Church & Dwight Co. Inc (CHD) — Q2 2024 Earnings Call Transcript

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 strong 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. Adjusted EPS was $0.93, which was $0.10 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 continue to grow in the online class of trade with online sales as a percentage of global sales now reaching 21.2%. Now I'm going to 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. As you read in the release, Church & Dwight had the highest dollar consumption growth among our top 10 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 going to 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 basis points. ARM & HAMMER unit dose, ARM & HAMMER scent boosters and extra liquid laundry brand, all grew faster than their categories and also grew share in the quarter. 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 which 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. Our ARM & HAMMER Power Sheets has proven 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 going to 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. 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. 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%. 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 1 new product in the category. Over in mouthwash, THERABREATH continues to perform extremely well. THERABREATH is the number 1 alcohol-free mouthwash and the number 3 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. It's important to note that antiseptics represent 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 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 1 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. 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 historical highs. The good news is 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. And 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 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 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 stretched 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. And as you know, our balanced portfolio of value and premium offerings 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. And 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. 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 & Dwighters out there for doing such a great job each and every day. And now I'm going to turn it over to Rick to give you some more color around the quarter and full-year outlook.

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. Other 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%. Volume was the primary driver of organic growth, and we expect volume growth to continue for the rest of the year. And 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 a 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 positive 120 basis points from productivity. 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 '23. 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 $1.80 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. And 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 organic sales growth to be approximately 4%, at the low end of our prior 4% to 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% to 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 raise at the EPS line. 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 $0.01 to $0.02 as we make incremental investments. And then number two is dry powder in the event categories get more promotional in the second half. Turning to gross margin. We now expect expansion of approximately 100 to 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. And with that, Matt and I would be happy to take any questions.

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, I would love to hear about what you guys are seeing right now on the promotional backdrop and then what your expectations are for the balance of the year?

Sure, let me provide you with an overview of the promotional landscape, Rupesh. As you may know, the household sector is experiencing more promotions compared to personal care. When we examine liquid laundry detergent sold on promotion from Q1 to Q2, we see a decline of 190 basis points year-over-year and 200 basis points sequentially. You might wonder about the reason for this, and your Circana data likely reflects similar trends. A significant premium brand has experienced a decrease of 900 basis points sequentially and 600 basis points year-over-year. However, this doesn't tell the entire story. Couponing isn't tracked and isn't reflected in consumption figures, which accounts for the drop from 33.5% sold on promotion in Q1 to 31.6% in Q2, primarily influenced by this large brand. In contrast, looking at litter from Q1 to Q2, the narrative is different. In Q1, the sold-on deal percentage was around 15.5%, while it rose to just over 18% in Q2, primarily driven by a single competitor whose sold-on deal nearly doubled from Q1 to Q2, reaching 24%. Regarding our brands, we achieved an all-time high market share in liquid laundry and came very close to an all-time high in litter for Q2. This provides some context about promotions. The unit dose category reflects a similar trend; year-over-year, it rose from 26% to 31%, and sequentially from 26% to 36%. Significant changes are occurring across different categories. However, if you focus solely on the second quarter, you wouldn't necessarily conclude that it is more promotional; it is primarily influenced by one brand in liquid laundry and one in litter affecting the overall numbers.

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 essential categories.

Yes. I can provide some insight on that. We observe comments from food companies indicating that consumers are being price conscious and are seeking value. In fast food chains, there's been a reduction in spending per visit. Our data shows that there is slowing consumption in many staple categories. For instance, the Circana and Nielsen data reflect this trend. Additionally, unemployment has slightly increased. As I mentioned on the call, we anticipate that dollar growth will decrease year-over-year as we compare against previous price increases. We're also monitoring volume, which is also seeing year-over-year deceleration in various categories. We're performing better than the overall categories, as demonstrated by our brand success. However, consumers appear to be feeling the strain of balancing their household budgets and making choices to fulfill their needs. We have three advantages: the strength of our brands, which saw five out of seven grow market share, and historically, 10 out of 14 major brands increased share in both Q1 and Q2; innovation, as highlighted in my opening remarks; and our balanced approach with a 60-40 split between premium and value offerings. Given the category trends in June and July, we estimate a 3% organic growth outlook for the second half of the year, which seems reasonable. For example, in the laundry detergent category, May saw around 2% growth, June was flat, and July declined close to one percent in dollar terms. In the litter category, May was up about 3%, June was flat, and July saw a slight increase. For non-alcoholic mouthwash, the trend shows a decline from 14% to 13% to 11% over May, June, and July respectively, reflecting the downward trend in these categories. There are other examples I could share, but overall, based on insights from other industries, unemployment metrics, and data from Circana and Nielsen, it seems reasonable to expect 3% growth over the next six months.

