Church & Dwight Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2024

Key Takeaways

  • Church & Dwight beat Q2 expectations with 4.7% organic sales growth versus a 4% outlook and delivered adjusted EPS of $0.93, $0.10 above guidance.
  • Adjusted gross margin expanded 150 basis points even as marketing spending rose, enabling the company to gain share in most categories.
  • Key product innovations—including ARM & HAMMER Deep Clean, Power Sheets and the lightweight Hardball litter—drove meaningful incremental growth and share gains.
  • The gummy vitamins business continued to struggle, falling 10.9% in Q2 versus a 1.9% category decline, with turnaround initiatives taking longer than planned.
  • Full-year guidance was tightened to about 4% organic sales growth and 8–9% adjusted EPS growth, reflecting recent category deceleration and higher planned investments.
AI Generated. May Contain Errors.
Earnings Conference Call
Church & Dwight Q2 2024
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good morning, ladies and gentlemen, and welcome to Church & Dwight's second quarter 2024 earnings conference call. Before we begin, I have been asked to remind you that on this call, the company's management may make forward-looking statements regarding other things, the company's financial objectives and forecasts. These statements are subject to risks and uncertainties and other factors that are described in detail in the company's SEC filings. I would now like to introduce your host for today's call, Mr. Matt Farrell, Chairman, President, and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Good morning, everyone. Thanks for joining us today. I'll begin with a review of the Q2 results, and then I'll turn the call over to Rick Dierker, who's our CFO and Head of Business Operations. And when Rick is done, we'll open up the call for questions. So Q2 was another solid quarter for Church & Dwight. Reported sales growth was 3.9%, which beat our outlook of 3.5%, and that was thanks to stronger results across the board from domestic, international, and specialty products. Organic sales grew 4.7%, which exceeded our 4% Q2 outlook, with volume accounting for a very healthy 3.5% of our growth. Adjusted gross margin expanded 150 basis points. At the same time, we increased marketing spending, and we gained market share in the majority of our categories.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Adjusted EPS was $0.93, which was ten cents higher than our $0.83 outlook. That was a quality quarter, and Rick will take you through that later. The results were driven by higher than expected sales growth and gross margin expansion, and we continued to grow in the online class of trade, with online sales as a percentage of global sales now reaching 21.2%. Now, I'm gonna turn my comments to each of the three businesses. First up is the U.S. consumer business, with 3.8% organic sales growth. Volume growth was 3.3%, making this the fourth consecutive quarter of volume growth in the U.S.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

As you read in the release, Church & Dwight had the highest dollar consumption growth among our top ten peers, and five of our seven power brands gained market share in the quarter, with a few hitting all-time highs. Now let's look at a few important categories in the U.S. Innovation is a big contributor to our success this year, and as I comment on the categories, I'll highlight the success of our new product launches. I'm gonna start with laundry detergent. So ARM & HAMMER liquid laundry detergent consumption outpaced the 1.6% category growth and achieved an all-time high record share in the quarter of 14.8%, which is up 20 bps. ARM & HAMMER unit dose, ARM & HAMMER Scent Boosters, and XTRA liquid laundry brand all grew faster than their categories and also grew share in the quarter.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Regarding new products, we have launched two new products into the detergent category, ARM & HAMMER Deep Clean and ARM & HAMMER Power Sheets. The first, ARM & HAMMER Deep Clean, is our most premium laundry detergent entering the mid-tier of liquid laundry. ARM & HAMMER Deep Clean accounted for 40% of ARM & HAMMER's liquid laundry detergent consumption growth in the quarter and is highly incremental to the ARM & HAMMER franchise. The second new product is ARM & HAMMER Power Sheets. This is a laundry detergent. ARM & HAMMER was the first major brand to offer this new unit dose form in the U.S. last year in August. Since expanding the launch of this product into bricks and mortar retailers this year, we have seen high consumer interest in the form.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

ARM & HAMMER Power Sheets is proving to be highly incremental to both the sheets category and the total laundry detergent category, and we are seeing repeat rates increase. We feel great about the future prospects for this product and form. Now, I'm gonna talk about litter. ARM & HAMMER Litter grew consumption 6% in Q2, which was almost double the category growth. Our new lightweight ARM & HAMMER HardBall clumping litter is outperforming our expectations as our share of the lightweight category has grown from 4.5% in Q1 to 8.2% in Q2. And this is important because lightweight accounts for 16% of the clumping litter category, and so we expect HardBall to continue to grow in the coming quarters.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Turning to personal care, the gummy vitamins business continued to be a drag on the total company organic growth in Q2. The gummy vitamin category declined 1.9% in Q2, which is an improvement from the 5% category decline in the past two quarters. The bad news is our consumption was down even greater. We were down 10.9%. We continue to move forward with our plan to stabilize our gummy business through new packaging, upgraded formulas to improve the consumer experience, new forms like chewables, and greater marketing investments that we've talked about with you in the past. However, the improvement is taking much longer than we anticipated. Next up is Batiste. Batiste continues to see strong consumption growth, with consumption up 14.5% in Q2, growing share to 47%.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Batiste continues to be the global leader in dry shampoo, and innovation is very important to the success of this brand. So listen to this. This year, we launched Batiste Sweat Activated and Batiste Touch Activated dry shampoos. These products are bringing new users to the category, and already these two new products account for a 2% share of dry shampoo, and Sweat Activated is the number one, number one new product in the category. Over in mouthwash, TheraBreath continues to perform extremely well. TheraBreath is the number one alcohol-free mouthwash and the number three brand in total mouthwash with a 17% share. This year, TheraBreath entered the antiseptic segment of the category with the launch of TheraBreath Deep Clean Oral Rinse.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

It's important to note that antiseptics represents 30% of the $2 billion mouthwash category, and our launch into antiseptics accounted for 100 basis points of our 400 basis point year-over-year market share gain in total mouthwash. So that's a, that's a great indicator of the future of the antiseptic launch. Hero continues to drive the majority of growth in the acne category and has grown to become the number one brand in the acne category with a 20% share. Hero continues to launch innovative solutions and patches combined with adjacent consumer needs. An example would be the recently launched Dissolve Away Daily Cleansing Balm. Now, a few comments about private label. Regarding private label, the good news is our weighted average private label exposure is relatively stable.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

