Good morning, welcome to Procter & Gamble's quarter end conference call. P&G would like to remind you that today's discussion will include a number of forward-looking statements. If you will refer to P&G's most recent 10-K, 10-Q, and Form 8-K report, you will see a discussion of factors that could cause the company's actual results to differ materially from these projections. 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 valuable information on the underlying growth trends of the business and has posted on its website, www.pg.com, a full reconciliation of non-GAAP and other financial measures. I will turn the call over to P&G's Chief Financial Officer, Jon Moeller.
Thanks, good morning. As David Taylor said on the press release we issued earlier this morning, we continue to make progress on the transformation we are making to return P&G's results to a balance of strong top-line growth, bottom-line growth, and cash generation. We achieved a significant milestone this quarter in the transformation of the product portfolio with the exit of the batteries business. We delivered another strong quarter of productivity improvement and cost savings, and we increased investments in innovation, advertising, and selling capacity to enhance our long-term prospects for faster, sustainable top-line growth and value creation. We do continue to operate in a challenging and volatile macro environment. Market growth rates on both a volume and value basis have decelerated, due mainly to slower growth in developing markets. We entered the year expecting the market to grow close to 3%-4% globally. We expect 3%.
There are more flashpoints across the globe than at any time in recent memory, with significant economic and political instability impacting incomes and consumption in many large and important markets. Russia, Ukraine, Egypt, Saudi Arabia, and the balance of the Middle East, Turkey, Nigeria, Argentina, Venezuela, Brazil. We generate more than 10% of our annual sales and profit in these markets. Currencies have weakened across the board since the start of our fiscal year. While the dollar has softened a bit recently, we still face up to a $1 billion after-tax net earnings impact versus year-ago, a $200 million increase since just the start of December. Across 4 years, FX has reduced net earnings by about $4 billion after tax, nearly 40% of FY 2012 net earnings.
Against this backdrop, we remain focused on large opportunities in our control, executing what is the largest transformation in our company's history. Step changing cost and cash productivity, transforming our portfolio, strengthening our organization and culture, and re-accelerating top-line growth with strengthened category business models and innovation plans, and where appropriate, improved value equations. This transformation is aimed at delivering balanced top and bottom-line growth and leadership value creation. I'm going to talk briefly about each of the transformation steps, productivity, portfolio, organization, and top-line re-acceleration before getting into the details of the quarter. We continue to dramatically improve cost and cash productivity with significant upside still ahead. Our original 5-year cost of goods savings target was $6 billion. We expect to deliver over $7 billion by the end of this year, $1 billion or more above our initial target.
We've reduced manufacturing enrollment by 15% over the last three years. This includes new staffing necessary to support capacity additions. On a same site basis, manufacturing enrollment is down 20%. We're targeting a 25%-30% cumulative reduction by the end of fiscal 2017. In February 2012, we announced that we would reduce non-manufacturing overhead by 10% over five years. As of March 31st, we've reduced these roles by more than 24%, almost two and a half times the original target. We expect to meet our latest target of 25%-30% by the end of this year, one year ahead of schedule. Including divestitures, we'll reduce non-manufacturing roles by about 35% by the end of fiscal 2017. We're reducing non-working marketing expenditures, costs that do not impact reach, frequency, or continuity of our advertising and trial generation programs. We were spending $2 billion per year on agency fees.
Last year, we reduced the roughly 6,000 agencies we work with by nearly 40% and cut agency and production spending by about $370 million. We're aiming for an additional $200 million of agency-related savings this year, reinvesting those savings in advertising and sampling of consumer preferred products. Net of reinvestments in innovation, selling, media, and sampling, productivity has enabled us to deliver constant currency gross and operating profit margin improvement in each of the last three fiscal years, driving double-digit constant currency Core earnings per share growth in each of those years. We're on track to improve gross and operating margins by triple digit indices, both including and excluding currency impacts again this fiscal year. We're driving productivity up and down the income statement and across the balance sheet. Inventory days are down. Payable days are up.
Balance sheet productivity has enabled us to extend our long track record of very strong adjusted free cash flow productivity, 102% last fiscal year, 101% in Q1, 117% in Q2, and 105% in the quarter we just completed, even as we spend capital to transform our supply chain. We continue to maintain our position as one of the strongest cash generators among competitive peers and comparable mega cap companies. We're among the top companies in returning cash to shareholders. Over the past decade, we've returned more than $118 billion in cash to shareholders through a combination of dividends and share repurchase. We said four years ago that we needed to make cost and cash productivity part of our culture, as integral to our culture as innovation. We've made significant progress, and we have significant opportunity.
Our strong track record and our line of sight to additional opportunity both inform our intent to save as much as another $10 billion in cost over the next five years. Our supply chain transformation is in its early stages. First in North America and Europe, then in Latin America, and in India, Middle East, and Africa. We're in an investment mode now with savings to start in three to four years. Our new U.S. mixing centers are up and running, putting roughly 80% of volume within 24 hours of store shelves. We're constructing multi-category manufacturing sites in geographically strategic locations to replace smaller single-category sites in less cost-effective locations. We're upgrading and standardizing manufacturing platforms to lower cost and facilitate faster innovation. We're employing smart automation and digitization to improve manufacturing productivity, raw material, and finished product logistics and demand planning.
We have additional opportunity to optimize working capital and further increase the efficiency of our capital spend. After two strong years of savings, we'll enter next year still spending $1.5 billion in agency-related marketing costs. Still more room to improve. We'll continue to look for efficiencies in working media with better advertising targeting and earned media campaigns with engaging content. As we fully operationalize the new focused 10-category company, there will undoubtedly be additional opportunities to increase organization efficiency, agility, and speed of decision-making. Digitization will continue to enable smart productivity choices. Finally, we'll be working to improve the effectiveness and efficiency of our promotion spending. We currently spend about $18 billion in deductions between gross and net sales. We see clear opportunities to improve the effectiveness of the spend for both us and our retail partners and to improve its efficiency.