Yes. And Rupesh, this is Rick. I would just, to tack on to that, it's not just one category. That's kind of what Matt is going through. If you take the weighted average and you look at every category individually, there is a slight deceleration in most.

Great. Thank you. I’ll pass it along.

Hi, 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 will take in 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?

Yes. No worries. I would say that it's really the second option in your example. The dry powder refers to being ready for potential further declines in categories or if the promotional environment becomes more aggressive due to challenging volume growth. We haven't used it yet, but we are prepared to do so if necessary, primarily in our household businesses like laundry and litter. Additionally, this would also apply to the vitamins category as it experiences a downturn.

Yes. And the other thing is 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, etc., not just in the household but also in our personal care products. And we've got the marketing coming behind it, too. We've got a lot more marketing in the second half behind those brands. So we definitely like our chances regardless of the slowing categories.

One quick follow-up is on the 3% and whether that seems like the right range for the next six months. Did I hear correctly that it's partly about category performance? You're gaining share. Given the trend line, where should we focus regarding a possible 2% by Q4? I assume your available resources would help address that. Can you highlight any categories that are developing differently than expected? Additionally, could you provide insights on the VMS business? Are you noticing stabilization, or is there any sequential decline? This isn't solely a VMS question, but since it's a less predictable area, I wanted to ensure you comment specifically on that.

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

Framing the bottom in business.

Regarding vitamins, are you experiencing stability, or is it growing faster compared to other areas? I'm trying to distinguish the performance of vitamins from your other categories, where you seem to be gaining significant momentum.

Yes. Well, the category, I gave some numbers there before about May, June, July for a bunch of different categories. Vitamins if you do May, June, July category dollars down 1, down 2, down 1 at May, June, July. So it's more us than the category and we have not been able to renovate our portfolio as fast as we had hoped. And some of it is the retailers how much additional shelf-space will they change your shelf position etc. And some of it is also the speed at which we can renovate the portfolio. So I'd say it's more on us frankly than the external environment. We know we need to do and I think we think about how good we would be, if we could get that one turn around considering how all the other businesses are doing well, but yes, it's more work to do there, Chris.

Okay. All right. Thanks so much.

Thank you. Good morning. I had a question on your organic growth guidance. Matt, I believe you mentioned that your guidance assumes the underlying category growth remains pressured, but does your guidance also assume further slowdown from here? Just trying to understand 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?

The categories have indeed slowed down. For instance, laundry and litter have been relatively flat since July. In flat categories, the only way to achieve growth is by taking market share. We are optimistic about our prospects, as we have been successfully doing this so far this year, particularly with our new products. A significant part of our share growth in litter can be attributed to our recent product launch, Hardball. We're not suggesting that the trend will continue to decline through the rest of the year. Rather, it appears there has been a shift from the first five months of the year to our current situation, and it's likely that this trend will persist for the remainder of the year.

Yes. We still think categories are going to grow and we're going to take share. So that's how we get to our 3% for the back half. And then in terms of price volume mix, it's kind of unchanged from what we've said before. We're primarily a volume-driven organic growth grower in the last four quarters and that will continue we think for the next two.

Yes. So this might help you too. If you look at dry shampoo, the dry shampoo first 5 months of the year was double digits I assume May was 12%. And if you look at June, July it's more like 6%, 7%. So 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 going to matter I think going forward.

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 new incremental or is it really just a shift coming out of Q2 where your spend levels 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?

Yes, 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 one of our best new product years ever this year on par. And 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 going to be up significantly more like Q1 than Q2 and then Q4 will be down significantly because we just want to get that phasing correct to support new products.

All right. Thank you for that.

Thanks, operator. Good morning, everyone. Hope you're doing well. Maybe just one quick housekeeping. I think the release mentioned 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?