We have seen notable private label share gains in gummy vitamins, where private label gained 2 share points, achieving a 16.7% share, which is back to pre-COVID historical highs. This has also contributed to our difficulties in that business. In the litter category, private label share has increased sequentially in the last few quarters from 13.1% in Q4, 13.3% in Q1, and 13.5% in Q2. So current levels are at historical highs. The good news that it's a different story for us as ARM & HAMMER Litter continues to gain share in spite of the private label strength. I'll close my comments on the U.S. by saying that although consumption has been strong through the first half of the year, we did experience a slowdown in June and July.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

For context, and you read this in the release, our categories averaged 4.5% dollar consumption growth through May of this year, but since then, it, it has been closer to 2%. Now, this is not entirely a surprise, as we expected a deceleration as year-over-year pricing rolled off. However, unit consumption has also saw a deceleration from the first five months to what we saw in June and July. So it appears that the consumer may be getting extended and is making choices around spending habits. While we have only seen this trend for the last couple of months, we expect that categories are likely to grow at a slower pace than we experienced in the first half of the year.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

As you know, our balanced portfolio of value and premium offerings performs, or I should say, is well suited to changes in consumer buying patterns. Turning now to international and specialty products, our international business delivered organic growth of 9.3% in Q2. This was driven by strong growth in the subsidiaries, as well as our global markets group. Now, just a few call-outs. We had strong growth in Canada, Mexico, Germany, and our global markets group. And finally, specialty products. Organic sales increased 3.9%, and that's two quarters of solid organic growth for this business. We're confident that this division will achieve a 5% organic sales growth this year, which would hit our evergreen growth target.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

I want to wrap up my comments by reiterating that the company is performing well, all three divisions delivering strong growth. I want to thank all the Church & Dwight's out there for doing such a great job each and every day. Now I'm going to turn it over to Rick to give you some more color around the quarter and full year outlook.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Thank you, Matt, and good morning, everybody. We'll start with EPS. Second quarter adjusted EPS was $0.93, up 1.1% from the prior year. The $0.93 was better than our $0.83 outlook and is a high-quality beat, primarily driven from higher than expected sales growth and gross margin expansion. We'll walk through the details of the P&L, but this was a strong quarter, with 8% growth of profit before tax versus the prior year, excluding the tariff benefit. Another important highlight for the quarter was the majority of our brands gained share. Reported revenue was up 3.9%, and organic sales was up 4.7%. Organic sales was driven by volume of 3.5% and positive price mix of 1.2%.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Volume was the primary driver of organic growth, and we expect volume growth to continue for the rest of the year. As Matt mentioned earlier, this makes four consecutive quarters of volume growth. Our second quarter gross margin was 47.1%, a 320 basis point increase from year ago, reflecting a one-time benefit on a favorable ruling and rebate related to historical tariff payments. Excluding this impact, adjusted gross margin increased 150 basis points due to productivity, volume, and mix, net of the impact of higher manufacturing costs. Let me walk you through the Q2 bridge. Gross margin components are as follows: positive 80 basis points impact from price, volume, mix and a +120 basis points from productivity.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

This was partially offset by a 10 basis point drag from currency and a 40 basis point drag from inflation. Moving to marketing. Marketing was up $20.2 million year-over-year. Marketing expense as a percent of net sales was 10.1% or 100 basis points higher than Q2 of last year and led to share gains. For SG&A, Q2 adjusted SG&A increased 20 basis points year-over-year, primarily due to international R&D and costs related to the Graphico acquisition. Other expense decreased by $7.8 million, primarily due to lower outstanding debt and higher interest income. For income tax, our effective rate for the quarter was 24%, compared to 17.9% in 2023, which is significantly higher than a year ago, due to a high level of stock options exercised in Q2 of 2023.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

We continue to expect the full year rate to be approximately 23%. And now to cash. For the first six months of 2024, cash from operating activities was $499 million, almost $500 million, a decrease of $9 million, with higher cash earnings offset by higher working capital. We now expect full year cash flow from operations to be approximately $1.08 billion. Capital expenditures for the first six months was $76.6 million, a $13.4 million increase from the prior year, as capacity expansion projects proceeded as planned. We expect 2024 CapEx of approximately $180 million, as we complete the majority of those investments that were initiated in 2023, and we continue to expect CapEx to return to historical levels of 2% of sales in 2025 and beyond.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Now for the full year outlook. As Matt mentioned, strong financial performance in the first half of the year, and strong categories and share gains. As we move into the second half, consumption growth has moderated in many categories as the consumer remains under pressure. Consequently, we are tightening our organic revenue outlook and now expect our organic sales growth to be approximately 4%, the low end of our prior 4%-5% range. Reported sales growth is expected to be approximately 3.5%, which also reflects a drag from currency and the impact from divestitures. We continue to expect full year adjusted EPS in the range of 8%-9% growth, but now at the low end of the range. In round numbers, the sales call down would normally be offset by the gross margin raised at the EPS line.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

However, we have two other factors for the change. Number one, as you saw in the release, full-year SG&A is now expected to increase as a result of higher spend for Graphico. That drag went from a penny to two pennies as we make incremental investments. And then number two is dry powder, and if the categories get more promotional in the second half. Turning to gross margin, we now expect expansion of approximately 100 basis points-110 basis points, up from our previous outlook of 75 basis points of expansion. We continue to expect an increase in manufacturing costs to be more than offset through productivity, mix, and higher volume. We continue to expect marketing as a percentage of net sales to be approximately 11%, as we continue to grow share across many of our brands.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

With that, Matt and I would be happy to take any questions.

Operator

Ladies and gentlemen, at this time, if you would like to ask questions, simply press star and one on your telephone keypad. Pressing star and one will place your line into a queue, and we'll take your questions one at a time. Once again, ladies and gentlemen, that is star and one on your telephone keypad. We'll hear first today from Rupesh Parikh at Oppenheimer.

