Q1 2020 Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily once again, thank you for your patience. Please standby.
[music].
To the church and Dwight first quarter 2020 earnings conference call.
Time, all participants' lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press Star then zero before we begin I have asked to remind you that on this call. The company's management may make forward looking statements regarding.
Among other things the Companys financial objectives and forecast. These statements are subject to risks and uncertainties and other factors that are described in detail in the Companys easy filings I would now like to introduce your host for today's call Mr., Matt Several Chief Executive Officer of Church and Dwight. Please go ahead Sir.
Good morning, everyone.
Thanks for joining us today I'll begin with a discussion of the impact of covert 19.
My review of the Q1 results and then I'll turn the call over to brick darker our CFO.
Rick is finished we'll open the call up for questions.
I'll start by addressing the impact of Coven, Nineteena Church and Dwight.
Our priorities right now or the health and safety of our employees meeting the needs of consumers and retailers, helping the communities, where we live and ensuring the strength of our brands I want to recognize the church and Dwight employees around the world for their dedication to keep our company going.
During the pandemic.
Church, and Dwight has 4800 employees.
And we are committed to each other safety.
We have 3000 people reporting to work every day, we're keeping our plants and warehouse is running.
We're protecting our employees through temperature checking.
Working in pods, social distance thing and frequent census, sanitization work areas and we're sparing no expense to promote safety and our supply chain.
We have another 1800 church and Dwight or who are working from home you see Microsoft teams.
We had already invested in the tools to work remotely so switching to work from home proved to be easy.
We are learning how to be a virtual company.
We're supporting our local communities with monetary and product donations to local food pantries, and shelters and donations of personal protective equipment and products to local hospitals pet shelters and schools.
And we are preparing to produce hand sanitizer at our UK plant for both internal use and fortune nice donations.
With respect to consumers and retailers, we understand the need for our products now more than ever we have taken steps to increase short term manufacturing capacity and we're working closely with suppliers and retail partners to keep pace with increased demand in April.
Okay now, let's talk about the results.
Q1 was an exceptional quarter revenues gross margin earnings and operating cash flow all significantly exceeded our expectations.
Our positive results were influenced in part by pantry loading in the month of March.
Organic sales growth of 9.2% exceeded our outlook of 3%.
Earnings per share of 83 cents exceeded our EPS outlook by 10 cents.
Reported sales growth was 11.5% and gross margin expanded in the quarter.
Regarding E commerce more consumers moved on line in Q1, 10% of our consumer sales were on line and we have seen growth in all retailer Dot coms, we expect to easily exceed our target of 9% online sales in 2020.
Private label shares are always noteworthy as you know our exposure to private label label is limited to five categories and private label shares were unchanged in Q1.
Now to make sense set of March and April, let's take a look at consumption shipments and use up rates.
Consumption grew 30% in March for a combined U.S. categories for the month of April the good news is that our combined to U.S. consumption growth is still slightly positive.
This includes both measured and non measured channels the brands with positive consumption in April included Oxiclean additives by diffusion and little Critters Gummy vitamins flawless women's grooming.
Harman Hammer unit dose arm, <unk> hammer baking soda and Orajel oral analgesics.
The brands with negative year over year consumption growth. In April include first response pregnancy kits Trojan spinbrush, the taste and water pick.
All right. So that's consumption also get shipments.
Shipments in March were up significantly across most of our categories largely due to paying pantry loading for the month of April shipments are tracking to be up 8% led by laundry letter and vitamins for our combined U.S. categories and continue at elevated levels as we replenish retail retailer stores and.
Distribution centers.
Now with the backdrop of strong shipments in both March and April we've attempted to determine use up rates.
We've been conducting weekly surveys to ask consumers. If they are using more now than a month ago regarding categories in which we compete.
It's not completely scientific but here's what we learned.
In April our concern consumer survey showed an elevated use up rate for household products, including laundry detergent laundry additives and baking soda. So for example, 20% of our consumer say they are washing more which is good news for the near term health of our luxury brands and stain fighter brands the exception.
For house or products was cat litter, where there is no report a change in usage.
Regarding personal care, our consumers reported elevated usage of vitamins nasal sprays and oral analgesics, most other personal care categories, such as dry shampoo condoms pregnancy kits and toothbrushes do not report an elevated use up right. So to the extent that those categories.
Spirits higher shipments in March it may take some time to work those off.
In a waterfall aastra category.
Water pick consumption was down 55% in April due to retailer closures de prioritization of waterfloods risk by some retailers and closure of dental offices. As you know dental offices are closed except for emergency procedures. So there are no waterflood recommendations by dental professionals, which are an import.
Source of first time buyers.
Flawless could be a bright spot with 10% year over year consumption growth in recent weeks in April with the closure of salons female consumers are focusing on what they can do at home and our marketing team has moved quickly to change our marketing messages flawless is one of our brands that could benefit from the at home grooming trend that the drew.
Romantic increase and the use of zoom teams and face time has contributed to the interest in flawless products. So the women can be camera ready.
Now turning to investments in the months ahead, we intend to invest in our business innovative new products will continue to attract consumers. Even in this economy. There was no pull back in R&D spending or in new product development with respect to new product launches many of our new products began shipping in Q1 prior to the cobot impact although.
Some retailer resets have been delayed due to the virus and with respect to acquisitions, we're always open to acquiring TSR accretive businesses.