Yes. So we said there were two reasons why Circana I would say 6% and domestic organic was 3.8%. So the 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 there's more noise in the system these days as 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.

That's helpful, Rick. And then 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?

Yes. If 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. Our algorithm is international is going to grow 8% on an annual basis and they're tracking above that right now. Before I give 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.

And 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.

Okay. That was very enthusiastic. So the shipments versus consumption discussion that Peter just started, I guess just extend it, I guess I'm curious whether you have visibility any known timing differences favorable or unfavorable as we go into 3Q, 4Q?

Yes. Currently, we don't have any updates. There are always discussions about store closures or adjustments, and that's reflected in our outlook. It's a bit more uncertain than usual, and we were somewhat surprised by the situation in Q2. However, the positive takeaway is that we still met or exceeded our expectations for organic growth.

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

Okay. Great. And this is, I guess, it's on the topic we've all been talking about in terms of the slowing in the kind of promotional environment. But I guess it's more just a philosophical question in this moment. So many companies as we've gone through the second quarter earnings season that are exiting the first half with higher gross margins than expected yourselves included. Does that from your perspective raise the risk even more that seemingly rational levels of competition and what have you evolve alongside the 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. Now things are slowing abruptly, but at the same time they're carrying more gross profit into that moment. And I'm just questioning whether you think that elevates the risk versus what you've seen historically that things do get more competitive more quickly.

Yes. Well, look I think if people look back through history and you say when do people start promoting? And yes, you're right when you have slowing categories. So that's why Rick said, 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 spent so much time this morning talking about innovation. And we had innovation beyond the categories that we described. So I think that's going to be really important to share growth and consumption growth in the next 6 to 12 months.

One thought to add to that. 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. In general, it's still positive growth from a dollar perspective and still positive growth from a volume perspective. So that's context. Private label shares are still relatively stable. All those things are still true, but we're just trying to give a heads up to say there is something going on.

Yes. So Steve, that's sort of our MO. We were always palms up and we see what we're seeing. So that's what we're doing today.

Hi, good morning everyone. I wanted to discuss a couple of aspects of your portfolio. THERABREATH continues to demonstrate robust growth, as evident from the scanner data and your comments on market share. However, it is a higher-priced product. Could you provide more insight into the brand's performance? As we progress through the quarter, are there any signs of consumers trading down? Is the therapeutic benefit of the product effectively offsetting any repercussions from a softer consumer base? Additionally, what are your thoughts on the growth potential for this brand in the coming quarters, considering its recent strong momentum? Regarding the VMS segment, I understand your points about packaging forms and marketing interventions. Can you offer more details on when we might start to see the benefits of these changes and how you evaluate this, given that the progress so far hasn't met expectations? Thank you.

THERABREATH is a significant success story for the company. We hold a 17% market share, ranking third in the category. Listerine leads with 38%, followed by Crest at 18%. We've been increasing our presence with various retailers across different trade channels, and our entry into the antiseptic market is expected to drive growth in the long term, as it represents 30% of the category. Currently, we have a 4% share in the non-alcohol segment, indicating substantial growth potential. We are optimistic about THERABREATH; while it is priced higher, this is not new for us, and we don't engage in promotions for the product. A notable indicator of its strength is that during Prime Day, THERABREATH was the third best-selling unpromoted brand and had a successful sales period. This suggests that the brand has considerable staying power even as a premium offering in the current market environment. Regarding vitamins, we anticipate challenges over the next 6 to 12 months. Our initial expectations of stabilizing the business mid-year are not materializing as planned. We originally thought that after a decline in the first half of the year, we would see a turnaround and end the year with stable business and no loss of market share. However, that is not the case at the moment. We are exploring various initiatives, some of which are yielding results, while others require more time.

Thanks.

Thanks. Good morning. So sticking with THERABREATH and also layering in HERO, if I may, both brands continue to have very, very strong growth, but they have decelerated. And we were looking at it more than anything else is 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 look forward, this law of large numbers, like do we think they keep migrating down to earth so that growth isn't 30%, but it's like 20% as we move forward and how to frame that because I think it's important in terms of the big picture, the aggregate outlook for the company is the growth rate of those 2 brands actually matters a lot.