Rupesh Parikh
Rupesh Parikh
Managing Director and Senior Analyst at Oppenheimer

Good morning, and thanks for taking my question. So, Rick, I just want to, I guess, go back to your comments on the promotional backdrop. So, would love to hear about what you guys are seeing right now in the promotional backdrop, and then, you know, what your expectations are for the balance of the year.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, let me give you a sense for what's going on promotionally, Rupesh. And as everybody knows, household is far more promotional than personal care. But if you look at your liquid laundry detergent sold on deal from Q1 to Q2, it actually was down 180 basis points year-over-year, and was down 200 basis points sequentially. And you might be scratching your head about, you know, why would that be, but, you know, you guys probably have this in your Circana data as well, but a large premium brand is actually down 900 basis points sequentially and 600 basis points year-over-year. Of course, that's not the whole story.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Couponing is not tracked, it's not in the consumption numbers, but that would explain, you know, how you went from 33.5 sold on deal in Q1 to 31.6 in Q2. So it's largely driven by a large brand. If you look at litter, Q1 versus Q2, that's a different story. Q1 sold on deal was about 15.5, and Q2 was a little over 18, it was like 18.3. So it's up sequentially, but that was generally driven by one competitor. You know, their sold on deal Q1 versus Q2, almost doubled. It's 24% for this other brand in Q2.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

I would say, you know, as far as our brands go, we've—as I said, we had an all-time high share in the quarter in liquid laundry, and also very close to an all-time high share for litter in Q2. But that's to give you a little bit of color on promotions. unit doses is a little—it's kind of the same story as well. You know, Q1 to Q2, just round numbers went from 26% to 31%. That's year over year. I'm sorry. But sequentially, it went from 26% to 36%. So, there's a lot of big changes happening in each of the categories.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

But I would say if you're just looking at the second quarter, you wouldn't say it's any more promotional. It's just an anomaly with one brand in liquid laundry and one brand in litter swinging the numbers.

Rupesh Parikh
Rupesh Parikh
Managing Director and Senior Analyst at Oppenheimer

Okay, great. And then maybe just one follow-up question. Just going back to the slowdown in June and July. It sounds like it's across categories, but I don't know if there's any more color you can provide between your discretionary offerings and maybe some of your more, you know, more essential categories.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, well, I can give you some color on that. You know, we look at the commentary of food companies, and we see call-outs like, hey, the consumer is being price conscious, we got value seekers out there. And then we look at fast food chains, and we see, you know, spending is less per trip. Then we look at our data, you look at staples, and you see decelerating consumption in a lot of categories. I mean, if you just look at the Circana or Nielsen data, you can see it. And I guess the last thing here today is, you know, unemployment's ticked up a little bit.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

And as I said on the call, the expected, you know, the dollar growth year-over-year, we expected it to peel back as a result of price increases lapping. But we're also looking at volume. Let's say year-over-year volume growth is also decelerating in the categories. We're doing better than the categories as evidenced by our brand success. But we would say the consumer is likely a bit weary of balancing the household budget, making choices to satisfy their needs. We have three things going for us. One is the strength of the brand. So you saw in the release, you know, 5 out of 7 brands grew share. If you went back to our old standard, but 10 out of 14 of our major brands grew share in Q1 and in Q2.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

And, so that's strength of the brands would be number one. Two is innovation. You know, you heard the proof points in my opening remarks. And number three, you know, the split we have, 60/40 between premium and value. So therefore, we said, "Hey, given the category movement in June and July, we concluded 3% organic in the second half is probably a sensible outlook." But I can give you just some round numbers. So if you look at the laundry detergent category, May, June, and the first few weeks of July, you know, May was around 2%, June, flat, and then July, down close to a point, and that's in dollars. And then again, the litter category, round numbers, May was 3% up, June, flat, and then July, up slightly.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

And, you know, if you look at another category like non-alcohol mouthwash, it goes 14, 13, 11, you know, May, June, July. So you see how the categories are kind of trending down? And, yeah, I could give you other examples, but, you know, that's where we come out and say: You know, based on everything we hear from other industries, unemployment, what we've seen in the Circana and Nielsen data, it seems pretty obvious to us that, you know, 3% makes a lot of sense for the next six months.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, and we're precious as Rick. I would just, you know, just to tack onto that, it's not just one category. That's kind of what Matt's going through. It's – if you take the weighted average, and you look at every category individually, there is a slight deceleration in most. Okay?

Rupesh Parikh
Rupesh Parikh
Managing Director and Senior Analyst at Oppenheimer

Great. Thank you. I'll pass it along.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Okay.

Operator

Our next question today comes from Chris Carey at Wells Fargo.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Hey, Chris.

Christopher Carey
Christopher Carey
Head of Consumer Staples Research at Wells Fargo

Hey, guys. Rick, you mentioned potentially keeping some dry powder for additional spending. Is that additional spending now factored into the outlook for the year, or are you saying that you're now guarding a bit more of that dry powder, should you need to deploy it in certain categories? And then what are the categories that you have your eye on specifically? I think the litter category well taken, the step up in promotional spending. I think we heard enough last night to corroborate that, but can you just expand a bit on the dry powder piece and just what you're kind of preparing for?

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah. No, no, no worries. I would say it's really the second in your example. It's dry powder is if categories further decline, if the promotional environment heats up because volume growth gets harder to come by, we are just we're saying we're ready for it. We're prepared if that happens. We haven't deployed it yet, but if it happens, we will. And that's really primarily around our household businesses like laundry and litter, and then, of course, as the category is down for vitamins, that would be applicable as well.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, and the other thing is, you know, you heard us talk about the success we're having in so many categories with our new products, and that's where we've concentrated our promotions, displays, et cetera. Not just in the household, but also in our personal care products. And we got the marketing coming behind it, too. You know, we got a lot more marketing in the second half behind those brands. So we definitely like our chances, regardless of, you know, the slowing categories.

Christopher Carey
Christopher Carey
Head of Consumer Staples Research at Wells Fargo

Okay. Makes sense.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah.

Christopher Carey
Christopher Carey
Head of Consumer Staples Research at Wells Fargo

One quick follow-up is just on the 3% and kind of thinking that's the right range for the next six months. Did I hear you correctly? It's a bit above category, which makes sense, you're gaining share. Where—you know, just given the trend line, where are you keeping a particular eye on regarding whether, you know, maybe by Q4, we're talking about 2% or something of the sort? I suppose your dry powder would help you counteract that. But, you know, any call outs on the categories that you really have your eye on, where things are developing a bit differently relative to your expectations?