We believe we're well positioned in an economic town in an economic downturn, given our balanced portfolio value in premium brands and strong balance sheet.
In times like these it is natural to make comparisons to prior recessions for indications of how a company might perform now in 2009 organic growth was 4.2%.
Today, 37% of our products are considered value, which is similar to 2009, when 40% of our portfolio was value.
We have 12 power brands today compared to eight in 2009, although two of those brands water picking flawless are more discretionary in times of recession, our vitamin brands, which are Vida fusion, a little critters aren't great demand due to consumer focused on health and the equity of our flagship brand today Harman hammer as much.
Stronger, especially in the laundry and litter categories.
Our international business is larger today with a more diverse portfolio and more opportunities to grow as evidenced by our 9% sales growth CAGR over the past four years.
We are well balanced globally with more business in Asia Pacific and we're less depended upon more mature markets. In fact, the international business delivered 7% organic growth in Q1, and whether the initial impact of the Corona virus in Asia.
But the 2020 economic downturn is not simply a more severe version of the 2009 recession. There are many differences that influenced the path forward, we have social distancing quarantining government shutdown orders retailer closures, the closure of dental offices and the decline of foot traffic at retailers.
And there is always the risk of supply chain interruptions and the potential resurgence of the virus later this year because of the virus consumer trends are emerging which affect our business, including a focus on cleaning personal wellness, new grooming routines and a spike in buying online.
These consumer trends may indoor over the long term and we're well positioned if they do.
In conclusion, there are lots of reasons have confidence in church and Dwight.
The great thing about our company is we are positioned to do well in both good economic times and in economic downturns, the categories in which we play or largely essential to consumers, we have a balance a value and premium products. Our power brands, our number one or number two in their categories and we have a low exposure to private label.
We're coming off one of our best years in 2019 and are entering this downturn in a position of strength and with the strong balance sheet to finally, we have the resources the common sense and the ambition to ensure that our brands performed well in the months ahead next up is Rick to give you details on the first quarter.
Thank you, Matt and good morning, everybody, we'll start with S. first quarter, adjusted EPS, which excludes an earn out adjustment and the gain on the sale of international brand grew 18.6% to 83 cents compared to 70 cents in 2019.
83 cents was better than our 73 cents outlook, primarily due to higher volume associated with a significant increase in demand for many of our products in March.
Better gross margins and lower marketing also included in the 83 cents is a penny drag from FX as the dollar strengthened with the global pandemic and a two cents drag from higher tax rate.
We did not have a currency impact assumed behind our Q1 guidance.
As we discussed in previous calls the quarterly earn out adjustment will continue until the conclusion of the earn out period.
Reported revenue was up 11.5%, reflecting a significant increase in consumer demand for our products due to cover 19 organic sales were up 9.2% more than tripling, our Q1 outlook of approximately 3%.
Organic sales Pete was driven by our global consumer growth of 9.6%.
We have taken several short term actions to increase capacity, especially for laundry letter due to overwhelming demand we were able to fast forward a planned capacity expansion for laundry and we made the decision in Q1 to exit extra laundry detergent from the less profitable drug class of trade and then hindsight the decisions to exit private label vitamins and reduce promote.
Funnel activity for oxi, laundry, where the right ones. The time like this so we can focus on our core products.
Now, let's review the segments.
First consumer domestic organic sales increased by 10.2% to the higher volume and positive price mix.
Growth was led by Harman hammer liquid laundry detergent Vida fusion and little Critters Gummy vitamins.
Oxiclean stain fighters Harman hammer clubbing cat litter and baking soda as well as the Ts dry shampoo.
One question. We're usually are asked as can be branch or 10% growth for the domestic business back to Nielsen.
For this quarter, we have the unusual circumstance of Nielsen than our organic growth our comparable.
And actually there are two large offsetting adjustments, we had 400 basis points on track channel growth largely due to the strong online sales Matt mentioned, so we would say consumption for the quarter was closer to 14%.
Organic growth as I said was 10% so that means inventory at retail declined by 400 basis points as we couldn't fill all the orders in March.
One thing to keep in mind. During this time is that while scanner data is usually a good barometer for us. The current pandemic has made online growth well exceed brick and mortar with much of the online class of trade not measured and scanner data Nielsen data is currently less of an indicator for example for the weekend in for 18 scanner data would indicate that we were down roughly 10% consumption.
Well based on point of sale data across all channels that we have which includes online retailers our consumption was slightly positive.
International delivered a strong quarter for.
7.1% organic growth also benefiting from pantry loading growth was driven by Harman Hammer cat litter liquid laundry detergent in Canada, and cure Ash baby wipes and Femfresh feminine hygiene in Australia, Sterimar nasal spray in the UK and pretty straight into in Germany.
For SPD business organic sales increased 3.4% demand continues to grow the poultry industry on other hand, there has been a reversal in the outlook for the dairy sector negative market impact from cover 19 could result in lower mill demand the negative impact on the dairy industry.
Turning now to gross margin or first quarter gross margin was 45.7% 60 basis point increase from a year ago due to higher pricing and productivity, partially offset by higher manufacturing costs cobot related expenses and FX. The gross margin bridge for the quarter.
Plus 140 basis points for price volume mix.
Just 110 basis points for productivity.
Just 10 basis points for acquisitions last 180 basis points for higher manufacturing costs of which cobot cost makeup 30 bips.
