Church & Dwight Co. Inc (CHD) — Q3 2025 Earnings Call Transcript

All right. Thank you. Good morning, everyone. Thanks for joining the call. I'll begin with some thoughts on the macro environment and then a review of our great Q3 results. Then I'll turn the call over to Lee McChesney, our CFO. And then when Lee is done, we'll open it up for questions. Starting with the broader environment, conditions remain volatile and the consumer backdrop remains mixed. Promotional intensity is elevated in some categories and household finances are stretched as high borrowing costs and delinquencies weigh on discretionary spending, including big-ticket items like cars and housing. However, there is relatively low unemployment, and higher-priced personal care categories continue to do well. Against that mixed backdrop, our categories are growing at around 2%, which was pretty consistent with what happened in Q2 as well. We're performing better than that because of our great brands. Our portfolio, with its balance of value and premium offerings, continues to gain both dollar and volume share. Our innovation is performing well and all in all, our brands are made for environments like this. On to the Q3 results, we had a fantastic quarter in a tough environment. Organic sales grew 3.4%, exceeding our outlook of 1% to 2%. Adjusted gross margin was up 10 basis points, also exceeding our outlook. Adjusted EPS was $0.81, which was $0.09 higher than our $0.72 outlook. Lee will take you through the rest of the numbers shortly. But first, some highlights about our brands. In July, we closed our recent acquisition, TOUCHLAND. TOUCHLAND is the fastest-growing brand in the hand sanitizer category in the U.S. It's the #2 hand sanitizer in the category with household penetration just under 7%, and the category at 42%, indicating a lot of runway for growth. TOUCHLAND experienced strong growth in Q3, with consumption growing double digits and results exceeded our initial expectations. I'm even more optimistic about TOUCHLAND today than even a few months ago, a small but mighty team doing great things. Now I'm going to turn my comments to each of the 3 divisions. First up is the U.S. consumer business. Organic sales increased 2.3% with volume growth of 3.7% being partially offset by 1.4% of price mix. Growth was led by THERABREATH mouthwash products, ARM & HAMMER cat litter, and TROJAN condoms, partially offset by declines in the vitamin business and WATERPIK water flossers. We grew share in 4 of our 8 power brands, specifically ARM & HAMMER, THERABREATH, HERO, and TOUCHLAND. Let me provide a bit of color for a few of our important categories. I'd like to start off with the ARM & HAMMER brand in general. Consumers today want stability and brands they can trust. Our new campaign 'Give it the Whole Darn Arm' reinforces the brand's strength and reliability. This is driving growth across the portfolio. 5 of the 6 categories we compete in with ARM & HAMMER are growing share on a year-to-date basis. Turning to laundry detergent, ARM & HAMMER liquid laundry detergent consumption grew 1.9% in contrast to a flat category. ARM & HAMMER's share in the quarter reached 15%. Beyond share and more importantly, household penetration for the long term continues to matter. And in the quarter, ARM & HAMMER laundry expanded household penetration 0.7 points to an all-time high of 30%. In fact, the only tier of laundry detergent that was positive in consumption in the quarter was the value tier. This is a sign of the times as value was flat to declining in the previous 8 quarters, this is especially impressive as our actual promotional spending for laundry was lower year-over-year. Moving to litter, ARM & HAMMER litter consumption grew 5.3%, while the category was up 5%. We saw heightened competitive promotions, especially in the lightweight segment by one competitor. Over to mouthwash, THERABREATH continues to perform extremely well, while the mouthwash category was down in Q3, THERABREATH consumption grew 17%, and continues to be the #2 mouthwash with a 21.8% share. Remember, we believe there's a lot of runway here. Our household penetration for THERABREATH currently sits at 11% versus the category of 65%. HERO once again outpaced the category with consumption growth of 5.2% compared to a flat acne category and remains the #1 brand in acne care with a 23.6% share. And like the THERABREATH story, we believe household penetration growth is key for this brand. It sits at 9% versus the category of 28%. Looking ahead, we're excited about our pipeline of new products. We even announced a few today. They're a key driver of our success. THERABREATH is introducing a new line of toothpaste. We launched online with 3 variants in August, and they target key consumer needs of healthy gums, deep cleaning, and whitening, all combined with long-lasting fresh breath. The brand's loyal users value its effective cleaning, distinctive fresh but not overpowering taste, and we have a retail launch set for January 2026. We're very encouraged by the high-quality consumer reviews we're seeing. Meanwhile, TROJAN, the #1 condom brand in the U.S. launched TROJAN G.O.A.T., Greatest of All TROJAN, which is a non-latex condom featuring patent-pending Ultra Flex material that's soft, flexible, odorless, and colorless designed to enhance body heat transfer to deliver next-level intimacy. Turning to international, our national business delivered sales growth of 8.4% in the quarter. Organic increased 7.7% due to a combination of higher volume, price and mix. Growth was led by the HERO, THERABREATH, and BATISTE brands and was broad-based across many of our international markets. I was just in Argentina 2 weeks ago with our Global Markets Group and distributor partners, and there is a lot of excitement for the future. Finally, SPD organic sales increased 4.2% due to a combination of higher price and product mix and volume. We continue to be excited about the growth opportunities in this business. As noted previously, we're undertaking a strategic review of our vitamin business, including streamlining our supply chain to strengthen the core business, new JV partnership opportunities and divestiture options. We're seeing improved velocities in the core, and line reviews are receiving positive retailer feedback on new products and long-term brand strategy. We continue to expect to reach a conclusion from this review by the end of 2025. Looking ahead, our full-year organic growth outlook is 1%, the midpoint of our prior range. We expect full-year adjusted EPS growth for 2025 to now be $3.49 or $0.02 higher than our previous outlook due to higher sales and improved margins, including higher marketing spend. As in past years, when we have stronger-than-expected business performance, we invest for the future. So we now expect marketing as a percentage of sales to exceed 11%, and these investments will continue our momentum into 2026. I'll close by saying that category consumption remains stable and our brands remain in a position of strength. We're gaining dollar and volume share across key segments of the portfolio, supported by a balanced mix of value and premium offerings. We're well positioned to navigate the current environment. The strategic actions we're executing will set us up for sustained success. Our go-forward portfolio has never been stronger. At the same time, we remain active in evaluating the right acquisition opportunities to further build our business. I'm excited to speak at Investor Day in January about some of the growth initiatives we have in development. With that, I'd like to close by thanking all of the Church & Dwight employees for executing well in a volatile environment. And now I'll hand the call over to Lee for more detail on the quarter.

