Church & Dwight Co. Inc (CHD) — Q4 2018 Earnings Call Transcript

Thanks for coming. We have a lot of familiar faces here today and we have a great program planned for you. I am going to start off with the Safe Harbor statement. I encourage everybody to, when you have some time, take a look at it and read it. And I have a very packed agenda. Many of these topics are familiar to you: who we are, why we are winning, and I will take you through the ARM & HAMMER brand today, also all our exciting innovations in '19, and then our other couple of businesses, international and animal productivity. I will also talk about how we run the company and Rick will come up and talk about the financials. So, we just wrapped up another strong year, and we entered 2019 with a lot of confidence. Our EPS is expected to increase 7% to 9% driven by operating income growth, and that is top-tier in the CPG space. Our 3.5% organic sales outlook is above our evergreen model. All three businesses are healthy. In the U.S., we are enjoying strong demand for our products, we are in the right categories and we have low exposure to private label. Our international business continues to be a juggernaut and we will hear more about that today from Steve Cugine who leads our international business. Our Specialty Products business is also set up for a good year. We have an impressive lineup of innovative products across many categories that you are going to hear about today, and our ability to rapidly innovate is differentiating among CPG companies. In 2019, we are going to return to gross margin expansion as we have price and productivity programs at our backs. Our price increases have been well-executed for ARM & HAMMER cat litter, baking soda and carpet deodorizers, and OXICLEAN pre-wash additives. Those price increases hit the shelves late in the quarter and will benefit 2019 gross margins, and the good news is the competitors are raising prices in those categories as we speak. And we have other levers to bolster 2019 gross margin expansion, and those include pricing in personal care categories and also an opportunity to reduce promotions in the laundry category. So, before we get into the formal program, I want to recap a few reasons why we are a standout in consumer products. We have an evergreen model which leads to two things: consistency and financial literacy. We delivered top-line and bottom-line growth year after year after year. The shareholders know the model very well and so do the Church & Dwight employees, all 4,700 of us. We all know what success looks like. With only 4,700 employees, we are a lean company and we adapt to change quickly. There is no better example of that than the growth of our online sales. We succeed because our employees are committed to our success. We have brands consumers love, and today you are going to hear from Britta Bomhard, our Chief Marketing Officer. You are going to hear about ARM & HAMMER and the More Power to You campaign. The More Power to You campaign is a shining example of our brand-building skills. And finally, we made good choices when it comes to acquisitions. Those choices led us to dry shampoo, hair thinning, gummy vitamins and gum health. Our acquisition experience and skills will serve us well in the future. We believe there is no better place to invest in the CPG space than Church & Dwight. Alright. I will get into the formal program. Who we are? Well, the evergreen model is 3% top line, 8% bottom line. It’s been like that for many years and will continue in the future. The way the 3% breaks out is we expect 2% from the U.S., 6% from international and 5% from Specialty Products. We have 11 power brands that are listed on the slide there and those 11 brands account for 80% of our revenues and profits. And we have a very balanced portfolio between household and personal care, household 45%, personal care 48% and Specialty Products bringing up the rear with 7%. And we also have a nice balance between premium and value, 65% premium, 35% value. And we are an acquisition platform. We have a fabulous integration track record. When we buy businesses, we grow revenue and we bring operational efficiencies, and because we have a strong balance sheet, we have a lot of access to capital to do more in the future. And we have a long history of growth through acquisitions. So what you see in that slide there is 15 years. We went from $1.5 billion to $4.1 billion. Out of those 15 years, in 12 out of the 15 years, we completed a transaction. And 10 of our 11 power brands were acquired since the year 2001. When you have leading brands, it gives you the ability to take price. You read in our release that we are taking price on 30% of the portfolio and we are having discussions about other categories to add to that. We have very clear acquisition criteria: number one or number two brands, they need to be high growth, high margin. We are fans of asset-light businesses and we like businesses where we can leverage our existing supply chain. Finally, these brands need to have a sustainable competitive advantage. So, 11 brands today, 20 brands tomorrow. We do operate in the land of giants. All of our competitors are far, far larger than we are. As I said earlier, we only have 4,700 employees. That gives us a huge advantage. We are a lot faster than they are. We can make decisions quicker and we adapt to change. You have heard us say before. Change is our friend. We deliver phenomenal results to our shareholders over any period you want to pick: 1, 3, 5, or 10 years. So why are we winning? First is this scorecard. Here is 2018. We have an algorithm; we grow 3% top line. We grew 4.3% top line in 2018. The consumer business had a phenomenal year, United States 4.3%, international 7.8%. Combined that was a 5% growth rate for our consumer business in 