Last 10, Bips for currency, and then minus 10 thats for distribution costs.
Commodities have moved significantly, especially oil however for other commodities like ethylene in resin such as a HPP why they've moved down it typically takes six months or longer for them to move in concert with oil.
We entered 2020 about 50% unhedged no doubt commodities will be a tailwind, but unfortunately, the cobra, let it costs more than offset any commodity benefit.
For example in Q1, we were about $4 million of koby costs and that was primarily for the month of April.
Moving now to marketing Mercury was down 1.7 million year over year market expense as a percentage net sales decreased 110 basis points to 8.3% Q1 is typically our lowest quarter for marketing spend as new products have yet to be launched we delayed March spending to the back half that's consumption and lake fun unlikely.
Two being primarily driven man related to current front, a virus and less by marketing activities.
For SG nine Q1, adjusted EBITDA increased 40 basis points year over year, primarily due to intangible amortization related to acquisitions.
Net operating profit adjusted operating margin for the quarter was 24%. This represents 130 basis point increase over Q1 2019.
Other expense all one was 15.2 million, primarily driven by interest expense.
For income tax or effective rate for the quarter was 23.2 per cent compared to 21.9% in 2019, an increase of 130 basis points, primarily driven by lower stock option exercises. This was a two cents year over year drag on EPS in Q1.
And now to cash for the first three months or 2020 cash from operating activities increased 71.5% to $237 million or almost a 9 million dollar increase from prior year due to higher cash earnings in a lower increase in working capital.
Our full year Capex plan has gone from 90 million to 80 million largely due to delayed start dates pandemic has limited access to plant locations and IP upgrades are being delayed.
Our liquidity is strong we strive to maintain or credit rating, while expecting to be sub two times, but into the year.
As we've previously communicated we're experiencing significant increase in consumer demand for many of our products and thus cash flow is stronger. Furthermore, during January and February we proactively termed out RCP borrowings until the second and third quarter is a favorable rates those actions eliminated the need for us to access the commercial paper market for the remainder of the year.
Our current cash balances exceeded 1 billion as we drew 825 million from our revolver given us ample flexibility we're confident in our liquidity, which is why we haven't issued long term debt, even though the market is open for us the great thing about revolver draw downs is that they are quickly repayable.
Now turning to the outlook. The company previously issued its fiscal 2020 guidance on January 30, Onest 2020, which did not include the impact covered 19 as you read and it really is due to the rapidly evolving situation a high degree of uncertainty related to the impacts of the virus, including consumer demand in the global economy, the company's withdrawing its fiscal cliff.
20 guidance as to the second quarter. The company's primary focus is ensuring the safety of our employees as a site sustained supplied to retailers to keep pace with higher demand and maintaining the strength of our brands and that is really the extent to which we will comment on the outlook.
Wrapping up yesterday, the board of directors declared a regular quarterly cash dividend of 24 cents per share a 5.5% increase versus a year ago as the company is 477th regular consecutive quarterly dividend.
And with that Matt and I would be happy to take any questions.
No question.
Thank you as a reminder to ask a question you'll need to press star one on your telephone to withdraw your question press the pound or hash key please standby will be compiled acuity roster.
Our first question comes from reprise.
How are you with Oppenheimer. Your line is open.
Good morning, Thanks for taking my question and congrats on a strong quarter.
So I guess I guess.
Hey, Matt So I guess I guess, just starting out with laws I mean really surprising commentary in terms the strength that you're seeing in April on the consumption side, even with some of your customers alter that dot beyond with all other close stores.
So just any more color I guess in terms of our consumers now buying that despotic more online.
I know you gave some more color I guess women using more zoom in using your product more but it's just really impressive results and just trying to better understand what what's driving the restaurants and where the buying the product.
Yes. In fact, if you look at that the weekly numbers. They went to zero percent, 10% up 35% year over year. So it's been building through the month of April and Yeah, you're right. If you go back to some of the things. We said, we said we're going to expand our distribution points by 15% in that 2020, So that's done.
Check.
But you are right that people are moving online. So we've seen a big uptick in in our Amazon sales and of course other retailers also have.
Dot coms as well, but Amazon is a big time for us in April year over year, and then one thing I'd add to that rapacious about 20% that businesses and retailers are close down. So when we say those consumption numbers. That's even more impressive yeah, which is where are you were going it's remarkable considering the specialty stores, our clothes and yet the they're up year over year.
Yeah.
Okay. Okay, Great and then just from a I guess out of stock perspective.
Great you had a strong strong month, which had mentioned April.
Look at or I guess across our categories. Like ours are are your products now fully stocked at all to reach always I want your product or if we go to stores, where we still find out of stocks.
I Wonder I guess I'm, an acute product categories and I'd say, what if you look at that 8%.
Shipment growth in the month of April Big drivers, there would be laundry litter and vitamins.
So that's where you would find where the out of stocks for us if we go wiped out in March.
Okay. So theres theres still out of stocks, even try it on a retailer or side, yes, absolutely absolutely right. So we're still playing catch up for those three.
Okay and the time I guess my last question just just as you look at promotional Dr. SKO has been less promotional lately.
Just any thoughts on trends or what the environment could look like for the balance of the year.
Well I can tell you what it looked like in Q1.
If you look at the laundry category in Q1, the amount sold on deal was down 280 basis points. So.
