
January 23, 2020

Corporate Participants:

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

Analysts:

Dara Mohsenian — Morgan Stanley — Analyst

Steve Strycula — UBS — Analyst

Andrea Teixeira — JPMorgan Chase & Co. — Analyst

Lauren Lieberman — Barclays — Analyst

Ali Dibadj — Sanford C. Bernstein & Co. — Analyst

Wendy Nicholson — Citigroup — Analyst

Olivia Tong — Bank of America Merrill Lynch — Analyst

Kevin Grundy — Jefferies — Analyst

Jason English — Goldman Sachs — Analyst

Mark Astrachan — Analyst — Analyst

Robert Ottenstein — Evercore ISI — Analyst

Nik Modi — RBC Capital Markets — Analyst

Bill Chappell — SunTrust Robinson Humphrey — Analyst

Kaumil Gajrawala — Credit Suisse — Analyst

Jonathan Feeney — Consumer Edge Research — Analyst

Presentation:

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’ll refer to P&G’s most recent 10-K, 10-Q and 8-K reports, you would see a discussion of factors that could cause the Company’s actual results to differ materially from these projections.

Also, as required by Regulation G, Procter & Gamble needs to make you aware that during the discussion, the Company will make a number of references to non-GAAP and other financial measures. Procter & Gamble believes these measures provide investors with useful perspective on underlying business trends and has posted on its Investor Relations website www.pginvestor.com, a full reconciliation of non-GAAP financial measures.

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

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

Good morning. This was another relatively straightforward quarter. And as David Taylor will be with us to provide additional depth at CAGNY in just a few weeks, I’m going to keep prepared remarks this morning brief, turning fairly quickly to your questions.

This was another very solid quarter. Top line, bottom line and cash, driven by our portfolio, superiority, productivity, constructive disruption, and organization strategies. Organic sales up 5%, 3 points of volume growth, 2 points of price mix, two-year stacked average growth of 4.5%. Fiscal year-to-date, organic sales growth of 6%. Calendar year 2019 organic growth of 6%.

This growth continues to be broad based. Nine of ten global categories grew organic sales. Skin and Personal Care up double digits. Personal Health Care and Home Care grew high singles. Fabric Care, Feminine Care, Hair Care, Oral Care and Grooming grew mid-single digits. Family Care grew low singles. Focus markets and enterprise markets each grew mid-singles. We continue to perform very well in our two largest markets, the U.S. up 4% and China up 13% for the quarter.

Aggregate market share continuing to grow. These results required us to overcome several challenges. While we’re seeing real signs of progress with grooming organic sales up 4% this quarter, we’re still working to sustainably improve results in this business and in baby care.

Sales results in Japan our third largest market created nearly a 0.5 point drag on total Company organic sales growth due to timing of VAT changes that went into effect on October 1st.

The timing, as we highlighted last quarter, led to higher shipments last quarter and lower shipments in the quarter we just completed. We faced market-level challenges in an increasing number of markets; India, the U.K., Australia, Turkey, Iraq, Nigeria, Kenya, Lebanon, Argentina, Chile, Mexico and the Hong Kong market. Through all of this we grew organic sales 5% in the quarter and 6% over the first half.

Moving to the bottom line, core earnings per share were up 14% versus the prior year. Foreign exchange was a one point earnings growth headwind, so on a constant currency basis, core earnings per share increased 15%. Fiscal year-to-date core earnings per share are up 18%; up 19% on a constant currency basis.

Gross margin up 200 basis points in the second quarter. Core operating margin up a 190 basis points. Continued strong cash generation with operating cash flow of $4.4 billion and free cash flow productivity of a 100%. $1.9 billion of dividends paid, $3.5 billion of P&G stock repurchased, $5.4 billion of cash returned to shareowners.

Yet another strong quarter, solid volume, sales, and market share trends across both categories and geographies. Strong operating earnings, margins advancing, strong core earnings per share growth and continued high levels of cash generated and returns to shareowners.

We continue to face the challenges of a very volatile macro and geopolitical landscape and of competitive response to our growth. But all in, we’re continuing to make progress behind the set of integrated and mutually reinforcing strategies. The strategic choices we’ve made to focus and strengthen our portfolio in daily use categories where performance drives brand choice. We established and extended the superiority of our brands.

To make productivity as integral to our culture as innovation, to lead constructive disruption across the value chain, and to improve organization focus agility and accountability, reinforce and build on each other. They position us well within our industry to deal with near term macro and competitive challenges. They are the foundation for stronger balanced growth and value creation over the short, mid and long term.