Thank you, Rick, and good day to everyone on this Halloween Friday. Our Church & Dwight team members across the globe delivered a quarter to be proud of that highlights once again the many strengths of our portfolio and our team's capabilities. Let's jump into the third quarter and our outlook. We'll start with EPS. Third quarter adjusted EPS was $0.81, up 2.5% from the prior year. The $0.81 was better than our $0.72 outlook, driven by higher volume and gross margin results favorable to our outlook. Reported revenue was up 5% and organic sales were up 3.4%. The organic sales were broad-based across the globe with volume growth of 4%, partially offset by negative pricing and mix of 0.6%. And beyond organic results, we were delighted with the encouraging start of TOUCHLAND as sales exceeded our initial projections. Our third quarter adjusted gross margin was 45.1%, a 10 basis point increase from a year ago and 110 basis points better than our outlook. Our results versus last year were driven by 170 basis points from productivity programs, 20 basis points from higher margin acquisitions, 10 basis points from FX, and 10 basis points from the combination of volume, price, and mix. These factors offset 200 basis points of inflation and tariff costs. Moving to marketing, our marketing expense as a percentage of sales was 12.8% or 50 basis points higher than the third quarter of last year. And for the year, we are now targeting to exceed 11% of net sales as we leverage our improved sales growth to invest for the future. Q3 adjusted SG&A increased 20 basis points year-over-year. Adjusted other expense increased by $3.9 million due to the lower interest income compared to last year. And we continue to expect other expense for the full year to be approximately $65 million on an adjusted basis, reflecting the lower interest income following the TOUCHLAND acquisition. In 3Q, our adjusted tax rate was 21.6% compared to 23.3% in Q3 of '24, a 170 basis point year-over-year decrease. And the expected adjusted effective tax rate for the year is now 22.5%. Now to cash, we delivered strong cash results in the quarter as cash flow from operations increased 19.6% versus last year to $435.5 million. Capital expenditures for the first 9 months were $67.2 million, a $58 million decrease from the prior year due to the return to normalized capital spending in 2025. Finally, in the third quarter, the company repurchased an additional $300 million of shares, which brings our year-to-date share repurchases up to $600 million for our shareholders, certainly a third quarter full of accomplishments. Let's now turn to our outlook. Broadly, we continue to navigate well in an environment of economic uncertainty, and as a result, have improved our outlook in several areas. For the year, we now expect reported sales growth of approximately 1.5% versus a prior year midpoint view of 1.0 as we expect TOUCHLAND's momentum to continue in the fourth quarter. We also remain on track to deliver 2025 organic growth of approximately 1%, the midpoint of our previous outlook, and we now expect full-year gross margin to contract only 40 basis points versus 2024 based on the progress our teams are delivering from productivity programs to counter inflation and tariff headwinds. As I noted earlier, the combination of a stronger sales and gross margin outlook allows us to increase our marketing investments beyond our prior outlook in 2025. For the year, we now expect an adjusted EPS of $3.49, which exceeds the midpoint of our prior outlook. Specifically for 4Q, we now expect reported sales growth of approximately 3.5% and an organic sales growth of approximately 1.5%. In 4Q, I note that our reported sales outlook includes a larger decline in sales from our discontinued businesses as these product lines run out of inventory. For some context, we expect $30 million of lower sales or 200 basis points of drag in the fourth quarter versus last year from these discontinued businesses. Also, note that our organic growth for 4Q was impacted by the prior year port strike and the negative consumption trends in our VMS business. In 4Q, our adjusted gross margin will contract approximately 50 basis points primarily from inflation and tariff costs. Marketing will be lower compared to last year. We expect an adjusted EPS of $0.83 per share, which is an increase of 8% versus last year's adjusted EPS. In my final 2025 comment, the outlook really covers cash flow from operations. As noted in our press release, we've increased our outlook from $1.1 billion to $1.2 billion in consideration of our progress on several fronts. As our teams look forward, we are optimistic our teams across the globe have delivered significant accomplishments. We continue to fuel share gains. We've made strategic choices to exit brands in our portfolio. We've acquired TOUCHLAND, which is off to a great start, and we've returned $600 million to our shareholders through share repurchases. A big thank you to our employees across the globe for leaning forward and executing through the first 3 quarters of the year. Very well done. Eric, let's move to Q&A.

