Q4 2020 Church & Dwight Co Inc Earnings Call

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I recommend that you read it at your leisure.

We have our entire management team on the call today available for Q&A. After the formal pitch, we have a lot of slides on several presenters, but I'm going to give you the short story upfront.

'twenty 'twenty was a turbulent year, we emerged from 2020 much stronger as a company we like to say that we do our best working where on a jam.

That's true for 'twenty and 'twenty.

We protect our people.

Found a way to run the plants and warehouses safely we set production and shipping records, we figured out how to make hand sanitizer in our UK plant. We operated the company with 2000 remote employees, we pivoted our marketing messages to support a 60 per cent increase in ecommerce sales.

We installed a new packaging lines with the assistance of off site engineers using Google glasses.

We added over flow warehouses, and we validated new suppliers and co manufacturers.

Communities, we delivered masks and hand, sanitizers to hospitals, where we live and donated to food banks and recently, our Mason City, Iowa plant loaned and ultra cold freezer to a local hospital to store the COVID-19 vaccine.

Consumer demand drove huge sales growth, which enabled us to overcome significant incremental COVID-19 costs and incremental U S government tariffs.

But it also gave us the opportunity to invest in our future, which we did in the second half.

Looking ahead to 'twenty, one we are optimistic that the vaccine will help the global business environment.

We operate in many categories and we do expect pluses and minuses, depending on the category all in we expect to deliver 3% organic sales growth and 6% to 8% EPS growth in 'twenty 'twenty one.

And this is on top of almost 10% organic growth and 15 per cent EPS growth in 2020, which exceeded our 'twenty 'twenty outlook. When we last spoke in October.

Our evergreen model is intact.

Before we start the formal part of the program Here's a brief video that is a look back on 2020.

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Okay.

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Followed by Britta Baumhardt, Who's our Chief marketing Officer, Britt Who's going to talk about the categories. How they performed a 'twenty 'twenty and how we expect them to perform in 'twenty, one Steve Cugini is going to come up and tell us about our new products in 'twenty, one I, Steve Cugini by the way it will be retiring in the middle of 'twenty, One Steve has had a spectacular career with church.

From Dwight spanning over 20 years for the past seven years, he's been running our international business, which has been a stellar performer.

And Steve is going to introduce Barry Bruno who has been with the company for a number of years and he has been Steve's right hand man on growing the international business. So I'll give him a warm welcome today.

I'm going to come back and talk about the animal productivity story as well as how we run the company and also talk about our M&A platform, we're going to wrap up with Rick Dierker, our CFO to run us through the financials.

Now, who we are and whether you've been at a short term one year on shareholder Church and Dwight three 510 or 15 years, you're very pleased with our performance we have been a stellar performer in the CPG space for many many years, we're known for our consistency.

And one of the reasons for our consistency is our evergreen model every year, we expect to grow our topline organically, 3% on our Bottomline eight per cent. That's true in 'twenty, one that would be true on 'twenty two 'twenty three 'twenty four 'twenty five.

You might ask how's that been working out for you well if you take a look back over the last 10 years, you'll see that we've exceeded the 3% target every year, except 2013, and 2017 with respect to 8% eight per cent EPS you can see over many many years square consistent so church and Dwight is a consistent performer we <unk>.

And evergreen mild debt is very familiar to all of our existing shareholders three per cent topline eight per cent bottom line now.

Now where does the 3% organic growth come from well two per cent from the U S. Six per cent from international and five per cent from specialty products.

This is our evergreen target, but it also happens to be the target for 'twenty and 'twenty. One we expect to deliver these three numbers for each of those divisions in 'twenty one we.

We focus on power brands, we have 13 power brands on our companies that are displayed here on this chart.

And those 13 power brands deliver 80% of our revenues and profits.

And we're very balanced as a company about half of our consumer businesses and households, and half is in personal care and we have a small specialty products business, which is a combination of bulk sodium bicarbonate and animal productivity products. We have a nice split between premium and value 58 per cent premium and 42 per cent value. What this means is we are.

Right and perform well in virtually any economic environment with respect to our geographic split. So we have a lot of room to grow internationally, we're largely a U S company only 17% of our consumer business is international so lots and lots of runway that's going to generate a lot of growth for us in future years, one of our big advantages.

That we're nimble we're small we only have 5000 employees, we have the highest sales per employee of any CPG company and it helps us three ways quick decision, making easy communication and its ability to adapt and the ability to adapt was highlighted in 'twenty 'twenty. When you saw how we reacted to the pandemic.

We have a long history of growth through acquisitions. If you went back to the year 2000. The only brand. We owned was arm <unk> Hammer, we were up only 800 million in sales in the year 2021, we're gonna crossed $5 billion.

And of those 13 power brands 12 of them were acquired since 2001.

If you go back just a few years in 2015, we were a laggard when it came to online sales less than 1% of our sales were on line at the end of 2019. He was 8% at the end of 'twenty largely due to COVID-19. It's over 13%. So we regard ourselves as a leader now with respect to E commerce.

We have a low exposure to private label only 12% and if you look at the categories. There's only five of our 17 categories, where we have significant private label share and no shares have been pretty stable over the last five years.

Now I'm going to bring up Britta Baumhardt, our chief marketing officer to take us through the categories in the U S business was kind of tell biggest business consumer domestic with over 4 billion in sales as you have heard from Matt We plan to deliver another year of growth in 'twenty 'twenty, one on top of an outstanding performance in 'twenty two.

'twenty and in line with our Evergreen model.

They have price distinctive drivers for growth in 'twenty 'twenty one.

Number one tailwind on vitamins gummy category growth accelerated by strong brand by diffusion second.

Second waterpick, despite dental offices, and many retailers being closed for part of the year, we saw it slightly more powerful losses from 'twenty 'twenty than in 2019, removing these roadblocks gross will be even stronger.

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Florida sales will benefit from new products, a great influence that day and.

And the rebound to put forth.

For some brands will rebound, where social distancing really impacted sales with vaccines coming consumer toward socialized more.

Fyfe loss, but most importantly, we strengthened our brand and improved on media spend effectiveness, we create brands consumers love 'twenty 'twenty was a year. This dramatic changes how consumers use media, which allowed us many test and learn experiments feeding our.

To date, our model and giving us confidence, but on media dollars will be again more effective in 'twenty 'twenty one.

But let's start with tailwind.

We are in the right categories, we saw growth in 12 of our 17 categories average 9.8% overall.

We saw an over 50% growth in vitamins double digit growth in baking soda and single digit and many other categories.

The only category this double digit decline as Paula floor sets and that's just in the Nielsen universe.

This is important as Nielsen only measure it's about one quarter of powerful on the sales and I will show you numbers from the whole universe later.

We have high expectations for category growth in 'twenty, 'twenty, one and I will speak to them in more detail.

For categories, we stay on elevated levels.

Five categories will come down from Covid peaks, but some to higher levels.

Five categories will bounce back from Covid impact.

Three categories will be steady.

The underlying trends for the category growth is household penetration.

As you can see on this chart 11 of our 17 categories increased household penetration.

This means more consumers are buying this category.

It wasn't on the consumer buying these categories they bought our brands in unprecedented numbers.

We added $8 6 million households to arm <unk> hammer.

Paula to you.

2.4 million to Oxiclean stain fighters.

And in the second half of Lane VI diffusion added 3 million more households.

We know that we have category leading repeat rates.

This means once these households experience our brands they enjoy them and come back to them laying the foundation for strong growth in 'twenty 'twenty one.

Let's look at some of the category behaviors one by one.

Vitamins grew an amazing 58 per cent and consumption.

You can see the original stuck up peak in March but also that increased levels continued for the rest of the year.

It takes 66 days to form a new habit and consumers clearly for you habits regarding taking vitamins.

90% of consumer started taking vitamins.

These seven percentage that means more than half are now taking vitamins daily. So it's not only more consumer is taking vitamins. They also take them more frequently.

And another one third of consumer plan to add more types of vitamins to their baskets planning to add immune strength thing for example.

Last but not least when taking vitamins consumer preferred gummies over other forms.

You can see that the shelf gummies on total <unk> increased by nearly one third.

That is it does now 23 per cent.

And who would be better placed to profit from that growth then the number one vitamins gummy vitamin fusion.

Let's look at the categories Paula philosophy.

Nielsen only captures about one quarter of category sales.

That is why you show your unit sales across all classes of trade and you can see debt after the decline at the beginning of the year with the Lockdown there was a strong rebound in.