Moving to guidance, we’re again, increasing our fiscal year outlook for organic sales growth, for core earnings per share growth, and for free cash flow productivity as well as cash return. We started the year with organic sales growth guidance of 3% to 4%. We increased the range to 3% to 5% last quarter and are now increasing the range to 4% to 5%.

This 4% to 5% range compares with underlying market growth of 3% to 4%, implying continued market share growth. On the bottom line, our core earnings per share growth guidance started the year at a range of 4% to 9%. We raised the range to 5% to 10% last quarter and we’re now increasing the range again to 8% to 11% for the year.

We’re increasing our outlook, our outlook for adjusted free cash flow productivity from 90% going into the year to 95% last quarter and now to 100%. We’ll extend our long track record of significant cash generation and cash return, expecting to pay over $7.5 billion in dividends and now increasing our outlook for share repurchase from a range of $6 billion to $8 billion to a range of $7 billion to $8 billion in fiscal 2020.

While we delivered strong first half results, please keep in mind that comps get more difficult as we move through the year, both top line and bottom line. Pricing annualizes as we move through the back half of the year affecting both top and bottom line trends. We’ll comp the earnings gains from the Boston land sale and Oral Care brand divestitures in Q4.

Competitors are responding to our outperformance, which will require continued innovation and equity-building investments on our part. And the market level challenges I mentioned earlier will be top and bottom line headlines — headwinds for the balance of the year.

Our guidance is based on current market growth rates, commodity prices and foreign exchange rates. Significant currency weakness, commodity cost increases or additional geopolitical disruptions are not included within the new and improved guidance ranges.

We look forward to seeing many of you at the CAGNY conference in just a few weeks. As I mentioned, David Taylor will join us and will provide further perspective on forward-looking strategies and plans. We look forward to engaging with you and to benefiting from your thoughts and reactions.

With that, I’m happy to take questions.

Questions and Answers:

Operator

[Operating Instructions] Your first question comes from the line of Dara Mohsenian with Morgan Stanley.

Dara Mohsenian — Morgan Stanley — Analyst

Hey, Jon. I wanted to focus on organic sales growth. Obviously the 5% result, still very healthy this quarter. But it is below 7% in each of the prior two quarters. It sounds like some of that’s Japan timing based on the prepared remarks, I’m assuming perhaps some U.S. inventory reductions as the retailers approach fiscal year-end.

So just want to get your read on an underlying basis looking at retail sales growth ex-shipment timing, ex-inventory changes. Has anything changed in terms of the underlying momentum as you look at fiscal Q2 results versus the last couple of quarters?

And then within that answer, perhaps you can just touch briefly on the competitive environment. Have you seen incremental promotion with the recent commodity pull back, and also, give us an update on China performance in the quarter and any impact so far from the virus that we’re seeing over there? Thanks.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

I could complete the whole call Dara [Speech Overlap]. On the first part of your question, we’re very pleased with the top line growth in the quarter that we just completed. As you all know, we delivered 7%, but as you mentioned Dara, in the prior quarter, our guidance was 3% to 5% for the full fiscal year, implying something below that beyond the first quarter and we delivered at the high end of that range.

As I mentioned in my prepared remarks that growth was broad based both across categories and regions and we built market share. From an underlying consumption standpoint, you’ve seen the offtake numbers at least through December, which continue to be very strong and we really haven’t seen anything that would cause us to change that outlook in the first part of the current quarter.

So all the fundamentals are there. Our superiority levels continue to increase. We’re investing behind that, while building margins, we’re building market share at increasingly the growth is broader as you look at both categories and geographies.

We did have some headwinds in the quarter from two items. You mentioned — really three, you mentioned one which is Japan and that had a 0.5 point impact which benefited the prior quarter. The other dynamic has been a series, and I mentioned this also in my prepared remarks, of geopolitical, economics, societal and other impacts in individual markets. I mean, think about what’s happened in the last or since we last gathered even, the situation in the Hong Kong market has continued to be difficult, which had a real impact on the quarter and had an impact on the travel retail business

Some of the market level events in South America, whether that’s Argentina or Chile where stores were burnt and are not yet back in place. Some of the events that you’re very familiar with in our headline items in the Middle East impacted our business as well. And those items will impact us going forward for the balance of the year. I’m very — we’re very pleased that we were able to overcome all of that and still deliver very strong numbers that build share and build household penetration and allow us to deliver significant bottom line benefits.

From a competitive environment standpoint, which was the second part of your question. Promotion levels, percentage of sales in our category sold on promotion are actually down the index at 98 for the last quarter. That’s all I have visibility to. I don’t have visibility into the future and where individual competitors are up versus year ago, they’re up typically a point.