So TOUCHLAND is coming through better than expected, which is great to see. Can you talk about how you might view the benefits of TOUCHLAND going into 2026? And specifically, how might the positive contribution from TOUCHLAND help offset any of the potential profit outcomes you could envision from actions you may take on the vitamin business? And I have a follow-up.

Yes, you're right. TOUCHLAND is performing exceptionally well, even surpassing our expectations and the double-digit growth we mentioned last quarter. Consumption is robust, and the units sold per store each week are impressive. Innovation and collaborations are also thriving. I won’t delve too much into 2026 at this moment, but I can say that 2025 is exceeding our expectations. This implies a stronger baseline, and as we expand, it will help mitigate any impacts from the discontinued businesses or any potential issues within the vitamin segment as well.

And Chris, one thing I would note just do keep in mind, we had a good amount of cash on our books, we are earning interest on. And obviously, that will be a little bit of a headwind versus TOUCHLAND next year as well.

Okay. The follow-up is about the competitive environment becoming a bit more active. I think you mentioned that your laundry promotional activity was somewhat lower compared to last year, so I'd like to confirm that. Generally, how do you perceive the current competitive landscape and your possible need to respond? Are there any activities you’re noticing? Also, how confident are you that the strong volume share performance you’ve been achieving is sustainable, and what might be required to maintain that level of execution? You've hinted at innovation plans for next year, but I am also curious about the potential for brand support.

For laundry, in my comments, I mentioned that for the first time in eight quarters, the value tier of laundry grew. Looking year-over-year at amounts sold on deals, we were down 400 basis points while our competition increased between 300 and 600 basis points depending on the brand. This suggests a trend toward value as consumers are increasingly opting for it, which is positive. Additionally, the pods category, which represents about 23% of the market and is the most expensive form of water detergent, has remained flat over the last six quarters. These trends indicate that value is significant. If promotional activities increase, we are in a strong position as our value is performing well. Even some of our higher-priced competitors, who charge double for their laundry detergent, would need to offer substantial discounts to create any elasticity. Overall, I believe we are well positioned and that there is a growing trend in the market for consumers looking for value.

Promotional intensity may increase, but overall, we are in a strong position. Our value is performing well, and even some of the higher-priced competitors, who charge double for our laundry detergent, would need to implement significant discounts to stimulate any demand. Therefore, I believe we are well positioned. This seems to be becoming a trend among consumers who are looking for value. Your next question comes from Peter Grom with UBS.

You're breaking up a little bit. Not really.

You try to reconnect and we'll make sure you get back in.

So I guess just going to international, another strong quarter even on a difficult comparison. So just curious, are you guys seeing any changes there, macro consumer-wise? And how do you feel about sustaining momentum in the International segment for the balance of the year?