In total for 'twenty 'twenty, we achieved slightly more unit sales than in 2019.

Despite dentists and certain retailers being closed for significant periods of time.

Which also means that we came out strong by the end of the year and this momentum will continue.

And only accelerate this more dentist office opened up and resuming higher traffic.

Only upside.

Women's grooming, so two opposing trends on one hand retail stores closed well this reduced foot traffic reducing sales.

On the other hand spa closures in Covid concerns driving do at home movement and increasing sales.

Oh flawless team quickly spotted the trend in tonnage around what's spa at home products, which have just launched we now offer solutions for women, who do not want to go to a beautician and get our faiths massage or do you not want to visit the nail salon.

And just now in salons and spas have close down due to Covid. We believe that women will continue to prefer at home treatment.

So here are two of our exciting new products.

Our facial massage cleanser and just sell on now toolkit.

Steve will talk more about them later.

Moreover, we have secured and I can speak for the Brad Holly Berry.

Who will be even more popular if that's even possible in 'twenty 'twenty one due to the launch of a new film moving forward.

In addition, with Ashley Graham Amelia Hamlin and dust camera on Hudson choose yes, promoting flawless.

It will be an exciting year for flawless.

Flawless means being perfect day U B U b flawless.

Now total biggest category laundry as you can see laundry grew 5.5% and 2020, but it wasn't a lot of swings due to consumer stockpiling and changing habits.

Being more concerned about germs and being home, allowing for more time to do laundry that will continue as tailwind for 2021.

Cat litter will also benefit from change habits that continue.

It is hard to get good statistics on cat ownership.

But we do know that 6% more households bought catalyst on 'twenty 'twenty, leading me to believe that this is the minimum of additional cat owners.

But this number bone captures the households, who got additional cats.

And as consumers want to spend more time with that cash instead of going to stores. We have seen a significant increase in online sales, which are not captured in these Nielsen sales.

Then the categories, which are impacted by social distancing, we call. These the social interaction categories.

One of them is dry shampoo, but we have seen category decline due to store closures and net browsing in store.

Here, the advance of vaccination and the associated expected increase of socializing, what bounce back the category.

And even more eagerly awaited bounce back of sales is in the condom category that's condoms.

Pleasure.

18 to 24 year olds can't wait to get their social lives back and with college campuses reopening 'twenty 'twenty one looks promising.

Now that we've gone through the different categories.

Let me summarize changed consumer behavior due to Covid that we think will stay and help our business.

Number one self care at home for hair care, and we're moving have businesses like Nair and flawless.

Kept ownership for cat litter.

Higher consciousness of germs on cleanliness benefiting arm <unk> hammer oxiclean extra but also COVID-19.

And for event and this trend with a regular daily intake of supplements.

By diffusion little Critters, and visit scull will benefit and water Pik for gum health.

It is not only category growth that will drive our business. It will also be the strength of our brands and the ability to win market share, which we have proven year over year.

We have brands consumers love.

In 'twenty 'twenty, a year with difficult supply situations. The majority of our brands, which means seven out of our 13 polo brands have grown share.

We have set to continue on market share winning streak.

Let me get back to what I outlined at the beginning as growth drivers brand equity and media effectiveness.

'twenty 'twenty was a year, where consumer radically changed consumption, but also on media behavior.

This is the marketeers dream because it allows for a lot of test and learns and very distinctive datasets.

You're familiar with data analytics, we now have great input to our media effectiveness models and are confident to drive even better rois in 'twenty 'twenty one.

Let me just share one area.

It is not only consumers who love our brands it does influence us as well.

We have more than 500, influencers globally, enjoying and recommending all brands.

We have reached more than 200 million consumer that's why are those recommendations and this number will definitely grow in 'twenty or 'twenty one.

What will the influence is right about.

About some of our exciting new products.

I hand over to Steve could you need to share what we're launching enjoy.

Church, and Dwight has delivered consistent new product innovation year in and year out in support of our global growth objectives.

'twenty one is no different we have a super lineup of brand building innovation. So much. So we do not have the time to take you through the full list. So we have curated a few of our favorites.

Every new product is born from a consumer insight.

79 per cent for consumers want germs removed from their laundry, introducing oxiclean laundry and home sanitize.

This product kills 99.9% of bacteria and viruses. It also remove germs odors and stains check out this video.

Lisa.

Uh huh.

From Sweatshirt.

Just so buzz.

The cepheid.

Clean clean at all with Oxiclean, laundry and home Sanitizer and kill 99, 9% of bacteria.

Consumers have been hyper focused on cleaning household surfaces, introducing oxiclean multi purpose disinfecting sprays.

Product kills Covid.

It is powerful cleaning and disinfecting without Corrine bleach.

Two thirds of consumers buying flossing difficult and only 16% Floss daily introducing waterpick Sonic fusion 2.0, the most successful new product launch empower fazer history.

Just got better at it.

Two times, a peripheral speed greater flossing power multiple head sizes and to brush speeds, here's another consumer insight consumers with smaller bathrooms struggle with counter space and outlets introducing waterpick I on the same amazing clean unplugged.

This product is 30% smaller than traditional plug in models has 90 seconds of water capacity and with a lithium ion battery that lasts up to four weeks with a single charge.

Check out this video.

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Here's another consumer insight Muncie condoms that fit and feel the best intra.

Introducing Trojan all the field is a selection of our best condoms with personal lives fit and feel.

And better feel equals more usage.

Here is a video featuring our ecstasy condo.

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One more consumer insight is that consumers are becoming more confident in doing beauty routines at home and they are where other cost savings intra.

Introducing finishing touch flawless facial cleansers and Salon now.

And one last consumer insight 33 per cent of consumers plan to purchase more immune support supplements.

Introducing vital fusion super immune support it is the only gummy to deliver over 100% daily value of the top three immune ingredients vitamin C zinc and elderberry.

It also includes a new ingredient.

Monaco honey.

This is the first bite of fusion item in the cough and cold aisle.

Fight of fusion has been increasing the amount of new items has been launching 'twenty 'twenty, one will be no different we have an exciting lift of new items coming.

I'm also excited to share with you the details of another fabulous quarter and year for the International Division.

2020 was like no other here as we track the Corona virus as it surged across the globe starting in Asia in Q1.

We plan for its impact and pivoted to areas of growth as our international mix is heavily weighted toward personal care versus household products and therefore more susceptible to global store closures, particularly in Europe, we finished twenty-twenty posting organic growth of <unk>.

8.6%, well above our 6% evergreen goal this.

This is remarkable given the fact that during Q2 at the height of the pandemic, we delivered less than 1% organic growth for the division.

Q4 finished up a remarkable 14.9% behind growth in both our domestic subsidiary markets as well as our gmg business, where a resurgent Asia was a key driver of performance.

We have now built an international business, that's over $800 million and approaching scale in key markets and we feel that there is not a market that we cannot reach.

We've also tripled the historic CAGR of the division from three per cent to 9%.

Wait a minute I didnt labeled a fly to Cugini effect it must have come from my friend Barry Bruno.

Well that seems like a good transition point from looking at the past performance to Bury Bruno and his focus on the future.

I will be retiring from church and Dwight in June of this year.

Barry Bruno has been promoted to executive Vice President of the international consumer products Division.

He was one of my first hires when I moved into this position almost eight years ago.

He has been the co architect of the existing international strategy.

He has led the design and execution of the global markets Group and the Division why global International marketing team hits.

His fingerprints are all over the success of this business in conjunction with the other members other division leadership team.

Barry came to church and Dwight from Johnson, <unk> Johnson, where he worked for 14 years across consumer pharmaceutical and medical device businesses, where he developed a depth of experience in both U S domestic and global markets. During his time there he turned that experience into a great start here.

Our church and Dwight and I have confidence in his ability to continue what we've started here in international.

Congratulations Barry and good luck.

In closing it has been my sincere pleasure to work for this great company for the past 20 years.

The culture of church, and Dwight it's a place where performance matters straight talk is encouraged and teamwork is a differentiator I stated church and Dwight because I felt that I could bring my unique self to work every day cable big ideas that challenge the status quo and when the decision was.

Made I know I had the support of my peers to make it happen.

This is as true today as when I joined in 1999.

I am confident in the future as the company and the international team is stronger today than ever before.

