Good morning, and welcome to Procter and Gamble's Quarter End Conference Call. Today's discussion will include a number of forward looking statements. If you will refer to P&G's most recent 10 ks, 10 Q and 8 ks reports, 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, P and G needs to make you aware that during the call, the company will make a number of references to non GAAP and other financial measures. Management believes these measures provide investors valuable information on the underlying growth trends of the business.
Organic refers to reported results excluding the impacts of acquisitions and divestitures and foreign exchange where applicable. Adjusted free cash flow represents operating cash flow less capital expenditures and excluding tax payments for the PetCare divestiture. Adjusted free cash flow productivity is the ratio of adjusted free cash flow to net earnings adjusted for impairment charges and Venezuela charges. Any measure described as core refers to the equivalent GAAP measure adjusted for certain items. Currency neutral refers to the equivalent GAAP measure excluding the impact of foreign exchange rate changes.
PNG has posted on its website, www.pg.com, a full reconciliation of non GAAP and other financial measures. Now, I will turn the call over to P&G's Chief Financial Officer, John Mulder.
Good morning. As you know, earlier this week, we announced that David Taylor had been elected and appointed the new Chief Financial Officer of the company, which becomes effective November 1 and sorry, Chief Executive Officer. And so joining me this morning is A. G. Lafley.
I'm going to start a discussion with a review of the fiscal year and Q4 results. Then AG will discuss our business strategy and ongoing moves to transform the company. And I'll close with guidance for fiscal 2016. One reminder before we begin, unless noted otherwise, the organic sales and core earnings results we're reporting today continue to include the beauty categories that we're in the process of exiting. The results of these businesses will be reported as discontinued operations starting with the Q1 of fiscal 2016.
In September, we'll provide an informational 8 ks presenting historical results of these businesses as discontinued operations. Another important accounting item to point out before we get started is the decision we've made to move from consolidation accounting to cost method accounting for Venezuela in our GAAP financial statements. While this decision is effective for periods beginning July 1st, it entails a one time non core write down of fixed assets cash and receivables of about $2,100,000,000 or $0.71 per share that's reflected in our Q4 2015 numbers. We're committed to continue to serve Venezuelan consumers. The change we've made to our accounting simply reflects our continued inability to convert currency or pay dividends.
Now on to our discussion of 2015 results. We accomplished 4 things in 2015. First, we delivered strong double digit constant currency core earnings per share growth and very good free cash flow productivity over 100% on modest organic top line growth. 2nd, we continue to make strong productivity gains across the board, income statement and balance sheet with many more opportunities still in front of us. 3rd, we largely completed the reshaping of our portfolio in less than 1 year, refocusing on 10 categories and 65 brands that best leverage our core competencies with leading global positions and historically superior top and bottom line performance.
This positions us over time for stronger top and bottom line growth. 4th, we continue to invest in our future in more dedicated selling resources and product innovation and brand building and in transforming our supply chain. For the fiscal year, organic sales grew 1%. Excluding the businesses we're in the process of exiting, organic sales grew 2%. All in sales were down 5% including the 6 point headwind from foreign exchange.
When we had to make choices between the top and bottom line, for example, the price for foreign currency rather than shift volume at a negative gross margin or to continue unprofitable non strategic product lines, we've deliberately placed emphasis on driving value creation and cash. Core operating margin was 19.3 percent in line with the prior year despite 130 basis point challenge from foreign exchange. On a constant currency basis, core operating margin was up 130 basis points. Productivity savings contributed approximately 330 basis points to core operating margin expansion for the year. Core gross margin including foreign exchange grew 30 basis points.
On a constant currency basis, core gross margin was up 80 basis points. We delivered this margin progress while making important investments in the business. As I mentioned earlier, we've increased investments in sales coverage. We're investing in innovation in the upstream innovation pipeline and behind recent launches, pods, beads, Pampers pants, Gillette FlexBall and Venus Swirl launches which both create and build markets. We're investing in the supply chain including the start up of 6 new U.
S. Mixing and distribution centers. We invested in a new business with our market expanding entry into the adult incontinence category. Core earnings per share for the year were $4.02 down 2% versus the prior year. This includes a 13 point headwind from foreign exchange over $1,500,000,000 after tax.
On a constant currency basis, core earnings per share grew at a double digit 11% rate. On an all in GAAP basis, earnings per share were $2.44 This includes non core restructuring costs, battery business impairment charges and the Venezuela charge. We continue to be one of the strongest cash generators among competitive peers in comparable mega cap companies. We generated $11,600,000,000 in adjusted free cash flow with 102% adjusted free cash flow productivity, increasing our dividend for the 59th consecutive year and returning $11,900,000,000 in cash to shareholders, dollars 7,300,000,000 in dividends and $4,600,000,000 in share repurchase, 105 percent of adjusted net earnings. Over the past 5 years, we've returned $60,000,000,000 to shareholders, dollars 12,000,000,000 a year on average and intend to pay dividends, retire and repurchase shares worth up to $70,000,000,000 over the next 4 years.
2 important drivers of our strong cash generation have been a reduction in payables from the broader implementation of our supply chain financing program and our work to reduce inventory levels. Inventory days on hand are down 5 days on a constant currency basis 7 days all in. Moving from the fiscal year to the quarter. Organic sales grew modestly rounding down to a level that was equal to the prior year. Organic sales of our 10 core product categories grew 1%.
The quarter was also heavily impacted by a full point from market dynamics in Russia. All in sales were down 9%, including a 9 point headwind from foreign exchange. Core gross margin and core operating margin both improved on both an all in and ex currency basis driven by productivity savings. Core gross margin increased 110 basis points for the year. Excluding foreign exchange, core gross margin was up 130 basis points.
Cost savings of approximately 220 basis points, pricing benefits of 140 basis points and 40 points from lower commodity costs more than offset 170 points of mix. Core SG and A costs as a percentage of sales increased 10 basis points as 130 basis points of productivity savings were more than offset by reinvestments in dedicated sales coverage and in our innovation pipeline by foreign exchange and other impacts. Core operating margin was 18.1%, up 90 basis points versus the prior year. On a constant currency basis, core operating margin was up 130 basis points. Productivity savings contributed 3.50 basis points to margin expansion for the quarter.
Non operating income was $300,000,000 above year ago levels driven by gains from minor brand divestitures. The core effective tax rate was 19% for the quarter, 21% for the fiscal year consistent with our outlook. Core earnings per share were 1 dollars up 8% versus the prior year. This includes a 14 percentage point foreign exchange headwind, roughly $370,000,000 after tax. On a constant currency basis, core earnings per share grew 22%.
Excluding the non operating income gains versus last year, constant currency core earnings share was up 12% for the quarter. On an all in GAAP basis, earnings per share were $0.18 for the quarter. This includes $0.07 of non core restructuring costs, $0.04 of earnings loss from discontinued operations and the $0.71 per share Venezuela charge. We generated $2,900,000,000 in adjusted free cash flow, yielding 106 percent adjusted free cash flow productivity. The strong constant currency earnings growth and cash flow has been driven by our progress on productivity.
As of July 1, we've reduced non manufacturing overhead rolls by 22%, more than double the original target set in February 2012 and a year earlier than planned. We're currently a 25% to 30% cumulative reduction by the end of fiscal 2017. This excludes roll reductions from divested businesses, which would increase this figure to over 35%. We generated $1,500,000,000 of cost of goods savings in fiscal 20 15, contributing 200 basis points of gross margin improvement. We improved manufacturing productivity by 5%, bringing cumulative past 3 year manufacturing enrollment reductions to 15%.