Yes, I recently visited Argentina with over 300 participants, and there is a great deal of enthusiasm surrounding our brands and the growth potential of some of our newer brands like THERABREATH, HERO, and TOUCHLAND. Even though the overall GDP may begin to decline in some of these regions, the momentum from these brands, which offer solutions to various problems, bring innovation, and introduce new categories, remains strong. This excitement helps us continue to achieve our evergreen model for international business. We are experiencing significant momentum in our international operations.

Great. And then maybe just one quick follow-up. Share buybacks, again, another quarter of significant buybacks. Your stock has obviously pulled back. So does anything change in terms of your priorities, share buybacks versus M&A? Or should we just expect you to continue to be opportunistic based on what your stock does?

Yes, that's a good question. We definitely took advantage of the value opportunity there. We typically focus on our priorities, with M&A being our primary focus for cash. We're active in the market for that. However, if opportunities arise to accelerate some of our share buybacks, we will consider them. Currently, we've utilized the $600 million for buying TOUCHLAND, and our cash flow and balance sheet are in a strong position as we look ahead. We are still concentrating on M&A, and there are opportunities available. Recently, we completed a review, and our balance sheet has received an upgrade. Overall, we have a robust balance sheet and strong cash flow, which gives us a lot of flexibility to pursue both strategies.

All right. I had a question on the promotional environment. Hoping just for some more color on that. And then your volume growth was quite strong in the quarter, but price/mix was slightly negative. So I guess just could you kind of drill down on what sort of drove that? Was it the higher promotions and the need for spending behind some of your brands? And if so, should we expect that to continue in Q4 and possibly next year?

Yes. Thanks, Bonnie. I would kind of characterize it as really when we talk about our promotions, we talked about laundry and Litter. I already went through the laundry category. Litter. Litter is a little unique right now as well. The category over a long period of time has bumped around between 16%, 18% sold on deal. It hit where we think is almost an all-time high at 24%. One competitor significantly discounted their lightweight litter business, and that's driving a couple of thousand points of promotion. We actually were pretty much consistent year-over-year. We were up slightly 60 basis points and still managed to grow 5%, which was fantastic. So our brand, our ARM & HAMMER brand, kind of what I said in my comments, we think the advertising and the halo effect, the seeking value is leading to ARM & HAMMER doing incredibly well in this environment and for the future. Then you look at negative price mix, part of that is some of our other businesses, right? We're doing, whether it's a rollback or price adjustments on BATISTE as we fix value for the consumer, or vitamin business to make sure that we have the right velocities. So not as much in the laundry and Litter business.

And if I may, I just wanted to ask a quick follow-up question on TOUCHLAND. Could you give us a sense of maybe how the brand has been performing in the different channels, DTC and then certainly at Sephora and then maybe talk a little bit more about your strategy to expand the brand in additional channels, and I don't know, possibly other specialty retail channels. Maybe how has that evolved since the transaction is closed?

TOUCHLAND is performing exceptionally well. Currently, it primarily operates through three retailers: Sephora, Ulta, and Amazon, which account for over 90% of the business. We do not have immediate plans to alter this strategy as we recognize the prestige associated with this category. There are brands that have successfully expanded by hundreds of millions of dollars in this channel and gradually moved into adjacent categories. We consider this a solid model. While there may be some niche opportunities at other retailers, we aren't prepared to explore that just yet; this might be better discussed in January. Internationally, we are eager about the growth prospects for TOUCHLAND. For instance, we are already witnessing rapid growth in Canada with just one retailer. We plan to replicate this strategy in more countries, ensuring we select the right channels and partners while maintaining the brand's prestige.

Any better now?

Great.

Let's revisit this for a moment. I have two questions. First, regarding the expected decline in the fourth quarter, I appreciate your comments about the port strikes and the weaker VMS. However, I would assume that some of this was already considered when you evaluated the latter half of the year, which you noted remains unchanged after a strong second quarter. Could you clarify why there is a projected decline that falls below the 2% growth in category you mentioned?

Yes. I have a few comments to share, and Lee may want to add something as well. The port strike is a reality we are facing. There was one week when categories were up 11%. Therefore, based on that, October will likely be negative for both categories and the brand. The vitamins segment experiences greater seasonality in Q4, so while we see some positive trends, consumption is declining, which has a bigger impact. Additionally, we may have been somewhat conservative in our Q3 outlook, but we are very confident in achieving a 2.5% growth for the latter half of the year. We believe we will ultimately grow faster than the categories over time. However, we think that Q3 and Q4 together represent a solid overall performance.