We're targeting up to $10 billion of additional savings over the next five years. We expect to reinvest a significant amount of the savings in R&D, in product and packaging improvements, sales capacity, and in brand awareness and trial-building programs to deliver balanced top and bottom-line growth and to create value for share owners. In addition to transforming our cost structure, we're transforming our portfolio. Over the past 18 months, we've divested, discontinued, or consolidated 55 brands, including the completion of the Duracell transaction at the end of February. We have 50 more brands in the exit process, including the 41 beauty brands in the transaction with Coty. The S-4 registration statement for the beauty transaction was filed last week. We're on track to close the deal in the second half of the calendar year. In total, we'll exit 105 brands and all the complexity they create.
These brands represent only about 6% of fiscal 2013 profit. Going forward, we're anchoring our portfolio on 10 category-based business units and about 65 brands. These are categories where P&G has leading market positions and where product technologies deliver performance differences that matter to consumers. These 10 businesses have historically grown faster with higher margins than the balance of the company. Within these core businesses, we're focusing our offerings, making smart choices for short, mid, and long-term value creation, for going bad businesses, even when these choices create near-term top-line pressure. In Mexico, for example, we made the choice to discontinue low-tier, unprofitable, and commoditizing toilet paper products in favor of very profitable high-tier differentiated products. Sales are down 75%, but before tax margins have improved by more than 50 basis points, from very negative to nicely positive.
It will take a few more quarters for the top-line drag to dissipate, we'll have a solidly value-accretive business going forward. In India, we've made a choice to deprioritize several unprofitable lines of business, which negatively impacts short-term top-line growth rates, will lead longer term to a much more profitable business that will grow strongly. The strategic portion of our India business is growing at a high single-digit pace. Sales in the portion we're fixing or exiting have been down more than 30%. This top-line pain is worth it. We're making significant progress in improving local profit margins, up about 700 basis points. We've gone from losing significant money in India to triple-digit profits in just two years.
We're taking a similar approach in our fabric care product portfolio, discontinuing product forms, additives, bars, bleaches, and tablets, and the value tier detergents that have been a drag on profitability and value creation. These choices are causing a top-line drag of nearly a point on the global fabric care business, but profitability and the long-term attractiveness of the business improves. Combined, these choices are causing about a one-point drag on organic sales growth. We expect this headwind to continue for the balance of the calendar year and then dissipate as we annualize more of the impacts. As we come out of this, we'll have stronger top-line growth that is worth something on the bottom line. We're transforming our organization and culture. We're making many changes that by themselves may seem small and obvious, but together are significant and important.
As an example, we've made several important changes in how we go to market. We eliminated overlapping resources and duplicative structures and responsibilities of marketing and sales professionals in the global business units and Market Development Organizations, clarifying responsibilities and strengthening accountability. Reflecting this, we changed the name of the Market Development Organizations to Selling and Market Operations. Small, but very important. We're increasingly staffing leadership roles in the Selling and Market Operations with leaders who have significant selling experience. We're changing our talent development and assignment planning to drive more mastery and depth. The objective is simple. Improve business results by getting and keeping the right people in the right places to develop and apply deep category mastery to winning. Consistent with this, we're dedicating sales resources to categories or sectors.
In our larger markets, sales resources have greater accountability back to the categories they serve, which is a change. We're aligning incentives at a lower and more specific level of granularity to better match these responsibilities and to increase accountability. Another example of the evolution of our thinking on the organization is what David talked about at CAGNY. He said that P&G is fortunate to consistently source and develop strong talent, and that we intend to maintain or develop from within approach. There are times when the best talent for a role may not be inside our organization. Going forward, we're going to look at outside hiring more often when we need it to field the best team possible. The bottom line is that we're committed to getting, keeping, and growing the right talent in the right place to better drive business results.
Again, each of these changes may seem small and rather obvious, but collectively, they are big and important changes for our organization and culture. A very important area of transformation is re-acceleration of top-line growth. We expect to make progress in all 10 product categories, but we're putting specific emphasis against the 4 largest categories, baby care, fabric care, hair care, and grooming, and the 2 largest markets, the U.S. and China. These 4 categories represent over 60% of sales and profit. These 2 countries represent nearly 50% of sales and more than 50% of profit. We're growing our fabric care business with consumer preferred brands and product offerings, like our premium performance and premium priced unit dose detergents, and our market leading and market expanding scent bead fabric enhancers.
We're exiting slower growing, lower priced, more commoditized product forms where it's more difficult to distinguish our products and create value. Fabric care results in the U.S. demonstrates what's possible when we deliver superior value with best-in-class performance at a modest price premium. The U.S. laundry detergent market is continuing to grow behind these efforts, with the category up more than four points on a value basis over the last three, six, and nine-month periods. The same is true for fabric enhancers. Preferred by the rapid growth of scent beads, the U.S. fabric enhancers category is growing, up more than six points on a value basis over the last three, six, and nine-month periods. Our share is growing. P&G's U.S. laundry detergent and fabric enhancer value shares were each up nearly a point in the March quarter. We will continue to be the innovation leader in fabric care.
In North America, we're introducing a new regimen on Tide and Downy that addresses the odor problems common to athletic wear. 70% of consumers wear athletic gear multiple times each week. The Odor Defense collection, anchored by innovation on Tide PODS, brings a proprietary formula of enzymes and surfactants that break down and remove stubborn soils and residues for a great clean and fresh scent. Paired with the added cleaning power of Tide Odor Rescue In-Wash Laundry Booster and Downy Fresh Protect In-Wash Odor Defense beads, this regimen promises to eliminate odors from the fast-growing market of athleisure clothes people are wearing far beyond the gym. Next month, we start our learning market on Tide purclean Liquid Detergent in the U.S. Naturals is a large and growing segment in several categories, but naturals are only about 3% of the laundry category.