This includes new staffing necessary to support capacity additions. On a same site basis, manufacturing enrollment is down nearly 20% over the past 3 years, enabled by technology and our integrated work systems approach. We're still in the early stages of our supply chain transformation. In fiscal 2015, we completed the construction and start up of 6 new distribution and mixing centers, all on or ahead of schedule and under budget. We expect to complete the conversion out of our legacy locations later this calendar year.
We announced the construction of a new multi category manufacturing facility in West Virginia and a major expansion to an existing manufacturing site in Utah. Several plant closures were also announced, all early steps in the re siting and re platforming of our North American manufacturing system. We're taking similar steps in the European supply chain. We announced the consolidation of distribution centers in France and the U. K.
And consolidation of manufacturing for some home care products in our plant in Italy. We continue to see a $1,000,000,000 to $2,000,000,000 value creation opportunity from the global supply chain reinvention effort. We're targeting to build over time to annual savings of $400,000,000 to $500,000,000 and are expecting additional top line benefits from customer service enhancements and reductions of out of stocks. Marketing spending is another area where we are delivering more greater reach, higher frequency, more advertising for less overall cost. The savings are coming primarily from non working marketing spend.
One example are the fees and production costs for agencies we use for advertising media public relations, package design and development of in store materials. We're simplifying and reducing the number of agency relationships, while upgrading agency capability to improve creative quality and communication effectiveness, all at a lower cost. Our overall agency costs in fiscal 2015 were down about 15% versus the prior year. In Brazil, we consolidated agencies and delivered a 50% reduction in spending. In U.
S. Hair care, we reduced the number of shopper and consumer marketing agencies by a third and lowered total agency spending by 20%. In another beauty category, we consolidated to a single global agency for digital marketing, reducing spending for these services by more than 75%. In total, we reduced the number of agencies by nearly 40% and cut agency and production spending by about $300,000,000 versus the prior year. Tier 2,
there
is more savings ahead of us, most of which will be reinvested in stronger advertising programs. Moving from productivity to portfolio, I mentioned at the onset, we've made excellent progress on plans to strengthen and focus our business and brand portfolio. On this call last year, we said we were targeting to become a company of about a dozen product categories comprised of 70 to 80 brands over a 2 year period. At the CAGNY Conference in mid February, we updated plans to focus on 10 product categories and about 65 brands. With the Beauty Brands merger with Coty announced earlier this month, we have essentially completed the strategic portfolio reshaping.
We've completed the decision making, negotiation and contracting work on businesses that represent 95% of in scope sales and essentially all of the in scope profit. At the close of the Beauty Brands merger a year or so from now, we will have focused our portfolio on 10 categories and 65 brands that best leverage our core competencies. We have leading global positions in these categories with consumer preferred products and leading brands in the largest markets. These businesses and brands have historically grown faster and have been more profitable than the balance. As we're able to focus all of our energy on these leading businesses, which benefit from our core strengths and as we invest productivity savings and profitable growth, we expect to improve both top and bottom line performance.
With that, I'll turn it over to AG.
Thank you, John, and good morning, everyone. This morning, we're going to talk about the choices we've made, are making and will continue to make to drive growth and value creation as measured by operating total shareholder return. Every choice we take, every move we make is intended to accomplish one of three things: increase shopper and consumer preference for P and G brands and products improve operational effectiveness and executional excellence, develop more balanced, reliable, sustainable growth and value creation. We are rebalancing and refocusing this company to reinvigorate it and accelerate growth and value creation with 0 based goals and strategies, the organization or capabilities and the systems required to win. At P&G, we are successful when we win with shoppers and consumers, when we provide consumer preferred brands and products that become leading value creators in their categories of business.
The best, most balanced and integrated measure of value creation is operating total shareholder return. The foundation building block of OTSR is operating cash flow. Cash is the financial lifeblood of any company. Strong cash flow enables both reinvestment in the business and significant returns to share owners. The second building block is operating margin and profit.
Our operating margins have begun to improve. They should continue to improve as we move into the 10 core category, 65 brand portfolio and as we continue to deliver a steady stream of consumer preferred product innovation and consistent productivity savings through the end of this decade. The 3rd and last building block is net sales growth. Our results here obviously have been mixed, but we are making steady progress in most of the core business units and we have detailed improvement in growth plans in place for the balance. Much of the sales growth is ahead of us.
We have a strong lineup of new and improved products that are coming to market over the next 1, 2 and 3 fiscal years. We believe more of the resulting sales growth will be sustainable. And we are learning that big obvious consumer meaningful product innovations can continue to grow sales profitably for 3, 5, 7 and more years. The strength of OTSR is its actionability. It helps us prioritize business strategy choices, translate those choices to business building blocks and action plans that can be executed on a category and brand, country and customer or even manufacturing plant sales rep or distributor basis.
Operating TSR correlates with market TSR over time and aligns the interests of employees and shareowners. The question for any company is not what businesses we are in, but what businesses should we be in for the foreseeable future. As John said, we chose 10 category based business units for P and G as leading market positions, strong brands and consumer meaningful product technologies from which we can grow and create value: Baby Feminine and Family Care, Fabric and Home Care, Air Skin Grooming Oral and Personal Health Care. These 10 categories have been growing 50 to 100 basis points faster. In the total company, our operating margins are up to 100 basis points higher.
Our sales and profits are highly concentrated in a few big countries around the world, which makes the current business easier to operate. Yet every business unit, every category still has significant value creation opportunity in both our home U. S. Market and other big developed markets, Germany, Japan, et al. And in growing developing markets, the BRIC countries, Mexico, Turkey, et al.
Markets where P&G has been continually improving its position. These categories and brands will continue to play to P&G's core strengths, shopper and consumer understanding, brand building and product innovation, productivity and go to market execution and leveraging where appropriate and where it makes sense the scale and scope of the company. As category leaders, we have the responsibility to create, occasionally transform and build these categories year in and year out. About 2 thirds of all sales growth comes from category growth and about half of that is driven by the manufacturer. That's us.
The balance 1 third comes from share growth and M and A. I want to take a few minutes this morning to report where we stand in each of the 10 category business units. First, Baby Feminine and Family Care. After a drop off in performance, both Baby and Family Care delivered solid double digit OTS results in fiscal year 2015. In Feminine Care, as you know, we have decided to invest in the always discrete entry into the incontinence category.
Family Care is an excellent example of balanced discipline application of OTSR. It's a big important North America business that got back on its proven business model and continued to improve structural economics, while growing sales and market share at customers representing more than 90% of sales and profits, and focusing on the profitable premium business in Mexico, while deemphasizing conventional lower value tissue products. With leading brands like Bounty and Charmin, consumer preferred product innovation coming to market this summer and early next calendar, both on P and G's unique and proprietary technology and an operating discipline that relentlessly drives out costs and keeps the consumer value equation competitive, we expect another solid performance in fiscal 2016. Baby and fem care results have been more mixed, very strong in North America, where half of worldwide profit is made, mixed in Europe, weak in China. Pampers and Always brands are leaders in these categories with strong equities, household penetration that's growing and strong net promoter scores.
The focus in baby and fem is winning with consumer preferred product innovation. These are categories where consumers notice and expect performance with every single product usage experience. We've invested significantly in R and D, new plants and equipment and we'll be investing in product sampling and trial, marketing, selling and sourcing as we accelerate consumer preferred better performing products to market. The next generation of Pampers pants and the premium taped diaper line are going to market in China and U. S.