So very simply, and we can get into this later with others if you want more detail, we’re not seeing competitive activity that’s indicative of downward price spirals [Phonetic] by any means. That can change tomorrow, but what we have in front of us today continues to look very healthy.

China, we are very optimistic about our prospects in China. It’s a difficult market. It moves at a very fast pace both from a consumer and trade channel standpoint, but we continue to increase the rate of growth in that market. You’ll recall four years ago we were at minus 1, the following year we were at plus 7 — excuse me minus 5, plus 1, plus 7, last year at plus 10 and fiscal year to date at plus 13.

So that continues to be a very attractive market within that some really strong growth rates in some categories. I’m talking the high 20% in categories like Skincare. Feminine Care over 20%, Fabric Care double digits. So generally a very strong market. I have no idea what the developments are going to be relative to the new virus. We’re obviously monitoring that closely as it relates both to the health of our employees and broader community and we’ll have to see what impact that has if any on the business going forward.

But it’s one of those things and I do think it’s important to mention because it can have broad impacts well beyond China. It can also affect consumer confidence and in large parts of the market, it can affect travel which does affect our business. And so, it’s one of the many pieces of volatility that’s just important and we keep in front of us as we think about the prospects for the future, which I view is generally extremely positive, but not without risk and without challenge.

Operator

And your next question will come from the line of Steve Strycula with UBS.

Steve Strycula — UBS — Analyst

Hi, good morning. So, Jon, I’ll stick to one topic here and just to clarify one of your early responses. With the slowdown you’re seeing in travel retail, is that specific to Hong Kong or is a little bit broader based in China. That would be quick clarification.

And the broader question would be, can you talk to just what we’re seeing across the global beauty spectrum in your portfolio right now. How is China performing with SK II versus Olay? And then, what is the opportunity to extend SK II to broader markets looking forward. Thank you.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

Another three-parter, I’ll try to get to each of the pieces efficiently. Travel retail concentrated in Hong Kong. Beauty broadly continues to do extremely well. This is our 17th consecutive quarter of growth with Q2 up 8%. That growth is broad-based. Hair Care grew 6% in the quarter. Our skin and Personal business grew 10%. It was actually a relatively slow quarter for SK II given both the VAT dynamic in Japan were SK II has a big business and the Hong Kong dynamics.

Skincare broadly in China, as I mentioned, is doing extraordinarily well. Olay was up strong, strong double-digits and — but the balance of the business as well, our Safeguard business, which is part of our beauty segment grew double-digits; again strong double digits over 20%. So the growth in beauty both on a global basis and within the China market is broad based.

I think you asked another question, but I don’t. Oh, SK II expansion, yeah. There are — first of all, there are significant opportunities in the markets that we’re in, as evidenced by the current growth rates. There are also at the right time and in the right way, expansion opportunities available.

Sir, are there other questions, we’re not…

Operator

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

Andrea Teixeira — JPMorgan Chase & Co. — Analyst

Hi, good morning everyone. Thank you. I just wanted to double click on what you just said on the China, on the China — how it evolved for the quarter. And if you’re baking any more level of conservatism into the back end of the year, given what happened recently. So I think what you also discussed is hair care coming back. So is that a mitigating effect from what could be expected in a continuation of the deceleration for SK II? Thank you.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

Let me first talk about Hair Care. I’m assuming the question is in a China context. We grew hair care in the mid-to-high single digits in China, which is the fastest growth rate in a period of time. And so, yes, that can offer some offsets, if you will, to other businesses that may soften due to competitive activity or other things.

On the other hand, the hair care business is a highly, highly competitive business as are many of our categories, so the dynamics can change there quite rapidly. Our job is to continue to steadily increase our margin of superiority. And if we do that, over time, if not quarter-to-quarter, we’ll continue to have a strong business.

In terms of the conservatism on the — in the back half of the year and I’ll answer this question both relative to China, which obviously we don’t provide specific guidance for in the balance of the Company. One thing to keep in mind with China is the timing of Chinese New Year, which as you know from all the press on China recently has happening — is beginning as we speak.

And that is earlier in the calendar year than it typically occurs. And so it’s likely there were some sell-in in the O&D period that wouldn’t have been there in the prior year period. But on a global P&G basis that doesn’t move the needle significantly, but something just to be aware of as it relates to the China specific situation.

I talked in my prepared remarks about some of the headwinds that exist that increased during the quarter and will impact us in the back half of the year or could impact us in the back half of the year. We talked about the market level dynamics. So if you take a market that may not be that large but take a market like Chile that impact happened at the very end of the quarter and will exist through the balance of the year. The same with, for example, the situation in Lebanon, the same for the situation in Iraq.