2018. Specialty Products had a rugged year, but that’s going to turn around in ‘19. Okay, we are in the right categories. We know how to grow share. Low exposure to private label and we win in e-commerce. So some stats. Here is 2015, '16, '17 and '18. You can see in general our categories grow about 3%. That’s the underpinning for the growth in the U.S. And we know how to grow share. This is our share scorecard. In 2018, 7 out of our 11 brands maintained or grew share. We have low exposure to private label. So if you calculated the weighted average private label share for our categories, it’s around 12%. And out of those 15 categories you saw on that earlier slide, 5 of them have exposure to private label, but if you take a look at those five charts, you can see that the shares are relatively stable. We continue to win in e-commerce. Let’s look back at 2015. In 2015, we were in the basement. We had 1% of our sales online. Today we are at 7%, growing 40% in 2018. Now we are top tier in CPG when it comes to online sales. We expect to hit 8% in 2019. We have lots of number one brands online. Amazon generally accounts for 50% of online sales for most CPG companies. It’s a very important class of trade. All of those products are rated number one. And now I want to bring up Britta to take you through the ARM & HAMMER campaign.

Hello, everyone. As Matt just talked about, we are all about brands that consumers love and how we bring that to life, I want to share with you today. You have heard we have 11 power brands and I think about a year ago when I was here, I shared actually what we are doing on OXICLEAN. You might remember, it’s been a whole year, I know that we talked about how we activate in digital and how we do targeted marketing and predictive analytics as one of the key tools. And as you know, we are all about transparency and results. So, Matt loves to talk about our report card. I thought I would share today the results of the year of OXICLEAN. So what you can see behind me is OXICLEAN had the highest share ever at more than 53% and we have actually grown four times the category. So that’s what great marketing can do for brands. Today we are actually here to talk about our biggest and most exciting brand, ARM & HAMMER. One of my colleagues was actually in a museum in Utah and on the wagon displays of the wagons going west, there was a baking soda box, because the versatility of that product is so ingrained in American philosophy about making yourself a brighter future, but it’s not only a historical brand. Even today, one in two households buy an ARM & HAMMER product every year and I hope all of you are part of that and you over index. So baking soda, just to put it into a few fun facts and what it actually does in America. If you used all the baking soda last year to make cookies, you would actually get up to 688 billion chocolate chip cookies, but it’s not only used for baking. You might be aware that it’s also used for cleaning and refreshing. It actually filled 31 billion gallons of swimming pool water. The third exciting usage is it also has medicinal usage. So 300,000 patients in the U.S. rely on ARM & HAMMER baking soda to purify their blood. It is such an essential product for this nation. Obviously, the one you should all be most familiar with is half of fridges in the U.S. are actually kept fresh with ARM & HAMMER baking soda. And in case you missed yours, there are a few baking soda boxes to grab on the tables, so remember to refresh every 30 days. Beyond just baking soda in other categories, it is such a key brand in this country. If we put all our laundry together and only wash white T-shirts, we would actually get 62.5 billion pounds of laundry. Now I know that’s a hard number to imagine, so I thought I would give you an easier one to imagine: how many elephants would that be? 6.5 million adult elephants. Now, I know you all imagine adult elephants every day, so I thought maybe you just imagine the whole of Manhattan Island covered with elephants. That’s about how much laundry is done with ARM & HAMMER laundry every year. Needless to say, it’s our $1 billion brand, our biggest and our crown jewel, so I think we are very excited to share how we keep this iconic brand going to work in the future. In the past, we have been very much communicating about the benefits and how it is better and the superiority of the product, but we are actually leaning in much more on connecting with our consumers in an emotional way because we are all, as I said, about brands that consumers love. So a new campaign, which you hopefully at least saw coming in or experienced somewhere here, is called More Power To You. And even if I call it a campaign, you really should think about it as a unifying creative idea, which is going to last us for years towards the future. So, what’s the base idea behind More Power To You? No brand would exist today without the love of the consumers, and what we are celebrating is actually the true power for ARM & HAMMER is the ingenuity of the people using it. We are elevating our consumers to the heart because they are the ones who make this brand great. So, if you can laugh over spilled milk, More Power To You. If you work a 60-hour week and still get the kids to school looking fresh, More Power To You. If things get gross and nasty, don’t panic; you have the tools to make it right, More Power To You. That’s why we created powerful products stacked with solutions to tackle everyday challenges with strength and a smile, More Power To You. Now, I know this is probably not your usual what you see, but I think I want to show you how our consumers took to this in a big event where we launched the campaign here in Bryant Park. We asked our consumers what they were thinking about ARM & HAMMER. So, let’s go to the first video.