As we speak. Achieving the same share of the faster growing pants segment as we have on tape diapers over the next few years could be worth as much as $2,000,000,000 to $3,000,000,000 in sales over time. Over the next 1 to 2 years, there will be a steady drumbeat of product upgrades across Pampers and Luvs in North America always and always discrete, every one of them consumer preferred, several unique and proprietary. We continue to be encouraged by the progress we're making on Always Discreet. Category growth has accelerated 50% to 100% to 10 plus percent growth rates in the U.
S, U. K. And France since our launch less than a year ago. Discrete share has reached 7% to 9% in these markets. Importantly, we are attracting new women to the category.
Recall women are satisfied with current product offerings that don't work very well. Discrete pads and pants deliver better fit and significantly better protection from an always brand women trust. Product ratings and reviews, product usage satisfaction and repeat rates are all strong. With still an ample awareness and trial opportunity ahead of us, we will continue to invest in marketing sales and consumer preferred product innovation in this new category. Fabric and Home Care has been a tale of 2 cities from an operating TSR standpoint.
Home care, Duracell and our $1,000,000,000 B2B professional products business have all delivered strong value creation for now several years in a row. We expect this to continue because each category continues to adapt proven business strategies and models and operates with discipline to deliver balanced growth and value creation across all three OTSR drivers. In fiscal 2015, modest sales growth and strong profit growth and cash productivity resulted in another very solid year for home care. We carefully pick our spots in the home care category and segments. We have leading brands and consumer preferred products.
We continue to strengthen marketing and selling fundamentals while we improve productivity and structural economics. Duracell in a year of significant transformation as we stand up an independent company with Marmon and Berkshire Hathaway delivered a 4th consecutive year of strong operating TSR and market share growth, while divesting the more commodity like low tier battery business in China. P and G Professional is a very focused jewel that delivered its 6th straight year of strong industry leading OTSR results. BGP has a unique and proven business model that delivers superior service and value to its customers and delivers consistently for shareowners. Fabricary has been more challenging as we've talked because it has involved a significant transformation of strategy and business model, capabilities and operations and execution across a number of important markets starting with the U.
S, the largest and most profitable market in the world, where we have had to get the category growing again and rekindle household penetration and share growth. We've gotten the strategy back in balance, sharpened our business model and have been operating with consistency and excellence. We exited on attractive segments like bleach, profitable laundry additives, cheap low tier powders. We invested significantly in consumer preferred products. We've constructed new manufacturing in the last 2 years to enable the expansion of premium products like pods and beads and concentrated heavy duty liquids, not only for the U.
S, Europe and Japan, but also for big developing markets like China and Brazil. We've stimulated category growth in the adjacent fabric conditioner category, the fastest growing household products category over the last 2 years as reported by Kantar and we have grown share behind the Downey and Lennar brand equities and innovative new products. With leading brands Tide and Gain and Ariel, Downy and Lenore, consumer preferred products and much more robust structural economics, we're looking forward to more balanced and more consistent growth and value creation in Fabric Care starting this year. These segments help Grooming and Beauty. These segments again as we have talked are a tale of 3 cities.
Oral Care delivered another strong year of OTSR behind 4% organic sales and 10% profit growth with strong cash productivity. Oral Care has evolved successfully to a well differentiated business strategy and has been steadily improving structural economics. We've clearly defined the strategic goals for Crest and Oral B. We've expanded Oral B toothpaste into over 40 countries and continue to grow this business by over 20% in its 6th year since launch. We've created 2 strong premium priced properties in ProHealth and 3 d White, each now above $1,000,000,000 in sales.
We just launched Crest ProHealth HD in the U. S, a unique and proprietary super premium 2 step toothpaste system that is off to a very strong start. We have another strong $1,000,000,000 business in Oral B Power Brush, which grew double digits in fiscal 2015 and actually doubled off a relatively small base in China. There is still a lot of upside in the Power Grush segment as household penetration is very low. We're developing a business model that drives consumer trial and accelerates Oral B growth.
Personal Healthcare has evolved to a very focused niche player in OTC. It turned in another very solid year of operating TSR, 9 4 percent organic sales and 5% profit growth and again strong cash productivity. Vicks, our $1,000,000,000 OTC brand grew sales double digits and profit a strong double digits behind its premium priced coughcold product line Severe. The Metta Wellness initiative grew sales 15% market share and our new VMS brands, new Shafter and Suisse are both off to a good start in lead markets. The grooming business, as you know, is undergoing significant change, the biggest of which may be consumer habits and practices.
This is no longer just a facial shave care business. It's becoming a broader grooming business, face and body. But still, the vast majority of sales and profits are in shaving. Grooming had a challenging year due to unprecedented FX impacts, significant trade inventory destocking, especially in economically challenged countries like Brazil and Russia, changes in grooming fashions and habits and the continuing growth of online competitors in some markets like the U. S.
Despite the challenges, Gillette eked out modest sales and share growth and began to stimulate more category growth behind the Gillette FlexBall and Venus Swirl consumer preferred product innovations. Both are off to a strong start and continue to roll out around the world. In the 1st year in North America alone, 15,000,000 men have tried a FlexBall razor. Gillette's Online Shave Club is off to a very good start. We're building partnerships with e tailers and retailers who are offering their shoppers subscription tie ins for the Gillette Shave Club.
Importantly, we are helping retail customers move out of lock boxes on shelf and at checkout and into much more shopper friendly cost and shrink effective hard tags. This innovative in store solution is better for shoppers and for retailers. And in the first several 100 stores is significantly improving in stock and sales offtake. We'll be rolling out hard tags as fast as we can in the year ahead with our retail partners. Finally, we continue to replatform manufacturing to significantly improve productivity and accelerate the expansion of new product innovation.
We've already announced and begin shipping the next major new cartridge innovation on Gillette for men in January 2016. Turning to hair care. We've repositioned hair care for growth. As you know, we're exiting the salon service and retail colorants businesses. We've sold off small non strategic brands like Sakai and Wash and Go.
We've invested significantly in product innovation and technology, brand building and sales and we've importantly in a big way strengthened the structural costs and cash productivity of this business. Hair Care had a challenging year, but progress is being made. Head and shoulders grew global organic sales mid single digits for the 20th year in a row and continued to build profit and cash value creation. Pantene modestly grew sales worldwide, but importantly delivered 4% sales and modest market share growth in the U. S.
For the first time in several years. Pantene's 3 Minute Miracle conditioner product initiative is being expanded right now. More importantly, once in a decade new shampoo and conditioner product innovations built on unique and proprietary technologies will begin to go to market this summer and continue to expand around the world over the next 2 years on Pantene, Head and Shoulders and as appropriate on the local and regional brands in the portfolio like Herbal, Vidal et al. P and G's remaining hair care portfolio consists of brands with real consumer equity. These brands will not only benefit from better performing products, but also from more focus, better packaging, marketing and sales execution.
As sales continue to pick up, the OTSR leverage will be significant with operating margins now 50% higher than leading competitors and superior structural economics continuing to improve. Skin Care and Personal Care, as you know, have been mixed bag. SK II, our $1,000,000,000 super premium skincare brand grew organic sales mid single digits and profits very strong double digits by executing its proven trial building business model. Despite strong sales growth and very attractive margins, the SK II team continues to sweeten the mix and improve the structural economics of this very unique business. The deodorants business behind Old Spice and Secret continues to grow steadily, organic sales high single digits and profit high single digits leading to solid OTSR.