Yes. And again, I think just to Rick's point, we go back to what we said on August 1. Comfort in the 2.5% organic outlook. That's what we're still seeing today despite the macro doing what it's doing. That speaks to the categories, how we're performing. There's always pluses and minuses, but we're still sitting at that 2.5% organic and if you do think about 3Q to 4Q, just on a total sales perspective, I mentioned in my prepared remarks, we are running out these discontinued businesses, we're getting to the point now where that will be a bigger pressure point in the fourth quarter. So I noted that, that was kind of the $30 million or 200 basis points of drag. And then I think Rick covered very elegantly the organic piece. You adjust for that, we're right on track and certainly gives us this confidence for the fourth quarter, but certainly, as we look beyond that as well.

Yes. And that is partially the port strike. So we don't feel like that's a kind of roll forward as you look into 2026.

Okay. That's super helpful. And then Rick, you've had some good perspectives on category growth for some time here. I wanted to get your views on kind of how you see category growth and your portfolio performing as we look out over the next 12 months or so? And then just maybe specifically on the top line, and I get we'll get official guidance in January. But do you need category growth to accelerate from 2% in order to hit your evergreen target?

Yes. For a long time, we’ve been transparent about the performance of our categories and our brands. While some competitors have indicated growth between 1.5% and 2%, we are seeing around 2%. This is due to our careful selection of categories, which are performing slightly better than average. Historically, our long-term growth rate has been about 3%, and we aim to return to that level eventually. For now, we are planning for approximately 2% growth. As you observed this quarter, we achieved a growth rate that exceeded 2%, thanks to our efforts in innovation, marketing, and gaining market share. I won't comment on 2026 until January, but I will say that we are growing faster than the overall category growth.

I was just hoping, Rick, if you can kind of decompose a bit of the price mix. And then you mentioned you have obviously a good position in the value segment. But thinking as the consumer continues to see particularly in laundry, that value segment, how to think about the mix effect? And then just as a clarification on the FX going forward, I mean, this is something that is benefiting some of the companies like that moving in the other direction how to think about international finally getting those tailwinds as you go into 2026.

Yes, sure. I'll take the price mix and then Lee can take the currency question. So I said, I think it was to Bonnie, we do have a negative drag on price mix from our pricing and promotional actions on vitamins. We have a negative drag as we're fixing some value equations on BATISTE. Our share gaps are closing. We're making improvements, which is great. What is value. It's also innovations at the cross-section of innovation and price. And so we're making adjustments as needed for BATISTE. And then it's also the consumer's value-seeking behavior, and that means larger sizes. When you have larger sizes, that's also typically a little bit of a drag on price mix, whether that's in laundry or Litter. So those kind of 3 things really impact the price/mix line.

I'll start from there. To Rick's point, it's a relatively small amount for us. The main focus on organic growth is the continued momentum with volume growth, particularly driving BATISTE. Looking at international markets, the team is doing an excellent job of expanding and is very focused on improving margins. While foreign exchange can create challenges, such as tariff inflation, we address these issues through productivity and effective revenue growth management practices. If foreign exchange turns in our favor, that could be beneficial. Overall, that segment has been growing and successfully enhancing gross margins, so if these improvements continue, we will view that positively.

If I could revisit Rick's remark about pricing and promotions, thank you Lee for the insights on foreign exchange. Rick noted that promotions have been relatively minor for you, and you are gaining market share, especially in laundry, while your competitor has been increasing their promotions. I understand they are also shifting towards a more value-oriented approach. Are you experiencing any challenges with the recent launch of liquid products as you wrap up the quarter?

I wouldn't change any of my comments. I'd say in general, the value tier continues to do really well, like that's almost like a macro trend, more so than what any 1 competitor is or could do. And so that's why I believe that despite us going lower on promotions to have the value piece of the category expand is just a really good indication of that. And so that's the trend we're seeing. I expect it to continue.

I have two questions, which, looking at my notes, might actually be three. So please bear with me. Rick, regarding the first question about laundry, I don’t want to dwell on it too much, but could you provide more clarity? There seems to be a narrative suggesting that Church & Dwight has become more promotional in the third quarter. We've noticed a negative dip in price/mix that's accelerated this quarter. What do you think is causing that? Is it related to the mix in your portfolio where you're focusing your promotions? Any additional insights on how this might trend in the future would be appreciated. For my second question about vitamins, you mentioned seeing some green shoots. Could you explain that in more detail? Also, will you have a more comprehensive outlook and strategy for that segment by January?