Christopher Carey
Christopher Carey
Head of Consumer Staples Research at Wells Fargo

And then, you know, just, just connected to that, can you just frame, you know, the VMS business, whether you're just seeing stabilization or whether there's any kind of sequential worsening? It's not really a VMS question, to be clear, but just given that's the business that feels, you know, less predictable. I just wanted to make sure I got a specific comment on that. Thank you.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah. Well, you know, we're in 16, 17 categories. If you just graph those categories, and you just see pretty much across the board, you know, a softening. So it's not just, hey, it's just one or two big categories. We think it's really broad-based. So consequently, you know, they're all on the table, you know, for keeping an eye on, for the second half. What was your-

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Framing the vitamin business.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Oh, yeah, vitamin.

Christopher Carey
Christopher Carey
Head of Consumer Staples Research at Wells Fargo

It was just-

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, yeah.

Christopher Carey
Christopher Carey
Head of Consumer Staples Research at Wells Fargo

Just on vitamins. Are you just stable or, you know, is it faster than other businesses? You know, just maybe trying to ring-fence vitamins versus everything else, where you're clearly you clearly had a lot of relevant momentum versus category. Thanks.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, yeah. Well, the category, you know, I gave some numbers there before about May, June, July for you know, a bunch of different categories. Vitamins, if you do May, June, July, category dollars, down 1, down 2, down 1, that May, June, July. So you'd say it's, it's more us than the category. And you know, we, we have not been able to renovate our portfolio as fast as we had hoped. And you know, some of it is you know, the retailers you know, how much additional shelf space will they change your, your shelf position, et cetera. And some of it is us, the speed at which we can renovate the portfolio. So, I'd say it's more, more on us, frankly, than, than the external environment.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

But, you know, we know what we need to do, and, you know, if we think about how good we would be if we could get that one turned around, considering how all the other businesses are doing well. But, yeah, it's more work to do there, Chris.

Christopher Carey
Christopher Carey
Head of Consumer Staples Research at Wells Fargo

Okay. All right. Thanks so much.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

All right.

Operator

Our next question comes from Bonnie Herzog at Goldman Sachs.

Bonnie Herzog
Bonnie Herzog
Managing Director at Goldman Sachs

Thank you. Good morning. I had a question on your organic growth guidance. You know, Matt, I believe you mentioned that your guidance assumes the underlying category growth remains pressured, but does your guidance also assume, you know, further slowdown from here? Just trying to understand, you know, potential downside risk. And then how do you see the balance of price mix and volumes playing out, especially in the context of the category slowdown?

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah. Well, look, it's the categories has slowed down. You know, some of them, for example, you know, laundry and litter, you get to July, and they're pretty much, you know, flattish. So, you know, when you have flat categories, the only way you're gonna grow is, you know, you have to take share. And, you know, we've so obviously, we like our chances 'cause that's what we've been doing so far this year, with, but especially driven by our new products. You know, a lot of our share growth in litter was driven by HardBall, you know, our new launch there. So, now we're not saying, "Hey, this is gonna.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

This graph, if you're gonna graph it, is gonna continue to go down, down, down the rest of the year." We're just saying it looks like a step change from the first five months of the year to where we are now, and think it's more likely than not that it'll stay this way the rest of the year.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, we still think categories are gonna grow-

Bonnie Herzog
Bonnie Herzog
Managing Director at Goldman Sachs

Okay.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

And we're gonna take share, so that's how we get to our 3% for the back half. And then in terms of price volume mix-

Bonnie Herzog
Bonnie Herzog
Managing Director at Goldman Sachs

Yeah

Richard Dierker
Richard Dierker
CFO at Church & Dwight

It's kinda unchanged from what we've said before. We're primarily a volume-driven, organic growth grower in the last four quarters, and that'll continue, we think, for the next two.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah. So here, this might help you, too. If you look at dry shampoo-

Bonnie Herzog
Bonnie Herzog
Managing Director at Goldman Sachs

Yeah

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

So dry shampoo, you know, first five months of the year was double digits. So it was May was 12%. And if you look at June, July, it's more like 6%-7%. So, you know, the category is still growing, just not growing as fast. So it looks like it's just kind of a notch down, and this is where innovation is really gonna matter, I think, going forward.

Bonnie Herzog
Bonnie Herzog
Managing Director at Goldman Sachs

All right. That's helpful. And then, my second question is on your marketing investment that you called out for Q3. I guess I'm curious to understand how much of that step up that you expect in Q3. Is it essentially, you know, new incremental, or is it really just a shift coming out of Q2, where, you know, your spend levels, you know, were a little bit below what we had anticipated? And then should we expect sustained spending levels into Q4? And I'm thinking about that in the context of some of your new launches.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, I'll take that, Bonnie. So our Q2 marketing spend was right where we expected it to be. We were at 10.1%. If you take a big step back, we spent quite a bit of marketing in Q4 in 2023, and we had the, you know, one of our best new product years ever this year on par. And so we're taking hundreds of basis points out of the marketing spending that would be naturally in Q4 if you kept it flat, and putting that throughout the year. And so Q1 was up 150, Q2 was up 100, Q3 is gonna be up significantly, more like Q1 than Q2, and then Q4 will be down significantly because we just wanna get that phasing correct to support new products.

Bonnie Herzog
Bonnie Herzog
Managing Director at Goldman Sachs

Okay. All right. Thank you for that.

Operator

Next up, we'll hear from Peter Grom at UBS. Please go ahead. Your line is open.

Peter Grom
Peter Grom
Equity Research Analyst at UBS

Thanks, operator. Good morning, everyone. Hope you're doing well. Maybe just one quick housekeeping. I think the release mentioned, you know, the domestic consumption outpacing sales, primarily due to some retail inventory reductions. Can you maybe just talk about that? Where did you see the reductions? What categories specifically?

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah. So we said it, there were two reasons why, you know, Circana would say 6% and domestic organic was 3.8%. So, like, 200 basis points of a disconnect. It was, one we had talked about before, which was, we had a Hero pipe-in a year ago. And then the second one, which actually was more of a surprise for us, was retail inventory adjustment in the quarter. That was primarily on laundry, but I would tell you, you know, there's more noise in the system these days, as, you know, categories start to move around from retailers on how they manage inventory. We are at good levels across the chain, and we're set up for success.