In personal cleansing, we sold off Cam A and Zest and narrowed our brand product line focus to Olay and Safeguard and to a handful of key countries. Across the above segments, we continue to improve structural economics and cash productivity. Operating margins are improving and free cash flow remains strong above 100%. This is important because these three businesses are where the lion's share of the profit and cash are made. On Ole, we are committed to return to sales growth and the continued value creation growth in North America in fiscal 2016.
We're back on our MasTee strategy. We've narrowed our boutique and product line focus to Regenerist and Total FX and new products consumers like, like Luminess, which has attracted new consumers and has been growing sales and market share. Right now, we're transforming the shopping experience with more streamlined assortments and easier to shop shelf presentations where at test retailers category and Olay sales have both increased. A qualified new Olay brand campaign will break in the fall behind increased effectiveness support across all relevant media. We're making progress in every one of our 10 core category businesses, albeit at different paces and never as much as we want.
Each business is different with different opportunities and challenges, but better defined and proactively addressed. P and G performs best when we stay in balance, balanced across industries and categories, balanced across developed and developing markets, balanced in our need to deliver the near term with our need to invest and deliver the mid and long term. OTSR is clearly helping with the focus on balanced growth and value creation. Just as with the company, getting the business unit portfolio right matters. Many of our categories found themselves overexpanded or overextended and have had to divest or otherwise dispose of non strategic and underperforming businesses.
With recent divestitures, as John said, representing about 5% of profits, 15% of sales and as much as a reduction of 40% to 50% in complexity, P and G and its 10 core categories are becoming much simpler businesses, easier to operate, easier to grow, easier to create value creation from. We're picking up the pace not only of portfolio streamlining, but also of core business turnaround. We've invested significantly in R and D, plant and equipment, branding and marketing, sales and sourcing. All of this has been enabled by productivity that will continue strong through the end of this decade. Going forward, productivity efforts will be more focused on specific business units, countries, functions and on the major marketing and trade spending tools John talked about earlier.
Despite our sense of urgency and substantial investment, the breadth, scope and scale of the transformation underway will continue to see cash productivity, operating profit and sales growth unfold over time. But the progress will be steady year by year, delivering balanced, reliable, sustainable growth and value creation as measured by OTSR. When you're building brands and businesses to last for decades, growth does not happen in a straight line, even the strongest of brands hit flat spots. But when we get back to basics, the fundamentals, putting the consumer front and center, delivering consumer preferred brands and products, executing with excellence, we put ourselves in a position to win. Year after year, decade after decade, successful brand building and product innovation transformed and grown categories and created value for consumers, for P&G and its shareowners.
The key going forward will be the robustness of our category business strategies and models, the strength of our brand and product differentiation and innovation and ultimately the quality, reliability and value of the performance and experience we deliver to consumers every day. Now I'll turn it back to John to provide details of our outlook for this fiscal year.
Thanks, A. G. First, a few more housekeeping items. The guidance we're providing this morning assumes the transitioning beauty businesses are accounted for as discontinued operations and are not therefore included in core EPS for either 2015 or 2016 fiscal years. This is the same approach we've taken with Duracell.
While the amounts are not yet final, we expect fiscal 2015 core earnings per share to be restated from the $4.02 level to approximately 3 point on 8 ks we plan to issue in September will provide more detail, including fiscal 2015 quarterly income statements and segment results. Towards the end of the calendar year, we'll provide a fully restated 10 ks for 2015. While we'll no longer include the results from our Venezuelan operations in our consolidated results, the fiscal 2015 results will remain in our base period sales and earnings. This will create a minor drag on organic sales growth trends and a $0.05 to $0.06 per share headwind on core earnings per share growth. Next, some context for fiscal 2016.
We have large positions, leading positions in several big markets where underlying growth has slowed, most notably China and Brazil. Foreign exchange will continue to be a significant sales and earnings headwind, particularly in the 1st two quarters. To offset the foreign exchange impacts and restore structural economics, we've taken significant price increases in some markets. We need to manage through the market contraction of volatility that naturally follow. We have disproportionately large positions in the markets most affected by FX, where market leaders in Russia, Ukraine, in Japan and in Venezuela.
In contrast, many of our internationally domiciled competitors are benefiting from their weaker currencies providing fuel for reinvestment. We need to be cognizant of this as we construct our own plans and as we contemplate guidance. We're not yet able to focus 100% on driving the 10 core categories we've been talking about. While the portfolio planning work is complete, we still own and are operating the transitioning brands including Duracell and the beauty brands. Some smart choices will also create top line pressure.
We've mentioned previously, we're simplifying and strengthening the product form and SKU lineups for our core categories. As we deprioritize our exit product forms, for example, the more commodity section of the laundry business, laundry bars as an example, there has been and will be some pressure on organic sales growth. On the bottom line, I've mentioned FX. There will also be a drag in non operating income as we annualize the small brand divestiture gains and we will see a higher core tax rate. We'll continue to invest in increased sales coverage and in fast growing retail channels and formats.
We will increase our investment in innovation pipeline and in the examples of recent innovations like Always Discrete, Fusion FlexPall, Venus Swirl and the new diaper innovations that AG mentioned that are coming to market now and in the next 6 months. We'll continue to invest in the supply chain adding new capacity closer to consumers as our business grows and optimizing the supply chain in developed markets. Against this volatile backdrop, we think it's prudent to start fiscal 2016 from a guidance standpoint with relatively modest, relatively wide target ranges. We're projecting organic sales growth in line to up low single digits versus fiscal 2015. We've recently delivered towards the low end of this range.
We certainly aim to improve, but it's unlikely that growth acceleration will happen immediately or in a straight line. And as I mentioned, there are market and competitive dynamics as well as internal choices that will continue to put some pressure on the top line. The headwind from foreign exchange will have a 4 to 5 percentage point impact on all in sales growth. Also minor brand divestitures will have a modest drag on all in sales growth. Taken together, we expect all in sales growth to be down low to mid single digits versus restated fiscal 2015 results.
We expect to deliver solid operating margin expansion, driven by another year of strong productivity driven savings in cost of goods sold, overhead and non working marketing and agency costs. Cost of goods sold and productivity savings are forecast to be consistent with our annual run rate projection of about $1,200,000,000 Commodities will also provide a modest benefit. These gross margin enhancers will be partially offset by foreign exchange. Based on last week's rates, FX will be a $350,000,000 to $450,000,000 after tax headwind on fiscal 2016 earnings or 3 to 4 percentage point drag. This impact has 2 primary components.
The spot rate impact of fiscal 20 16 is expected to be a 7 to 8 percentage point headwind on core earnings per share growth. The spot rate impact should be partially offset by about 4 points of balance sheet revaluation hurt in fiscal 2015 that if current rates hold will not recur in fiscal 2016. SG and A costs will also be a contributor to operating profit growth driven by continued overhead and marketing productivity savings and lower year on year charges for balance sheet revaluation. With this strong operating margin expansion, we expect to deliver core operating income growth of mid to high single digits. This includes the $0.05 to $0.06 per share drag on operating earnings from the Venezuela accounting change
and 0 point
0 $2 to 0 point 0 $3 per share of beauty deal transition costs that will remain in our core earnings results. So strong underlying operating earnings progress, which excluding the $0.08 impact from these items should be up high singles to low double digits. Moving below the operating line, there are several items you should take into account as you construct your models. We're forecasting non operating income to be a 2 to 3 percentage point drag on core EPS growth. We had a large number of minor brand divestitures last year and the scope and pace of these deals will decrease this year.