Okay. Thank you, Britta. Now we have got some really exciting things to talk about. I mentioned earlier that we have quite a scale as an innovator in CPG, and I think this little show here is going to give you a real pace of the breadth of the innovation that we have in 2019. We will start off with Waterpik Sonic-Fusion. We have the world’s first flossing toothbrush. Now you can brush and floss at the same time, and only 16% of American adults floss daily. This is clinically proven to be twice as effective as traditional brushing and flossing. So, this is a fabulous new product. There is a lot of science behind this. So I am going to roll a couple of minutes here. So everybody can appreciate the design behind this product.

Well, it certainly is a big sexy world. So I guess that’s why I am up next to talk about the international story. As Matt said, I think everybody is familiar with our evergreen target international at 6%, but I thought I would give a little color here on international. For the last several years, we have been focusing on building scale. As you can see in 2013, we were $430 million in sales and we exit 2018 with $710 million in sales. Not only have we increased scale to the point where we believe we can really have access to every major market around the world, we have doubled our organic growth on a much larger base from 3% to almost 8%, exiting 2018 at 7.8%. When we started this journey, we started really implementing our new strategies in 2014. We saw the fruits of that labor by Q4 and you could see from every year from 2015 to 2018, we have exceeded our 6% evergreen growth target exiting 2018 at 7.8%. Even better news is we had a very strong quarter finishing Q4 at 9%. So, we leave 2018 with a lot of momentum. The net sales composition for international is really 8% Mexico and Australia; 23% Europe, which is made up of three subsidiaries: France, UK, Germany; Canada at 31%; and total export or our global markets accounting for 28%. Breaking that down for 2018 even further, our subsidiaries delivered a solid 4.3% organic growth and export continues to deliver strong double-digit growth every year. As we look forward and we say where is the engine of growth coming from? What is the fuel for that growth? In our subsidiary markets that now exceed $0.5 billion in sales, we focus growth in three areas: one, brand expansion, that’s expanding the offerings of the brands that we offer today like OXICLEAN Ultra Gel entry in Mexico, where we entered the liquid segment; VMS expansion, and of course, BATISTE. Matt talked about the great new products, but we are also expanding into new subsidiary markets. Last year, I talked about how excited I was about the acquisitions that we recently made and that I thought Waterpik represented a real engine of growth, not only for the company domestically, but for our international business. Now I am happy to say that international delivered 20% growth in the Waterpik business in 2018 versus year ago. Lastly, pricing, so in 2018, we have initiated pricing actions over a third of our products that we sell in our international markets and we will reap the benefits of that initiative in 2019. Another example for growth for the future is Asia. Last year when I was here, I talked about a spotlight on Asia, both Southeast Asia and China and I am pleased to be here today to say that our sales exceeded $90 million in these markets in 2018. That is up from $25 million in 2013. This is enabled by a new relationship that we started in 2018 with DKSH, our partner covering all of Southeast Asia. This year, we are implementing an initiative to really drive and expand our distribution in all of these markets through this partner. Another exciting development is China. I personally spent almost 2 years studying the China market and doing consumer research in every major city in China on our brands, identifying those brands, and took that research to identify partners that would really expand the China opportunity for Church & Dwight, but there are several characteristics that were very important. We needed a company that had certainly the traditional distribution access into retail, because it’s certainly a big part of the China market, but also had already developed a strong capability on e-commerce. This is something that even local Chinese companies are struggling with in terms of the dynamic change in this marketplace. So, we identified Shanghai Jahwa, which is a strong personal care, CPG company, a $1 billion in size, publicly traded company, to be our partner in this market. We spent a lot of time getting to know them and ultimately negotiating a very unique agreement, which gives us both transparency and access to the online and offline markets in China. Beyond this, I’m excited about the capabilities that we’re building to drive long-term growth in our international markets. We have established local teams in Shanghai and in Taiwan. In Shanghai, our employees of Church & Dwight are actually embedded with and live and work with the Jahwa employees in their corporate offices. They are really fully integrated into the Jahwa team to support sales, marketing, operations and distribution in the China market. We doubled our staff in Singapore and Panama. So, we’re investing in the markets where we see the fastest growth. We built a DTC capability in Europe and Australia. As you know, we launched a new subsidiary in Germany last year, and that’s off to a fast start. We’re also committed to brand building, both in our developed subsidiary markets as well as in our export markets. We have customized talent for each market and I’m just going to share with you a brief snippet of some of our assets.