The India market, the growth rates have slowed, still growing and we’re doing very well and building share. But the challenges there have increased and will likely remain for the balance of the year. So that’s one reason, one thing that needs to be netted against the strong progress that we hope to continue to make.

The other is the annualization of price increases. So for example, in February, we annualized both the Dish Care price increase from year ago and a Family Care price increase from year ago. And I don’t want to talk about how we’re going to handle pricing going forward. That’s kind of off limits. But irregardless, those annualization impacts as well as some of the price increases we’ve taken for the valuation over the last year will annualize.

And third is the competitive environment, and I don’t know what that’s going to hold. I’ve described what has held so far, but most of our calendars — most of our competitors are calendar-year based. They start their new fiscal years as we speak and many of them have talked, understandably, about increasing investments for growth.

That can be a very healthy thing. It can grow categories. We can all benefit from that, but certain implementations of that obviously are less healthy. Now, against all of that backdrop, we continue to make progress on the things that we control or making very strong progress. Our margin of superiority is increasing across the board. It’s dynamic, it’s not static.

So we have moved forward and moves back but the net move is a forward move. We’re in a position because of our productivity programs to invest to support communication of that superiority, and that’s really driving some outsized growth in many of our categories.

And over time and it will take some time, I expect we’ll deliver higher growth rates on businesses like Baby Care. So overall, we’re very optimistic about where we stand today and what the future holds, at least in the near term. But it would be irresponsible not to acknowledge the challenges that exists.

Operator

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

Lauren Lieberman — Barclays — Analyst

Great, thanks. Good morning, I’m going to ask one question. And I just wanted to talk a little bit about Grooming and particularly shaving. You’d mentioned there were still some devaluation driven pricing and I just was curious if you could talk about performance of that business just specific to developed markets, how things are trending? The impacts of Gillette Sensitive, you’ve made some portfolio moves, right. There has been several [Phonetic] that are already been acquired, you just acquired Billie. So if you can maybe give us a little bit of the lay of the land on how you’re chipping away and making progress or not so much in Shave Care would be great.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

Thanks, Laura. And within that one question, you’ve managed to ask three, which is very well done. The, on — our grooming business strengthened in the quarter overall. We were up 4% and that’s the third consecutive quarter of growth. Importantly, we grew global market share 0.3 points, which is very encouraging. Shaving within that was up versus year ago. Not as much as — I mean, not as much as the dry shave business, but the wet shave business did grow and we’ve seen pretty strong response to our investments both in product and communication. Encouragingly we’ve added 18 million new users to our brands over the last 12 months.

Skin Guard is contributing to category growth. Is doing well and continues to expand. In the U.S., for example, razor value share on Skin Guard is now 9% which is a third largest for P&G sub-brand and we’re building, unlike most of our competitors, our shave business online.

We’re pretty excited about the Billie acquisition. That’s something that obviously needs to pass regulatory clearance and we need to remain separate from that business until that happens. But there is a real unique set of skills, experiences and knowledge between Billie and P&G that we think has the potential to create some real magic.

Clearly they’ve created very effectively a fresh new brand that extends across several categories and they’ve done it and we can benefit from their experience on this in a digital fashion with one-to-one mass marketing, which is something we’re continuing to increase our focus and keep focus on and capabilities related to.

We have innovation capability across the majority of their categories. We have best-in-class manufacturing across the majority of their categories, and we have a go-to-market presence both online and bricks-and-mortar certainly in omnichannel that can accelerate the growth in that business. So we’re very excited about the potential and are working through the clearance process.

Operator

And your next question will come from the line of Ali Dibadj with Bernstein.

Ali Dibadj — Sanford C. Bernstein & Co. — Analyst

Hey guys, thanks. I wanted to ask in more detail your view about the future on pricing, kind of the future solidness from the recent price increases globally, given there is starting to be — to your point Jon, competitive murmurs with more investments coming, like most recently, Essity in Europe yesterday seemingly talking about pricing and commodity is clearly continuing to fall.

So I get you’re not seeing anything yet, but within that context, two questions. And one is, what kind of lead time notice you get in terms of price competition? So can you feel comfortable saying it’s all clear for a quarter, it all clear for two quarters or is it just literally, this may change tomorrow?

And then the second thing is, part of our job is pattern recognition and so historically we have seen net prices, we think we trade them [Phonetic] and promote everything down in categories especially Baby and Family with these types of commodity declines, do you think this time is different, and if so, kind of why? So there is a technical question on timing and there is more of a, how do you see the go forward in the patterns we’ve seen historically? Thank you.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

Thanks, Ali. Obviously just related to Essity first, they’re talking about a market that we’re not competing in. I know that — you know that and it’s a very different market. It’s much more of a commodity market than our primary market from a Tissue Towel standpoint, which is what I believe they were talking about which is North America.