Sure. Yes. The first one, price mix negative on laundry, there is no better metric to look at, the amount sold on deal. That's what we've been using for many years. And the reason we say that is that is the intersection again on depth and frequency, like it really shows what's going on in the market. So, all I can do is point you to the actual numbers that come out of whether you have Nielsen or Circana and we are down year-over-year in promotion, our competition is up anywhere between 300 and 600 basis points. When there's a negative price mix in laundry, that can be a whole host of things. It could also be, again, as I said before, as consumers trade up to larger sizes, that mix impact can be a negative in that line. So that's kind of what I would say consistently. Number two, on vitamins, the green shoots. Two examples, I think one would be, it's kind of hard to say, but sometimes when you have consumption go backwards at a retailer, 20%, 25%, you think the world is ending. But some of that is discontinuations that have happened. So we have to lap some of that. But when you go look at the core SKUs, the ones that are remaining, they're declining at a much lower rate, which is always encouraging. The second one probably is a couple of food retailers are actually doing really well, and we've heard distribution gains there as well. So those are a couple of great shoots. On the strategy, it was the right thing to do to publicly announce this about a quarter ago. We've had even more interest externally as we look at different options. Meanwhile, we're focused on how we kind of have a plan B on our cost structure and rightsize that business. So I would say, by the end of the year, consistently, again, that we'll have more to say, and I'm optimistic.

I have 2 parts to a question. First, I wanted to ask on retailer presence and pack size. We're continuing to hear from peers in your space about the movement of sales to club and online, which have seen better growth versus food, drug, and mass. So I was curious if you could talk about this dynamic within your categories? And then secondly, on the M&A front, while you're still digesting TOUCHLAND, it has performed better than expected. And it's an interesting acquisition, given TOUCHLAND is in some of the specialty beauty stores like Sephora. You've done well in acquisitions the last few years in personal care. And I'm sure you'd like to get back to your more regular cadence of 1 tuck-in acquisition annually. So I was wondering if we should expect to continue to focus on personal care or maybe if you'd be willing to explore more in the adjacent duty space?

Yes, those are good questions. They remind me of what our distributors were asking while I was in Argentina. We're very encouraged by TOUCHLAND, which has a more niche distribution and market approach. From a mergers and acquisitions standpoint, we are generally open to various categories, whether it's household or personal care, but it needs to align with functional beauty. We do not want to venture into being a full beauty company, as there have been many challenges associated with that. Our focus is on the intersection of personal care and beauty, where we see significant potential for problem-solving, advertising, and consumer connection. Our new President, Chuck, shares this focus. Regarding retailer pack sizes, different sales channels are performing uniquely. The club channel is excelling, and we continue to create offerings for it. Internally, our goal is to ensure our approach remains proactive rather than reactive. We aim to stay ahead with pack sizes and innovation while also catering to consumer preferences across various channels, such as drug and dollar stores, ensuring we have appropriate pack sizes and price points. It’s essential that we excel in both areas, and we have historically managed to do so effectively.

Good morning, everyone. Two questions for me. One on the retailer inventory levels. Obviously, you had some destocking in the first half of the year. Did you see any impact in Q3 and you're assuming no impact in Q4? And then as you think about '26, should we think about the first half of the year having a particularly easy comparison on retailer inventory, so maybe faster growth in the first half? I know you haven't given guidance, but just a high level how to think about it. And then the second question, on the margins. Can you review the drivers of the lower tariff guidance? And maybe if you can give some color also on the broader commodity outlook?

All right. Okay. Let's try a couple of questions in there. So on the retailer inventory side, to your point, beginning of the year, we had some pressure points there about 300 basis points in the first quarter, maybe 100 basis points of pressure in Q2. Not really seeing that we're seeing kind of stable levels here in the back half. That's what we experienced in the third quarter, and that's what we're kind of expecting as we go forward here. I'll say a balanced place. We'll watch it closely. In terms of moving on to tariffs and commodities and things like that, let's go back. We've made a lot of progress on tariffs. If we go back to April, we were looking at a bill that could have been as high as $190 million. We quickly rallied the organization around that. We made some tough strategic decisions, but we've also really focused on what can we do about it? Additional productivity, the targeted pricing actions. We've now moved that down to what essentially is a $25 million, 12-month number. We released back on August 1, that number was about $60 million and it's moved really threefold. This move because we've driven more actions around the globe in terms of whether it's negotiations or movements in the supply chain side. There has been some targeted pricing and then, frankly, the rates changed. But that puts us in a really good place as we noted in the release. As we kind of look forward to 2026, we should be able to just have an environment of, I'll say, normal commodity inflation and tariffs should not be a drag. It could actually turn out to be an opportunity. Commodities have still been sticky. You would stay here today with what our commodity view was for the year. It's still slightly up from what it was in the beginning of the year. I think as we look forward, we're kind of expecting more of the same, but we'll leave the rest of the '26 commentary until later.