Okay. Thanks, Matt. I am going to go through three things: look at the 2018 results, quarter, full year, talk about the outlook and will start with the evergreen model like we always do. Just as a reminder, we have been doing this for over 10 years, but organic net sales growth of 3% is kind of our algorithm, 25 basis points from gross margin, flat marketing, higher dollars, of course, and then leverage SG&A by 25 basis points to get to the 50 basis points on operating margin, which translates into 8% EPS growth. I’m sure all of you can tell me the same thing. As Matt alluded to earlier, it breaks out by division: 2% domestic, 6% international, and 5% for Specialty Products. So, Q4 highlights; 4.3% organic growth in the quarter, which is really strong top-line performance. Our outlook was 3%, and domestic was 4%, international was 9%, and SPD went backwards by around 4%, consumer organic also almost a 5% grower. Adjusted gross margin; now, this is where we’ve had a lot of conversation. Our full-year outlook was down 120 basis points that implied down 160 basis points. In the quarter we finished down 250 basis points in the quarter. So, what happened? Three things: first, there was a mix impact of about 40 to 50 basis points. Our household business grew faster than we expected. Our personal care business, excluding Waterpik, grew a little bit slower than we expected. So that was one. Number two was tariffs, right? As our Waterpik business grew faster, we thought that tariff impact was going to really hit ‘19. It got pulled forward into 2018. The third thing was on gross margin. We really blew the doors off of cash from an incentive comp perspective. We missed on margin, but we really blew the doors off the cash flow, free cash flow conversion. We’ll get to that in a minute and so gross margin has an impact. Incentive comp has an impact on gross margin. Marketing was up 10 basis points. We invested $5 million or $6 million year-over-year in marketing really to start the year with momentum, which is actually happening, right? I think Nielsen information came out today, plus 6% on consumption growth, so really starting off the year strong and EPS was up 10%. So for the quarter: 3.8%, 4.4%, 4.7% and 4.3%, so just really strong broad-based growth across the year, on a stacked basis, the second half of the year was around 8%. This is probably the most important slide or one of them in the deck. This is our progression on price/mix. Remember organic has two components: one is volume growth and one is price/mix growth. For a long time, we were bumping along in the negative price/mix growth for about a 1.5 years. In Q3 we inflected, right. And lower promotional spending, especially in laundry, and positive price/mix happened in Q3, happened again in Q4. Remember in Q4 list price changes that we’ve gone to retail with aren’t even in these numbers yet, right? Because it typically protects a month or two months or even three months sometimes retail pricing, and so really that benefits on the come in Q1 and for 2019. I already walked through the details of Q4, but I’ll just recap gross margin for the full year. So plus 20 basis points on volume, price/mix, down 170 basis points for commodities and transportation, and we’ve talked many times about the headwinds on commodities, whether it’s resin, oil, diesel, surfactants, the headwinds in the industry on transportation, and we’ll talk a little bit more about that in the 2019 outlook area. Other manufacturing costs, whether it’s tariffs or incentive comp or labor increases. Productivity program was plus 80 basis points and then FX and acquisitions were really immaterial, so that’s down 140 basis points for the year. For the full year 4.3% growth, down 140 basis points for gross margin. We just spoke about that. Marketing was strong, 11.7%. SG&A was a good baseline of 13.6%. EPS was 17%. I think too many times we look past our EPS growth. So, 17% EPS growth, and yes, we had some tax reform benefit in there. Our peer average was about 5.5% apples-to-apples. We feel like we’re top-tier performance here. Cash from operations was $763 million and free cash flow conversion was 124%. You’ll see in our slides later on cash, the peer average is 91% on free cash flow conversion. Just doing a great job of converting those sales and earnings into cash. Okay. Moving to the outlook. So 3.5% organic sales. This is the highest organic sales outlook we’ve given since 2014. Gross margin is expanding 10 basis points. Excluding tariffs, it’s up 35 basis points. Marketing is down 10 basis points, but that’s really just math. Our SPD growth is around 9% for next year. We don’t advertise to the dairy industry that much or to cows. So, it doesn’t have much marketing. So, it’s just math. Our marketing dollars are up year-over-year. SG&A is down 30 basis points as we leverage pretty much in line with the operating model and a 50 basis points expansion for operating margin, 21% effective tax rate. So, 2018 we were at 21%. In 2019 we’re at 21%. That’s two things: one is stock option exercises and the other one is favorable tax matter internationally. The good news is it’s flat year-over-year, and that means what does that mean? It means our EPS growth is all operating in 2019. Cash from operations is around $800 million is our outlook, so again, really just strong free cash flow conversion. If we do an acquisition, we would probably dial that back and just focus on using that money for M&A. Here’s the detail for the organic sales outlook: 2.5% domestic, international was 6%, SPD was 9%. That’s how we get to 3.5% as a baseline.