We're estimating a core effective tax rate of about 24% for fiscal 2016, about 3 points higher than the fiscal 2015 rate due mainly to lower benefits from audit resolutions. Combined non operating income and tax will be a $0.23 to $0.26 per share core earnings per share headwind in fiscal 2016, a 6% to 7% impact on core EPS growth. Finally, we'll retire shares at a value of approximately $8,000,000,000 to $9,000,000,000 through a combination of direct share repurchase and shares that will be exchanged in the Duracell transaction. We're now expecting the Duracell transaction to close in the first quarter of calendar 2016. This is a little later than our original projections as both parties continue to prioritize flawless execution over speed.
We're starting fiscal 2016 with core earnings per share growth guidance of slightly below to up mid single digits versus last fiscal year's restated earnings per share of $3.77 again a wide and relatively modest range. All in GAAP earnings per share should be up 53% to 63% versus the prior fiscal year GAAP earnings per share of $2.44 Non core items in the current year will include non core restructuring charges of approximately 0 point net earnings from discontinued operations of about $0.17 per share, which includes the after tax profit from operations and transaction exit costs of the Beauty and Battery businesses. This compares to total non core costs of approximately $1.33 per share this fiscal excuse me, in fiscal 2015. We expect another strong year of free cash flow productivity 90% to 100%. Drivers of the strong cash productivity will include continued improvement on payables, including continued progress on our supply chain financing program and continued steady improvement in inventory levels.
These improvements should offset an increase in capital spending as we invest in the supply chain transformation AG and I discussed earlier. Expect CapEx to be between 5% 6% of sales for the fiscal year. We'll continue to build on our strong track record of cash and overall value return to shareholders in addition to the $8,000,000,000 to $9,000,000,000 of shares we expect to retire, we expect dividend payments of more than $7,000,000,000 and total $15,000,000,000 to $16,000,000,000 in dividend payments, share exchanges and share repurchase. To briefly recap the key assumptions underpinning our fiscal 2016 outlook, this guidance assumes mid July foreign exchange rates and commodity prices. Further significant currency weakness is not anticipated within our guidance.
Like 2015 then, we're setting up fiscal 2016 as a year given all of the market and FX volatility and pricing of modest top line growth, solid core operating income growth, relatively robust constant currency core earnings per share growth and strong 90% to 100% free cash flow productivity. We'll continue to tighten and implement our strategy on the core business, investing more appropriate to build capabilities for long term success. We'll continue to drive meaningful productivity opportunities. We'll invest in sales coverage, innovation and the supply chain and we'll substantially complete the execution of our portfolio redesign. 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, AG and I will be happy to take questions.
Your first question comes from the line of John Pache.
Thanks. Good morning. So you guys have delivered a lot on the structural stuff, sort of brand disposals, etcetera. And you're delivering on the productivity as evidenced by the gross margin performance. But unlike many of the other companies we all cover, the underlying business appears to be getting worse and maybe at an accelerating rate.
So I think this could argue for 2 things. 1, that the organization can't handle this much change at one time and you need to slow down or conversely, there needs to be a lot more and bigger change structural leadership etcetera. So you guys are obviously going with option 3 right now which is sort of stay the course with the initial plan. But why should we all feel comfortable that's the right course given the results and a little bit to some extent the guidance? Thanks.
Well, I'd say John that we're in the middle of executing that plan Course 3 as you've outlined and are to a place where we have the full benefit of for instance being able to focus on the 10 product categories, which we will as we get through the beauty transition. We're also in the middle of dealing with some very significant market level events, which are kind of outside the strategy completely. But we're the market leader in a lot of the countries that are difficult right now. Russia is an example. And as I mentioned, we've made a very deliberate choice.
So the choice we had in Russia was very simple. We could accept negative gross margins in perpetuity or we could price to restore structural economics, so that future growth will be worth something. And that's the choice we've taken there as in other markets. And it's had a significant impact as we expected. So if you look at the month of June for example, our sales in Western were down 57%.
And we've got to work our way through these things. But we're taking an approach that we're convinced is the right approach for the long term. As A. G. Mentioned as well, the innovation pipeline, which we've been investing to accelerate, that acceleration is going to start hitting the marketplace as we go through the next year, which will help as well.
And then hopefully at some point, we get to a place where FX isn't as much of an issue on either the top or bottom line. And we continue to deliver productivity savings, which allow us to reinvest behind this innovation and grow faster. We clearly recognize the need to grow faster. We think we're making the choices that will allow that to happen in a sustainable way over the long term. We're not going to get there in the next quarter or 2, but we do expect sequential progress as we move through next fiscal year.
John, I'd just add 2 quick ones. On your first direct question, I actually think the employees, management and leadership has really stepped up. I won't bore you with all the details of what it takes to operate in Russia, Ukraine, Argentina, Venezuela, even Japan, okay, and a whole host of other developing markets. But in virtually every case, we are making the right decisions and frankly building our value creation. We switched countries like India from a significant negative profit position to making basically $100,000,000 okay, in 2 years, all right?
Our Brazil economics are the best they've ever been, still not where we want them to be, but the best we've ever been. So I think the organization has run the operational play and executed pretty consistently and pretty well. We've, at the same time, dramatically stepped up the productivity program and it isn't separate, it's integrated. That's the part that everybody misses. It's totally integrated productivity program and that will run easily through the end of the decade.
3rd, we have dramatically invested in R and D sales. All the things we need to get back on our strategy and our game. And then the second thing I would say is, and this is hard for you to see, but I'll pick a couple of examples. Take baby, okay? Round numbers about half the value creation in the world is in the U.
S. And North America. 3 years ago the category wasn't growing, okay? In 2 to 3 years, we put ourselves in a position where we are growing share and leading in share growth, okay? And we haven't even brought all of our premium tape line or our pants to market.
And as I said, they're coming in the next couple of years. Take fabric well, let me stick with Baby. In Europe, we continue to do well on a value creation standpoint. The game has changed. It's us in private label.
We're adjusting to that game. In China, we've been very straight up, okay? We still have the leading brand. We're stuck in the middle of the market. We went down, the consumer went up.
Both the pants and the premium case lines are shipping as we speak. I could go through category by category, but fabric is the same story. We've generated $1,400,000,000 in pods. We are actively adding pods capacity and expanding around the world, dollars 330,000,000 in beads. We've stimulated fabric conditioner growth 7%.
But on the bottom end, as John described, we've been getting out of cheap commodity like bagged powders. We've been getting out of laundry bars. We've been getting out of unprofitable additives. We've gotten out of bleach. So that's what you have to look at.
And I guess the third point I would make is the last thing I want to do is chase volume and share that has no value or very little value. I do not want to get ahead of ourselves and slam on the accelerator and try to grow faster on the volume of share side. We've been to that movie before, okay? So we're picking our spots. We're doing first things first.
We're doing it with product that consumers really prefer. And here's the other thing really important. Most of the moves we're making are stimulating category and market growth. And then it becomes a win for your customer, your supplier and your partner, not just for the consumer and the company. I happen to believe the obsessive focus on value creation is incredibly important and we'll get the growth when and where we can and frankly when and where consumers choose our brands and products.
And we believe it's coming. We all wish it would come faster, but it doesn't make a whole lot of sense to try to do it faster. Last your last question, I guess implied was should we do something more dramatic? We think the portfolio that we're moving into actually has the potential to create a lot of value. In most of those businesses we've created significant value in the past or are beginning to create significant value again.