Thank you and now over to Barry Thanks, Steve It's been an honor to work alongside you. These last seven plus years here on international and I can assure you that the Cugini effect is felt far beyond just a fear on international and your work over 20, plus years has impacted the entire church and Dwight organization.

You will be missed by so many Steve but I think most of all by me.

As you saw under Steve's leadership, we've built international into an $820 million business, that's growing faster than ever.

And as a reminder to this audience, we think about our international business in two buckets are subsidiaries, where we have fully staffed church and Dwight teams on the ground in Canada, Mexico, UK, France, Germany, and Australia, and our global markets group, which covers 130.

Other markets via distributors, who represent our brands.

I'm going to get into both shortly however, this chart shows the relative size of each in net sales.

As you've seen G. M. G has been on a tear and now represents 34 per cent of all international sales, followed by Canada, and our European subsidiaries, and then our Australia and Mexican subsidiaries.

From a growth standpoint, our subsidiaries grew plus four eight per cent in 'twenty 'twenty and G. M. G continued its stellar run with explosive growth of plus 19%.

What's noteworthy here is that our international business is much more heavily weighted towards personal care products than our U S business, which makes these results even more impressive in an environment, where COVID-19 has slowed down many personal care categories.

For some additional context, our subsidiaries have been delivering outsized growth more than double historical CPG category averages and some of our key subs are now for the first time approaching scale, which we'll talk about it as a margin improvement enabler a bit later as mentioned earlier G. M. G is now our largest entity.

Without standing growth of plus 19% and.

Emerging markets in Asia, the Middle East and Latin America have been and will continue to be growth drivers going forward.

Last but not least you know how acquisitive, we are and I'm happy to share that we've delivered double digit growth on water Pik and flawless in 2020, and they remain far underrepresented and international household penetration than in the U S lead market.

If we look a level deeper at key drivers in our subsidiaries, we continue to make great headway and turning our U S domestic power brands into international power brands.

Harman Hammer Oxiclean and Trojan are all examples of U S power brands, which still have long international runway in our subsidiaries.

Likewise water Pik and flawless household penetration and our subs trails, the U S significantly and we're lifting and applying best practices from the U S to drive subsidiary success on these brands.

Finally, we're approaching pricing with greater rigor and discipline and hiring dedicated resources and international to help us understand where pricing opportunities exist.

From a G M. G standpoint emerging markets have been a big area of focus and we are significantly under indexed in these key markets versus our competitors for context, our top CPG competitors derive over 25 per cent of international sales from emerging markets in which we both compete while C&D only realized seven per cent of our international revenue.

On your from them.

Today, we're spending more on these markets and will continue to prioritize them going forward.

From an acquisition standpoint, our distributor coverage in 130, plus markets gives us a great footprint for expansion and we've been making excellent headway on new acquisitions like water Pik and flawless, but we're also still making excellent progress on some of our older acquisitions like batiste and our Vms brands.

Last but not least we're working with our supply chain partners to evolve from our export origins, where we ship products from the U S and the U K, where they're made today to more local manufacturing, particularly in Asia.

Speaking of Asia, I don't think it will come as a surprise to you that the region contains some of the largest economies in the world. However.

However, what you might find interesting is the visualization here showing that there are more consumers living in Asia than in the rest of the world combined including four and a half billion middle income consumers, who represent our target audience for church <unk> Dwight brands.

In recognition of this and the terrific future growth opportunity that exists in Asia, We now have C and D representative offices in Shanghai, Singapore, and just last month opened our first India office in Mumbai to help drive growth in that new market for us.

From an acquisition standpoint, water Pik and flawless are our primary areas of focus and our key subs, we've de layered by removing distributors and are now leveraging our own sales force to sell direct.

In terms of G. M. G. We continue to expand into new markets via distributors with two very recent examples being our launch of Waterpick in Japan, and a flawless in India in just the past few months.

Finally, we're bringing C and D as marketing E commerce and pricing expertise to bear on these brands to make sure we're leveraging our capabilities, which are often broader than those of the companies from whom we acquired brands. So that we can drive efficient profitable growth all around the globe.

If we dive deeper into Waterpick as one example, we've doubled the business in the last three years growing from $50 million. When we acquired the brand to $100 million in international sales in 2020.

And we're doing it by leveraging best practices and proven successes like professional detailing consumer marketing and compelling in store display activation all borrowed from the U S. We know this is a winning formula as we've doubled the business already however, what's even more exciting is the runway ahead of us that exists due to very low household penetration in comparison.

To the lead U S market.

In terms of flawless, it's a brand we love that's still in its very early days internationally.

Wherever you heard Britta talk about the powerhouse influencers that we're leveraging in the U S and I'm happy to share that we're using them abroad as well with plans in 10 of our largest global markets that are sure to drive awareness and trial of this great. New addition to our portfolio I mentioned earlier that we love all of our acquisitions here on international even those that are.

We're a bit older and an example of how we're still greenhouse on some of these older brands can be seen first with batiste, where we've grown at a 20% CAGR over the last five years and are still under indexed and household penetration versus our lead market in the U K.

We continue to launch in new markets and drive household penetration in existing markets and again have lots more room to run with household penetration less than two per cent and most global markets.

Finally, we can't forget about Vms, we've owned it a little bit longer but the trends that we see in the U S are the same abroad and I'm happy to share that via message booming for us internationally as well. One example of a market, where we're investing significant time and resources on via message in China.

Where sales were up more than 30 per cent in 2020, So again long runways, even on acquisition we've owned for a while now.

Okay. So how are we doing it well, we're making strategic investments in areas that have the biggest impact for example to support our booming E commerce business in China, we're ramping up hiring of our own E Commerce staff to help augment and better direct the efforts of our multiple partners in China.

India is a vast and complicated market and we knew we needed boots on the ground. So we've hired our first staff there just a few weeks ago.

Another complicated area is global pricing, where we're now building strategies to take advantage of pricing power in order to understand where we can take price and we now for the first time have dedicated international expertise there as well from a manufacturing standpoint, we're evolving from our historical export routes, where we manufactured product and developed.

Western markets and shifted around the world.

To local manufacturing, especially in Asia, where our business is now big enough to justify bringing co packers online to deliver better costs and faster supply to customers.

Finally, we're investing for the first time in global marketing campaigns like arm <unk> Hammer has more power to you campaign, where we leverage proven insights while localizing the talent and messaging to make sure we're relevant in the markets in which they are launched.

Individually none of these might seem all that impactful to you. However, cumulatively I assure you that represent a significant investment and resources and capability building that we're confident will keep international growing long into the future.

Last but not least we remain committed to doing all of the above while continuing to use our increasing scale pricing power in key markets and our personal care weighted mix to keep increasing operating margin by 50 basis points per year, we did even better than that in 'twenty 'twenty, where we grew 120 basis points and we remain committed to further.

Continuous improvements here.

So in closing we remain very excited about international and remain committed to our 6% organic growth target, which is also consistent with our outlook for 'twenty 'twenty, one and as a reminder, this is on top of almost 9% organic growth. We experienced in 2020, we've got a long runway on U S power brands going global.

A number of acquisitions with very low household penetration versus their lead markets in enormous opportunity in emerging markets, where we've just started opening new offices to help us reach these consumers and a number of strategic investments in resources and capabilities like E Commerce and pricing to help make sure our great International team is working.

As efficiently and effectively as possible to drive profitable growth long into the future.

Thank you for your time and interest in our International story now back to you Matt.

Thanks, Barry I'm going to run you through the animal productivity story right now.

You heard me speak earlier about what our Evergreen model is it's a 3% annual organic growth two from from the U S. Six from international and five for specialty products.

Our specialty products business is a $300 million business two thirds is animal productivity and one third is specialty chemicals.

If you look at the animal productivity piece, you'll see it split.

Between animals, dairy and animal non dairy historically dairy has been the biggest part of the business.

The three types of products, we produce are prebiotics probiotics and nutritional supplements now why is that important it's because the consumer is moving away from wanting to consume food that is produced with antibiotics.

The dairy business has been cyclical as I said before it's been the biggest part of the business.

If you look at this chart in 2011, 2014th 2017 that though so we're up years. So typically it's a three year cycle. The expectation was that 'twenty 'twenty was going to be a big up here. It didn't happen why because of the pandemic. So we expect a strong year from the from the dairy business in 'twenty one.

Now if you look at dairy versus non dairy we were monolithic back in 2015 less than 1% of door sales were from non dairy in 'twenty, one and we expect it to cross 30%. So just wrapping up here. We are a trusted brand all of those products I described our arm <unk> hammer products were aligned with the consumer trend to move away from.