Everybody pulled back so PNG ankle and church and Dwight Oh pullback in in Q1, that's in a laundry category in litter litter was up 20 Bips for the category sold on deal that was entirely driven by.
Tidy cat as Harman Hammer had pulled back and promotions as well as a fresh step.
It's really two out too early to tell right now rupesh in.
Lot of retailers just eliminated a lot of the promotions just because people were going to stores in any case.
Buying product.
So they were reduced in the month of of end of it as end of March in early April so.
Not known care to speculate right now with respect to what's going to happen in a promotional environment.
Okay, great. Thank you.
Okay refresh.
Our next question comes from Darren most anyone with Morgan Stanley. Your line is open.
Hey, good morning, guys hope you're doing well.
Is there.
So Matt was just curious for your thoughts on potential consumer trade down.
As we moved beyond the social distancing phase of co bid you're in a fairly unique position as you mentioned with the mix of premium of value brands. So are you expecting significant consumer trade down have you seen anything so far that would indicate its to calm and how do you think your position.
Yes, it's too early right now to to make any predictions with respect to trade down once all the shelves get restocked Annie's refund that across a a lot of categories. If you've spent any time in supermarkets, Wally that's won't be able to tell okay, what what's going to attracting I've got consumers to move from.
Say.
Premium to mid tier or to value.
I mean your question I'm sure is this more directed towards a laundry detergent.
It's one of our biggest categories and we benefited greatly back in in 2009, we still have the.
What we I would call the unfair advantage that we are the only advertise brand in value in the brands, we compete with our purex and Sun. So we still stand to gain should there be a movement down from premium to value laundry detergents.
We feel like we're in a great place you know because we could go down to back to 2940% of our products revalued and today the 30%. So we largely look just like we did back in 2009 as far as our portfolio and I'd remind you that organic growth in 2009.
Not saying, that's what it would be but as an indication of how we do in recessionary times was about 7%.
For the domestic business.
Right. Okay. That's helpful and then specifically on Trojan entities. The you mentioned some weakness there versus strength and the rest of the personal care portfolio in so many other brands can you just.
Give us a bit more detail in the extent of weakness there is that a category.
Growth phenomenon, and that's something you see lingering going forward or do you think that's more tempered.
Oh, well Trojan and the teams did well in in first quarter. So now it's that's an April a phenomenon. So they are down significantly in the month of April and simple reason is that people are our sand at home. So if you look at what's going on with.
Battista the the the concern when we did this survey with respect to use up.
That's down it was somewhat pantry loading in March and if you look at.
Trojan condoms as far as a.
The impact to social dispensing and quarantining Pino people, having less sex. So it's natural that Trojan. This also going to be down until those restrictions are lifted.
Okay, great. Thanks.
Okay.
Thank you. Our next question comes from Kevin Grundy with Jefferies. Your line is now open.
Hey, good morning, guys.
Well.
Matt.
But I want to start just on some of the Tailwinds that heavy merge this year.
And how you're thinking about investment and how perhaps as investment priorities may have shifted so consumer demand clearly significantly higher promo levels down significantly at least for now commodity costs sharply lower so a lot of things kind of going your way and understanding that you with your guidance, but perhaps even at a high level matches maybe talk.
Talk about how you're thinking about investment and and how that shifted perhaps over the over the past two to three months.
Okay, Yeah, well I mentioned in my opening remarks that are the annual spend on R&D and new products is unchanged in fact that would be one of the destinations we'd want to.
Spend back this year, Rick commented on Capex, and we have we went into the or with a $90 million plan. We're at 80 million right now but for the simple reason that we just can't get access to the plant city that we can get access to the plans for the third parties that might be helping us with your equipment installations.
So we went from 90 to 80. The other thing is part of that that did come up 10 million was related to IP projects same issue. There is limited access.
First the the trends go.
I mentioned that some of the trends that I think are going to help us one is cleaning and obviously we have some really strong brands are not just harman hammer and extra but we also have oxiclean. So oxiclean had a really big month of months of March and also strong in the in April.
The personal wellness is next so we obviously, we have two plants to captive plants to make gummy vitamins.
Obviously in great demand right now so naturally you would say at the consumer before more interested in and the gummy vitamins that are directed towards immunity or to help immunity. So that'd be a destination for us.
And.
The new grooming routines is the is the other one new people wanted to be camera ready.
Thats certainly benefits flawless, so that would be an UN dust.
The nation for marketing dollars to put more money behind them.
Because it is a new brand and its one that we see tremendous amount of opportunity and growth going forward be another one that to invest and maybe one other one is from from a cash investment we are investing a bit more capacity in the supply chain right. We said in my prepared remarks about.
New laundry capacity, we're looking at cat litter as well I know, we're making sure that we're well positioned for the future in the surge laundry litter vitamins as an example, yes. In fact can we have a new launch you'd line coming online.
Right now.
And then also co Packers right when I make sure we have backup supply and so we're also investing in our partners yeah. That's a good point.
When things I mentioned as we always have the the risk of the resurgence of the virus later in the year and also you have upstream risk with in the supply chain. So essentially start plants, which worry about suppliers have run packaging materials and also co Packers. So we can make some investments to make sure that we have some redundancy across the supply chain.
Okay.
Sure research or get any worse later this year.
