Richard Dierker
Chief Financial Officer at Church & Dwight
Thank you, Matt, and good morning, everybody.
We'll start with EPS. Second quarter adjusted EPS was $0.92, up 21% to the prior year. As Matt mentioned, the $0.92 was better than our $0.78 outlook, primarily due to continued strong consumer demand for many of our products and higher-than-expected gross margins as well as a lower tax rate. Net sales was up 9.7% and organic sales were up 5.4%. Almost half of the reported revenue growth year-over-year was HERO. Organic sales were once again driven by pricing in Q2 with volumes slightly down. That slight decline was better than expected and turning to the second half, we continue to expect a return to volume growth.
Our second quarter gross margin was 43.9%, a 270 basis point increase from a year ago, primarily due to productivity pricing and strong contributions from higher-margin acquisitions that are offsetting inflation. This result exceeded our expectations for the quarter as we saw a greater impact from productivity programs, a better product mix driven by our recent acquisitions.
Let me walk you through the Q2 bridge. Gross margin was made up of the following: positive 280 basis points impact from price/volume mix, positive 120 basis points from acquisitions, a positive 160 basis point impact from productivity and 10 basis points from currency, partially offset by a drag of 300 basis points due to higher manufacturing costs. For the balance of the year, we expect this trend to continue.
Moving to marketing. Marketing was $29 million, up year-over-year. Marketing expense as a percentage of net sales was 9.1% or 130 basis points higher than Q2 of last year. For SG&A, Q2 adjusted SG&A increased 60 basis points year-over-year. Other expense all in was $24 million, a $9.1 million increase due to higher average interest rates. For the full year, we now expect other expense of approximately $100 million. We do not have any looming long-term debt refinancing. In fact, other than the $200 million left in our term loan, August of 2027 is the timing of our next maturity.
For income tax, our effective rate for the quarter was 17.9% compared to 24.1% in 2022, a decrease of 620 basis points driven by a higher tax benefit from stock option exercises, we now expect the full year rate to be approximately 22%. And now of cash for the first six months of 2023, cash from operating activities increased to $509 million due to higher cash earnings and improvements in working capital.
Turning to the full year outlook. Given the strength of our Q2 results and our confidence for the remainder of the year, we're raising our outlook for sales, gross margin, EPS and cash flow. We now expect the full year 2023 reported sales growth to be approximately 8%. And organic sales growth to be approximately 5%. Given the strength of the business, we see opportunities to make incremental investments in our brands and capabilities in future quarters. We now expect full year reported gross margin to expand 200 basis points. Compared to our previous outlook, we see commodity cost favorability, higher productivity and faster growth from our higher margin recent acquisitions.
While we have seen some pockets of lower inflationary pressure, since our prior outlook, we continue to expect net inflation for the year. For perspective, we expect $120 million of manufacturing cost increases in 2023, much better than the $290 million we saw in 2021 and the $250 million in 2022, but still elevated from historical levels.
Speaking of history, if we look back at history from 2010 to 2019, we typically had 2% of COGS as inflation. During the COVID impacted years of 2020 to 2022, we saw an 8% of COGS impact. And in 2023, we're seeing about a 4% inflation rate. So currently, we see commodities like ethylene down 20% year-over-year. However, going the other way, we see soda ash, up 50%. Soda ash is now used with lithium for lithium carbonate, which is then used in lithium batteries and solar panels. This demand spike, combined with pressure on the supply side. So for example, China is the largest supplier of soda ash globally and has had intermittent supply issues, and that's causing upwards pressure on price.
So, the point is we're not in a deflationary period as of yet. Wrapping up gross margins, we have made a lot of progress. However, for the full year, we still expect to be about 200 basis points below our pre-COVID margin levels. So, a lot of opportunity over the next few years. We intend to increase marketing as a percent of net sales to 11%. This is great news as we previously anticipated getting back up to 11% in 2024 and the fact that we're able to get there sooner than initially anticipated will position the business well for the future.
We expect SG&A both in dollars and as a percent of sales to increase compared to 2022. The increase in SG&A is expected to be larger than what was assumed in our prior outlook as the strong business performance increases incentive compensation and as we make strategic investments. As in past years, when we have strong business performance we're investing for the future. These investments are focused in two areas: First, growth with higher marketing investments and R&D investments around MPD as well as accelerating product registrations in international markets. Second would be efficiency, investments in automation and technology. We now expect full year EPS to be approximately 6%. And as a reminder, our EPS guidance includes a step-up of marketing that we're talking about in higher SG&A.
We now expect full year cash flow from operations to be approximately $1 billion. Previously, we expected to be $950 million. The $50 million increase is driven by higher cash earnings and an improvement in working capital. Our full year capex plan continues to be approximately $250 million as we continue to make capacity investments, and we expect to return to historical levels of 2% of sales by 2025.
Strong performance in the first half of the year drove 12% EPS growth as a result of accelerating investments, we expect second half EPS growth to be flat. And for Q3 specifically, we have a strong outlook and expect reported sales growth of 8%, approximately 4% for organic and gross margin expansion.
We also expect a significant increase year-over-year in marketing spend as well as SG&A. Adjusted EPS is expected to be $0.66 per share, a 13% decrease from last year's adjusted Q3 as investment spending is weighted more towards Q3.
So to summarize, a strong six months of the year are behind us, a return to volume growth in the back part of the year and a lot of momentum as we move into 2024.
And with that, Matt and I would be happy to take questions.