In general we see commodity prices as supportive of the current prices in the market. So while they’re down some versus kind of historical levels and where we were before the price increases went into effect, we feel the current prices are justified. That does not speak to an indication of future activity. I won’t go there. And our outlook for those commodities continues to be relatively flat to slight increases, particularly in the Pulp space.

So I don’t see the kind of sea change environment that would necessitate activity. Having said that, each competitor will do what they choose to do and we need to be responsive to that, which gets to your second question. And candidly, we do not have advanced notice of the implementation of price increases and so we — or decreases, sorry, either one.

And so we react as we see those in the marketplace and that reaction time typically is anywhere from a quarter to six months. So if we think along reasonable periods of time, I don’t expect us to be a crippling dynamic or anything resembling that going forward. It may cause a quarter or two of — or a benefit or hurt, but not a big thing to worry about.

Operator

And your next question will come from the line of Wendy Nicholson with Citi.

Wendy Nicholson — Citigroup — Analyst

Hi, unlike some of your peers who have had less margin expansion, your margin trends have been terrific and a lot of that things have been driven by the productivity initiatives. I know you’re kind of coming and you’re in your four maybe of your five-year program. And I’m just wondering, what’s your outlook, not for the next quarter, but sort of for the next two to three years? Is there another $10 billion restructuring program coming or how do you keep this productivity benefits accruing when you come into the end of the program? Thanks.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

Thanks, Wendy. I mentioned as one of our strategic choices the desire to make productivity as integral to our nature as innovation and be leaders in productivity, just as we are innovation. And I think we’ve made a lot of progress on that journey, as you rightly point out, which is reflected in our margins certainly this quarter.

My hope is that as we move forward, this is simply an integral part of our operating strategy and it needs to be, because we will need to continue to invest in both holding and advancing our margin of superiority. Some of the continuous disruption we’re talking about will also require some investment whether that’s in human resources, capital etc.

And I feel very good about each of the business units understanding and commitment to continue delivering productivity. So that brings us to another part of the question, which is are there degrees of freedom that enable that to occur? Will is one thing, delivery is another. And I don’t think we’ve ever been in a place where there are more degrees of freedom or more opportunities to improve productivity, the tools that we have available to us now across the digital spectrum and that’s everywhere from marketing to the manufacturing floor to the office environment, have never offered more opportunity than they do today.

And we have significant opportunity still in terms of how we think about our new organization structure and are there opportunities within that as we learn more about it to become even more efficient and effective, and I certainly believe they are — there are. I just attended, along with David, a review of our Product Supply Innovation Program last week. And there are big opportunities relative to robotics, relative to a tighter sequencing of the entire supply chain from order signal, all the way back to delivery. We’re in the middle of this still, the product supply transformation across markets and geographies. So I continue to believe that productivity will be an inherent part of our operating strategy and we have the tools and opportunities to continue to deliver that.

Operator

And your next question will come from the line of Olivia Tong with Bank of America.

Olivia Tong — Bank of America Merrill Lynch — Analyst

Great, thanks, good morning. Wanted to talk a little bit about advertising because that continues to move up to — up a 150 basis points this quarter. And at this point, I think there is a fair bit of investment already in the base. So was that already — always the plan, to continue to increase or is this more opportunistic than you expected. Was it, is there anything that you need to defend because obviously you said that we haven’t seen that much of a change in percent of sales goes on promos. So just wondering where that advertising dollar is going towards? Thank you.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

A couple of things there, Olivia. We’ve been very clear I think that while we need to be competitive from a trade spending standpoint a need to offer attractive margins to our retail partners where we have a degree of flexibility, we would prefer to spend that incremental dollar on advertising or innovation every day of the week. The reason is very simple. There’s nothing proprietary in pricing. We can build proprietary advantage with both advertising and innovation.

So, again, on the margin where we have the opportunity to make those shifts, we’re doing it and we’re doing it in a way that is attractive to our retail partners as well because it drives business and grows categories.

The second piece we’ve talked a lot about, and Marc Pritchard, our Chief Marketing Officer has talked a lot about externally is the opportunity to move what were historically a significant amount of non-working dollars into working in advertising and that’s been about a $1 billion shift and it continues.