And we wouldn't be playing there unless we thought we could do it. We've looked at all the alternatives many times, okay, and this is the best alternative for us. It's the best alternative for share owners because it creates the most potential value.
Your next question comes from the line of Olivia Tong, Bank of America. Good morning. Thanks. As you look back at this year and the sales shortfall, can you talk through some
of the key drivers? I mean,
was it more a lack of
innovation or just innovation that missed their targets? Or were the of innovation or just innovation that missed their targets? Or were the products not priced properly? Or was competition just better? And then what are your categories growing at now?
And how do you think about market share growth for next year? And then just secondly, maybe can we talk through price mix in developed markets and where you think that will go next year, particularly as I think about longer term thoughts on your longer term thoughts on pricing in North America with if we look at Baby and Family Care, Kimberly has been pushing price in tissue and diapers. So maybe if you could just address those 2 things. Thanks so much.
Where to start? I'll take a shot at the last one. Yes, competition has been pushing pricing in the two examples that you mentioned. We continue to grow our share and our value creation in Baby in the U. S.
And as I hope, I pointed out clearly enough in tissue towel, we've just very smartly picked our spots and we're very comfortable with holding sales as long as we create more value. We still have leading brand positions in the principal categories. And the fact of the matter is we're getting more than our fair share of value creation there and that's the way we want to keep it. Look on the first part of your question, Olivia, it's really none of the above, okay? It's really none of the above.
And I'll just mention 2 examples because they're significant because the competitor thing is often mentioned. We had major competitive moves in big stronghold markets for us in fabric care in the last year, okay? One competitor moved into the Arabian Peninsula, where we've had a long and strong position with consumers. The other, as you know, moved into the U. S.
At the largest retailer. In both cases, our share is at or above the level that it was before the encroachment, okay, before their introduction. And in both cases, we continue to create strong value. It's more an issue of timing of the moves that we'll be making category by category and the roll off of the non performing or underperforming parts of the business.
And I would say our guidance was low to mid singles. We delivered low singles. And the difference between the high and the low end of the range, I think can largely be attributed to the macro dynamic in FX, which you can sometimes characterize as impacting everybody. That wasn't the case this year as many of our competitors benefited significantly from FX, but we it was a huge headwind for ourselves. And so that is a differentiator between firms in our industry and that is part of the reason that we're at the lower end of the range.
Your next question comes from the line of Steve Powers, UBS.
Good morning, guys. Thanks. So, AG, it feels like with the CODI transaction and David's announcement this week as CEO, you really declared the recent phase of reshaping as in some ways done and now it's time to move forward. But I guess my question is building on your prepared remarks, what are you going to do differently as you move forward? Because while much of what you've outlined sounds reasonable and logical makes sense, It also seems to John Pache's point like a continuation of what you've been doing and saying the last few years and we haven't seen that return at least as measured on the top line.
So what I'm looking for is less about what you're going to continue doing and more about where and how you and David are going to invest differently in the coming years. And I don't want to make this just about beauty, but as an example, what deficiencies are you trying to overcome when it comes to a brand like Olay? And what is that going to cost?
Okay. Unfortunately, this isn't a continuation of what we were doing. And I don't want to belabor that, but we were clearly overexpanded, okay, into developing markets and even into frontier developing markets. And you know what's happened there in terms of growth slowdown, economic and political volatility and the FX issue, which John has mentioned a couple of times is real and will continue through the end of this calendar year, okay? But it is a change.
And the second thing is we were clearly overextended in several categories. The most obvious one was beauty where we got into service businesses and more fashion and trend oriented businesses that didn't turn out to be a good fit for us. So I would argue we've changed quite a bit in the last 2 years. And the big change has been a dramatic narrowing of the focus and choices. And the other big change has been getting back to balanced innovation and productivity that really drives value creation.
We were not on a value creation building strategy. We were on a short term volume and share building strategy. That doesn't work unless you're creating value. The other thing I would say is like it or not and I don't like it very much either, it takes time to change direction. Our plans, as I've said before, are sold out 6 to 12 months with our customers.
As you might imagine, when you've got plant and equipment and major investment involved, it takes time to set up behind major initiatives. So all of that has had to be done and much of it is underway. And the last two points I'll make is, it's more than words that we do well when we focus on following the shopper and consumer. It's more than words that we do well when we focus on following the shopper and consumer, not the competitor, shopper and the consumer. We do well when we grow categories and markets, okay?
Pods and beads and concentrated HDLs grow the fabric care market. FlexBall and Swirl grow the shave care and grooming market. Shave care and grooming market was in the gold room. It's not growing very fast. It's actually grown in the last 6 months the fastest it's grown in several years.
And I could go on there. But those are the differences. And I'm not a big fan of change for change sake. I'm a big fan of running plays that work. And I think one of the big questions behind the question is, how fast can we do this?
And my view, very strong view is I'm much more interested in getting it right, okay, and making changes that really sustain value creation and making changes that lead to sustainable and reliable growth. And that's the path we're on. And by the way, in the meantime, the reason we focus so hard on operating cash flow and free cash flow, so hard on our operating margins is so we could continue to return dividends and share repurchase to share owners, while we are getting this company positioned to grow on a more sustainable basis.
Your next question comes from the line of Lauren Lieberman, Barclays. Thanks. Good morning. A couple of times you've mentioned significant reinvestments in sales force. So I was hoping you could talk a little bit about kind of what's been done so far?
What needed addressing? Is it particular channels? Is it particular geographies? And then also how that fits into a kind of chicken and egg conversation about having innovation in market and things you really want to get behind versus what sounds like maybe with the exception clearly of things like FlexBall and Pod, but some kind of like biding time new product work with the real exciting stuff to come in the next year plus? Thanks.
Lauren, I guess, the answer is sort of yes to your series of questions. Let me try to describe it as clearly and crisply as I can. We when you choose to follow the shopper, you obviously have to commit coverage and resources to growing channels and we've done that. So we're in a much better position, for example, in e commerce than we were 3 years ago. Commerce is growing 30% to 40%.
We're pretty competitive. There's still upside opportunities. And there's more to come with subscription and auto replenishment, okay? So yes, follow the shopper into the channels that are growing. E commerce is 1, drug is obviously another one, small box discounters, I can go on.
That varies by region, by country and we've made and are making that shift. The second one is dedicated to category and to retail account sales support. And I think we've talked before that we've added a significant number of dedicated sales resources. We started in the U. S, where we're doing it category to customer.
We're doing it in China, where it's essentially category to channel or customer. And as we continue to gain experience and as we continue to see the results, we are prepared to make those investments, okay? And that leads to a third and incredibly important point. This is a highly executional category. And a big part of how we do day in and day out is whether our distribution is right and whether our shelf is right.
And we didn't talk much about this today. We touched on it in the Olay context. So I'll return to Olay. But we've now run a series of tests in countries, more than one country around the world, several countries around the world and we're rolling out in the U. S.
First and then in China, dramatically simplified category based and Olay based shelf set. And without going into all the details, it fairly significantly reduces the SKUs. It focuses on the products and boutiques that consumers want. And in every case so far, knock on wood, okay, we have lifted category sales with our retail partner, which they want. And Olay has benefited by lifting its sales rate and share.
So we'll see. But that kind of stuff is like incredibly important. And yes, blocking and tackling, but we got to get back to the blocking and tackling that works. Thank you.