First, just a clarification. I assume there wasn't any pull forward from Q3 to Q4 or any other change in timing that helped contribute to the top line upside this quarter?

No.

Perfect. Very easy. Thinking about it differently in terms of laundry, considering the strength in that area and the consumer's desire for value, what are your thoughts on the options available? You've performed exceptionally well in this category and enhanced profitability. As you evaluate these options, are you considering potentially adopting a more aggressive pricing strategy for consumers facing challenges? Additionally, are you looking at it from a market share perspective, given the opportunities ahead and the positive movement in gross margins?

Yes. For laundry, the promotional levels will remain competitive. Overall, in the medium to long term, we are confident in our position at the intersection of value. This is fantastic. Innovation is key to our long-term success. Currently, we hold about a 15% market share and are present in 30% of households leading in wash loads. There is a reason for this; we prioritize both value and innovation. Our deep clean innovation, although our most expensive, is still priced at 70% of premium laundry detergent. Innovation is crucial. We plan to introduce more laundry innovations next year. This focus has allowed us to grow our business over time.

High-level question from me. Why do you think that the broader personal care sector is premiumizing in an environment like this? THERABREATH, HERO continue doing great, compounding. There is no port strike impact for them. Why is that? Is it differences in channel? Are these different consumer sets? Is it because there are legacy brands from which you can gain market share? Anything that you can tell us to explain what's happening and what does it mean for your future growth into 2026.

Yes, that's a good question, Javier. It's not just one reason; it’s a combination of factors. These brands solve real problems. THERABREATH effectively addresses bad breath and attracts both younger and older consumers with its appealing packaging, compelling story, and strong social media presence. HERO is a brand that successfully addresses acne, being the top-performing product in its category. TOUCHLAND revitalizes a more traditional category by offering scented products and convenience. Therefore, there is both a problem-solving and a strong branding component at play. Some competitors in these markets are established and lack the freshness that our brands possess. That’s why we see significant potential in these three businesses. As I mentioned earlier, HERO has a household penetration of 9% compared to its category at 28%; THERABREATH is at 11% versus 65%; and TOUCHLAND is at 7% versus 42%. This is why we continue to see growth in TDP as well. It's the combination of these elements that makes the difference.

Just one thing I want to talk about was couponing and just how much couponing is currently part of your strategy, how much activity there's been? Because this is something that kind of shows up differently, right? It's in market. You can't necessarily see it in the Nielsen data. So I was curious if you could talk about couponing? And then also just looking specifically at laundry in the data, it does show price per EQ is down low single digits. So even though, like you said, the percentage that's on promotion is low, just curious broadly about pricing in the market and if the depth is worth talking about.

Yes. I'll take the second one first. When you look at EQ, that really means wash loads and so as you have consumers trade up to larger sizes, as you have channels like club that are growing faster than that means the larger sizes are doing more sales, which then translates into a lower price per EQ, and that's part of it. And then if you go to a few of the different retailers you see, not just us, but also others having some rollbacks at mass. But in general, I think the biggest thing is the trend on larger sizes, which is channel-specific in part but also pretty broad-based. The second one on couponing. We've been very consistent on couponing like year-over-year, we're flat on couponing. I think in general, we believe that our competitors link to couponing a heck of a lot more than we do. And you're right, that's not shown in Nielsen, the way you kind of look at that is maybe through numerator or what receipts are actually being scanned really maybe the best way to look at that. But usually, our competitors rely more heavily on couponing than we do.

We have received many questions regarding discounting and couponing. We have shared our strategies and their impact on our performance. I will also emphasize that our gross margins are performing as expected, which reflects all these factors. Overall, I believe we have a strong narrative and are executing our plans effectively.

Thanks for the question. The key point here is that despite numerous challenges facing consumers, your categories have remained fairly stable overall, hovering around 2%. When adjusted for certain factors, you're actually gaining share. However, my review of your retail tracking data shows that things weaken in October. Can I assume this is due to a comparison with last year's port strike? And could you remind me why that affected consumer spending in your categories rather than just the timing of shipments?