And the third piece of this is, when you have innovation that’s noticeably superior, you need to and want to and should be communicating that superiority and those performance benefits and the value that comes with them to consumers. And the good news is, we have a lot of very strong innovation in the marketplace that has a lot of legs left in terms of either — you know it’s just launch or something like PODS or beads which have been on the market for a number of years but have significant household penetration opportunities and are peer delighters from a consumption standpoint, we want to be supporting those. I mentioned both as relates to competitive activity, but also in general that we will continue to invest in both equity and innovation as we move forward.

Operator

And your next question will come from the line of Kevin Grundy with Jefferies.

Kevin Grundy — Jefferies — Analyst

Thanks, good morning, Jon, and congratulations on a strong quarter. Can we come back to China, which was particularly strong in the quarter against a notably difficult comparison? Can you delineate a bit the Company’s progress in that market between category strength and superior Procter market share performance and maybe how that’s changed?

You talked about Skincare, obviously very strong, up 20% and Fem Care I think was up double digits. Maybe just talk a little bit about how much of this is category versus strategic execution by Procter in certain categories, and then your expectations here for the balance of the year? Thanks.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

Thanks, Kevin. It’s honestly hard to separate those because if we do our job right from an execution standpoint and an innovation standpoint, we grow markets. So we don’t view market growth as something that is separate from our efforts. It’s in many cases, obviously not a 100% but it’s caused by our efforts. I realize that’s not that helpful to use, but it’s an important point.

As we back up from that and I look at category growth in China, it continues to be strong in our categories. The one area that’s under a little bit of pressure from a category growth standpoint is Baby Care and that relates to the birth rates which have gone from about 15 million babies a year down to 10 million which is significant impact.

On the other hand, within that category there are a significant premiumization opportunities and the premium part of our business is growing 20% or 30% depending on whether that’s premium tape diapers or pant style diapers. But in general, in China, the answer on category growth is, remains very strong.

The answer on, if you will, P&Gs specific efforts if we pretend for a second that they’re not impacting category growth that also is abundant and real. I mean we’ve gone, it’s not the inflection in category growth rate that has changed the results on Skincare, it’s our share of progress within the category, albeit in a very growth full category. So we’ve gone from declines — perennial declines on that business to perennial gains and strong double-digit gains.

Our — the improvement in our Hair Care top line, still not what we’d like it to be but definitely improved from where we’ve been. This is a result of much stronger branding and innovation efforts as well as go to market strengthening. So it’s hard for me to tease those apart. The simple answer is it’s both and that’s a good thing.

Operator

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

Jason English — Goldman Sachs — Analyst

Hey, good morning folks and happy belated New Year. Two questions from me. First on U.S. growth, you mentioned 4%, obviously solid in context of the U.S., but it is a decel from last quarter and it comes despite an easier comp. Is there anything worth calling out, any nuance to take note of there on that growth?

And then secondly on the Baby, Fem, and Family Care segment, growth was a little weaker than we expected this quarter, it’s kind of the weakest we’ve seen in a while, and I know this has been one business that’s been a little harder for you to kind of get going like everything else. Can you walk us through what the game plan is and what our expectation should be for that business as we think about the next 12 months? Thank you.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

To start where you started, U.S. growth of 4% is indeed very strong and it’s building market share. We’ve build market share in the U.S. over the past three, six and 12 months periods. Nine of our 10 categories grew in the U.S. in the last quarter. The one that didn’t was either at 98.5 or 99.5 index. The difference between the quarters reflects a number of things. Part of it is trade inventory, which was reduced as we went through the second quarter.

There is initiative timing that impacts this pretty significantly as well. I would expect going forward, we’re going to continue to see some chop if we look at it on a quarter-to-quarter basis. But across a slightly longer period of time, we remain very, very happy with the way the business is progressing. And if we look at underlying consumption, going back to a discussion earlier in this call; that continues to be, as you’ve seen, and at least the scanner data, very, very strong.

From a Baby Care standpoint, if we look at the first half of the year Baby Care was flat to up slightly which is a better position than we’ve been in. and it ranges from, if you look at our two largest markets, China and the U.S., those are relatively — again on a relative basis healthy. China in the first half, they grew at 5%. That’s the fastest growth we’ve had from — on a semester basis in about six years. We regained market share leadership about two years ago and have continued to hold that.

And as I mentioned in the last answer, we’re growing our premium business and our pant business, very, very strongly. The U.S. were about flat versus year ago, which again is an improvement on a relative basis and what should take both of those businesses as well as the broader Baby Care business to a stronger position is innovation, which builds superiority. We have across parts of the portfolio, not been offering a superior product. It’s largely been, in some of those cases a parity product.

We have strong innovation plans in place, not only in terms of incrementality, but we’re really increased the pace of innovation and the amount that’s coming to market. A lot of which has driven the China result that I talked about. But innovation, whether it’s on Baby Care or Beauty Care, is not an overnight endeavor and we’ll continue to hopefully improve sequentially as we go forward.