Antibiotics to prebiotics and probiotics, we've moved from dairy to other species cattle swine and poultry and we have a lot of runway internationally.

Now I'm going to talk about how we run the company.

It's pretty simple we have five operating principles, one leverage brands to friend of the environment three leverage people for leverage assets and finally leverage acquisitions.

Number one brands consumers love as we say we opened the program today pointing out that we have 13 brands that we call. Our power brands. These are brands that consumers love.

Number two we're a friend of the environment and that friend on the environment started back in the 19th century, you're on a rise across this page you can see back in 18 88 week. The company introduced pro environmental Wall charts, and trading cards that we put in our packages as a promotion for the environment in the seventies with where the first corporate sponsor of Earth day.

If you went 20 years later to 1990, we're still the only corporate sponsor of Earth day more recently in 2016.

50 per cent of our global electricity demand was supplied by renewable energy sources in 2018, we crossed 100 per cent.

Over the last five years, we've been planting trees in the Mississippi River Valley now why is that important because trees take C. O two out of the atmosphere and this is consistent with our goal of being carbon neutral by 2025.

Here are our three environmental goals first water produced water and our wastewater by 25 per cent by 'twenty 'twenty two for solid waste to increase our solid waste recycling rate to 75 per cent by the end of 'twenty 'twenty one.

And finally are we want to achieve 100% carbon neutral status for all of our global operations by 2025.

And if all those three that's the one I'm most excited about.

Now we've been getting a lot of recognition externally as you can see on this slide from just capital FTSE for good the E. P. A etcetera not because we've been applying for these things in and.

Running our business. So we can take a bath now we've been recognized because we've been through on the right thing.

Number three we leverage people, we have the highest sales per employee of any company in the CPG space.

This is an underappreciated statistic you hit these numbers were almost of the million dollars of sales per employee you'd normally expect out of a startup.

We have a very simple compensation structure.

We focused on four things revenue gross margin cash from operations and EPS and gross margin is actually an unusual element of our incentive compensation package. The reason why we have gross margin in there is because it creates financial literacy gross margin expansion is very important to our operating model.

And when people think hey, gross margins part of my incentive comp did they ask the question, what's gross margin and how can I get it.

Number four we consider ourselves asset light capex as a percentage of sales has been about two per cent for as long as I've been with the company.

The other thing that may not be appreciated as debt about 25 per cent of our global sales are manufactured by third parties.

So I just ran through the first four operating principles on let's go into number five leveraging acquisitions. If you do the first four principles well you're going to have good shareholder returns. If you can add to that leveraging acquisitions, you get great shareholder returns, which we do.

We have a long history of growth through acquisitions as I mentioned earlier.

And the reason why we do so well with acquisitions is because we're disciplined so here's the five criteria number one we only buy brands that are number one or number two in their categories number two we only buy brands that can grow 3% or better and have gross margins that are equal to or better than our corporate gross margins number three.

To be asset light number four we're always looking for cost synergies. So we're trying to leverage a church and Dwight supply chain footprint and finally these brands need to have a sustainable competitive advantage for many years to come our most recent acquisition is zicam. That's the number one zick supplement in the United States in the adult cold shortening.

Category as many of you have been watching the cough and cold categories have been I would expect it to be down in 'twenty, one why because people are wearing masks and using hand, sanitizers et cetera, we expect that as well, but we think this is going to be a wonderful acquisition for us for years to come just to wrap up the M&A section, we have 13 brands today.

Well shooting for 20 Tomorrow why is this important well acquisitions have been a great driver of total shareholder holder return historically and will be again in the future.

And next up is Rick to take us through the financials. Okay. Thanks, Matt I'm Gonna go through four items today first off is the evergreen model like we always do number two is 2020 results both for the quarter on the full year.

The third thing will be the 'twenty and 'twenty one outlook and then the fourth will be the capital allocation discussion so.

So first off is the evergreen model and our shareholders know that we've been talked about this for a very long time three per cent topline eight per cent bottomline.

And we have a detailed model to go through as well so three per cent for net sales growth 25 basis points for gross margin expansion flat marketing as a percentage of sales, which is typically higher dollars as we grow the top line.

And then we leverage SG&A by 25 basis points that gets us to 50 basis points of operating margin expansion and about eight per cent EPS growth.

Now moving to 2020, so we ended the year in a fantastic way.

Q4, 2020 was 10.8% organic sales growth, 11% domestic organic sales growth 14.9 per cent for international and minus 1.2 per cent for SPD gross.

Gross margin was down 280 basis points, but in line with what our expectations were remember on our outlook was down 250 basis points for the quarter now that 280 included a 40 basis point drag because we recognize some of our supply chain workers as the pandemic spiked again in Q4.

And then marketing change was up 140 basis points in the quarter as we invested behind our brands to enter 2021 with momentum.

SG&A was leveraged by 70 basis points despite.

Despite higher amortization and investments.

Topline helps us leverage SG&A on a big way.

And then EPS was <unk> 53 cents our outlook was 50 to 52 sets. So we beat the midpoint of the range by two cents move.

Moving to the full year 2020 organic was nine 5% domestic was 10.7 international 8.6, and SPD was 0.4%. So just really a strong year to have a 10% organic full year number.

Gross margin was 45.2 or down 30 basis points, really really driven because of COVID-19 and incremental tariffs, but we'll get into the detail on a minute.

Marketing was 12, 1% or higher by 30 basis points, that's very significant it was a huge investment behind our brands.

You'll hear on the outlook that we're going to return to pre pandemic levels from marketing support.

Adjusted SG&A was $14 one per cent or down 10 basis points. So we did leverage SG&A.

So EPS was up 15% or $2.83, and then cash was up to $990 million or $400 million above our $890 million estimate a year ago.

And then finally that that translates into a 125 per cent free cash flow conversion, we do a great job converting net income into cash flow and now turning to the detail on gross margin Here's the bridge. So for Q4, we had positive price volume mix similar to the way we've had it all year long plus 130 basis points.

That inflation was a drag of 310 basis points, but that included a few items commodities distribution with a tight.

Trucking market labor increases and then investments.

Covid costs.

150 basis point drag, which included a 40 basis point drag from the supplemental bonus that we discussed earlier and crawl tariffs for water Pik was a 90 basis point drag for the quarter and then productivity programs were plus 160. So there's a lot of great work behind our good to Great program acquisition, that's really as I can for the month of December the positive.

Arjun mix and then false accounting was down 30 basis points remember back in 2019. It was a good guy and so it didn't exist in 2020, so its a drag year over year and that's how we get to down 280 basis points for the quarter.

And then all of that translates into the full year to be down 30 basis points and so we feel like we have a great springboard to have margin expansion in 'twenty 'twenty, one and we'll talk about that in a minute.

Turning to this slide this is four reasons why we can expand gross margin in the future and we believe these things.

First off is our good to great program and other Scott finished telling you how well we did in 2020 number two is supply chain optimization, that's really our footprint our network number three as acquisition synergies you hurt us a few months ago talking about the Ikea and we signed up for $5 million of synergies for Zicam. As an example, and then fourth is new products, we want to launch accretive new.

Products. So those four reasons help us have confidence and expanding margin over the long term.

Okay moving to the 2021 outlook.

So at a high level or.

Our other consist of reported sales growth of four 5% that's really the organic number of 3% plus the impact of Zicam organic is 3% operating profit margin expansion of 100 basis points, which is almost double our 50 basis point.

Expansion for our Evergreen model and then on adjusted EPS growth of six to eight per cent.

So here's the detail on outlook for 2021 first the four 5% reported and then we get into the 3% organic sales growth and it's very consistent with what you just heard from Matt and Barry and Britta two per cent for domestic six per cent for international and five per cent for SPD.

Now the 3% organic growth.

Does have a couple of strategic choices that we've made previously in there remember last year, we communicated that we were deemphasizing oxiclean laundry.

And we were getting out of the private label vitamins business. Both of those things. This is the second and complete year of those actions and that that would have added a full point of organic growth. As an example, so we would've been at 4%, but just wanted to give you context there.

Gross margin is up 50 basis points will go through that detail in a minute.

And marketing is down 30 basis, as we get back to kind of the average for pre pandemic levels is around 11.8, and that's what we plan on doing in 2021.