Unlocking growth in naturals is about solving the tension between green and clean. People want performance and sustainability. purclean provides the cleaning power of Tide with 65% bio-based ingredients, and it's produced with 100% renewable wind power electricity in a facility operating with zero manufacturing waste to landfill. We're launching better performing and more profitable new compact liquid detergents in Russia, Turkey, Mexico, Brazil, and China. In Russia and Turkey, where we launched superior compact liquid detergents early last calendar year, P&G's share of liquid detergents are up seven points and 14 points respectively. We've increased sampling in new washing machines, a key point of category entry and change for consumers. Last fiscal year, we distributed five million samples in washing machines globally. This fiscal year, we'll distribute about 17 million. In calendar year 2016, we'll distribute 30 million samples of our best performing products.
In U.S. baby care, strong innovation, consumer communication, trial programs, and a robust online presence have led to strong growth for Pampers. Pampers' value share of U.S. diapers was up more than a point and a half last fiscal year, and it was up a point in the March quarter. Pampers' latest Swaddlers and Cruisers innovation, Extra Absorb Channels, is off to a good start in the new calendar year with Swaddlers' and Cruisers' share up more than a point in the last quarter. We strengthened investments in brand awareness and trial at the point of market entry. 70% of new moms in the U.S. will receive samples of our best products through our prenatal baby shower and hospital programs. Last fiscal year marked the seventh consecutive year of sales and value share growth for the Luvs brand in the U.S.
However, results have been down so far this year following a significant price reduction taken by our primary competitor. We're taking steps to improve the awareness, trial, and consumer value of Luvs. We're increasing equity building advertising, strengthening in-store programs, and have product and packaging improvements slated for launch next quarter. Baby care results have been softer in other markets. To address this, we've strengthened our value proposition in several markets and accelerated premium innovation on both taped and pull-on diapers to restore our competitiveness at the top end of the market. We're strengthening our selling resources and programs for baby stores, and we're improving our point-of-market entry programs to deliver higher awareness and trial of Pampers among new moms. In hair care, we launched our new conditioner innovation on Pantene in the U.S. last quarter.
Pantene's new breakthrough conditioner technology delivers weightless conditioning, addressing the most significant consumer trial barrier in the category. The new conditioner innovation is a consumer blind test winner versus our best competition in North America, China, and Japan. We continue to strongly support Head & Shoulders, one of our steadiest and strongest growing brands, delivering over 8% compound average sales growth over the past 10 years, even with significant currency impacts. Organic sales for Pantene and Head & Shoulders were each up high single digits in the U.S. in the March quarter. Gillette has delivered steady growth in international markets so far this fiscal year behind strong innovation, advertising, and sampling programs. Gillette is holding our growing value share in each region outside the U.S. The growth in international markets has been offset by soft results in the U.S.
To improve our growth and the growth of the market, we're investing in innovation, new user trial, and improved consumer value. We're expanding our performance advantage at the top end of the market. Our most recent cartridge innovation, Gillette Fusion ProShield, launched last quarter. ProShield, with lubrication before and after the blades, shields against irritation during every shave. Early consumption results in the U.S. have been tracking ahead of plan. We're supporting a broader range of our product ladder from our best product, Fusion FlexBall ProShield, to Mach3, to premium price and superior performance disposables, with stronger consumer value communication. We're facing more aggressive competition at lower price points, and we will respond to ensure our brands remain a superior consumer value. We've stepped up new trial activities in the U.S. with our 18th birthday sampling program.
We put Fusion ProGlide FlexBall razors in the hands of nearly 80% of young men, over 2 million samples last year, a 33% increase over the prior year level. We've now begun sampling the FlexBall razor handle and the ProShield cartridge, our very best combination of shaving technologies. We're not standing still in the other categories. We delivered solid organic sales growth in the U.S. this quarter in the feminine care, family care, and home care categories, all big and profitable businesses for us. P&G continues to be the innovation leader in our U.S. categories. In the IRI New Product Pacesetters report just published, P&G had four of the top 10 innovations and six of the top 13. Top innovations recognized for 2015 sales were Tide Simply Clean and Fresh, Always Discreet, Fusion ProGlide FlexBall, Venus Swirl, Febreze Unstopables, and Tide Plus Ultra Stain Release.
Overall, in the U.S., organic sales were up 2%, in line with underlying market growth of our categories. Organic volume was up 3% for the quarter. We're making progress in China, but there's still more work to do. We narrowed sales declines by half this quarter and expect to improve again next quarter. We recently upgraded our Pampers Premium Diaper Pants to improve fit and softness, and we have new innovations coming soon on mid-tier pants and premium tape diapers. Oral-B Super Premium toothpaste launched in over 700 stores last quarter, reaching roughly a 5% share in those outlets. We'll triple distribution on this item this quarter. Ariel is growing in China following the concentrated liquid detergent launch in January. Gillette Fusion FlexBall has driven male razor system share growth over the past three, six, and 12-month periods.
SK-II continues to deliver very strong growth, with sales for the quarter up nearly 20%. Some bright spots are emerging, but it will take time to get fully back to target growth rates. We're realistic that improvements in top-line growth won't happen overnight, and they won't happen in a straight line, but they will continue to improve over time. Let me move now to the quarter we've just completed and to the outlook for the fiscal year. Organic sales were up 1% for the quarter versus the prior year. The impact from the portfolio cleanup efforts I discussed earlier was about a one-point drag on organic sales growth. All-in sales were down 7%, including a five-point headwind from foreign exchange, three points from the combination of Venezuela deconsolidation, and minor brand divestitures. Core EPS were $0.86, down 3% versus the prior year.
Core gross margin increased 270 basis points. Core operating margin increased 300 basis points. This quarter's Core EPS results included a net FX headwind of approximately $90 million after tax, or $0.03 per share, comprised of a negative spot rate impact of about $230 million, which was partially offset by $140 million balance sheet revaluation impact in the base period that did not recur this year. Venezuela continues to be a difficult market and was also a drag on March quarter results. At the beginning of the fiscal year, we announced our decision to deconsolidate our Venezuelan operations, no longer reporting sales or profits from products locally manufactured and sold in Venezuela. We continue to recognize sales and profit on products sold to our Venezuelan subsidiaries from non-Venezuelan P&G entities.
