Church & Dwight Co., Inc. — 2024 Q1

Yes. Thanks for the question, Chris. You're right. April was around 6.5% consumption growth, really, really strong. And we said 3 things really driving a lower organic outlook of around 4%, which is probably in the grand scheme, HERO, lapping year ago distribution gains as we went national for HERO. It was probably the biggest one.

Yes. You got a lot of questions there Chris.

Yes. Well, if you look at the category, Q4 and Q1 just round numbers are both down 5%, down 5%, down 5%. And normally, you would expect New Year's resolutions and people wanting to get healthy, that would be a boost to the category. We didn't see it in Q1. So it was 2 things. It still is probably the tail from post COVID.

Yes. I think Matt's comment was spot on in his prepared remarks. Usually, after Q1, we don't touch the outlook. Gross margin was so strong in Q1, we felt like we had to reflect that. And as a result, earnings was very strong as well.

Okay. A multi-parter. Well let's pick WATERPIK first. I'll make a few comments about that, and Rick can build on that, and we'll come back to what we're expecting for the U.S. .

Yes. I mean consumption for WATERPIK is high -- up high single digit, low double digits. So consumption is great. We had to work through some inventory that was higher than I guess, at retail, and that's been worked through now. So we feel like it's in a good spot as we move forward.

Yes. And as far as our expectations for the year, we called the 4% to 5% organic growth for the year. And we expect just ballpark, about 2% of that driven from new product launches, which is a big number.

Andrea, it's Rick. I'll give you a couple of comments, and if Matt wants to add. So first of all, for the Q2 call, I went through a little bit of the details. But really, it's new product couponing and trade promotion is kind of a little bit of a step down or step up in Q2, so that's impacting net sales.

Yes. And as far as you mentioned, supply difficulties of other competitors. Yes, sure. Obviously, we and other brands in the category can benefit and have benefited from that difficulty. And when you have a repeat purchases over and over again. Oftentimes, so changes stick.

Yes. Thanks for the question, Nick. For marketing, we were up 150 basis points in Q1. We expect to be up in Q2. And then Q3 and Q4, but Q3 up probably, and then Q4 down. And why is that? We spent a lot of marketing in Q4 a year ago. We wanted to move and shift part of that to the front half as we supported our new product. So we did that in a meaningful way. Feel really good about that.

Yes. And just to add to that, Nick, as you know, we got a portfolio value brand. So to the extent that interest rates stay where they are, we have some defense against that. We have found that HERO and THERABREATH are really high [ ranks ], but we've really been unaffected by any decline in consumer sentiment over the past few quarters. So they seem to be somewhat resilient, and those are some of our bigger growers right now. So we still think we're pretty well positioned at least for the remainder of 2024.

Thanks, Peter. In Q1, it was 70% volume and 30% price. And I just made the comment that on a go-forward basis, Q2, Q3, Q4 they'll likely be closer to 100% volume and minimal price, if anything.

No. Look, we think the -- not much changed from our original outlook. And we beat the quarter on organic sales growth and despite some of these things that were dragging us down. It's just early in the year to call any incremental upside, and we typically don't do that.

Well, with respect to the consumer, you've probably heard us say on other calls that our big barometer is always unemployment. And unemployment has been consistently low. Yes, the interest rates have risen, but they've been high now for a while. So we don't see any change other than maybe people are disappointed that they're not coming down as fast.

Yes. Well, look, the predominant portion of our portfolio that is valued is laundry and litter. And in laundry, we have -- obviously, we have ARM & HAMMER, but we also have XTRA, an XTRA group in the first quarter, it was in my prepared remarks. So we feel real good about that. And that may be an indication of more pressure on the consumer when you see the deep value brand growing.

Bonnie, it's Rick. I just want to be really, really clear. In Q4 of last year, we didn't repeat some bad promotions. And that carried over a little bit into January, and then we were pretty [ palms up ] about that.

Yes. Our practice generally is we're generally below the category average and liquid laundry from a sold on deal perspective.

Yes. I think one of the things to point to in international and you're right that all 6 subsidiaries grew as well as the GMG. So clearly ran the table. But what we're seeing the benefit of is that we're being very selective about what brands we're going to support and what retailers we want to grow with.

Yes. The second thing that's helping international is a couple of these new brands, HERO and THERABREATH. And typically, it takes us 2 to 3 years to get new brands, new acquisitions out internationally, and we're doing it rapidly, and there's been a great response to many countries and many distributors for those brands.