Yes. The acne category has remained steady with an 8% increase in May, June, and July, so we have no concerns there. We hold the top brand in this category, as well as in the patches subcategory, commanding a 54% market share. Therefore, we are not worried about either of those brands at the moment. Naturally, as time progresses, we won't see 30% growth rates anymore; this is just a matter of math as we look toward 2025. However, we still anticipate strong performance next year.

Yes. And just to add to that, you're right, I think 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 going to point to a growth rate in the future, but we still have to be double digit, strong double-digit growth as we look out over the horizon.

Okay, great. I'd like to ask a second question regarding market share trends, specifically concerning Nielsen. I've noticed some significant differences recently between Nielsen and Circana, and coverage is very important. With that context, it appears that Church's market shares were weaker in June and July. Additionally, the overall category trends were slowing, which may have affected the share performance, especially when excluding Thera. Could you provide your insights on this? I'm curious if your data shows a different picture, and if shares have indeed been sluggish, what do you think the reasons might be?

Thanks, Lauren. I would say that's not what we're observing. In the first quarter, we had 10 out of 14. If we refer back to our previous terminology regarding all of our key brands, it was 10 out of 14, and for the second quarter, it was also 10 out of 14. In July, the number was 9 out of 14. So there hasn't been a significant change.

And what about the pace of that growth, though, not just like is it up, but is it up less?

Well, I think it's reflected in our second half call, right? We said we grew 5% organic in the first half, 3% in the second half. So I think that's all baked in the numbers but we wouldn't give like mid-quarter.

It'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.

Okay, great. Thank you.

Hi. If I could ask a little more on VMS, which is 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?

It's a highly competitive market with over 60 competitors, and there are few barriers to entry since anyone can create a product if they have an idea and a catchy brand name. We've been experiencing the effects of this competition. We've faced challenges in physical retail locations, but we've seen significant success online, particularly on Amazon, which is growing, although it's still a smaller portion of our overall business. This year, we've been working on refreshing the category by improving formulas for better consumer experiences, such as enhancing taste and launching chewable forms. However, progress has been slower than we anticipated, and we've not received much support from retailers.

Yes. And remember for context, right, this category grew through COVID on a rocket ship pace, it grew probably over 50% over four or five years. And so everyone's rush in 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 the speed of light to get the right innovation out there as fast as possible.

Yes. We call it out because there has been a struggle for us.

Thank you. Good morning. I was just hoping to see if you can call I mean, shift a little bit of the conversation into M&A. And I know you've been looking at your Analyst Day, you had said you had looked at back last year around 4 potential acquisitions. None of those kind of future profile or enough to be 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 some interesting ones for you? What is preventing you to growing organically, which is something that you historically have done? And then also just a housekeeping on WATERPIK. I think that's the only brand that we really didn't talk about and WATERPIK in dry shampoo just thinking of like how, I mean, you quoted in the first quarter there was a 1% headwind from WATERPIK and gummies each. So it's hoping to see what was the headwind in the second quarter, if any, assuming there's still headwinds there? And what is embedded in the second half?

Yes. As far as M&A, you're correct in that last year, we looked at 4 or 5 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. We're always looking at opportunities and they are out there and we just kind of stick to our criteria. But 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 when we file the Q. But yes, we're very busy and the market is active.

And then on WATERPIK the good news on WATERPIK is consumption is up high single, low double digits. So we really work through that retail inventory issue that we talked about last quarter. I would say WATERPIK 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.

Thank you.

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 you're kind of comment on dry powder on promotional activities? And then from a commodity standpoint, are you seeing some modest inflation? What is the commodity outlook for the second half? Thank you.

Yes, sure. I would say inflation is maybe a little bit higher than when we talked about it 3 months ago. Pulp and paper are up. HDPE is up a little bit ethylene's up a little bit. But no change from a net perspective as productivity has come out a little bit better as well. Yes, we do have some trade and couponing and promotional spending assumed in the back half. Again, it's dry powder, not necessarily that we are going to do it. And we also want to spend behind our new products in terms of displays and support and whatnot. So that's kind of our assumption.

Great. Thank you.

Great. Thanks. Good morning, everyone. We covered a lot of ground most of the portfolio. I wanted to kind of take it a different direction, I guess. And maybe if you could comment at all on Barry's departure because it's an area we've got a lot of questions from recently. Obviously key executive with the company is CMO and President of your Domestic Business and probably one of a handful 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 you see this with the company through early October and whether the search is going to include both internal and external candidates. So thanks for that. Okay, I'll leave it there. Thank you.