Yes, Robert. Yes, in my prepared remarks, I kind of talked a little bit about October. But remember, we looked it up last night. We believe that for the category and for Church & Dwight will be a little bit negative in October. A year ago, the port strike had 11% growth in 1 week for the categories. That meant a month was around 5%. And that wasn't really real. That was pantry loading, probably massive pantry loading that was happening probably more so in other categories as well. So we think that's pretty clear.

Sure. I understand. But by November and December, I would assume the pantry loading would be mostly complete. So I'm just unsure how that would influence your overall results for the quarter. When I examine your quarterly results from last year, they appeared very stable. The third quarter and fourth quarter were exactly the same. Is it truly that significant of a tough comparison to a year ago, even with that?

Yes, we can provide more detail. There are three main factors to consider. First, the port strike that occurred in October, along with a threatened strike in early January, impacted us. We also need to assess the extent of pantry loading that took place, whether it was one unit, two units, or three units. Additionally, we must look at how long the typical usage lasts within the category. It’s worth noting that October last year showed extremely elevated figures, with categories up 5%, which is unusual. Second, our vitamin business saw a decline in consumption in the low 20s for Q4, which is notable since Q4 is typically a seasonal period for vitamins. While there are some positive signs, the declining consumption is a factor. Lastly, our international business in Q4 last year faced a tougher comparison. All these points are relevant, but the main takeaway is that the most significant issues arose from the port strike and the timing of vitamin sales. We don't foresee these challenges carrying over into 2026.

Congrats on the good result this quarter. Two for me, if you don't mind. The first one to kind of revisit the portfolio and trade down risk and then the second one is going to be on AI. So the first one, Rick, how do you assess the portfolio today relative to, say, like the global financial crisis? And I think the view would be the Church was a big beneficiary. I would agree with that of trade-down risk. ARM & HAMMER did well. Value laundry detergent did well. But it is a more premium portfolio today than it was and the brands that you've had success with like BATISTE and THERABREATH and HERO and TOUCHLAND are more premium price points. So how do you assess trade-down risk, particularly in those parts of your portfolio today? How do you sort of square that with some of the trade down that we're seeing and granted it skews higher to higher income consumers. It does offer unique benefits. But can you kind of have it both ways where the consumer is weak, but then the higher end of the portfolio are going to continue to sustain? And then I have a follow-up.

Yes, that's a good question. Previously, our ratio was 40-60 around the financial crisis, but now it's shifted to 60-40. I believe we can perform well in almost any economic condition, and we've demonstrated this over time. As consumers downshift, the household segment remains strong. Interestingly, some premium personal care categories are actually gaining traction during this period. There are a few reasons for this, but fundamentally, the higher-end consumers are still thriving. It seems like a barbell effect where the premium segment continues to do well. Meanwhile, there is a slight trade down happening in the mass market, which appears to be a positive trend. Overall, I perceive the company as well-positioned to succeed regardless of economic conditions. While the portfolio has shifted somewhat, the significance lies more in the strength of the brands rather than the category itself, like with mouthwash for instance. In summary, there are multiple factors contributing to the strong performance of these brands, providing a more substantial advantage than the challenges faced by the category.

Got it. Then quick follow-up is just around artificial intelligence. What that evolution is going to mean for the CPG industry. Matt Farrell used to refer to these as the crystal ball kind of questions. But particularly on the heels of the Walmart announcement and its collaboration with OpenAI. I'd be curious to kind of get your thoughts, Rick, in a world where AI is actually going to see much greater levels of adoption. Do you see this evolution as a favorable development for big brands in your portfolio specifically? And relatedly, on the heels of this Walmart announcement, how do you assess the risk here that this potentially leads to a balance of power shift to retailers as they exert greater control over the virtual shelf?

Yes. I think my crystal ball would probably say our company is laser-focused on our brands. How do we make sure that we have brands that consumers love and through our advertising, through our marketing, through our innovation. If we do those things well, then that is an enabler for how we show up online. At the end of the day, recommendations in the future are going to be based on how well we're selling, how well consumers love our products, what the reviews say, what new news we have. Same way that advertising has shifted over a long period of time. We have to make sure we're nimble enough and fast enough to adjust with speed to the new way of playing the game. And we've shown that we can do that. When Matt and I talked back in 2016, we were 2% of sales for e-com, now we're 23%. We have adjusted and changed the way we play the game. So that is a competitive advantage for us versus our larger peer set, in my opinion. We have to make sure that we're on the forefront of that. I have no doubt that we will.

Okay. Thanks, Eric. Well, thank you for all the questions, and I look forward to getting together next year if we talk about our go-forward strategy on Investor Day. And thank you and see you in January.