Yes. We think that will build throughout the rest of the year. But that's a nice tailwind on top of what I said in my earlier remarks.

I wanted to ask you about the GRAPHICO acquisition and what drew you to that? Is there other markets that have distributor relationships? And does that seem like an area where you may be interested in more deals? And then just on thoughts on your -- on the M&A environment overall, particularly in goods, what you're seeing and interest there?

Yes. Well, if you go back a few years, the way we got established in Germany was, we had a very small distributor that had introduced BATISTE into Germany. And that while, that being the basis for starting a very small subsidiary in Germany, which has grown over time. This one is different in that, GRAPHICO is a public company in Japan, obviously, a micro cap.

And then just thinking through about the M&A environment overall?

Well, look, you know we're always on a hunt. Its the highest and best use of cash for the company, where we have a disproportionate amount of our cash that goes towards acquisitions. And there's always something for sale, but that's about as far as I can go right now.

Great. And then just one on -- following up on Bonnie's question around promotion. You talked about it continuing to creep up, but still obviously well below pre-COVID norms. Is your expectation that it does get back there or just continue to show creep through the year? And then on the couponing, still point of clarification, is this more than normal or more a function of the timing of new products and the trial building couponing that goes with that to support the launch?

Yes. That's really more on your second question, it's more of your second explanation. It's incremental couponing to support higher and more new products is the short story. On the -- on your first question on amount of promotion and really trade spend. I think it's -- same that we told Bonnie. It's -- the forward look for promotion for laundry is always dependent upon how category growth is doing. And if category growth is stable, then normally, promotion stays in line. And right now, category growth is great.

Yes, one thing to keep in mind, [ Bonnie ], is -- all its price increases that went through the last couple of years, they were really unusual for all CPG and food companies. So yes, that does obviously make it more expensive for the product, but didn't necessarily expand gross margins for people.

Yes. No problem, Lauren, this is Rick. That isn't really in our thinking as we move forward. The 2 things that are driving gross margin to maybe not grow as fast would be less carryover pricing, and I know what I talked about from the organic revenue side, too. So we're fully through all the carryover pricing.

I do have a follow-up on the gap between retail sales that we see and the reported domestic number. You flagged WATERPIK as a point of impact. But we use [Ocana] and I believe that you guys do too. And the retail takeaway is more about 7%, 8%. And so there is a little bit of still kind of like a 2-point gap. Do you think that it's related to a slow retailer reorders as your competitor in laundry mentioned earlier in the season? And I have a follow-up.

Yes. Are you comparing Q1 when you're -- for your question, Javier?

Correct. Yes. Correct. Exactly. Correct. Just trying to understand whether is this something of the accounting of the couponing or something weird that basically we are overstating your retail sales growth and therefore, your shipment growth?

Yes, I got it. No. It's interesting. I know we all have similar databases. Our -- internally, our shipment number, of course, is [ organic sales ] is 4.3%. And then IRI, our number is around 6%. So our gap is closer to 1.5%. Part of that is the couponing. Part of that is the water pit consumption that we've talked about working through retail inventory. And yes, I mean, those are the 2 biggest pieces.

And when it comes to the gross margin getting better than expected, and I know that price mix was an issue -- was the driver. Is it more kind of like the change in the portfolio, meaning richer sales from HERO and THERABREATH, what was the driver of the better gross margin are there for the earnings bit?

Yes. That's a good question. I think it was really the 2 things. It was -- mix was a little bit more helpful and volume was helpful. I mean price came in as expected. Manufacturing costs came in as expected, productivity was in line. So it was really higher volumes, which help with throughput and efficiencies and then a little bit favorable mix.

Yes. Okay. When you think about THERABREATH and HERO, THERABREATH, we bought that business in 2021. And HERO in 2022. So for THERABREATH, resets this year, we're getting more doors. But I would expect that the distribution gains from a number of doors perspective is going to plateau for THERABREATH this year, and that we're going to be getting -- the way to look for distribution gains in the future are going to be more facings.

Yes. Could you -- I didn't hear the first part of your question, I'm sorry.

Look, the volumes for this business continue to grow. So it's not a price-driven business. And the awareness in household penetration is still ahead of us for this brand. You may remember that when the -- back in -- before patches hit the scene, it was really ointments and lotions et cetera, that people were using to address acne.

And I would probably say in all channels, we are growing and have positive growth even in channels that are declining because of some maybe macro or secular trends. So that bodes well for this brand.

Well, thanks for joining us today. We had a great quarter. So let's see everybody in July.