S. G&A, we leverage by 20 basis points, and then we're up 100 basis points for operating margin.

Now you might ask well, if you're a leveraging on operating margin by 100 basis points why aren't you higher on the EPS growth outlook, you're only at six 8% in your Evergreen model is 50 basis points and you're eight per cent EPS growth well. It is because the tax our tax rate in 2020 was 19% and we're going back to the consistent average.

Around 21 22 per cent.

In 2019, we had two things that have helped us on tax one was.

On a discrete international planned settlement.

And then the second one was just a higher number of stock option exercises and so those two things aren't going to recur.

To the same extent.

So as a result, we're up 100 basis points on operating margin just really strong base business plan are up six 8% on EPS and then up to approximately $1 billion of cash flow generation cash from operations.

Okay, Here's a track record of our organic sales over the last 10 years very consistent we've typically our average around 4%. This year, we're calling three per cent for 'twenty 'twenty, one and as I said before if you add in some of those strategic.

<unk>, we've made we are closer to 4% on an apples to apples base on basis.

We we focus on gross margin on a big way gross margins a great surrogate for driver for EBITDA margin and then that flows all the way down to cash flow and cash generation and we bleed cash drives value, so plus 50 basis points from 2021.

The detail of the 50 basis points of expansion in 'twenty, one really leads off with price volume mix continuing to expand.

We have higher volumes, we have improved price mix throughout the year inflation.

Inflation and the Covid costs are a drag of around 130 basis points COVID-19 costs to.

Reduced year over year, but they're still they still exist and then productivity programs are a tailwind of 100 basis points tariffs and acquisition, that's again as I Cam acquisition and the favorable gross margin impact to mix.

Those two pretty much offset and were at plus 50 basis points for the year, So really happy with that type of expansion.

Now we're talking about the seasonality of gross margin. The first half second half dynamics. So first half gross margin is down 50 basis points and why is that while we're going back to normal promotional levels. Remember in 2020 March April may June promotional levels pulled back in a big way as the pandemic was spiking and couponing as well.

We have higher water pik tariffs in the first half right. It's not in the comp year ago first half and we have COVID-19 costs compared to a year ago. When there were none and plus there is higher commodity costs.

In the second half we have a lower COVID-19 costs, we have improved our trade promotion, we have tariff remediation. We're doing actions were taken actions to offset that Chinese supply chain that we have for waterpick.

And of course, we have Zicam gross margin mix favorability moving to marketing we have a long track record of spending between 11 and 12% on marketing just drives the brand's growth overtime and drives our evergreen model.

In years past about the average is around 11, 8% and we're saying in 2021 on where to get back to the pre pandemic average around 11 11 eight per cent.

Moving to SG&A leverage we have a long track record of leveraging SG&A. This is on a reported basis in 2021 are going to be down 20 basis points is our expectation, but if you look at this on a cash basis on the next slide.

You can see how much we're actually leveraging cash SG&A, we're gonna be down 60 basis points in 2021.

Yeah.

And then finally on EPS, we have a long track record of great EPS growth low double digit high single digit EPS growth for for a long period of time and in 2021 is no different six to eight per cent EPS growth of $3 to $3.06 is the outlook and that's on top of 15% growth in 2020 same discussion we just had in gross.

And we have a timing dynamic for EPS growth as well from any of the same reasons EPS growth is expected to be down 5% in the first half.

As we get back to normal promotional levels, we have hired the water free tariffs and we have higher COVID-19 costs as well as higher commodity costs.

In the second half, we expect to be up around 20% and that's because of a return to historical marketing levels improved promotional efficiency lower COVID-19 costs tariff remediation and those actions that we're taking in 2020 investments that arent going to repeat in the back half of the year, Okay moving to free cash flow. This is my favorite slide we have a long track record of free cash flow conversion.

122% over the over the time period, we had 125 per cent in 2020.

How do we do that well we have great working capital management, we've moved from 52 days down to 16 days as the outlook for 'twenty 'twenty, one and if you strip out the Chinese supply chain that we have for water from a flawless those numbers are actually closer to five days as we approach zero working capital.

We have a very strong balance sheet.

We have a lot of financial capacity, we expect to end the year at 1.3 times debt to EBITDA.

At the end of 'twenty and 'twenty one.

And so we have a lot of dry powder, what do we do we have the ability to do up to a $4 2 billion dollar deal and still maintain our credit rating. So just a lot of excess cash and debt capacity.

Now moving to capital allocation, we're very clear on the top five reasons for capital allocation number one far and away is tesar accretive M&A.

We're very picky on what deals we do do a number until we moved US up previously this summer on Capex for organic growth and you're going to hear me talk about <unk>.

Past the additions for laundry litter and vitamins in a few minutes. So number two is capacity investments for growth number three M. P. D launching on accretive in M. P. D has been a stalwart in this company and helps drive our.

Our topline as well number four is debt reduction.

And as you saw we're going to end the year at 1.3 times debt to EBITDA in.

In 2021 is our expectation.

And then return cash to shareholders through dividends and buyback, we're not a capital intensive company. If you look back at our history, we usually bump around 2% of sales or below.

In years past, we've had capacity additions in that that's what happened in 2009, we added our York laundry plant and that's why we bumped up to about five 5% in 2011, we bumped up to 2.8 per cent. When we added on victorville laundry plant and so 2021 to <unk> 22 or are no different we think we're going to spike up to around three five per cent as we add these capacity investments.

<unk>.

And so those capacity investments are around laundry litter vitamins.

<unk> soda technology, and our distribution network.

Around the country.

And then finally, we have a great history of paying a dividend for over 120 years, we've been paying dividends and in 2021. Our outlook is a 5.2 per cent dividend increase on top of increases of five and a half four and a half. Unfortunately on a half. These past few years and Additionally, we did a $300 million ASR that started in December.

And we expect to complete by the end of Q1.

And this ends the formal presentation and I will turn it over to Q&A for Matt myself from the rest of the leadership team.

Okay. Good morning.

Everybody. Thanks for joining us today, we have all the EV piece on the line with us.

Many questions were submitted during the rolling of the tape, so rick's going to read the questions and we'll take them one by one.

Okay. Thanks, Matt first question is from Olivia is the new Oxiclean sanitizer products getting incremental shelf space, what do you think.

What are you thinking about the Actelion flawless and which brands got more shelf space in 2020.

Okay, Alright, Hey, that's a great question, we've got a lot of confidence in 'twenty and 'twenty, one I'm going to dish that too Paul wood who's our EVP of sales.

I appreciate it thanks, Olivia for the question Yeah, Let me start with Archie Sanitize right I think.

He mentioned the right product right time, right place and definitely lends itself to the instrumentality question that you're asking so one of the strongest launches will have on the acceptance front and so feel very good there.

Terms of the other categories, great question too because while the headlines are supply and demand some incredible work by the sales on the commercial team and other categories to strengthen the foundation and some great wins from.

Shelby and placement and brand positioning on condoms vitamins, batiste laundry and laundry additives throughout the year as well. So we've been busy at work to strengthen the foundation and really excited about some other things that have already hit market and some yet to come so it's been a strong year on those on those elements Olivia.

Okay. The next question comes from a patch.

On gummy vitamin.

What have you seen lately on the competitive front and also from the supply chain are heading now fully caught up with the.

With demand.

Okay, Yeah, well gummies is a big been a big winner for us in the in 2020, if you look at the both the category on our performance in the fourth quarter to category was up 50%.

Our brands were up 56% in fact, if you roll forward into January you see that.

We're our consumption is up so in the forties, so a very strong performance.

<unk> of our brands gained share in Q4 book, but a fusion and.

And a little critters and keep in mind that we've been capacity constrained during that time I can imagine if we were if we were not with.

With respect to capacity.

You've probably heard US talk on the last call that we have in our new third party that came on line in the in the fourth quarter and.

Our view of long term is that we will have both internal capacity expanding as well as treat this third party is a long term partner. So it's not an episodic relationship anything to add to that Rick.

No.

Good summary that next question is from Joe on the Belo will Steve because you need to be moving to Naples to hang out with Lou Tursi Congrats Steve.

Okay, well, we have Steve on the line. This morning on a on a caution Steve that I suspect Lou Tursi has also listening in so take it away Steve.

Yeah, well, certainly I would say that I don't have any specific plans to move to Naples in the short term, but I'm sitting here in the northeast and it's pretty cold. So on long for some some warmer weather. So you never know, but no plans as of this moment and but when I do get to Naples.

Certainly hang up with Lou for at least a cocktail or dinner. Thanks.