Peter Grom
Peter Grom
Equity Research Analyst at UBS

That's helpful, Rick. And then, you know, kind of going back to the category discussion, but maybe shifting gears to kind of international, can you just talk about what you're seeing from an international perspective, both from an underlying category standpoint, but also when we think about the 3% implied back half growth on a total company basis, what do you expect to see from your international business? Thanks.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah. Well, you know, our international business had a very strong first half, so we expect them to still punch above their weight for the full year. You know, our algorithm is international, is gonna grow 8% on an annual basis, and they're tracking above that right now. If I, you know, I gave you some remarks with respect to the U.S. consumer, we're still keeping an eye on the international consumer as well. So far, things have been holding up pretty well. They've been more resilient, at least in our markets and in our categories, so far. But, I think the commentary that I had before is more focused on the U.S. than international, but still, it's something to keep an eye on, Peter, but right now, it's not a worry.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

To just give you a little bit more granularity, if our full year call for international is 8%, we saw around 9% for the first half, so that would mean we think it's around 7% in the back half.

Peter Grom
Peter Grom
Equity Research Analyst at UBS

Great. Thanks so much. I'll pass it on.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Okay.

Operator

Steve Powers at Deutsche Bank, your line is open for our next question.

Stephen Powers
Stephen Powers
Equity Research Analyst at Deutsche Bank

Okay, that was very enthusiastic. Just on that, on-

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

I'm happy you're here, Steve.

Stephen Powers
Stephen Powers
Equity Research Analyst at Deutsche Bank

Yes, me too. I'm happy to be here. Hey, so the shipments versus consumption discussion that Peter just started, I guess just to extend it, I guess I'm curious whether you have visibility, any known timing differences, favorable or unfavorable, as we go into 3Q, 4Q?

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, at this point in time, we don't have any. I mean, there are different classes of trade, always talk about store closures or right sizing, and so that, you know, all that's kind of baked into our outlook. It's a little noisier than normal, I would say. We've got caught by surprise a little bit on the one in Q2, but the good thing is we still, you know, despite that, we still met or beat our outlook on organic.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, so drug and dollar are the two classes of trade that are a little bit turbulent, I guess, right, right way to say it, looking ahead. But, but we got a pretty good handle on what we have out there and how we think that'll move around as a result of those store closures.

Stephen Powers
Stephen Powers
Equity Research Analyst at Deutsche Bank

Okay, great. And, you know, and this is, I guess, it's on the topic we've all been talking about in terms of the slowing and the kind of promotional environment, but I guess it's more of just a philosophical question in this moment. You know, so many companies, as we've gone through this second quarter earnings season, that are exiting the first half with higher gross margins than expected, yourselves included. Does that, from your perspective, you know, raise the risk, even more that, you know, seemingly rational levels of competition and, and what have you, devolve, you know, alongside this slowing? It just seems like we're in a pretty precarious moment where, so many companies have been calling for volume improvement or volume sustainability, where things have been good.

Stephen Powers
Stephen Powers
Equity Research Analyst at Deutsche Bank

Now, things are slowing abruptly, but at the same time, they're carrying more gross profit into that moment. And I just, I'm questioning whether you think that elevates the risk versus what you've seen historically, that things do get, you know, more competitive more quickly.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, well, look, I think if people look back through history and you say, "Well, you know, what when do people start, you know, promoting?" And yeah, you're right, you know, when you have slowing categories. So that's why, you know, Rick, Rick said it's, it's probably prudent to say, "Hey, you got to have a top-line call and a bottom-line call that kind of bakes that in, and so you have some dry powder, if that were to happen." But that's why we, we, we spent so much time this morning talking about innovation. And we got an innovation beyond the categories that we described, so I think that's gonna be really important to share growth and consumption growth, in the next six to 12 months.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, you know, one thought to add to that. You know, normally, if you look back at history, really hyper promotional environments happen when categories are negative or volumes are negative. Neither of those things are happening, right? In general, it's still positive growth from a dollar perspective, and still positive growth from a volume perspective. So that's context, right? Private Label shares are still relatively stable. You know, all those things are still true, but we're just trying to give a heads up to say there is something going on.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah. So Steve, that's sort of our MO. You know, we're always palms up, and then we say what we're seeing, so that's what we're doing today.

Stephen Powers
Stephen Powers
Equity Research Analyst at Deutsche Bank

Okay. I appreciate it. Thank you very much.

Operator

Next, we'll hear from Dara Mohsenian at Morgan Stanley.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Dara?

Dara Mohsenian
Dara Mohsenian
Managing Director at Morgan Stanley

Hey, good morning, guys. So just wanted to touch on a couple pieces of your portfolio. TheraBreath obviously continues to post very strong growth. You can see that in the scanner data or, or your call commentary on market share, but it is a higher priced product. So just hoping you could give us a bit more detail on the brand performance and as we move through the quarter, the performance. Any signs of trade down there, is the therapeutic benefit of the product really mitigating any impact from a weaker consumer? And just your view on growth potential for that brand as you look out over the next few quarters, given the strong momentum recently. And then just on the VMS side, you know, understand all your points around the intervention in terms of packaging forms, marketing.

Dara Mohsenian
Dara Mohsenian
Managing Director at Morgan Stanley

Just any more detail on when the timing of some of those things may pay off and how you guys think about that, given the progress hasn't been as strong as expected so far? Thanks.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, well, look, here, TheraBreath is a big success story for the company, as you know. You know, we have 17% share. We're number three in the category. Number one's Listerine at 38, Crest at 18. And you know, we've been getting more facings from different retailers and different classes of trade. And the launch into antiseptic is something that we think is gonna be a source of growth for us for a good long time, because when it's 30% of the category, and we now have a 4% share of the non-alcohol. And so we've got a long way to go there.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

So I would say we feel really good about TheraBreath. And yeah, it is a—it's more highly priced, but that's not something new. We don't promote the product. I think one interesting proof point is if you look at what happened on Prime Day, that TheraBreath actually was the number 3 brand and unpromoted, and we had a really good Prime Day for TheraBreath. So if that's—that—there's lots of indicators that say this brand has a lot of staying power, even as a premium brand in this environment. And then with respect to vitamins, yeah, I think that's probably gonna be over the next six to 12 months.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

We do not expect we're gonna be able to, stabilize that as we had planned to when we started the year. We thought that in the first half, we would be, we'd be, down, and then by midyear, things start to turn around, so we'd be exiting the year with a stable business, no loss of share. I don't see that happening, right now. But, you know, we got lots of different irons in the fire here, and, you know, some are working, some aren't. We just need a little more time.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Thanks, Ted.