Okay. Animal Productivity, so we have a 5% algorithm here. Remember we said that the Company grows 3%, U.S. is 2%, international 6% as Steve just took you through, and Specialty Products 5%. You might think, hey, that’s kind of a big number considering that we went backwards in 2018 minus the 3.4%. Here’s how that 5% breaks out. We have a bulk chemical business. That’s essentially bulk sodium bicarbonate. It’s a real steady-Eddie business. Animal Productivity is the one that we expect to grow at 6%. Two-thirds of the businesses is Animal Productivity; one-third is bulk chemicals. Now, the Animal Productivity part of the business is the one that’s been most volatile and the most cyclical over time. The reason we like being in that space is just because of this statistic: there’s 7.5 billion people on the planet today; going to 10 billion by 2015. So, animals have to be more productive. If you went back to the 1970s, that’s when we first got into the dairy business. Essentially baking soda was Alka-Seltzer for cows. They could pretty much eat more and more grass. From there we moved into nutritional supplements, still in dairy. Three years ago we decided we have a great brand in ARM & HAMMER. We can move into other species; that will be cattle, swine, and poultry. So first we bought into prebiotics, then we bought into probiotics. Today, in 2018, 24% of the business is non-dairy and growing. This is good for us going forward. The second thing is that 13% of the business is now international. The population growth is outside the U.S. That’s where we need to be. We’ve made a lot of progress over the last three years and that’s what gives us confidence in the 5% top line long-term. Just as Steve said, the same slide this year as last year. We have a great brand. All of these products are labeled ARM & HAMMER. The consumer trend is away from antibiotics. So we make prebiotics, probiotics, and nutritional supplements. We’re not wedded to dairy anymore. We’ve moved into other species, and the global growth and the growth of population is going to help us. This is going to be a winner for us, and this business has terrific financials. Alright. Then how do we run the company? First off, you heard from Britta today, we have number one brands; we have brands that consumers love. We are also a friend of the environment. We leverage people. We have highly productive people and we want Church & Dwight to be a place where people matter. We leverage our assets heavily, and if you do all four of those well, you get really good returns. But because we are an acquisition platform, we deliver great shareholder returns. If you look at how we’re incentivized, it’s very simple: net revenue, gross margin, cash from operations, and EPS, 25% each, and all 4,700 employees understand it. I want to particular gross margin, which is 25% of all employees’ annual bonuses. If you look at our numbers for 2018, you know we’re pretty sad about that. We’re going to turn that around in 2019. These are the four ways we do it. So, good to great cost optimization. That’s our continuous improvement program, we have supply chain optimization as well with our plants. New products we have accretive new products. All these products you saw today are premium priced and acquisition synergies. With respect to being a friend of the environment, in the early 1900s, we started to use recycled paperboard in our packages. In the 1970s, we were the only sponsor of the first Earth Day. We were the company that took phosphates out of laundry detergent in the 1970s. Recently, in 2018, 100% of our electricity globally comes from renewable sources of wind and solar. We planted 3 million trees through the Arbor Day Foundation last year. Why do you plant trees? Because trees take CO2 out of the atmosphere. We have three goals. One of them is we want to reduce the use of water by 25% by 2022. The second is solid waste recycling: we want to move from 67% to 75%. Here is the big one: we intend to be carbon-neutral by 2025, and today we are 55% carbon-neutral. What does that mean? That means we take out of the atmosphere a little bit more than half of what we put in the CO2. We’ve been getting recognized for that; Barron’s, Forbes, FTSE, the EPA, Drucker Institute WSJ Management Top 250, all of them recognizing the efforts we’re putting into this. Alright. Now, financials from Rick, come on up.