Okay. Thank you Joe Altobelli for keeping it light today alright, what's the next question Rick.

Here's a question from Bill Chappell is there a target for percentage of sales from international over the next five years.

Yeah, well you know you know our evergreen target is the three per cent for the company two per cent.

For the U S, 6% international on fire for specialty products.

You're probably asking bill because we've exceeded the 6% year after year for many years, but where we're at we're very confident that 6% or better is intact free for years to come and anything to add to that Barry.

No Matt I'd, just say, we aspire certainly to beat that 6% target, but no theres not a specific percentage of sales where you're on.

Shooting for right now.

Okay, Yeah, the only thing I'd add to that.

Bill is probably 17% of sales is international today, and we have a good problem writer domestic business continues to grow very strong and so that percentage of sales plus all the other M&A. We've done has been more U S focused so overtime.

Even though we've had great growth internationally the percentage stayed relatively stable.

Next question is.

From Andrea.

It's really about what's the backdrop for our commodities and inflation and transportation.

For church, <unk> Dwight and the outlook.

So I'll take that one.

No in general.

We expect commodities to be up next year, it's really first half second half story.

If we look at some of the big drivers even in the quarter.

P E and polypropylene up close to 20% and ethylene was up 5% quarter.

In the first half of the year, we expect those commodity to be up around 20% to 30%, but on the back half it's pretty flat because we were experiencing net as early as Q3 of 2020.

For the transportation market, we do expect it to be up mid single digits.

I'll flip this to respond to add any other color commentary.

Yeah. Thanks, Rick.

Yeah. The transportation market is very tight spot market rates have increased by more than 30% and in fact this is the second highest market or the <unk>.

Tightest market that we've seen in the last eight years and of course, that's having an impact on our on the transportation cost.

And just a bit more color on commodities.

Commodities were pretty flat from first half of last year, but as Rick mentioned, we see headwinds on our major commodities right now, but not only on our major commodities about some other smaller.

On a purchases of raw and packing materials that we use across the rest of our business. Fortunately, we have a robust productivity program to offset some of these headwinds.

Okay. Next question is from Steve powers is there a specific data that gives you confidence in vitamin E usage as a sustainable trend as opposed to something that is correlated with elevated health awareness due to COVID-19 and more time spent at home.

Okay. That's good good question, Steve to say a few words on it and then on tissue to to Britta, but.

And British remarks, the the longer a new behavior less the the the more likely that's going to continue and that is our expectation for a for next year and we think the wellness trend is certainly in our favor and we don't think that people are going to fall back to their own ways Britta anything to add to that.

Yeah, we do have we do have a specific data. So we know that 20% more households bought vitamins and we also know that 57 per cent of people are using it now daily. So we know that those behaviors have changed and there's more households, we also know that.

On the households, currently up buying more than they used to.

And of course, the trend from of pills. The capsules, we expect that's going to continue on interest in in 'twenty, one but in future years.

Okay. Next question is from Lauren Lieberman three three part question.

First one is on the outlook for inflation to what degree are hedges, helping in 2021 and any contracts for logistics.

Go ahead and jumped on and answer that one.

In general we're about 65% hedged for 2021 so.

So pretty well protected overall for incremental commodity volatility and then number two contracts for logistics remember.

Part of our.

Of our freight is picked up by customers and some of it is also on dedicated lanes. So really about a third of it is subject to.

More extreme volatility.

And we have to use brokerage and whatnot for that but so.

So we are.

Well protected there as well.

Second question from Lauren.

Is the next two are on flawless to what degree on new products expected to drive flawless growth this year.

Yeah.

And maybe maybe is part and parcel of his or her second one Paul. This is historically a hair removal brand. What are you seeing that gives you confidence from the brand expanded into other areas like skin care or facial cleansers, yeah, and that's a good question and we bought the flawless.

Brand in 2018, it it was largely a face and brow product and Oh, and frankly, a little known brand and over the past couple of years, we've been working on not only brand awareness, but also to build out the brand. So would have be reach far more consumers with other products and that's the reason why we've.

Introduced this year that many petty product a body cleanser and also the face cleansers. So we think with respect to 'twenty and 'twenty one.

We think for us will be well in excess of 20%.

From a sales perspective, and then the free reasons for that one would be that the new products, which we talked about during the presentation also the influencers that we've also had to join the brand this year and finally, the at home grooming trend. We think is still an opportunity for us.

Okay, Great. Kevin Grundy is up next he has a few part question.

First as some housekeeping some questions on investors.

Mind will be modestly modestly lower 6% to 8% EPS growth outlook for 21% from 2021 versus the comment on the third quarter call that you can deliver against eight per cent evergreen outlook in 2021.

Mentioned, the tax rate being higher but that presumably would have been anticipated a few months ago. Please comment on the more conservative outlook and let's pause on answering that question first yeah. Okay. That's good question. Kevin. So we look we feel really good about 'twenty, one we have a lot of confidence.

With respect to the categories, because we think we have a really thoughtful about them as well so the logic with respect to which ones are going to go up and they're going to go down as you know as Rick described.

We our expectation is 3% top line, but the math is more on like a 4% top line because we have a 1% drag from the.

The second year effects of exiting private label vitamins and also we're exiting extra in Canada as far as the EPS goes yeah, we're coming off a little higher base than we thought we were going to be when we were in October. So we had a range of 50 to 52, we came in at 53. So we're two cents better than our midpoint. So we did leave ourselves.

Some room with a range of 6% to 8% as you know we've had eight per cent or better for many many years. So we don't expect to for it to end that streak in 'twenty, one as far as the year goes there was obviously pluses and minuses as probably more pluses than minuses then when you look at the <unk>.

One we have the potential for lower COVID-19 costs could get some help from from currency as well as the promotional level, saying down a little bit longer anything to add to that Rick is the only thing I'd add is maybe when you look at the two year stack just how strong the EPS growth really is you know 15% in 2020 that are six.

Six to eight so.

<unk> 21 to 23 per cent EPS growth.

On that versus the peers. It appears are closer to seven or 8% on stacked basis. So just feeling really good about the strength on top of the strength.

Okay. The second question that Kevin had was really international related.

There's still the areas of biggest areas of opportunity.

He imagines that executed on China is certainly one of those in emerging markets and then comment on margin improvement first lien and then where you see investing for larger and faster growth.

Okay, I'm pretty confident that Barry Bruno is eager to take a swing at that question with respect the prospects for growth in international So Barry jump in.

Yeah happy to give it a shot so yeah clearly emerging markets are the biggest opportunity right. There's increasing household income our brands are new and a lot of these markets, specifically, China, North Asia Southeast Asia, all very exciting to US. We just opened an office in India as well to help us start to get a toehold in that important market.

And our business in Latin America, even amid a lot of economic turmoil is really really booming. So definitely emerging markets are a disproportionate area of focus in terms of margin improvement were working on understanding pricing opportunities better. We've got dedicated resources now looking at pricing around the globe, we're working on improving.

Cogs by local manufacturing as opposed to exporting products and we've got a host of other areas of improvement that will allow us to keep delivering at least that 50 bps annually that we've committed to.

Okay, Hey, Thanks, Barry next up.

One is from Chris from Wells Fargo.

Comments around return on promotions in the first half 2021 back to free.

Covid levels were interesting.

There is a bit more intentional than what we've heard from some of your peers. What wiggle room do you have there I E. Do you wait and see how things play out with competitors or you can lead on return.

Promotional levels longer term, what do you think about commercial on these new categories.

Okay, let's when we talk about sold on deal where we're essentially talking about household categories. So it's laundry and litter. So what's the trend year over year for laundry sold on deal like if you looked at Q2 Q3 and Q4.

<unk> sold on deal for the category was down 77, 700 basis points from Q2, and Q3 and Q4 was down.

800, and then 750, so it's it's still muted and frankly low pretty low.

In our fourth quarter, you May recall, we said, we were going to spend behind some new products and it would be clean and simple and absorb X, but that's largely behind US now as we go into the new year Q2 year over year will absolutely be higher simply because it was so low in Q1 of 2020 so everybody.

Pull their promotion so there will be a year over year increase for just about everybody.

In Q2, so it'll be up in Q2, because Q2 2020 was the low watermark.

To add to that Rick.

I think other commentary is true now we have.

In Q3, Q4 of 2020, and it was largely behind new products and well past that and then.

Q on Q2 next year, we're not saying it's going to be.