Operator

And your next question will come from the line of Mark Astrachan with Stifel.

Mark Astrachan — Analyst — Analyst

Thanks and good morning everybody. I guess maybe just a quick question for you, Jon. The enterprise versus rest of business seems to have slowed a little bit, you guys don’t really talk about EM versus DM kind of anymore, but maybe talk a bit about what has driven this slowdown? You touched on Chile, Hong Kong etc. How much is that in terms of country specific issues versus lapping the pricing and kind of how should we be thinking about that dynamic on a go forward basis?

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

We’re pretty pleased with the growth rates in the enterprise markets currently. You mentioned mid-single digits. It’s really at the border of mid-single digits and high single-digits. I’ll leave you to interpret that and that’s despite these pretty significant impacts. If you think about two of the largest markets in the enterprise environment are India and Mexico. And I talked about the slowing growth rates in India largely as a result of some of the monetary policies, which has created a bit of a liquidity squeeze, which is drying up inventory through the system. But we continue to grow well in India and are building share.

Mexico is technically, from an economic growth standpoint, in a recession, we continue to grow reasonably well there, mid-single-digits and are growing share there as well. So, broadly, we continue to be pretty pleased with our progress.

And just briefly, even though it wasn’t part of your question, on the bottom line, we’re creating more value in these markets currently than we ever have. So our bottom line progress was strong double digits, well ahead of the Company average. We need to be focused on value creation in these markets. That includes growth where we can generate a meaningful return and that’s what we’re focused on doing and there’s tons of opportunity.

Operator

And your next question will come from the line of Robert Ottenstein with Evercore ISI.

Robert Ottenstein — Evercore ISI — Analyst

Great, thank you, Jon. I’d like to kind of focus on e-Commerce. I think in the past you’ve said that it’s about 8% of sales, has that moved up maybe closer to 10%? And globally, how fast is it growing on a global basis? Then specifically, how fast in China, how fast in the U.S. and are you gaining share in e-Commerce in China and in the U.S.? Thank you.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

It continues to be a significant opportunity for growth. It’s currently growing at about 30% and in the big e-Commerce markets while that growth differs across categories, it’s pretty much at that level across markets.

It is now about 10% of our total business. And when I — just for clarity, when I mention e-Commerce I’m talking, obviously, the totality of e-Commerce, which includes omnichannel. And our market share in general has been increasing. Of course, there is some volatility to that. But particularly, in the China context, and again it differs by category, we’ve been making significant progress in that space.

So I see us as very well positioned to exceed — to succeed in that space, though that’s something that requires internal efforts, flexibility, and the constructive disruption of ourselves which we’re committed to, to ensure that we offer a competitive and relevant offering wherever consumers want to shop, whether that’s e-Commerce, whether that’s large format, whether that’s small format. And generally, we’re progressing well in each of those.

Operator

And your next question will come from the line of Nik Modi with RBC.

Nik Modi — RBC Capital Markets — Analyst

Yes, good morning. Thanks everyone. Jon, maybe you can talk a little bit about the Merck OTC business, I mean healthcare was a pretty nice contributor to the top line. So just wanted to understand what’s driving that business kind of what’s the strategy there? Any context would be helpful. Thanks.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

As you probably recall, Merck offers a very complementary portfolio to our legacy personal health care P&G business. Has a strong presence in the developing world, complementary categories across geographies and there were significant, we felt, cost synergies in addition to revenue synergies by bringing the best of both companies together and driving growth. It’s early days, we’re still in the middle of integrating. We just closed 18 months ago, but we’re very pleased with the results so far.

This is the first quarter in which Merck has reported as part of our organic sales growth rates. They contributed positively to that. It’s a real asset to our overall Personal Health Care business and it’s playing out that way. The revenue synergies are on track. The cost synergies are on track. It was some real exciting examples of the possibility of driving both of those ahead of what our initial plans have been. The organization is a strong organization and they’re doing a great job so far really, really good.

Operator

And your next question will come from the line of Bill Chappell with SunTrust Robinson Humphrey.

Bill Chappell — SunTrust Robinson Humphrey — Analyst

Thanks, good morning. Hey Jon, just circling back to the Billie acquisition, just a little surprised that I guess P&G thinks that can pass with the FTC and just with your market share. And also with kind of FTC cracking down on a lot of even recent small acquisitions that struck me [Phonetic]. So kind of any thoughts there on why you are moving forward with that especially in the U.S. positioning. And then if that’s part of a plan then you know do you think there is more opportunities to do tuck-ins to where you have 40-50 share of a market?