Okay. That's helpful. As Scott just just one more than pass it on dip from a from a capital deployment perspective, maybe talk a little bit about the timing there in terms of when you think especially you know today it'd be more viable to potentially transact and then what are you seeing in the environment. We're all kind of watching the same trend there has been an obvious shift.
Commerce working from home will become more prevalent and then also met I'd be curious to get you with those trends point of the one and then point number two the past couple deals water picking flawless longer replacement cycles, more discretionary sort of less defensive.
Does the current environment, you know informed view at all do you think perhaps we would go back then the next sort of asset you'd look at would be more sort of daily use consistent with sort of the core portfolio I'll pass it off thank you.
Yes, so quite a quite a list of my last question [laughter] you start with.
M&A Kevin.
Yes in my remarks, I mentioned, the we're we're we're open for TSR accretive acquisitions.
Right now we have very strong balance sheet and.
So are the window is open.
As far as water pick and flawless go yeah, you're right.
Those were two brands that have a longer purchase cycles.
Flawless is a new brand only been around for few years, that's a shorter purchase cycle and water per quarter picks month, three to five years false may be more closer to six months or so.
Because it's it's a it's a less expensive product I wouldn't say that.
We would preclude.
Acquiring a device.
Those both of those brands met all of our criteria, but there were number one and number two brands they were fast growing.
They had high gross margins and they were asset light.
So were so whether it's a it's a device or as you say a traditional.
Brand to either one would be attractive to us and certainly water. Pic is is impacted disproportionately right now in comparison to prior years because of the closure of dental offices, that's a big source of recommendations for us.
For the what use of waterflood answers. So once that is resolve that that should definitely help that business come back come back to life I don't know if it all your questions, though and Kevin what else would yes.
That's perfect. Thanks for the time, guys and B well.
Okay.
Thank you. Our next question comes from Lauren Lieberman with Barclays. Your line is now open.
Great. Thank you.
Could you go back to the decision.
Drawn revolver I mean, that's your point, it's clear that it's easy to pay.
But just just given the fact that.
Those are coming through so.
We are talking about a year, we've certainly seen more positive and negative outlook.
You don't have a need to tap into commercial paper. So so why John John the revolver at all.
No. It's a fair question Lauren I think it's all about uncertain times and I think in my prepared remarks, I said, we still expect to be.
Levered less than two times, but in the year. So you can infer what you want from that but.
It's really about certain times and we just put the cash on our balance sheet. We have no plans is doing with it and left to get repaid before than the year.
Yeah, and the good thing about that as these things are easily repayable.
Yeah, Okay, and then just Dan. Thank you because the trade and I know you had said Matt. It's early to gauge if one one thing I thought was interesting to look at.
How much your market share in laundry had grown versus 2009 right. It looks like you said only advertise brand in that in that price here, but you really capitalize on the opportunity back in the financial crisis and largely held this year that you gain.
In the work that you would die.
Presumably even pre Cove Ed.
Any thoughts on kind of the structure of the laundry category long term because I think there's an element of some categories. It feels like there and that being a ceiling to how the price shake out over time private label value premium.
And any thoughts you have on what that look like from Andre.
Yeah, Yeah, if you go back to 2009.
Laundry shares were around 7.5% and today there are 15% so were much bigger in laundry than we were back in.
In 2009, the shared donor overtime has been the mid tier laundry detergent and premium has been winning and value has been winning.
So consequently roots, we expect that we continue overtime.
Personal come into the high end brought their their product and from a from Europe seeing an opportunity.
Also pursuant to grow share in the premium and and then on the other end you know I talked about back in 2009.
We weren't the you know weren't even a national brand, we weren't all doors and all classes of trade.
Confirming hammer.
So we're way way stronger today and more recognizable.
As a brand and I will say, we have the unfair advantage of being the only advertised value brand. So I think we're positioned for growth than value.
Long term.
Okay. That's great and then what are your question I was the marketing spending.
I was just surprised to see that you could adjust as quickly as you appeared to just even during the quarter now that need the view.
If your marketing on a kind of sales per basis and.
But I was just curious that that's it seemed like it nothing to not a smart decision, but very quickly able to adjust.
You know intra quarter. So I just was curious about that.
Yeah, well, Hey, Lawrence Rick I'd say, we were only a few million lower in March than we had originally plan B remember Q1 is our lowest quarter of spend anyway, I'm, usually Q2, Q3 or higher our numbers for us so wasn't that big of adjustment and typically.
We're pretty nimble so we were able to.
React pretty quickly in March.
Yeah, we move really quickly in March two.
Move Q2 out to the second half because we.
Could see what was coming.
So that seem to be clear.
Kim was clairvoyant on our part to make that decision.
Okay, alright, thank you so much.
Yes.
Thank you. Our next question comes from Steve Powers with Deutsche Bank. Your line is now open.
Great. Thanks, you guys mentioned tight inventory as you were you are catching up but do you have a sense. When you think you'll fully close I fully closed the gap.
Threeq you best guess in the is it more at this point about your ability to supply.
To demand or is it about retailers ability to focus across categories beyond like food cleaning paper and water.
No I think we're focused on our category so three categories that that.
I mentioned.
Vitamins.
Why wiped out in March and so not and that's a big part of the the shipment increase in 2000 pardon me in April but consumption is way up we did that use up.
Study, we learned that.