We highlighted at CAGNY that a disruption in our Venezuelan subsidiary's ability to access dollars to pay for these imports of finished products could have a negative impact on our top and bottom line results. We've been unable to access U.S. dollars at any size since November, and as a result, reported no sales or profit for Venezuela in the March quarter. This caused a 20 basis point organic sales growth reduction in the quarter. On the bottom line, the total impact of Venezuela was $0.05 per share or 6% in terms of Core EPS. Assuming these financing constraints continue, the bottom-line impact on the year will be up to $0.10 per share or -3%.
The core effective tax rate for the quarter was 27.2%, up 800 basis points versus last year, a $0.10 per share impact on Core EPS, an 11 percentage point impact on Core EPS growth. The base period tax rate was unusually low due to the geographic mix of earnings and due to audit settlements, and the current period rate was inflated by a valuation allowance against net operating loss carryforwards. These two items account for about six points of the eight-point change in the tax rate. These three impacts, FX, Venezuela, and tax, were a combined Core EPS growth headwind of 20% this quarter. On an all-in GAAP basis, EPS were $0.97 for the quarter, up 29% versus the prior year. We generated $2.5 billion in free cash flow, yielding 105% adjusted free cash flow productivity.
We returned approximately $2.9 billion to shareholders this quarter through a combination of $1.9 billion in dividends and $1 billion in share repurchase. In addition, we received approximately $4.2 billion of stock through the Duracell transaction. Earlier this month, we increased the dividend 1%, making this the 60th consecutive year the company has increased the dividend. The size of the dividend increase reflects FX headwinds, the cash impacts from streamlining and strengthening the business unit portfolio, and our plans to increase investments in the business to accelerate top-line growth. Moving to guidance. Our outlook for the fiscal year reflects four large factors driving lower earnings in the fourth quarter. First, lower non-operating income. We expect about $100 million less in the fourth quarter this year versus last year. Second, tax.
The Q4 tax rate will likely be, again, about 800 basis points higher than last year due to the geographic earnings mix and audit settlement benefits in the base period. Third, investment levels. We will have a significant increase in advertising expense, coupled with continued reinvestment in R&D and selling capabilities. Fourth, FX. We will continue to see significant spot rate impacts on both the top and bottom line in Q4, and unlike the last two quarters, will not have offsets from base period balance sheet revaluation changes. Combined, we expect these four factors to lower Q4 net earnings by more than $800 million and reduce Core EPS by more than 32% versus the prior year. For the fiscal year, we are maintaining our outlook for organic sales growth of in line to upload single digits versus fiscal 2015.
As I mentioned, our outlook assumes we will no longer benefit from sales of finished product to our deconsolidated subsidiaries in Venezuela. This will be roughly a 30 basis point drag on Q4 organic sales growth. In addition, the roughly one point drag from the core portfolio cleanup will continue into Q4. We expect FX will have a six to seven percentage point impact on all-in sales growth for the fiscal year. Also, the combined impact of the Venezuela deconsolidation and minor brand divestitures will have a two to three percentage point drag on all-in sales growth. Taken together, we expect all-in sales will be down high single digits versus fiscal 2015. We continue to expect constant currency Core EPS growth in the mid-single digits for the year.
Foreign exchange will reduce net earnings by approximately $1 billion versus the prior year, resulting in a nine percentage point or $0.35 per share impact on Core EPS growth for the year. With one quarter left in the year, we're tightening and improving our Core EPS guidance range from down three to eight to down three to six, which puts the midpoint of the range at $3.59 per share versus last year's Core EPS of $3.76. Fiscal year EPS guidance includes headwinds of 10 percentage points from the combined impacts of beauty deal expenses, Venezuela deconsolidation, lower non-operating income, and a higher tax rate. Adjusting for these items, our guidance translates to modest Core EPS growth, with meaningful growth excluding foreign exchange.
We expect the core effective tax rate to be 25% or higher for fiscal 2016, more than four points higher than last year, roughly a six-point headwind on Core EPS growth. We're raising our fiscal year outlook for free cash flow to 100% or more of adjusted net earnings. We expect to reduce outstanding shares at a value of over $8 billion through a combination of direct share repurchases and the shares that were exchanged in the Duracell transaction. In addition, we expect dividend payments of more than $7 billion. In total, $15 billion-$16 billion in dividend payments, share exchanges, and share repurchases. We expect all-in GAAP EPS to be up in the range of 46%-51%. Moving briefly to 2017.
David is going to join me on our next call, scheduled for Tuesday, August 2nd, to discuss our plans and outlook for fiscal 2017. We're currently in the early planning stages for next year. We'll give guidance on the next call, but there are a few things to keep in mind as you review your estimates between now and then. We expect improvements in organic sales growth, though core portfolio cleanup will still be a headwind. Venezuela will be a drag on the first two quarters of the year. If currency exchange rates hold steady through next fiscal year, FX should be much more manageable than it's been for the past few years, but we'll still have a headwind on both the top and bottom line, particularly in the first two quarters.
Likewise, if commodity costs hold at recent levels, we'll continue to see a modest tailwind in the first half or so of next fiscal year. We'll be increasing investment in R&D, in product and packaging programs, in sales capacity, and in brand awareness and trial-building programs to accelerate top-line growth in a responsible and sustainable way. We'll defend the relative consumer value of our brands and invest to address value gaps if and when they emerge. We'll do everything we can from a productivity standpoint. We'll continue delivering on our commitment of cash return to shareholders. There'll be an EPS benefit from shares eliminated with our category exits, though the exact amount of which will depend on when we actually close the Coty transaction.
We'll obviously give more specifics on all of this in our next call, but we thought it might be helpful to offer you these early thoughts. To sum up, we continue to make progress on returning P&G to balanced top and bottom-line growth. We're nearing the completion of the portfolio transformation. We have created and are sustaining strong cost savings and cash productivity momentum. We're strengthening the organization and culture, and we're investing to accelerate top-line growth. That concludes our prepared remarks for this morning. As a reminder, business segment information is provided in our press release and will be available in slides, which will be posted on our website, www.pg.com, following the call. Now, I'll be happy to take your questions.