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

In general, just starting from the strategic level, we want to ensure that we are serving consumers in all relevant segments of the categories that we’ve chosen to play in. Sometimes, that’s easier and more straightforward from an organic standpoint. So if you think about the natural segment, for example, something like Pampers Pure.

On the other hand, getting a quick presence in some of these high-growth segments or with different groups of consumers is sometimes easier to do via acquisition. So if I just — a good example is This Is L. on Feminine Care, which is now the number one natural products from a market share standpoint. Obviously very early, but so far has proven to be a very strong idea to expand in a very relevant consumer segment very quickly.

That’s the motivation here. I’m obviously not going to speak to regulatory dynamics or anything related to that, but we’re excited about this and we’re hopeful we have the opportunity to really work to grow this combined set of categories, grow the market and create value.

Operator

And your next question will come from the line of Kaumil Gajrawala with Credit Suisse.

Kaumil Gajrawala — Credit Suisse — Analyst

Hi, good morning, Jon, can you talk a little bit about how you and the Board think about valuation in the context of share buybacks. Your results are obviously the best they’ve been probably in a decade so is the, perhaps appropriately, so is the value of your shares. So if you just talk a little bit about valuation in buyback context?

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

Sure. Obviously over the last decade, buybacks have created extraordinary value, but that’s been on the back, which is implicit in your question on over time a significant increase in the stock price. If I look at it today, first of all, we don’t try to forecast where the market is going to go. We don’t pretend that we know that. And so, in general, we feel very strong about our prospects as a Company. There’s no reason at present not to feel reasonably good about the market itself.

And so well kind of, if you will, dollar cost averaging over time. The other thing that’s important though is to think about the context of our dividend yield relative to financing rates that are available because at some level what’s you’re dealing with is, can I retire a dividend rate with an incremental financing costs that’s lower than that rate? And with negative interest rates in many parts of the world, this is a very attractive time to be, if you will, financing share repurchase.

We’re going to stay within our credit limits. As we do that, that’s another constraint, if you will or another rail and we’ll continually look at this. Obviously, capital allocation is a broad topic, inclusive of share repurchase is something that is reviewed regularly with the Board and we value their input to that. But the current plan obviously reflects that. And as we sit here today, I don’t have a reason to suggest a change in that plan.

Operator

And your final question will come from the line of Jonathan Feeney with Consumer Edge.

Jonathan Feeney — Consumer Edge Research — Analyst

Hey, Jon. Thank you. Are you concerned at all that your business has become much more macro-sensitive in the past five to 10 years. Some segments of outsized growth would seem to indicate that but any historical context or consumer data you have that could affirm or dispel that, I’d appreciate.

Jon R. Moeller — Vice Chairman, Chief Operating Officer and Chief Financial Officer

I think Jon, we’re actually less sensitive to the macro environment, and that’s been a very deliberate choice we’ve made and let me explain that. We were in, as we went into the last recession, as an example, a lot of or a number of relatively to highly discretionary product categories. Things like Salon hair color, high-end premium fragrance, just two examples.

And our intentional and strategic part of our portfolio focus was to be instead, in daily use categories that are used in good times and bad times, because they’re just important to get through the day, sometimes multiple uses important to get through the day. So if you look at the total portfolio through that lens we’re more macro resilient, I would argue, today than we were some years ago.

The second reason I say that is the efforts that we’ve made and we’ll continue to make and the investment we’ve put behind it on product superiority, product package the whole set of drivers, that inherently increases consumer value. So the value of each purchase is higher than it would have been even inclusive of small price increases.

And that too puts us in a better position relative to things like trade down that can happen as a result of macro dynamics and more difficult economic times, not immune, but in a better position today. The third thing I would argue is, to the extent that we’ve been successful in creating a culture where productivity is as integral to our being as innovation, we have more financial flexibility and therefore more degrees of freedom for how we manage the difficulties that the macroeconomic situation can present.

So for those three reasons. Jon, I think we’re in a much better place today. We will be impacted if there are negative developments in any part of the world. It does create challenge. It’s the right question to continue to ask. And I’m not talking in absolutes but on a relative basis we’re much more macro resilient than I think we were historically.

Great, well thanks everybody. Again, just a quick summary, we really view this quarter as another step in our journey forward. Strong topline progress, building market share, strong operating earnings growth, building margins, strong core earnings per share, generating cash, returning that cash to shareholders. All behind an integrated strategy that’s working and we will continue to execute. We look forward to seeing many of you. As I said earlier, at CAGNY and I look forward to our conversations. Thanks.

Operator

[Operator Closing Remarks]