Tumors or are taking far more vitamins and they were a month ago. So it's a I wouldn't I wouldn't say, it's going to take to Q3 I.
That'd be a that'd be a long way out.
Got two months ago here, Steve So.
I would hope to buy the ended the quarter to be have resolved all of our issues in all classes of trade based on what we know today, yes based on an incremental consumption is great alright, great and I guess on the topic of.
Redundancy, which you also mentioned and I guess.
I think about the go forward I guess two perspectives on redundancy. One is from on this topic of retail inventories do you think retailers when they build back those inventories will actually build back more inventory to prepare for potential recurrence in the second half for into 21.
And how does that factor you're thinking and then from your own cost perspective is there awareness to size some of the supply chain redundancies that you're you're putting in place now from a cost perspective.
And how much of what you're doing now is likely to be like a structural costs that will will be thinking about you know into the future.
Yes, I'll take the second one first.
Rick I kind of alluded to with the cobot costs were in the month of March and and that would include things like.
Oh Packer up charges are structural stuff like that the the capacity capacity structure.
Like for laundry in for vitamins and for letter those are capex investments that we would be making any way and some of them have already been completed are underway. We would just be moved the timeline up on some of those things.
So you know that the I don't think we're ready to really frame out exactly how big that would be I'll. Just tell you that it was three or 4 million bucks in the month for margin that and one aspect of that happened to be some co packer of charges, along with including cost higher labor costs internally donations and even our revolver.
And to that so that's that's the.
Second question, Yes. Your first question with respect to retailers building inventory, we don't have anything conclusive on that.
Right now Steve.
I had mentioned in my remarks that theres the potential for the the a resurgence of the virus in the fall. The good news for US is we have for example launch we have three laundry plants, we have new capacity coming online.
Right now so we can build some inventory in anticipation of that so be even a better position to take advantage of its worth to happen. The same is true with for vitamins having.
Two captive plants.
We can be again, we can build inventory and we can be in a position should at research later in year. So we like where we're sitting right now, particularly with respect to those two trends.
Cleaning and personal wellness and the other one as far as the new grooming.
Grooming at home trend.
Wallace early days, let's say, they're well positioned as well and you know even when whenever everything open drop.
I think people are people are still gonna be doing a lot more zooming in phase timing and using teams going forward, so there'll be a need for that product as well.
Alright, great. Thanks, so much.
It.
Our next question comes from Olivia Tong with Bank of America. Your line is now open.
Great. Thanks, good morning.
I think a little bit deeper.
What's your expected.
Demand.
Thank you and your ability to take share.
Given more value until the price.
Welcome.
Yes.
There, there's obviously a need to replenishment retail, but it seems like home pantries are pretty pulled out so do you think that.
The second home Braintree territories. They are helps or hurts you in terms of going to close share.
Come out.
Yes, well one thing Olivia is you're kind of assuming that all categories are fully pantry loaded and what Matt said in his prepared remarks I thought we're we're good comments like for some of our big categories like laundry and vitamins its.
Incremental consumption and you heard a.
You know Proctor another day say that.
20% of incremental laundry consumption, we would actually agree with that according to studies that we've seen so part of it is theres incremental consumption then like in April we solved.
Big spikes and consumption for laundry and we're still seeing positive.
A positive numbers and April so that would tell you that the de loading isn't really happening. So it's real consumption for laundry as an example, yeah Olivier on some things some of the brands I mentioned, where that had positive consumption in April were.
Clean additives are too.
Bitumen gummies.
Diffusion and little Critters.
Wallace was up in consumption Harman Hammer unit dose baking soda and also oral analgesics. So all those.
Had positive consumption and.
Remember we did the at the studies, we did with respect to people using more for personal care, we found the vitamins and oral analgesics, which is orajel.
Were elevated and we also found that laundry detergent laundry additives. Some baking soda were all elevated as well so that's why I said.
In my remarks, you got to look at three things.
Shipments consumption and to the extent you can get it.
Some use up rates and it's not scientific but it does give you some indication of which which categories will the pantry loading work off we've worked off faster than others. Here's a great stat on Bacon said I think in March consumption was up 65, or 70% and April it was still up 50, 560%. So as you can see.
It's just consumption and consumption and consumption.
Great that's helpful.
Can you talk a little bit about your discussions.
How they're thinking about.
And obviously.
Not sure even those discussions can can happen right now.
Thank you can shelf stock, but as you come out of it.
What's your expectation there in terms of.
Any change in terms of brands or carry how many products Michelle.
Just thinking about affordability and also just how much.
Kerry Thanks.
Yes, well look I think.
We haven't had those sorts of discussions with retailers right now.
If you look at some of the the consumer trends and some of what's written about.
Consumers is that.
Well known brands and bigger brands are more likely to do better than less well known brands and so that's a real good for us because as you know we have.
12 brands that are very recognizable that are number one number two in their category. So I think.
Bigger brands, well known brands will probably likely do better than the smaller ones right now because people trust the the bigger brands as you'd expect most the conversations happening right now are about supply and stock and and those types of.
Numbers.
Thank you.
Okay Lydia.
Thank you. Our next question comes from Joe Altobello with Raymond James Your line is now open.
Thanks, guys good morning.
Hey, Joe just want to go back to something you said, Rick about what's what's truly incremental right in terms of.
Yes.
This is for example, the organic number with plus 10 this quarter that's been trending.
Plus five let's call it a lot.