Your next question comes from the line of Bill Schmidt with Deutsche Bank.
First of all, congratulations AG on the retirement the second time around. But my real question, were you guys tempted at all to more dramatically rebase earnings? Because it sounds like some of the investments are being deferred for because of some of the macro environment, but it's kind of hard to manage a business based on currency because it's out of your control. So I was wondering if you had more resources in the P and L, Could you do both sort of like drive the productivity and the cash flow and also reinvest and stop the share declines? Because it seems like on my math, the categories globally grew 3% and you guys were flat.
So that's quite a bit of share loss, I guess, this quarter. So I just love to hear your thoughts on that topic. Thanks.
A couple of things there, Bill. One is we did not in the year that we just completed curtail investment to offset FX. And you'll recall actually that when the more significant FX impacts occurred, we took our guidance down specifically to protect the investments that we needed to make in the future. I think our guidance ranges that we provided for next year, well in fact I know they accommodate the fully the investments that we're planning to make going forward. So and I think there's further opportunity to drive productivity which will provide another opportunity to reinvest.
I mean, productivity beyond even what's in our current plan. So I do not see these as contradictory in any way.
Phil, we did not pass on a single growth and value creating investment that was brought to us. You just have to look at our CapEx. We're putting 100 of 1,000,000,000,000 into new plants. We're putting up a new concentrated HDL plant in China that opens this summer. We're putting up a new plant in Brazil.
We're putting up a new plant in Sub Sahara Africa. We've been racing to add pods capacity. We're racing to put new Infinity and Radiance capacity and because of demand for our fem care lines across baby diapers, 100 of millions to convert to pants and premium taped as fast as we can. Again, I'm not going to go into the details, but in our plans in the year going forward, we have 10%, 20% and more increases in media budgets. It's hard for you to see our investments in communication and media because most of it's being funded by reallocation.
We're simply shutting down the unproductive non working dollars and we're converting it to working and we're getting a heck of a lot more out of our digital mobile search and social programs depending on market, depending on category, depending on brand. But we've invested in sales. Every year we invest in R and D. And the good news is, knock on wood, for the most part, and R and D is a risky business, product innovation is always a risky business. But so far, the teams have been delivering very high rates of products that are delivering high levels of consumer satisfaction.
And as I said earlier, with a fair amount of uniqueness and differentiation, the issue is it takes some time to get them to commercialization and then get them expanding. But we haven't slowed anything down. If anything, we've accelerated a bunch of these programs by 3, 6 and some by as much as 12 to 18 months.
Your next question comes from the line of Dara Mohsenian, Morgan Stanley.
Hey, good morning. So first just a detailed question. John, given David's start date is not till November as CEO, is this fiscal 2016 earnings guidance blessed by him? Or might he choose to take a different view around the level of reinvestment needed behind the business and therefore earnings guidance? And the real question is, sorry to kind of belabor John's question earlier, but while it was helpful to hear that you're making more progress perhaps than is evident in the results, it's been a few years now of disappointing results.
So I'd love to hear what's kind of plan B if you don't see the improvement in the business you expect going forward as you look out to fiscal 2017 and the historical changes aren't enough to get you to the TSR levels you desire. Maybe you can discuss some of the options at your disposal whether it's the earnings rebase that Bill mentioned, the reinvest back buying the business and split up, etcetera. But why those options don't make sense? And how confident you are that the historical changes will actually drive improved results going forward? Thanks.
Well, first of all, the strategy that underlies the guidance, the strategy and the plan are company strategy and plan. That's all the way through the Board. It's their strategy and plan. It's through the senior management team, which David has been an integral member of. And it's part of what the organization every person in the organization's work plan is based off.
So it's not an individual strategy or plan. It's a company strategy or plan. Having said that, I expect David will do what he's always done and we'll do what we always do, which is wake up every morning and put our bare feet on the cold hard floor and optimize what's in front of us. And we live in a volatile world and we need to be responding to that on a daily basis. So we're not going to get locked or trapped in a very narrow element of our plan.
We'll modify that as we need to. And I'm sure David will approach it that way.
And I think Dara to the second half of your question, it's again a very simple answer, will change. If it's not working, we'll change. Portfolio, we think it's ninety-ten, ninety five-five, they're never done, okay? They're never done. We will make acquisitions in the year or 2 ahead.
We will probably have another divestiture or 2 in the year program. If the Fabric Care program doesn't work, we'll modify the Fabric Care program. If we can't compete in a business after 20 years, after 5 years, after 10 years, we'll get out of the business. So I mean, I think that's very straightforward.
And I think the last year is full testament to that. I mean, you're right. The results aren't haven't we're not there yet. But moving out 60% of the brands in 1 year that's not an indication of a company that's unwilling to embrace necessary change.
Your next question comes from the line of Chris Farara with Wells Fargo.
Thanks guys. Just I guess a couple of housekeeping and then a real one. So first Mexico and Japan both of those Japan because of the consumption tax timing and Mexico because of the backing out of promos. Can you talk about how those have progressed and how they might have affected top line? On the tax rate going back up to 24% for next year, should we view that as the beginning of a more normalized tax rate for you guys?
I guess, how you think about it longer term? And then just lastly, on the CODI deal and the timing mismatch between the lost earnings from moving the business to disc ops and the share retirement, I guess because it's a year in between, right? As your shareholders like how should we think about this deal truly being not dilutive, by your ability to offset that. In other words, for that really to be true fiscal 2017 again, understanding this is a long way out, Fiscal 2017 needs to be a way above algorithm year because the share count is going to be so low. So I know you're not going to guide out there, but just conceptually would that be the plan?
Is that what people should think about that the share count moves that much lower therefore 2017 will be a big bounce back here from an earnings standpoint all else equal?
Thanks guys.
I'm going to take those in reverse order Chris. On the Coty transaction and the impacts, there's obviously some accounting changes that move things between continued operations and discontinued operations. But until the day that deal closes, all the cash that those businesses generates goes into our bank account. So in terms of real economic impact, next year is all the cash is ours. And then in the following year, which is what we committed to when we had the call a couple of weeks ago, we said post close there would be no dilution going forward and that's still our plan.
So that's kind of Cody. The tax rate at 24%, I think certainly the rate that we've been at is lower than we're going to have going forward just because we've been as we've been successfully concluding audits releasing reserves and those are down to pretty low balances. So the 20, I would call it 23 to 25 as being a normalized rate going forward. On Mexico and Japan, we saw a sequential improvement in Mexico and are really getting to a point where that's that will be behind us. But in the quarter that had a 20 basis point impact in terms of top line growth.
And then Japan obviously went the other way and was a help to the quarter versus the year ago softness.
Your next question comes from the line of Javier Escalante with Consumer Edge Research.
Hi, good morning, everyone. I guess,
I mean, we all kind of like gyrating again around the same point, which is what it seems to be a lack of balance between top line growth and delivering very strong EPS growth, however, theoretical because it's all currency neutral growth. So I wonder whether you have explained to us what you are doing with pruning the portfolio and how that impact top line growth? Because you have mentioned here things that are not divested that you have been shutting down and cutting that may be optically worsening the fundamental of the business? Thank you.
Yes. So a couple of things here. 1, I think it's important to understand the order and the sequence in which we're trying to turn the ship around. And growing before we have the right structural economics, it doesn't create any value. So we're trying very hard through the productivity program, through the work we're doing in FX impacted markets to ensure that we have the right basis to grow from.