Okay. Alright. Thanks, Matt. I am going to go through three things: look at the 2018 results, quarter, full year, talking about the outlook. I’ll start with the evergreen model like we always do. Just as a reminder, we have been doing this for over 10 years, but organic net sales growth of 3% is kind of our algorithm; 25 basis points from gross margin, flat marketing, higher dollars, of course, and then leverage SG&A by 25 basis points to get to the 50 basis points on operating margin, which translates into 8% EPS growth. I’m sure all of you can tell me the same thing. As Matt alluded to earlier, it breaks out by division: 2% domestic, 6% international, and 5% for Specialty Products. So, Q4 highlights; 4.3% organic growth in the quarter, which is really strong top-line performance. Our outlook was 3%, with domestic growth at 4%, international growth at 9%, and SPD going backwards by around 4%, consumer organic also around a 5% grower. Adjusted gross margin; now, this is where we’ve had a lot of conversation. Our full-year outlook was down 120 basis points that implied down 160 basis points. In the quarter, we finished down 250 basis points. Three things happened: first of all, there was a mix impact of about 40 to 50 basis points. Our household business grew faster than we expected, while our personal care business, excluding Waterpik, grew a little bit slower than we had anticipated. So that was one aspect. Secondly, tariffs; the timing of the tariffs came into play. As our Waterpik business grew faster, we thought that the tariff impact would hit in 2019. It got pulled forward into 2018. The third thing was gross margin; we really blew the doors off of cash from an incentive comp perspective. We missed on margin, but we succeeded in cash flow and free cash flow conversion. We’ll delve into that later and so gross margin has an impact. Incentive compensation influences gross margin. Marketing was up 10 basis points. We invested $5 million or $6 million year-over-year in marketing really to start the year with momentum, which is actually taking shape. Nielsen information coming out today indicates plus 6% consumption growth, indicating we are starting off the year strong and EPS was up 10%. So for the quarter: 3.8%, 4.4%, 4.7%, and 4.3% demonstrate really strong broad-based growth across the year, with the second half of the year at around 8%. This is probably one of the more important slides, or at least one of them in the presentation. This is our progression on price/mix. Remember organic has two components: volume growth and price/mix growth. For a prolonged period, we have experienced negative price/mix growth for about a year and a half. In Q3, we inflected positively. Lower promotional spending, especially in laundry, and positive price/mix was observed in Q3 and continued into Q4. Q4 list price changes going to retail aren’t even in these numbers yet. It typically takes a month, two months, or sometimes even three months for retail pricing to fully reflect, making it beneficial as we proceed into Q1 and for 2019. I have already walked through the details of Q4, but I’ll just recap gross margin for the full year. Plus 20 basis points from volume and price/mix; down 170 basis points due to commodities and transportation; we’ve previously discussed the headwinds on commodities, whether it’s resin, oil, diesel, surfactants, and the transportation headwinds within the industry which we will discuss further in the 2019 outlook area. Other manufacturing costs—whether it’s tariffs, incentive compensation, or labor increases—created notable pressures. Our productivity program was a plus 80 basis points and FX and acquisitions were relatively immaterial, collectively representing a decline of 140 basis points for the year. For the full year, 4.3% growth was achieved along with a 140 basis point decrease in gross margin. Marketing spend was strong at 11.7%. SG&A was secured at a good baseline of 13.6%. EPS growth was 17%. It's important not to overlook our 17% EPS growth, despite a minor contribution from tax reform. Comparing to peer averages of approximately 5.5% for an apples-to-apples assessment, we contend we are delivering top-tier performance. Cash from operations was $763 million and free cash flow conversion stood at 124%. As we look at peer averages, free cash flow conversion is around 91%, so we’re excelling in converting sales and earnings into cash flow.