All right, Kevin, that's a multipart question many of which I can't respond to. What I can say is that Barry has been here 11 years, had an eight-year stint international, three in the U.S., a big part of our success and sad to see him go here through early October. It's business as usual here. So we have some time to figure out how we're going to fill the position. But I think that's as detailed as we go into on a call like this.

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

Yes, deceleration for gross margin?

Yes, exactly.

In the quarter, we experienced favorable conditions largely due to our product mix. Within our personal care portfolio, we sold more higher-margin products than anticipated, while some of the lower-margin items did not perform as well. This created a positive impact on our price volume mix for the quarter. Looking ahead to the second half of the year, we expect a couple of challenges. There will be a slight increase in inflation, and the personal care mix is not expected to be as favorable compared to last year as those categories fluctuate. We are also considering promotional strategies in the latter half of the year. These are the main factors I would highlight for the second half.

Great. Thank you.

Thank you. This is Jon Keypour on the line for Anna. I also just want to say I'm glad Steve Powers is here because 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. And then a follow-up to that in terms of the innovation pipeline and like route to market and kind of time to market given where the categories are stabilizing at this lower kind of 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 expected to have in the pipeline for next year? Thank you.

Yes. Well, there's two types of innovation. 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 yes, we're pretty good at pivoting quickly to create different price points in various categories in order to satisfy the consumer in a changing environment like this.

And 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.

Great. Thank you.

Good morning, everyone. I have a couple of clarifications regarding the detergent segment. First, you mentioned that Deep Clean was 40% incremental. Do you have enough data to determine whether this is due to customers switching from ARM & HAMMER or if you are attracting users from other brands? Additionally, regarding the price reductions, do you believe this is a result of promotional activities or a price correction?

Yes. 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 good would be the basic ARM & HAMMER detergent and ARM & HAMMER with OxiClean is the better and Deep Clean is the best. So yes, we do have some data that as 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 going to be a source of growth for the company.

Yes. We probably wouldn't comment much on looking at kind of 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 is slowing a bit, we continue to gain share and do better in the market.

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

Yes, Javier. It's a fair question. Typically, as you're putting in incremental promotions, that maybe is a longer lead time. But if you want to 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.

You have a lot of analysts covering your stock. That's glad to be.

Yes. We're not doing an alphabetical order either.

I'm happy to be here. This year, as a newcomer, I noticed that your new product lineup is exceptionally impressive. You seem to have a diverse range of products that are really resonating well across different categories all at once. Looking ahead to next year, do you anticipate maintaining this level of strength? Considering the slowing growth in the category and a potential shift towards more value-seeking behavior, do you think you need to make any adjustments to the balance of premium versus value-oriented products?

Yes. Well, one thing I want to keep in mind about new products is, we're having a great year with all these new product ideas we came out with. But remember, we're going to have Year 2 of these next year. So you only have a partial year, only building distribution this year, in many cases, building awareness. 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 going to make the difference. And then your other question was tweaking the portfolio between premium and value. 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 going to change in the near term. And that's why we always like our chances when you have periods with change in consumer-buying habits.

Yes, thanks. Good morning and thanks for squeezing me in here. Two quick ones. One, just asset prices on potential M&A, are you seeing it come down similarly to the market? And then on vitamins, just again, if you go back to when you bought the business, it was partly about adoption of the form factor of gummies there's more press out there not saying that 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 in gummies in general? Is there an opportunity to educate the consumer? Or is there opportunity and technology 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?

Yes, there has been a significant change in the vitamins market over time. When we acquired the business in 2013, gummies accounted for 3% of the market, and now it’s in the 20s. This represents a considerable shift. Regarding efficacy, I believe consumers are increasingly opting for powders, chewables, and other forms. The overall vitamin category has seen a decline, but this is a retraction from the growth experienced during COVID. We witnessed several years of growth condensed into a short period. As a result of COVID, household penetration has increased, but this has since plateaued and started to decrease. However, I wouldn't attribute our challenges to concerns about efficacy; they relate more to our internal issues.

Yes. The other area that folks are moving away from gummies at times are from a sugar perspective. They want to 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.

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

Okay. 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.