That doesn't mean we're not seizing opportunities that exist, but we're being choiceful and we're sequencing. And then when that growth comes, it's going to be worth something. The I guess I
just Yes. And I guess on the second half of your question, Javier, the answer is yes. I tried we tried to give you 2 or 3 examples. The Family Care or tissue towel example, we were quite okay with a 100 index on net sales because we made in our view a smart decision to get out of over time, which is as fast as we can, unprofitable conventional paper businesses in Mexico and replace that with lower sales, but much more structurally attractive exports of our best products from the U. S.
Into Mexico, which will be purchased by certain consumers and by certain customers. And we talked about being choiceful about which initiatives we took in which sequence. And we're just not going to move until we think we have a very good chance of winning with consumers and shoppers and until we have the economics right, okay? We mentioned the laundry example because that is a big one. And while we've been charging forward on pods, concentrated epiguity liquids, machine wash powders, all trade up, all preferred products by consumers, all growing in most developing markets, not just developed markets.
We have been pruning Tier 4 and some Tier 3 bagged commodity like powders. We've been pruning laundry bars. As John said, we have gotten out of commodity bleach. We have dramatically pruned our additives portfolio and just kept the ones that we thought were strategic and profitable. So yes, that is going on.
And the point we were trying to make is, while John and I and many others have been working on the company portfolio, the business unit leadership has been working on their portfolio. Some of it has been sold off. Hair Care was an example, okay? Some of it has been shut down or otherwise resolved. And that just keeps getting better.
And I just want to make sure one last point on this. I want to make sure we're being understood. We know the top line has to grow. So I've shown you charts before. We'll probably show another one at Barclays, which is the exact chart that we talked to our organization about internally, which shows that we cannot get to our OTSR objectives without with only bottom line growth.
We cannot get to our OTSR objectives equally without only top line growth. That's the beauty of the metric. It's a balancing metric. And so we get it.
Your next question comes from the line of Ali Dibadj from Bernstein.
Hey, guys. So you sound very different than I would have hoped on the call today or on CNBC this morning. There's still a lot of defiance. There's still a lot of confidence it feels like. And look all the frustration we're all feeling I feel as well probably times 10.
You're kind of brushing off in tough questions and maintaining this trust us, it will turn, it will turn. But just let me offer you a look through the lens of the shareholder, right, who you are as well and you see if the stock price is done. And you look at organic sales growth and it's dismal and it's getting worse and you admit that. And the cost savings are good, but they seem too small and they're seem like they're slowing in some cases, like the net part of it is slowing. The transaction is complex and tough and I get it, but maybe it's not as big as it should be.
CEO with respect to at least versus a lot of people's expectations are leaving a little early, missed 4 or 5 years in a row. And it just feels like there's still this trust us and things will change because we're divesting things. But I still struggle to see what's actually going to be different. I get you're going to get rid of 14% of sales, 15% of sales and 6% of operating profit. But is that really it?
Is that 1% incremental growth you're going to get out of getting out of those businesses? Is that what we're hoping for as shareholders? And I guess how long do you want to wait? How long do you want us to wait before you do think about bigger changes? I understand that you don't want to go there now, but how long do we have to wait?
And particularly in this kind of new normal of more active shareholder, I struggle what keeps us at bay or what keeps us pleased.
Do you have a recommendation, Ali?
Well, I think plan B, which is seriously think about breaking up the company that's very complex is a viable option. It sounds like you guys have looked at it. I want to understand why it hasn't worked, because the stuff you're doing seems to make sense, right? The stuff you're doing that we listed cost cutting and trying to innovate more and closing price gaps where you have to and raising accountability, all these things from a classic strategic consulting thoughtful way makes sense, but it's just not working. So we all are frustrated, but we also feel for you because the strategy is possibly the right one, which might suggest there's another bigger solution here, right, which is it's just too big to run.
Maybe perhaps you're not even a growth company anymore. You have to think about it differently from just being growth. I mean there are other options that we don't share being contemplated or argued against. It's just they trust us. And I think that's at least my frustration.
Okay. Let me just say a couple of things, because we may see things differently, although I want to make sure that you understand and everyone understands that we consider every option and run every analysis. First point, the company is 40% to 50% less complex. And I don't think that's understood. It's just dawning on us, but that's incredibly important, okay?
The second thing is the time horizon, okay? Our time horizon is more consistent, more reliable, more sustainable growth and value creation. And we believe that you build a foundation and you build this sort of a building block at the time. And I would argue that, you just have to look at what we've been able to do with half of our program in place in North America and baby diapers. And you could without a great leap of faith, consider that we might be able to do the same again in China, where we still have the leading brand when we bring a consumer preferred pull on or pant and when we bring the next generation of premium tape diapers in a market where new moms are flocking to imported Japanese premium products that we know how to compete with.
The same thing in Fabric Care. You could conclude that we have gotten a stubborn category that wasn't growing and the U. S. Growing again. We have been able to trade new consumers into a mature category, trade them up, grow with retailers and the supply chain.
You can see what we've done in Japan, okay, where we've grown significantly. And you could say, yes, it really does take 18 months to put up a brand new manufacturing plant And we are shipping, okay, in China. And I could just go around the world. Hair Care, we have totally redone the product and technology program and we've positioned ourselves to start shipping the first product. So I mean, I understand the point.
Just two more comments on the breakup and then impossible to manage. We reverse engineered and analyzed in detail the last decade exit from the food and beverage business. We did it internally and we did it with outside objective view. And we concluded that we generated significantly more value for shareowners in our focused and deliberate step at a time withdrawal from segments of that industry. And it was about the same size exit as the one we're going through now.
I can't remember the precise number, John, but it was probably $6,000,000,000 or $7,000,000,000 So we're all about optimizing value for share owners, but it's over a longer time horizon I think than you are. And then I think the last question will always be a question and that is can the leadership and management team manage and deliver? And we think we can. It's a new team. David and I are going to be side by side for the next several months, year or more.
And we think we're to the point where a lot of this is operationalization, which is incredibly important and just good execution consistent and excellent every day. So I understand the point about patients and inpatients. I think as John said earlier, we're in violent agreement. We want to grow the top line as much as anybody on the call. And we just think that one step at a time, it's coming.
And by the way, we've got 2 we had another several months of tough sledding ahead because the environment in developing markets in this whole FX thing isn't going to change. We're just trying to be realists here.
Your next question comes from the line of Joe Altobello with Raymond James.
Hey, thanks. Good morning. Just one quick one in terms of the transition. Obviously, when you guys come out of this, you're going to look a lot different. You mentioned AG you're going to be 40% to 50% less complex.
In theory at least on paper a faster growing more profitable company. But can you talk about the capital intensity of Procter and Gamble 2, 3 years from now? Are you going to be a lot less capital intense given the new business or the new portfolio that you'll have at that point? Thanks.
No. No, we won't. Okay. I said, Joe, we're in a period where we're clearly investing, okay, and returning. But new platforming of our grooming business, which has enabled us to introduce the Venus upgrade in like 6 months after the male upgrade.
The investments we're making in the new product innovation in fabric, the major investments we're making in the new product in Baby. And as John said, putting up the 6 new mixing and distribution centers in North America and we're rolling we'll be rolling across Europe over the next several years, finish the job in North America over the next several years and we'll move on to developing markets with getting our supply chain as effective and efficient and streamlined as possible. So, I don't think you're going to see an increase. We would hope for it to level out in time, but I would say for the next 1, 2, 3 years, we're going to be investing at about the current rate and CapEx.
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.