Ladies and gentlemen, if you have a question, please press star followed by one on your phone. If your question has been answered or you would like to withdraw your question, press star followed by two. Your first question comes from the line of Olivia Tong from Bank of America Merrill Lynch.
Good morning. Thanks. Jon, you mentioned that advertising was up 120 basis points, and it's been a while since we've seen an increase of this magnitude in the ad line. Is this the level we should expect going forward, or does it still move materially from here? Price overall came in. How much of that was incremental promotion, step-up in sampling that you're doing, things like that? Perhaps you can break out what the impact of price was between developed and developing markets to help us out there. Just lastly, you tightened the core EPS range, as you mentioned, but given that there's just one quarter left in the year, but you left the full-year organic sales target unchanged, which obviously implies an incredibly wide range for Q4.
Maybe can you refine your expectations a bit there and the main factors that impact where you fall within that range? Thanks a bunch.
Well, first of all, congratulations, Olivia, on the birth of your child, and welcome back to work. You're coming back strong with four questions in one. It's great to have you back. In terms of the advertising rates, we were up about, I think, 130 basis points in the quarter. We expect to be up about 140 basis points on the second half. There'll be some sequential strengthening of that comparison as we move forward. I tried to say eight or nine times in our prepared remarks that we will be investing to grow our top line. We'll be funding that with productivity and bringing the bottom line with it. There has not been a significant increase in the percentage of our business being sold on promotion, nor has there been a significant increase in the depth of those promotions.
We have, in several markets, used sales deducts as a way to adjust pricing back to competitive levels where we took more of a price increase than our competitors ultimately did. You see that impact, and I would just think about price adjustment and value gap closures as being the explanation for the change in the price component of the top line. As for fourth quarter guidance, we just provided it. It is what it is. I think that the range, you rightly point out, is a wide one. That's the reality of the world that we're operating in, with very significant volatility, whether it's input costs, FX, geopolitical and geoeconomic dynamics, and the consumer impacts of things like oil prices. We're going to be living with that volatility for the foreseeable future.
Your next question comes from the line of Steve Powers with UBS.
Great. Thanks. Hey, Jon, I think you called out $18 billion in gross to net spending, which is close to 27%, 28% of your expected net revenues this year. At first, I guess, can you just confirm that I heard that right? Second, assuming that I did, can you just talk about how that spending rate compares to maybe five or 10 years ago? Because I think it's up significantly. Third, I'm curious how you assess the ROI on that spending. As you optimize it going forward, how much opportunity do you see to reduce it? And then of that reduction, how much is likely to get reinvested elsewhere in the P&L as we think about the next several years? Thanks.
Yes, Steve, you got the number right. It's $18 billion. Yes, it has increased over time, driven in part by expansion of modern retailers on a global basis who've brought that business model with them to other parts of the world that previously were, for example, largely distributor and wholesaler markets. There is significant opportunity within that bucket of spend to first and foremost increase its effectiveness, ensuring that we're spending it in ways that drive category growth on a sustainable basis as opposed to short-term pantry loading, for example. Shifting spending to our best product offerings to increase the trial and repurchase rates of those items with consumers, again, not driving so much the, in some cases, the lower end of the portfolio. The vehicles that we use to communicate in store and how those are constructed and utilized in conjunction with our retail partners.
There are just massive opportunities to improve the effectiveness of that spend as we work to reaccelerate the top-line growth. There are also efficiency opportunities, and this is one of those unique and wonderful costs, if there is such a thing, where if you're able to reduce it, benefits both the top line and the bottom line. We'll be very judicious as we do that. Again, really wanting where we have opportunities to shift that from ineffective spend to effective spend as the primary activity in this space. I'm convinced within an $18 billion spend pool, we have efficiency opportunities.
Your next question comes from the line of Bill Schmitz with Deutsche Bank.
Hi, Jon. Good morning.
Good morning, Bill.
Can you just give us some more color on the reinvestment strategy? You talked about the increase this quarter, next quarter, but how long will the advertising restoration period last? Where are you going to focus? I think you talked about hair care, laundry, and diapers to start. What are you trying to achieve? I think maybe the last two or three years, you said, market share is not a primary driver of the business. It's really about growing the categories profitably. Does that change as you feel more pressure to close the gap on organic growth versus your peers? Frankly, I think the scoreboard you have is organic growth, right? I think that's obviously really important.
Really quickly, just a housekeeping item, and I know you don't have the exact numbers, but can you just give us a rough cut at what you think the earnings upside is from both the Duracell and the Coty divestitures?
You asked a very important question, Bill. How do we think about top-line growth, and what are we trying to achieve there? How do you think about the different metrics, whether it's category growth, organic sales, or market share? First and foremost, we need to accelerate our top-line growth rate, and there's no debate about that. The reason that we've talked a little bit about not following share out the window, we can be gaining shares in categories that are declining, and that's not going to grow our top line. What we need to be doing as innovation leaders in our categories is getting the market growing through that innovation and gaining a share of that growth. That's exactly what we're doing in fabric care in the U.S., for example, and it's taken a while, but it's worked extremely well. The category is growing 4%.
We're getting a disproportionate part of that growth. That's what we are looking to do across our product categories. It's bringing innovation to the market, which grows categories for the industry, for our retail partners, and allows us to gain a little bit of share in the process. Look, we need to be growing at the rate of the market or better. Market growth is an important element of that in terms of how attractive that growth ultimately ends up being. It's all of the above. In terms of earnings per share upside from Duracell and Coty, I think we've talked before that we plan to be non-dilutive from day one. We've been working for two years on the stranded overheads that are going to be created as a result of this.
We also expect that the portfolio that we're going to be left with is a healthier, stronger portfolio that will grow and will grow more profitably.
Your next question comes from the line of Lauren Lieberman with Barclays.
Thanks. Morning. I'm not sure if you fully answered what Bill had referenced in terms of a reset on advertising spending. I'm guessing he's still looking for some color on thoughts around reinvestment and maybe it extending beyond just it being about advertising, but also the investments in product quality and packaging and timeline for that. I also wanted to get color on your comments on consumer value investments, particularly in Gillette in the U.S. and Baby in the U.S. I wonder about how you think about Luvs pricing versus private label and positioning. Then for Gillette, it seemed like you were talking about the lower end of where you compete in the shaving category, but anything else you can share there would be great. Thank you.