Maybe it is prepaid.

Pre pandemic levels that debt normality, but just isn't going to be above that.

Very very depressed level, but it was 2000, yeah. You know one thing I Didnt point out was that talking about laundry, but if you look at litter. So litter. The trend was if you went in Q2 Q3 Q4 a.

Literally it was down 800 basis points sold on deal in Q2, and Q3 Q4 down to 70, so and the category was a little bit more heated up in Q4.

But still down almost 300 basis points year over year.

Okay. Next question is from Steve powers, a lot of investment spending in 2020, clearly can you drill down and talk about where that investment spending has been prioritized whether in terms of specific brands or capabilities or channel development, whether that prioritization change involved.

One.

Yeah, we wouldn't we wouldn't get into specific brands, but we did and we have talked about where we spent the money. We've spent things on the automation of non plant processes as well as in the factories.

New product tests and learns.

Projects in in the I T and R&D analytics projects. Some consumer research we wanted to get after so there's pretty broad and investment in the second half.

Yeah, and some of that was really transitory right. We always have investments we just.

Doing so well in 2020 that we fast forwarded and made incremental investments.

Thank you Matthew.

But a fair amount of those investments were largely nonrecurring.

Bill Chappell had a somewhat similar question on trade promotion.

Why do you expect trade promotion to normalize in 'twenty. One it appears that some of your major competitors are comfortable lower levels remaining and what did you see meaningful pick up in competitive activity in Q4.

I think we already we already handle that question with respect to other.

The trend for Q2, Q3 and Q4.

I would say, we expect it to continue to be muted.

It's just the Q2, we do think it's going to be a year over year, you're going to see a pop, but we're certainly comfortable with lower promotional levels in 'twenty one.

Okay, and then Steve powers, the new disinfecting products, you're rolling out on oxi scene.

Different given that the knee demand for disinfecting solutions right now seems global do you see any potential to use those innovations are weighted oxi brand further outside the U S market or is it too early to have that discussion.

Yeah, I'll, just say a couple of words.

Steve and Barry have had some success.

Moving the oxi brand outside of the U S over the past couple of years and we've had great success in a couple of markets.

Barry take a swing at our where we see some opportunity.

Yeah, we've had great success with the brand outside of the U S. Japan in particular has been a real star for us and we're continuing to invest there. We do have other market launches plans for next year, but I'm not going to get into them. Specifically, so we don't tip off any competition, but yes. There are other markets for launch into next year. The brand is strong.

Definitely relevant internationally.

Okay. Thanks, Barry Okay on excellence from Camille any changes on the pressure from retailers as they regroup after a year of demand spikes and think through managing the incremental cost of expanding into the omni channel.

Yeah, I think it's a that's a perennial question that we get is because every year. The concern is that retailers are asking for more and more from the.

Suppliers.

We often say that because our power brands are number one or two in their categories. We're in a much better position to have those conversations with the retailers and if we're we're.

And if you were at 345 or six brand but.

Paul if you have anything to add to that too just go ahead and jump in.

Yeah, I think the only thing I'd add on to that would be the retailers are under tremendous pressure right. A lot of them were going to out on ecommerce journey. Some further along on that than others, but they're all having to play catch up and whether they're using third parties against the cartons shipped it's certainly pulled their labor and other places and it's in it's more expensive for them at the same time, reaching the consumer through Digi.

On means that loyalty card programs.

While it's effective as added costs as well. So there's no question that retailers are under tremendous profitable pressures as they try and get back to normal as well. So those are all challenges you know perennial question and perennial answer probably just heightened on little bit more because of the E commerce and the shifts that we're going through as we speak.

Okay. Okay next question from Jon Andersen with all the new consumer trial your brands than experienced in 2020, what are you doing to try and retain those customers as we move toward a post pandemic environment.

And as at the <unk>.

Brand specific on that question.

So as I said that on the household penetration we had in all of the new consumers that we gained in the different brands.

How do we retain those consumers over the long term, okay. What you heard Brett talk about the household penetration that we had an arm <unk> hammer, but I think the household penetration has been even broader than that.

We have a very robust marketing program both on both the online which is now approaching two thirds of our spend but I'll, let britta take a swing them on why we're confident we're going to hang on to those are those new consumers.

Yeah, So I would I would cite two very distinct soft. So the first one is you know you have trial and repeat.

And we'll all brands I'll repeat rates are very strong, which today indicate that.

Consumer copied the product performance, so that gives us confidence in some areas like the team we have by far the best repeat and loyalty rates. So that's number one just based on product performance and just checking on that we also have a lot of.

Programs, where we invite people to join our community.

I'll email list or other areas of staying connected and we are actually using that to reach out to again make sure that they feel that brand love continuing in 2021.

Okay. Thanks, Brett it's a good add okay. Next question from Steve Powers do you have data on the longevity of water picked us following dental recommendation the correlation with dental office openings, Mexico sense, but I'm wondering about the stickiness of device use as distance from time from that initial visit recommendation increase.

I don't know if we have the debt the.

The statistic that you're asking for.

Steve.

Britta could you weigh on do we know if we have those kind of on that.

So we don't have necessarily the statistics and such but what we do have and I think that's very very interesting data.

And when people buy a book to pick they can register with US. So let's assume these other more serious users who are registering and we've seen those rates increased more than fourfold in 'twenty 'twenty. One. We also know that puts them on both products, where we have repeat purchases be at Sonic fusion, where we have.

The dental brushes or from some of the other to tip. We can clearly see that day to repeat rates are increasing.

Okay. Thanks for that.

Next question from Lauren Lieberman market shares are up in only about 50% of your categories. What do you see as the IBM bogey.

Hi, Yes, good question them historically.

We shoot for is two thirds so.

We think it's a great day.

And then we have as I can but we are moving at 12 power brands, we'd be shooting for eight out of 12 to be a gain share or hold or gain share in their categories and some of our categories. Some of the.

Brands had loss share.

Somewhat related to our.

We're out of stocks during the year.

That did hurt a few of our brands but.

All in we think we feel real good about where our brand standard consumers going into 'twenty, one really anything you want to add to that.

Yeah.

So I think the only one I can add is we do brand equity measurements. So we know that we strength and brand equities for a significant sum of all bode well for the ones. We measure so very key indication of consumer being debt at all brands and loving L brands.

Yeah, and you saw we spent a fair amount of marketing in the second half to help drive that brand equity.

I know you.

So that was very productive.

You talked about the use of the households, we won and lots of the programs, we ran where exactly tapping into the current situation in Imation say some of you might have seen you know we did have from to wish as people and Covid times on looking for brands to step up and do more than just selling products, we have the hunger.

So on on white of fusion. So we have on each of our brands significant emotional connections with consumer.

Good good Ed Rick Okay. A couple of question is from Bill Chappell what is the cadence of Capex spend this year have you already started on the expansion projects I will take the Allen cadence is very consistent with what many years of spend its typically back end loaded.

Bill and have you started on expansion projects and there's a whole list of capacity projects, we mentioned just laundry litter vitamins.

Distribution warehousing.

From technology stuff. So it's a mixed bag. Some have already started some are underway and some are to be started.

Second question is from Bill can you talk more about tariff from aviation for the second half can you quantify the impact.

Well, we've been very vocal about the impact of tariffs on water pick and with enough lead time, we always believe that we can do things to impact on supply chain and that's what we did.

Over the last six to 12 months in 2021 in the back half, we're going to start to see a benefit of a few million dollars on a full year run rate of that is is even better so.

So we're just really happy with that team and the progress we've made there.

Next question is Joe on Debello.

Which categories are you most concerned about in 2021 with respect to pantry loading or consumption declines.

Well on.

Net britta comment on them on the categories, because we did bucket.

All four of them.

As far as the ones, we might be most concerned with.

You know Joe we are the way, we bucket them, we did say which ones we.

Plan on staying elevated which ones, we think are going to fall back and other ones. We say, we're going to pull back book categories Like Inc.

Baking soda for example.

Big declines, we're gonna be baking soda to say carpet.

The pregnancy kits, so pretty confident theyre going to fall back to question as well.

Will it how far were they from pulling fallback and then for US the ones that are going to recover would be condoms and dry shampoo.

That's more of a back half of U S.

As more and more people get get fascinated and consumer mobility expands but anything to add to that Britain.

No I think you'd capture on it I think the bonds. We are concerned it's where we were this COVID-19 uncertainty right, which has to do with whether the vaccines whether that will bring people.