Operator

Lauren Lieberman at Barclays, please go ahead. Your line is open.

Lauren Lieberman
Lauren Lieberman
Managing Director at Barclays

Thanks. Good morning. So sticking with TheraBreath and also layering in here, if I may, you know, both brands continue to have very, very strong growth, but they have decelerated, and we were looking at it more than anything else as kind of law of large numbers. But I was curious if you could comment on what you're seeing in the spaces in which those brands compete in terms of those category growth rates changing. And as we kind of look forward, you know, this law of large numbers, like, do we think they keep migrating down to earth? So the growth isn't 30%, but it's like 20% as we move forward, and how to frame that, 'cause I think it's important in terms of the big picture, the, you know, the aggregate outlook for the company is the growth rate of those two brands actually matters a lot.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah. Well, look, I'll give you some category data. Like the acne category, May, June, July is steady.

Lauren Lieberman
Lauren Lieberman
Managing Director at Barclays

Okay.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Up 8%, May, June, and July. So, no worries there. And we've got the, you know, number one brand in the category, and not only in the category, but also in patches and a subcategory at 54% share. So, it's, that's not a worry for us, right now, either one of those brands. Of course, with the passage of time, you're not gonna have, you know, 30% growth rates. That's, you know, this is math, you know, as you think ahead to 2025. But, we're still expecting that we're gonna have really strong years, next year.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, and just to add to that, you, you're right, like 30% or 40% growth, and as that comes down, it's because we're really lapping distribution in general, but consumption is just still extremely, extremely strong. And I would say we're not gonna point to a growth rate in the future, but we still expect it to be double-digit, strong double-digit growth as we look out over the horizon.

Lauren Lieberman
Lauren Lieberman
Managing Director at Barclays

Okay, great. And then if I can ask a second question, on market share trends. So we are still on Nielsen, so I know that there are some pretty significant differences lately between Nielsen and Circana, and coverage matters a lot, so take that as preamble. But as we see it, market shares for Church in aggregate were softer in June and July. So along with the categories slowing, that some of the share performance wobbled a bit, particularly if you take out here on Thera. So just if you could comment on that. Again, that might be completely different than what you're seeing in your data, so I'd like to know if that's the case. And if not, you know, what is it, do you think that, why, if in fact, shares have been more sluggish, why that is?

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah. Thanks, Lauren. I would just say that's not what we're seeing.

Lauren Lieberman
Lauren Lieberman
Managing Director at Barclays

Okay.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

You know, in Q1, I think we were 10 out of 14. If you go back to our old vernacular of all of our power brands, because this question is a little bit more detailed. So 10 of 14, I think Q2 was 10 of 14. I think July, June, July, or July was 9 of 14. So no, no real change.

Lauren Lieberman
Lauren Lieberman
Managing Director at Barclays

What about the pace of that growth, though? You know, so not just like, is it up, but is it up less?

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Well, I think it's reflected in our, in our second half call, right? You know, we said we grew 5% organic in the first half, 3% in the second half. So I think that's, that's all baked in, into the numbers.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

But we wouldn't give, like, midquarter.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

It's more of a. You know, that's more of a category. We still feel really good about the share. We expect share gains in the second half, and we're positioned to do that.

Lauren Lieberman
Lauren Lieberman
Managing Director at Barclays

Okay, great. Thank you.

Operator

Our next question comes from Kaumil Gajrawala at Jefferies. Go ahead. Your line is open.

Kaumil Gajrawala
Kaumil Gajrawala
Managing Director at Jefferies

Hey, if I could ask a little more on VMS, which is, you know, not that long ago, you were increasing capacity for the space. I'm curious if anything has changed. Maybe there's some product changes you need to make or innovations you need to catch up on, but has your view generally about that segment changed?

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Well, look, it's a very competitive category. There's well over 60 competitors. There aren't a lot of barriers to entry, simply because you could find co-mans to make your product. So if you get an idea and a catchy brand name, you can pretty much enter. So, you know, that's really what we've been experiencing. Of course, you know, we've definitely struggled in the bricks and mortar. We do have some bright lights here on the online class of trade. So, we're doing extremely well on Amazon. We've got a lot of growth there, but that's a smaller piece of the pie.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

You know, we've mentioned before, renovating the category, meaning that this year we've been changing the formulas to improve the consumer experience. Meaning that, you know, taste and bite, we're launching into chewables, different forms. But all those have gone slower than expected. And we haven't got a lot of help from the retailers.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, and remember for context, right, this category grew through COVID at a rocket ship pace. It grew probably over 50% over four or five years, and so everyone's rushing to put the capacity in to accommodate that. And the category itself is still finding its feet as it comes off of those highs. That's why we keep seeing negative growth. And then there's other forms now. It's just not hard pill and gummy. There's liquid, there's powder, there's other forms. And so that's a category story, and we're being impacted by that as well. But as Matt said, we think innovation is super important. We're trying to move at the speed of light to get the right innovation out there as fast as possible.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, but we'll call it out-

Kaumil Gajrawala
Kaumil Gajrawala
Managing Director at Jefferies

Okay

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

because it has been a struggle for us.

Kaumil Gajrawala
Kaumil Gajrawala
Managing Director at Jefferies

Yeah, it's actually, you're sort of-- when you first started talking about the category, it sounds quite different from how you'd like to be positioned or how you'd like a category to be positioned. Does it still make- So we just saw Clorox divest their VMS. I recognize it's different, but does it still make sense to own?

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah. Well, that's, you know, we evaluate all of our businesses, all of our categories, annually. So, obviously, we've put a lot of investment into this, but, you know, I can't go any further than that.

Kaumil Gajrawala
Kaumil Gajrawala
Managing Director at Jefferies

Okay. Thank you.

Operator

Andrea Teixeira at JPMorgan, please go ahead with your question.