Thanks for the save for Bill there, Lauren. Sorry, I did miss that. As I said in our earlier remarks, we're reinvesting in not just advertising. I went through three examples of sampling to generate trial, getting our best products in the hands of consumers. That's a significant portion of investment. I mentioned as well expanding our sales capacity. That's happening across some of the newer channels, but also in our existing channels, dedicating sales coverage to individual categories and sectors, which is required and will require some investment. It's broad-based. You mentioned package. There are clear opportunities to continue to improve our first moment of truth, which is a lot about the package, and we'll continue to do that as well. In terms of specific numbers for next year across those buckets, we're in the early stages of putting our plan together for next year.
Our intent is clear, I think. As I said, we'll continue to work to fund those investments through continued productivity savings as well. On value equation, there's really no change here in terms of our intent to be competitive across price tiers on big businesses that matter in big markets that matter. Clearly, that involves grooming in the U.S. You mentioned baby in the U.S. I'm not going to get into specifics about the pricing moves that will be made. I'm not allowed to do that by law, but we'll be competitive. In fact, well, I'll leave it there.
Your next question comes from the line of John Faucher with JP Morgan.
Thanks. John, you mentioned improvement in profitability, I think it was in India over the past several years, mostly coming from, I think, improved manufacturing, logistics, and local markets. Can you talk about the state of that process, and are there still markets in emerging markets where you're losing money, where you could benefit from moving that? I guess on the flip side of that, volumes have been weak generally. How do you deal with some of the stranded manufacturing capacity in some of the major markets where you've been producing this product? Is that a piece of the productivity we've been seeing for the past couple of years? How long do you think it takes to get to a more sustainable operating margin in some of these emerging markets on a broader basis? Thanks.
Well, on the broad question of developing market margins in steady states, I can't answer that without getting into, unfortunately, FX. The answer to the question involves what happens to foreign exchange rates going forward. For perspective, we've been growing constant currency earnings in developing markets well ahead of constant currency sales. Going back three years ago, 2x. The year after that, 4x. Last year, 8x. This year, 8x. That reflects the things that you're describing in terms of the supply chain. It also reflects the overall productivity program and its benefits in the developing market. It reflects a lot of work that we've been doing on our portfolio, as I described in our earlier commentary. The biggest driver of the really nice profit improvement in India has been that portfolio work. It's all of that.
In terms of volume and the impact that it's had on our fixed cost rates, if you will, in the supply chain, it's definitely had an impact. The good news is that we're right in the middle of a supply transformation, that's going to be multi-geography in nature. That gives us an opportunity where we need to rationalize that fixed cost infrastructure. At the same time, hopefully, the main benefit going forward in terms of that is re-acceleration of volume of sales.
Your next question comes from the line of Nik Modi with RBC Capital Markets.
Yeah, thanks. John, can you provide some context on where within the P&G organization are the pricing decisions made, have those decisions changed, are you planning to change who dictates local market pricing for new innovation and the core portfolio? Any context on that would be helpful.
There are kind of two forms of pricing decisions if you think about it. One is what I'll call strategic pricing choices. That's the establishment of the pricing strategy, the price corridors you want to hold between markets, the price corridors you want to hold between competitors, whether they be branded or retail competitors. Those choices are made by our global business units who have representation in both regions and countries, more representation in regions and countries than at the global headquarters. These are people who are very close to what's happening in the marketplace in terms of consumption, in terms of trade customers, in terms of competitors and consumers.
There's tactical adjustments that occur on a routine basis as each day and week unfolds, and we're trying to give more flexibility to resources located closer to the action to move agilely there as they need to. We're going to hopefully achieve the best of both, and we'll see how that works going forward.
Your next question comes from the line of Wendy Nicholson with Citi Research.
Hi, good morning. Two questions. First of all, can you talk a little bit more about China? I know you said that your business is showing some signs of improvement down not as much given some of the premium price innovation you're doing. How confident are you in the strategy of pursuing what sounds like almost exclusively premium price innovation? It does sound like from some of the other competitors out there that there's also price-based competition going on in some of your big markets. If you can talk about China more broadly and the strategy there, that'd be great. My second question has to do with your comment that I think we've heard. I think we heard it from Bob McDonald a few years ago, that P&G was increasingly open to hiring from the outside.
I know we've had certain partnerships and R&D stuff, but in terms of actual physical new hires outside of kind of legal and tax and HR, I can't think of anybody on the business side who you actually have brought in from outside.
Given that you've been saying that for so long, are there particular areas where you think that that is a priority? Is it marketing? Is it something in specific businesses? Why say it for so many years and then not have it actually happen? Thanks.
First, on China, I'm glad you asked the question you did, Wendy. That big middle of the portfolio is very important, and we're not losing sight of that. We have fantastic positions in that portion of the market, which we intend to maintain and build. We also want to take advantage of the higher growth portion of the market, which is currently the premium tiers. 50% of consumption is currently in those tiers across our categories. They're growing at high single to double-digit rates. We obviously want to participate in that, not only for the sales and volume benefit, but also for the equity halo that it provides to our brands. It is clearly an and strategy, not an or strategy. Your question on our approach to bringing in talent from outside the organization.
I think David was very clear about that at CAGNY, that we are going to maintain broadly our promote from within and develop from within, most importantly, program. We are going to put the right people, the best people, in jobs across the organization. When that requires that we go outside, we'll do that. We have, for example, hired a number of experienced salespeople. I mentioned building our sales capacity. As we're dedicating selling organizations to categories and sectors, there are cases where we can find more experience outside the company. People who've had 10 years experience in a category where we may be underrepresented. We're bringing those people in. The whole area of digital marketing and media, where we need resources, we're either partnering with agencies who have that capability, in some cases we're bringing it in.
I don't think that's limited to any portion of the organization. That includes line management. We're going to approach this deliberately. Having someone come in just for the sake of having them come in and being able to say that we're making progress there is obviously not something that interests us very much. Having the right people in the right jobs, bringing mastery to help us win across the board, we're definitely committed to.