Is there way to quantify how much of that Delta.
Stays with you for the rest of the bad debt.
Really just pantry loading.
Yes, I know, we tried to do impact the envelope, Joe and it's really a a best guesses what I'll caveat. This as but we would say for for Q1, our outlook was 3% organic we were tracking to probably 4% organic free the.
Outbreak.
Our best guess is that part of the laundry incremental sales and and vitamins.
Has incremental consumption in there so maybe around 6% or so.
Would have been organic.
In terms of consumption driven.
With this with this with the virus and then the balance of that go into to 9% would be the incremental for pantry loading. That's just the back of the envelope and that's our best guess.
Thats very helpful.
On.
Based on this a little bit earlier.
Like consumers are gravitating toward.
Bigger Brad.
Leading brands I imagine retailers are focusing on that more.
As expected come out at this.
More shelf space.
Well, that's the that's the dream.
[music].
For sure.
I think the ability to supply can influence the shelf space so to due to the extent that do you have voids and you have other competitors, who may have difficulty in in producing product or getting access to product we stand.
To gain ransom. So for example in laundry and we get this new capacity coming on.
To extent the upsets for any of the smaller brands, we will be able to fill those and maybe one other comment on your on the pantry loading that we talked about last question. Joe is now for a lot of our value portfolio for lower income consumers. They don't they can't afford to pantry loading. So it really is a lot of consumption.
Especially for the value brands.
Great. Thank you guys.
Thank you. Our next question comes from Andrea.
With JP Morgan your line is open.
Thank you I hope all is well just coming back to clean simple launch it spend.
So how are you tracking and.
Can you see how do they.
Displayed without any different.
And then I have a follow up on on the bridge to the second quarter.
Yeah, we're super excited about arm <unk> hammer clean simple Andrew thanks for asking so.
Thats started shipping before we.
The Covidien 19 head and you know we've have spread out we've gotten actually more distribution at the one retailer in particular.
Than we expected and also as a result of cobot that we're able to spread out.
Even more so that's that's really good news, it's still early obviously the retailer traffic in stores is way down. So you know to extend to the of spending money on the displays et cetera, it's probably not a good spend right now but it is on trend does this is a.
Detergent in six ingredients and most detergents of 15 to 30. So we're we're well positioned than on trend for the consumers that believes less is more and you are in New York, Andrew you saw how big of a deal we thought it was and we think this is one of the biggest launches that we've done.
Period.
That's helpful and just quick follow up on planks of bleach the consumption in the shipments and I know, we're bidding that puts you in nickel make for the second quarter. You said the consumption outpaced shipments by 400 basis points all channels and you asked the question water and you're looking for 800 basis points shipments.
April so like just trying to bridge and you called out in the prepared remarks that you.
Back to the stock remains known so just trying to think about how.
All the puts and takes into the second quarter. So you're looking at a negative shipment trends in may and June or are you still going to be elevated because of one human insulin.
Thanks.
Yes, I mean, that's a it's a pretty detailed question and we said we're not going to give an outlook I would just tell you. If you do the math and even if shipments are zero and.
In May and June east of positive.
Shipments for the for the quarter.
It's kind of what I would tell you, but again, we're not going to get into the trying to forecast for next 30 days or 90 days because it's just too volatile right. Now we can just tell you that retail inventories are low they need to get back in stock.
Got it higher shipments and some of the Nielsen reports that you might may have seen over the last couple weeks was just slightly negative consumption than we wanted to say well that's not really true was actually slightly positive because of all the untracked channels that that theres not visibility too so it's actually little bit better, yes, we thought that.
Providing some shipment information for April would be would be helpful. So everybody can I understand that kind of where we are that 8% numbers of us number international is more around 7% and even our specialty products business is running.
Ahead for for April So really encouraged about the start for Q2, yes, but but can't make any predictions with respect to may and June.
Okay. That's fair thank you very much better.
Thank you next question comes from Steve.
<unk>.
Your line is now open.
Hi, good morning, and congratulations on good quarter.
So.
My question would be on the decision to withdraw guidance a lot of companies are doing it. So no real surprise there will really want to just understand is just a function of achieve ability or just a wider range of scenarios and assets in the context. Because Q1 is strong you have very little emerging market exposure commodities are deflationary and fully tends to do well during.
Recession. So if you could just help me through the mindset as to.
Why how you push back against someone Cingal is in your guidance still pretty achievable and have a follow up.
Yes, okay, well, here's a if we knew the answers to the following.
Would be.
What's going to have with government shutdown orders and how long the social distancing.
Continue quarantining in different parts of the country, which retailers are going to remain close when will they opened well be the store hours, what kind of foot traffic do we think they're going to have and you know when I'm dental office is going to reopen this there's just none of these questions have ever been asked none of these conditions.
I've ever occurred in a prior economic downturn. So we looked at those and we said you know there's just too many other factors right now that we can't predict.
Consequently, with the sensible thing to to assist with drug guidance, Yes. If you would've seen this more like 2009, it was and it was higher unemployment or a financial recession. We would have definitely just kept guidance out yeah. I was with the company in 2009, and we did not withdraw guidance and we have good year think.
Companies.
Organic sales were 4.2% in 2009 of the U.S. business I think Rick So it was a rough around 7% in 2009. So it's just it's Jim. This is not just a more severe version of 2009, it's different.
Okay.