Andrea Teixeira
Andrea Teixeira
Managing Director at JPMorgan

Thank you. Good morning. I was just hoping to see if you can talk, I mean, shift a little bit of the conversation into M&A. And I know you've been looking, and you, at your analyst day, you had said you had a, you know, you had looked at, you know, back last year, around four potential acquisitions. None of those kind of, kind of fit your profile or, were enough to be, you know, attractive. So I was hoping to see what has changed, anything, that we should be thinking of, is that, more the targets are not willing or the private equity funds not, coming up with, with some interesting ones for you? What is preventing you to, to growing organically, which is, you know, which is something that you historically have done.

Andrea Teixeira
Andrea Teixeira
Managing Director at JPMorgan

And then also, just a housekeeping on Waterpik, I think that's the only brand that we really didn't talk about, and Waterpik and dry shampoo. Just thinking of, like, how you quoted in the first quarter, there was a 1% headwind from Waterpik and gummies each. So I was hoping to see what was the headwind in the second quarter, if any. I'm assuming there's still headwinds there, and what is embedded into the second half. Thank you.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, as far as M&A, you're correct in that last year, we looked at four or five different brands, and we didn't pull the trigger on any of them. But what I can tell you is that we're as busy as ever right now. You know, we're always looking at opportunities, and they are out there, and we just gonna stick to our criteria. But you know, we do realize it's been 18 months since we made an acquisition, we have cash building up on the balance sheet, as you'll see in the, when we file the Q. But yeah, we're very busy, and you know, the market is active. And?

Richard Dierker
Richard Dierker
CFO at Church & Dwight

On Waterpik, you know, the good news on Waterpik is consumption is up, high single, low double digits. So you know, we really worked through that retail inventory issue that we talked about last quarter. I would say Waterpik's flattish for this quarter. We think it's slightly down for the full year, largely based on what happened in Q1 from a sales perspective. So, not ignoring Waterpik, but I'd tell you that consumption looks good for Waterpik.

Andrea Teixeira
Andrea Teixeira
Managing Director at JPMorgan

Thank you.

Operator

Next, we'll hear from Filippo Falorni at Citi.

Filippo Falorni
Filippo Falorni
Director at Citi

Hi, good morning, everyone. I wanted to ask about the gross margin outlook for the second half. What have you embedded from a pricing standpoint that, that you're kind of, comment on dry powder there on promotional activities? And then from a commodity standpoint, are you seeing some modest reinflation? What is the commodity outlook for the second half? Thank you.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, sure. I would say, inflation is maybe a little bit higher than what we, when we talked about it three months ago. Pulp and paper are up, HDPE, HDPE is up a little bit, ethylene is up a little bit, but, you know, no change from a net perspective as, as productivity is coming in a little bit better, as well. Yeah, we, we do have some trade and couponing and promotional spending, assumed in, in, in the back half. Again, it's dry powder, not necessarily that we are gonna do it, but, and we also wanna, wanna spend behind our new products in terms of, displays and support and, and whatnot. So that's kind of our assumption.

Filippo Falorni
Filippo Falorni
Director at Citi

Great. Thank you. I'll pass it on.

Operator

Kevin Grundy at BNP Paribas, please go ahead.

Kevin Grundy
Kevin Grundy
Managing Director at BNP Paribas

Great, thanks. Good morning, everyone. We've covered a lot of ground, most of the portfolio. I wanted to kinda take it a different direction, I guess, and maybe if you could comment at all on Barry's departure, 'cause it's an area we've gotten a lot of questions from recently. Obviously, you know, key executive with the company and CMO and president of your domestic business, and probably one of a handful of points of interface with the investment community. So Matt, maybe just comment on how high a priority it is to refill that role, maybe skill set you might be looking for. I know he's with the company through early October, and whether the search is gonna include both internal and external candidates. So thanks for that.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

All right, Kevin, that's a multi-part question, many of which I can't respond to. What I can say is that, you know, Barry's been here, you know, 11 years, he had an 8-year stint in international, 3-year in the U.S. He's a big, big part of our success, and, you know, sad to see him go. He's here through early October. It's business as usual here, so we, we have some time to figure out, how we're gonna fill the position, but, I think that's as, as detailed as we would go into on a, on a call like this.

Kevin Grundy
Kevin Grundy
Managing Director at BNP Paribas

Okay. I'll leave it there. Thank you.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah. Okay.

Operator

Our next question comes from Olivia Tong at Raymond James.

Olivia Tong
Olivia Tong
Managing Director at Raymond James

Great, thanks. My question is primarily around gross margin and trying to understand the upside in Q2. And then in terms of the, you know, the deceleration in second half, it sounds like that 100 basis points or so was primarily around the dry powder, but wanting to see if there are other factors that are driving that expectation for deceleration in the second half.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, deceleration for gross margin?

Olivia Tong
Olivia Tong
Managing Director at Raymond James

Yeah, exactly.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah. Okay, well, in the quarter, we had favorability really because of mix. You know, within our personal care portfolio, we had, you know, higher margin products sell even more than we expected, and some of the lower margin personal care products not sell as much. So that was kind of a tailwind from a, you know, in the price volume mix line. That's what happened for the quarter. You know, for the back half of the year, it's a couple things. There's a little bit more inflation.It's not as favorable year-over-year, you know, personal care mix as those categories come in a little bit, but the dry powder we're talking about in terms of trade and couponing is in the back half as well. So those are probably the two or three things I'd point to in the back half.

Olivia Tong
Olivia Tong
Managing Director at Raymond James

Great. Thank you.

Operator

Anna Lizzul at Bank of America, you have our next question.

Jonathan Keypour
Jonathan Keypour
VP at Bank of America

Thank you. This is John Keypour on the line for Anna. I also just wanna say I'm glad Steve Powers is here because, yeah, he opened the way for the question I have, which is, I guess on pricing, is there any risk that the promo environment gets to such a place that we see negative price in the back half?

Jonathan Keypour
Jonathan Keypour
VP at Bank of America

And then follow-up to that, in terms of the innovation pipeline and like, you know, route to market and kinda time to market, given where the categories are stabilizing at this lower kinda growth rate and the idea that maybe this becomes a 25 issue as well, are you guys able to pivot your innovation pipeline and have new products in market by next year that cater more towards, I guess, the mid or low-end consumer more than potentially what you had in the pipeline last year, or expect to have in the pipeline for next year? Thank you.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, well, there's, you know, there's two types of innovation. You know, one is innovation, where we're identifying a pain point or a need for the consumer. Another is when it comes to pack size, which I think is what you're getting at. So yeah, we're pretty good at pivoting quickly to create the different price points in various categories in order to satisfy the consumer in a changing environment like this.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Then on your first question, about volume and price mix as we look forward, we do not expect to have negative price in the back half of the year.