Your next question comes from the line of Dara Mohsenian, Morgan Stanley.
Hi, good morning.
Hi, Dara.
John, as you look out to fiscal 2017, are you expecting to be able to recover some of the net negative historical gap between FX and pricing from the last couple of years through pricing? With the lower commodities and at least less onerous FX, is pricing not expected to be a large factor next year? Also was just hoping for some commentary on if you're confident that you'll see an equivalent level of volume rebound going forward as the overall level of pricing decelerates. Thanks.
Thanks, Dara. I would expect pricing to be less of a dynamic next year than it has been the last two years, simply because at current spot rates, FX will be less of a dynamic next year than it has been the last two years. I also mentioned that in some cases where we've had large gaps emerge, we'll be working to close those. We're still seeing significant devaluation in some markets. There's still situations where we're going to be taking additional pricing, where we feel that will be matched. It'll continue to be a dynamic, but a little bit less going forward. On the volume piece, I certainly don't have a crystal ball, but if I look at what's happened historically, that volume has come back over time. Sometimes it depends on the market. Volume re-acceleration in markets like Latin America has been fairly quick.
In other markets, for example, Russia, the last crisis, it took us three years to get back from a volume standpoint. We'll have to see.
Your next question comes from the line of Bill Chappell with SunTrust.
Thanks. Good morning. Just two things. One, on the U.S. shaving business, can you give us a little more color? That's a focus area, both the U.S. and shaving. You've had new innovation. Do you see signs that as we move through the quarter, as we move into next year, that the growth dynamics can change and maybe follow more like laundry? Also maybe for a bigger question, I understand that next year is still kind of a transition year and you're stepping up advertising and marketing. How long does it take to get to your growth algorithms, excluding stuff like Russia or a global crisis, per se?
In terms of grooming, this is primarily driven by two things. One is the market, as you rightly point out, and the other is some of the promotion at primarily the lower end of the portfolio. If you look at the past three months, market consumption and track channels was down 4%. That's largely due to lower shaving incidences, and also that number, just the math of that number, doesn't pick up the volume from direct sellers, and that's had some impact on that track channel number as well. We estimate that total market growth, inclusive of e-commerce sales, is flat to slightly growing versus year ago, and that's an improvement versus where we've been. The top end of our portfolio is doing very well. ProGlide cartridges sales grew 18% last fiscal compared to a 7% decline in the overall market, and those kinds of trends are continuing.
As I mentioned, we need to do more work on the lower end of the portfolio. We also need to be more present, and we are in the direct-to-consumption e-commerce channels. We need to bring innovation equally across the portfolio and marketing equally across the portfolio, which we're committed to do.
Your next question comes from the line of Javier Escalante with Consumer Edge Research.
Good morning, everyone. John, I think that it would be helpful if you give us a sense, like a very top-line way, volume and pricing between developed and emerging markets. I know that the U.S. was up 3%, but I would like to know what is happening with Europe as well, and how was the aggregate growth in emerging markets. In emerging markets, how much of that continues to be destocking in China? Or there is any other one-time in terms of wholesalers dynamics that is impacting your growth in developing markets? Again, in China, why destocking is so protracted? Shouldn't you be better off to just purge the wholesalers inventory and just start and roll out whatever innovation that you have? Thank you.
In terms of the breakdown between developed and developing, Javier, volume in developing was down five, in developed it was up three, which is really strong, by the way. Organic sales growth in developing was down one, in developed it was plus two. Obviously price mix then deductibly was plus four in developing and minus one in developed. In terms of the trade stocking issue in China, we are making progress. As I said, our rate of decline was halved in the quarter, and in many categories, we have returned to growth. We are doing everything we can to bring that back in a responsible way, and we will continue to do that.
Your next question comes from the line of Mark Astrachan with Stifel.
Thanks, good morning, everybody. I know you do not want to give too much detail on fiscal 2017, you talk about expect organic sales growth to improve in the year. I guess given FX headwinds in the first half and your prior commentary about not focusing on market share given FX headwinds, is it fair to say that any share improvement then would be back half-weighted? More broadly, how should we all think about reinvestment required to return the business to top-line growth? You talk about all this reinvestment on a go-forward basis, but is there some way that we can quantify it or measure it, not just in terms of what the advertising spend is on a quarter-by-quarter basis, but is there some sort of bogey out there or benchmark that sort of helps us figure out basically where you are headed?
Yeah, fair question, Mark. Unfortunately, I have a difficult time answering that as we sit here today. We're literally just beginning the process of putting our plans together for next year. To give you some insight into that process, though, we're going to go through each of the large category country combinations and ensure that we're sufficient in terms of our investment to change the growth profile, and ideally to grow at the market, and then as we go through the year, try to improve that. I'm not going to call a quarter in which that's going to happen. It's going to take time, as I said in the prepared remarks. It's not going to be a straight line, but I think we'll see improvement over time. There's no bogey in terms of a number related to investment.
This is strategic planning at the category country brand level that we're just beginning to do. You've seen the increased investment profile in the back half of this fiscal year. That's the only one I really have real insight into at this point. I certainly wouldn't expect the investment levels to be lower as we go forward into next year.
Your next question comes from the line of Joe Altobello with Raymond James.
Thanks. Good morning, guys. First question, in terms of the 1% organic growth, can you tell us how that compared to consumption? I know it was a deceleration from last quarter, last quarter you shipped a little bit ahead of consumption. I was curious if that evened out in this quarter. Secondly, just going back to Bill Chappell's question for a second. What is P&G's long-term algorithm right now, given the change in the portfolio? How quickly can you get there? I imagine 2017 is probably too optimistic, but could we see a return to that by FY 2018? Thanks.