And in that vein is there any way to help us think about it if we drew a t. bar about like what you put in like parts, you feel pretty confident about and maybe orderly more the left tailed type scenarios. What would you kind of say that because you have added some businesses to the portfolio relative to where we were in 2009.
Any perspective, there would be helpful. Then rich can you comment on what percentage of portfolio is now hedged through 2020, and so we can think about.
What's locked in versus exposure for 2021.
Yes, well in 2009, we had eight apparel brands today, we have.
12 and.
For the we added were.
But teased vitamins.
Quarter pick and flawless and.
If we just took those with the vitamins is a terrific place to be right now compared to 2000 and a nine in 2009 was really pull the trained for US was value funder detergent, because a big trade down.
Right now.
We still have value laundry detergent its way stronger than it was back in 2009, and we have vitamins, which is the second engine to help us pull the train.
Through an economic downturn, yeah, it's true that the water pick is is down right now big time because of the.
The dental offices closures, but there is a therapeutic need for waterflood. So we think we expect that that should start coming back I don't know when those dental dental offices were open up those recommendations will start again, but that will happen at some point.
Flawless looks like in recent days, we could benefit from.
I feel is obviously, that's a was a brand that soft or to a rough start when we first purchase them.
But we feel real good about the signs that we're seeing.
More recently in the month of April.
So we when you have more brands and you have more categories.
You've actually spread your risk more so we're actually and we think in a better position now than we were in 2009 go a lot more.
Degrees of freedom, and and a lot more weapons and then in terms of hedging a said in my prepared remarks, I think were about 60% hedged in 2020 and were about 25% hedged for 2021.
But you'll likely see us.
Not do a lot of incremental hedging in times like this it's best to led demand play its course to see what happens to commodity markets.
Great. Thank you.
Our next question comes on Bill Shapell with Suntrust. Your line is now open.
Thanks, Good morning.
Hey, Bill eight.
A couple things.
One just on costs I.
I know, it's still early but any kind of thoughts on resin surfactants as we move.
Over the next few months I realize you're hedged, but just kind of the the long would you would it change how you hedge out you know as we go into 2021.
Yeah, No. It's a fair question.
A little bit of what Steve said are asked I'll start with that first were 25% has been to 2021, and we're not going to layer on in our opinion much more hedges because it's really demand game right now for those markets and demand is down so we're going to wait and see how those commodities shake out, but by and large I'll give you. Some examples.
Oil is down 50%, but ethylene is down 9% and HCP is flat polypropylenes down 7%, that's just spot pricing from February to March and and that.
To shows yet what we've said for a long time as its disconnected from oil unless oil stays down for long time, so when I say long time four to six months so.
That could be a tailwind, but we have to wait and see how that plays out.
Got it and then just on the marketing advertising near term.
I guess a question of are you seeing or expecting some changing trends as we come out of this you may have heard my state of Georgia is moving a little bit faster than others and.
People will go back to malls, this weekend or where it just regular stores.
So be it pregnancy kit the vitamin D. it or do you view changed some of your marketing advertising to kind of.
To adjust for some near term trends or do you really just kind of push everything towards back half.
Yes, no. That's a great question, Phil you know all of our marketers have been very busy adjusting all of our marketing messages to be contemporary.
The recognizing the change in consumer behavior, you have never Tizing now that you can't go to the Salon.
Filling the black now that you can't go to the dental office. So on the blank right. These are things you how do you have to communicate to the consumer.
Recognizes circumstances that they're in so we have been racing to do that for all of our our brands and because of consumers moving online.
We're spending a lot more money.
Changing our digital messages and we think we're probably going to spend more and digital media as percentage of total this year than we have in the past.
Got it thanks, so much.
Okay Bill.
Last question comes from Mark Astra Chen with Stifel. Your line is now open.
Yes, thanks, and good morning, everybody.
Yes.
Commerce adoption. So you touched on just how much bigger it seems to be I think we've seen that across.
A whole bunch of companies, thus far coming coming out of what's what's going on.
What would be your expectations on.
Much of those consumers buying online stay that way.
And away from stores and specifically to your business.
How do you think about your online position.
Share and how do you capitalize on kind of that opportunity, especially in key categories.
Yeah, I would say, it's a permanent change it's a permanent step up and.
Line sales.
Thanks, a lot of people, who had not purchase online late adopters have discovered it now because of quarantining and requirements to stay at home.
Do you see a big uptick.
Justin.
Online sales, but also click and collect so buy online pickup in store is is up huge as well. So these have all been discovered by consumers. So I think that's a permanent change then we probably got a few years of development and a couple of months for as online sales that's good.
How we would look at that as a good thing.
In 2015, we had 1% of ourselves on line last year, 8%. This year will we had a target and I will will probably well exceed that.
So we've done a lot of work over the last few years, putting ourselves in that position to be a formidable competitor online I think we are.
So we think that we're fine with that trend where were to happen.
Thank you.
Hey, Steve.
Thank you and that does conclude today's question and answer session I would now like to hand, the call back to management for any closing remarks.
Yeah, I think we're we're in a great position going forward.
As I said earlier, we performed well in good times and embed we've got a.
Terrific balance sheet lots of cash strong brands and with their we're well positioned for what's coming and we'll talk to everybody again in August.
Ladies and gentlemen, thank you.
Fitting in today's conference you may now disconnect.
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