Jonathan Keypour
Jonathan Keypour
VP at Bank of America

Great. Thank you.

Operator

Our next question will come from Javier Escalante at Evercore.

Javier Escalante
Javier Escalante
Equity Research Analyst at Evercore

Hey, good morning, everyone. I have a couple of clarifications on the detergent side. One, you mentioned that Deep Clean was 40% incremental. Do you have enough data to know whether this is people trading up from ARM & HAMMER or you are gaining share, you are gaining users from other brands? The other, I mean, we both used to kind of see personal prices down. Do you think that that is promotional activity or that is a price correction?

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, on the first question, we fully anticipated when we launched the Deep Clean, that you would have some ARM & HAMMER consumers trade up. So Deep Clean is part of our good, better, best strategy. So a good would be the basic Arm & Hammer detergent, and ARM & HAMMER with OxiClean is the better, and Deep Clean is the best. So yeah, we do have some data that says we have people trading up, and we also have consumers that are leaving other brands and migrating over to Deep Clean. And that's why we think long term Deep Clean is gonna be a source of growth for the company.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, we probably wouldn't comment much on looking at the Circana data about Henkel or Persil or any of those things. We would just say we continue to gain share in laundry, and as the category has slowed a bit, but we continue to gain share and do better than in the market.

Javier Escalante
Javier Escalante
Equity Research Analyst at Evercore

Understood, fair. The other is, curious about how fast this so-called dry powder can be deployed, vis-a-vis retailers, and to what extent this is also contingent to, you know, supply chain, the strength of the supply chain, because one of your competitors continue having issues with it. Thank you.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, Javier, it's a fair question. You know, typically, as you're putting in incremental promotions, that maybe is a longer lead time, but if you wanna heat up a promotion, that can be done relatively easier, and you go after incremental volume that way as well, or couponing. But again, it's dry powder is the key message. All right, next question?

Operator

Thank you. Our next question will come from Robert Moskow at TD Cowen.

Robert Moskow
Robert Moskow
Managing Director at TD Cowen

You have a lot of analysts covering your stock.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, we're not doing it in alphabetical order either. We're just.

Robert Moskow
Robert Moskow
Managing Director at TD Cowen

Yeah. But glad to participate. You know, this year, as a newcomer, it looked like your new product pipeline was extraordinarily good. Like, you have a lot of, like, really resonant products in a lot of different categories all at once. As you think about it for next year, do you expect it to be as strong as it is this year? And in light of a slowing category growth and maybe some more value seeking, is there anything you need to tweak in terms of the mix of premium versus, you know, more value-oriented products?

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah. Well, one thing you wanna keep in mind about new products is, yeah, we're having a great year with all these new product ideas we came out with, but remember, we're gonna have a year two of these next year. So you only have a partial year, you're only building distribution this year, in many cases, building awareness. So we think the products that some of the ones I talked about, and others, will be big drivers next year. And on top of that, we have new product ideas coming as well. So, like I said, I do think that in any environment, but particularly this one, new products are gonna make the difference. And then your other question was tweaking the portfolio between the premium and value.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

You know, I've been with the company for 18 years, and the 60/40 split, it's now 63/37 premium value, has been sustained over a couple of decades, so unlikely that's gonna change in the near term, and that's why we always like our chances when you have periods with changing consumer buying habits.

Robert Moskow
Robert Moskow
Managing Director at TD Cowen

Okay, thank you.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yep.

Operator

Our final audience question today comes from the line of Mark Astrachan at Stifel.

Mark Astrachan
Mark Astrachan
Managing Director at Stifel

Yeah, thanks, morning, and thanks for squeezing me in here. 2 quick ones. One, just asset prices on potential M&A, you're seeing it come down similarly to the market. And then on vitamins, just again, you know, you go back to when you bought the business, it was partly about adoption of the form factor of gummies. Yet there's more press out there, not saying that it. I agree or don't agree with the efficacy of a gummy versus some other forms. Is that partly what's impacting the consumer in your business and in gummies in general? Is there an opportunity to educate the consumer, or is there opportunity in tech to make the product more effective? If not, how quickly can you pivot to some of the other stuff that you talked about in terms of chewables and potentially powders and whatnot within the brands you have?

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, as far as, you know, vitamins goes, yeah, there's been quite a change over time. I think when we bought the business in 2013, the gummies represented 3% of the market, and now it's in the 20s. So it's changed quite a bit. I would say, as far as your comment about efficacy, I think it's more that people are moving to powders and chewables and other forms. You know, the larger vitamin category has pulled back, but remember, it's pulling back from COVID. You had several years of growth in just a couple of years. So I think, you know, household penetration is greater as a result of COVID, and that's kind of plateaued and started to pull back. But, no, I wouldn't say that our issues are related to the fact that you know, there's an issue with efficacy. It's been more around our own issues in-house.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Yeah, the other area that folks are moving away from gummies at times are, you know, from a sugar perspective. They wanna go towards sugar-free, so we're rapidly going after the sugar-free part of the portfolio. We're rapidly going after improving our taste profile, so that gap widens again versus competition.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Yeah, so one of our disadvantages is we don't have as broad a portfolio of sugar-free as some of our competitors. And again, that's one of the areas, when I talk about renovating the portfolio, that's one of the areas we're focused on.

Richard Dierker
Richard Dierker
CFO at Church & Dwight

Okay.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

All right, operator, I think we are at the end of the line?

Operator

Correct. No further questions from our audience today.

Matthew Farrell
Matthew Farrell
Chairman, President and CEO at Church & Dwight

Okay. Hey, thanks, everybody, for joining us. We had a kind of a great first half. We're looking forward to a strong second half, and we'll talk to you all at the end of the third quarter.

Operator

Ladies and gentlemen, this does conclude our conference call. We thank you all for your participation.

Executives
Analysts
Powered by Quartr