In terms of the relationship between consumption and shipments, you're right. We said in January that for the December quarter, there was a little bit more sell-in than consumption, and you see that reflected in the third quarter, that's where that's really reversed itself and evened out. I think we're in the steady state at this point in the process. I think that's also an important point in understanding the difference between the 2% last quarter and the 1% this quarter, in terms of organic sales growth. That and Venezuela really explain all of that change. Thanks for asking that question. In terms of the long-term algorithm, that has not changed. We want to be growing with the market to slightly ahead of the market, and we believe that with the continued productivity progress, that should translate into mid to high single-digit earnings per share growth.
I do think that getting back fully to that algorithm next year would be difficult. Again, we're just beginning to put our plans together.
Your next question comes from the line of Jason English with Goldman Sachs.
Hey, good morning, folks. Thanks for squeezing me in. Oh, there we go. Can you hear me?
Yes, Jason.
All right. I'm going to ask a multi-part question as well. First, kind of coming back to top line, you mentioned category growth slowing from, I think, 3%-4% to roughly 3%. How much of that is volume related versus price related? Per your comments on sort of the forward with FX, if it holds commodities, if they hold potentially price abating, should we expect global category growth to slow even further? The second question was on the savings target. This could just be a matter of semantics, but I heard you say up to $10 billion, so should we consider $10 billion as the cap and a bit of a stretch goal that may not be achieved? Also on the supply chain side, you mentioned sort of upfront investment savings will build in three to four years.
Should we be thinking about the delivery against those savings as being further out, so a bit more protracted than what we've seen over the last $10 billion?
Great. If I just look at the difference between value growth and volume growth in the markets to get at your question of how much of it is pricing, in developed markets, if I just look over the past year, basically, volume growth has actually accelerated a little bit, gone from 0% to 1%. Value growth is unchanged at about 1%. In developing markets, value growth has gone from 9% to 6%. Volume growth has gone from 2% to 1%. I think with that set of numbers, you can put the picture together that you're looking to put together. In terms of the savings target and the semantics around up to, those are the words we've used since we first started talking about this back at CAGNY. That doesn't imply a cap. There's no reason to cap. It does imply a range of outcomes.
Last time we said $10 billion, we over-delivered that. Again, there was no cap. I think $10 billion is a good number to shoot for, and I'm sure we'll get somewhere close to that, if not there. You may recall a conversation that some of us were having four years ago on this topic, and there was a lot of concern about whether we would actually get to $10 billion, and I said, again, that's the right number to shoot for, and if we only get to nine, I'm going to be pretty happy. I look at it the same way this time around. Really no change there. On the supply chain transformation, that particular portion of the savings will come later, as we've indicated since we started talking about supply chain transformation. I wouldn't take that as indicative of the entire program.
Last time around, it was pretty evenly paced across the fiscal years. That's not the design intent. That's just how it fell, and I don't see a reason for it to fall significantly different than that this time. Remember, though, and I know you know this, we are going to be reinvesting a lot of these savings, and on a relative basis, more of that investment acceleration, if you will occur in the early years. Then as that gets fully in place, it'll obviously have less of a year-to-year impact.
Your final question comes from the line of Ali Dibadj with Bernstein.
Hey, guys. I actually appreciate the tradition of always giving me the last word on the call. I hope it's a sign of respect for our work. Two things. One is, I know you're pretty reluctant to talk about 2017 guidance on this call. It would seem that analysts and investors have at least been interpreting some sort of message from you guys, given many EPS numbers have come down over the past month or so, and significantly more negatively, it would seem. Jon, some of the messaging you've talked about, at least on this call. I'm trying to get a sense, especially with the Coty benefit or the kind of share retirement benefit. I'm trying to get a sense of a recap of your thinking on 2017 in terms of reinvestments and returns, because clearly there's some messages being interpreted out there.
If you can balance the "continued progress" that your CEO says versus the not straight line that you mentioned, give us a little bit more color, I think it'd be appreciative because there is some message getting out there, clearly. The second question is, Jon, you joked a few years ago that you wouldn't want to be CFO of P&G at a time where the dividend didn't grow, I think we're all collectively glad that it did grow. Can you give us some more color on the 1% dividend increase? Shareholders have been waiting around for you guys for quite some time. You've had some very challenging times. The macros have been very challenging. Others in your peer groups suggest that they increase their dividend a little bit more aggressively than yours.
I get your dividend yield, I get your payout ratio, what would, in the end, be the true cost of a slight ratings downgrade here to reward shareholders a little bit more aggressively? Thanks for those two.
In terms of the message that's being interpreted externally, I personally have a hard time sorting through that simply because of the very wide range that exists in estimates right now. I'm not sure what message is being received. In terms of the message we're providing, it's very much the one you described to David just a minute ago, which is continued progress on both the top and bottom line, as well as our cash flow. Obviously, we want to accelerate all of that as quickly as we're able, but do it in a sustainable, responsible way. As I indicated, we're just putting our plans together for next year, we'll see what amount of progress we make. Our competitors don't sit still. Markets are volatile. That's where the not straight line comment comes in. I just think that's a reflection of reality.
The Coty benefit, in terms of the share retirement, will depend on exactly when those shares get retired, there should definitely be a benefit associated with that. We view that as part of the overall equation. In terms of the dividend increase, as you know, we're very committed to the principle of cash return to shareholders. Over the last 10 years, as I mentioned earlier, we've returned $118 billion. This year, between dividend share repurchase and share exchange, we'll effectively return $15 billion-$16 billion. There is not a lot of juice, if you will, to the amount of cash available from a borrowing standpoint between our current credit rating and one or two notches down. To do that to the credit rating for a small amount of additional dividend increase is not something that made a lot of sense to us.
We were very happy to increase the dividend. We remain committed to cash return to shareholders. We also need to reflect reality in our dividend planning. Significant FX headwinds. We are creating a smaller company, and our earnings per share are below year ago. We have a responsibility there, as you'll appreciate as well. It's a balancing of those two things. I completely get and understand the question, and it's a very fair one. That's where we net it out. I'll leave it there. Thank you, everybody, for your questions this morning. We'll be available for the balance of the week to talk through any of this with you. We're very happy about the progress that we're making, but we clearly understand we have more to do. Thanks a lot.
Ladies and gentlemen, that does conclude today's conference. Thank you for your participation. You may now disconnect. Have a great day.