On back but.

The majority of our categories, let's remember they are continuous household consumption categories. So you know people are watching that co painting their houses, having net katz and as I mentioned, having more cats, so where the big majority, we know that we actually have stronger performance.

Yeah.

Okay. Our next question is from Kevin Grundy kind of a build on that on market share.

Specifically, only 7% and 13 power brands gained share in 2020.

And it was a bit unique in 2020, please discuss confidence to improve market share momentum in 2021.

Yeah, well normally we kind of pick on the ones that didn't grow to save seven out of 13.

You know one of the one of the five that didn't grow is because we're using Nielsen data and so waterpick would be one that you would say well have lost some share in in.

In 2020, yes that that's a business we expect to grow more.

Mid to high single digits in 'twenty and 'twenty one.

Extra lost some share in <unk> and 'twenty now why is that book because both extra Sun M. Purex, all the deep value brands lost share in <unk> and 'twenty in AR and the benefit obviously went to the mid tier and the higher average premium brands.

If you look at the arm <unk> hammer liquid laundry detergent in the fourth quarter.

We had an all time high 14%.

Market share yes.

So there are reasons why.

One of those brands declined or in with respect of Nielsen data our share in <unk> and 'twenty 'twenty, but we do expect we were targeting to be two thirds of our of our 13 power brands will will gain share in 'twenty one.

Anything to add to that.

No I think you said, it really well and we've seen a couple of our brands, particularly in the last quarter or last month actually we gaining market share, which we see as the positive momentum you've mentioned.

Okay.

Okay refresh had a couple of questions. One was on online penetration do you expect to see further increases in online penetration. This year it could level off or step back how are you thinking about the stickiness of 2020 games.

Yeah, Hey, it's a good question.

On line for US you know the history repair so in 2015 was.

1% 2000.

19 was 8% in 2020 with 13% in fact, the fourth quarter, we were at 14% our expectation is that for 2021 that 15% of our global sales will be online. So we will go from 13. This current year 215 net next year.

So we do think that's going to remain sticky as you say.

If you think about some of the categories of debt.

This did expand on line to be like vitamins water Pik.

Later those were the big growers, but we do think it's going to stick and we think it's going to continue to expand.

A lot of people that discovered.

Ordering online.

Like we said with vitamins is a new habit.

So we don't see a fall back in 'twenty one.

And then the second question is more about a modeling just remind us about what do you have baked in for FX and remind us how to think about zicam seasonality on.

I'll take the FX question.

If rates stay where they're at that'll be.

As I mentioned before from every one of the tailwind that we have.

In 2021.

And then maybe one of the things I can yes forest Zicam goes 'twenty 'twenty, one is really dependent upon.

The end of the year flu season that historically, the Zicam business is 50% of its net sales in the fourth quarter. So that's all ahead of us for a passion.

Okay next question is.

As for Mark Please tell us.

He's talking about why specialty products still makes sense as part of Turkey Dwight as it has underperformed longer term expectations. In these recent years, how much time is management spend on that segment.

And under what circumstances would you consider it noncore.

Oh, Okay, well of specialty products has historically been a cyclical business.

So on our presentation that too.

2014 was an up your 2017 was an up here in the next step here would have been on 2020 and if not for the pandemic. So we think that 'twenty one is going to be a good year for specialty products. We have been trying to flatten that business out overtime by moving into other species. It is an asset light.

<unk>.

The products are branded arm <unk> hammer and.

And if you're thinking about the business and one third of the business as folks sodium bicarbonate, which is labeled arm <unk> hammer, which is our legacy business and frankly as the soul of the company the as far as the metrics that the visit that business throws off it throws off a plenty of cash with respect in relation to the assets that we own. So we do think.

This is a business we're going to own long term it is.

As you point out it is a small part of the company its only 6% of our revenues, but it doesn't it doesn't require a disproportionate amount of our of managements time.

Okay. Next question is from Bill I, just wanted to say best of luck. This Steve enjoyed working with you and a modeling question what is the underlying share count for 'twenty, one and applied in your and your outlook and that is a $252 million.

No.

Next question would be from Jon Andersen.

On international in 2020 to global markets growth.

Growth far outpaced that of the sub.

Do you expect that trend to continue on what are the key drivers of the outsized <unk> growth.

Well one thing to keep in mind is that.

If you look at on the percentage of our sales of church <unk> Dwight sales that's international comparison to appears.

It's very low when I joined the company.

International was 17% of our global sales, it's still 70 per cent of our global sales today in spite of the phenomenal growth internationally.

I'll have Barry to give you a couple of stats are contracting.

Search and Dwight with our peers and why we think we can have such great runway going forward.

Yeah, absolutely thanks, Matt.

So a couple of thoughts most of our peers have over 60% of their sales generated from international while church <unk>. Dwight has just 17. So you can see the runway there to drill down on another level deeper in terms of emerging markets.

Only get about 7% of our sales there while the average CPG company gets about 27 per cent of their sales from emerging markets. So definitely a runway there why do we have confidence in that continuing we're opening offices closest to where the consumers are right. So now we have offices in Singapore, Shanghai and Dubai in Panama that's.

A lot more resources on the ground that are gonna keep G. M. G growing at an accelerated rate in the future on the subs. So I want to compliment them as well. So you saw they've been growing at a.

Five 6% pretty significant for western developed markets, so they're doing pretty well as well the combination of the two gets us to that evergreen target and hopefully even above that.

Hey, Thanks Barry.

Okay and then we have two questions left next question is from Kevin Grundy on unit dose years ago.

You always talked about getting your fair share in the category of our share gains and positive been harder to come by for arm <unk> Hammer and P&G is still is the leader with 80% share. Please provide some updated thoughts on your outlook for unit dose.

Good question. It is irrelevant question too Kevin we did lose share in that we lost 40 basis points of share in the second half you may heard us say on previous calls that we did.

Have some internal issues with respect to supply.

Rick has described the fact that we've been building capacity and bringing it in house. So we expect to turn that around but long term we need to.

Our ambition is to get our fair share and that means we would have over double digit.

Percentage share of the of the unit dosing and today, it's less than four per cent.

Okay and then the final question is from Jon Anderson on E Commerce.

<unk> 14 per cent of sales, what's your market share position in profit margin online versus offline and then are you seeing more growth through buy online pickup curbside.

Or pure play E commerce, like Amazon and I'll take the first one you know our market shares in general are at or above our bricks and mortar and there's no great measuring stick to to use to do that but.

Our growth.

At or above category averages.

On line our profit margin on line, we've been very clear about that.

In general it's at parity to bricks and mortar, but part of that is because we have personal care still.

Still growing fast on our household business in general on mine.

And so the margin tailwind as our household business grows faster.

I'll need to get into.

More solutions for delivery et cetera.

So the second question maybe is a good one for Paul are you seeing more growth through buy online and pick up curbside or other pure plays like Amazon.

Yeah, It's a great question on that.

Australia I think we all have is very limited data is what's being shared out maybe from the retailers and some of these these third parties as Theyre just trying to catch up so I think we're all triangulating on that but again by and large.

We're seeing a ton of buy online pick up on the store, but that's also blending with same day delivery expectations. So that last mile piece, it's almost dividing that world into.

Send it in the mail or whats considered old you know two to five day, so seeing a heavy propensity towards that buy online pick up today, but also like I said that debt to day delivery tomorrow expectation certainly watching it. The peer plays are certainly blending into brick and mortar and brick and mortar.

You'll have to repeat it we all know what's going on there, but to say that it's an active conversation and very fluid with a lot of different ways of work in and expectations by the customer or different how your products shows up online you could imagine and all the analytics that go along with it are moving very quickly so on.

I'm excited about the opportunities ahead, regardless, whether it's the traditional brake are the pure plays I think there's a lot of good momentum for us, particularly church <unk> Dwight.

Okay that was the last question just to just to wrap up everybody knows there's a lot of uncertainty in 'twenty and 'twenty, one I don't have to.

On a numerate those for you today so.

So consequently, we went.

We were pretty painstaking with respect or or our press release and the information that we share today category by category. So we've taken a hard look at it we feel real good about 'twenty, one both from a topline and Bottomline and as I said before we expect to continue our streak of 8%. We did leave ourselves a little bit of room, when we said six to eight.

Per cent and we're looking forward to seeing when we won't see a book will talk to some of you again at the late February Cagny and if not we'll talk to everybody again in April so thanks for joining today.

Okay.

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