Q1 2021 Church & Dwight Co Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Church <unk> Dwight first quarter 2021 earnings conference call before we begin I've been asked to remind you that on this call. The company's management may make forward looking statements regarding among other things the company's financial objectives and forecasts.
These statements are subject to risks and uncertainties and other factors that are described in detail in the company's SEC filings I would now like to introduce your host for today's call Mr. Matt Farrell Chief Executive Officer.
The church <unk> Dwight Please go ahead Sir.
Great. Thank you good morning, everyone. Thanks.
Thanks for joining us today.
Begin with the review of the Q1 results and then I'll turn the call over to Rick our CFO and when Rick is done well open up the call for questions before we begin I'd like to recognize the ball church and Dwight employees around the world for their continued dedication to keeping our company going during the pandemic, especially our supply chain and R&D teams as we overcame.
Raw material shortages in Q1, as a result of the Texas freeze.
So let's talk about the results Q1 was another exceptional quarter reported sales growth was six 3% and adjusted EPS was <unk> 83, and that's <unk>.
<unk> better than our outlook organic sales grew four 9% driven by higher consumption.
E Commerce shows no signs of slowing in Q1 of our online sales increased by 54% year over year and as a percentage of total sales were 14, 8% in Q1 compared to 10, 2% in Q1 of 2020.
We continue to expect online sales for the full year to be 15% as a percentage of total sales.
The vaccinations will significantly influence consumer behavior. The U S is slowly opening up which means consumers are more mobile <unk>.
60% of vaccinated of consumers are optimistic that they will return to a normal or a new normal as we are seeing the first signs of consumers are willing to spend more time in stores based on the study by IRI and.
In contrast, the many countries outside the U S continued to experience of Lockdowns.
As described in the release, we have been facing shortages of raw materials that due to the Texas freeze.
Raw material and transportation costs spiked higher in February and were exacerbated by the Texas freeze, we expect the tight supply and higher input costs to continue for the balance of the year to mitigate the cost increases we have announced price increases in laundry and across our international portfolio and we have reduced coupon.
And promotional spending.
Rick will discuss this further in a couple of minutes.
At our analyst day in January we outlined which categories and brands. We expect it to stay elevated throughout 2021 recovered from COVID-19 lows declined from COVID-19 highs and which ones would remain steady overall, our full year thinking has not changed to name a few categories of demand for vitamins laundry additives and cat litter are.
Expect it to remain elevated in 2021.
Condoms dry shampoo powerful officers and women's grooming are expected to deliver year over year growth of society opens up and consumers have greater mobility.
Baking soda pregnancy test kits and oral analgesics are expected to decline from COVID-19 highs of.
Of the 16 categories in which we compete eight grew consumption in Q1 in some cases on top of a big consumption gains in Q1 of 2020 of those eight categories five sort of double digit growth gummy vitamins to take battery powered toothbrush pregnancy test kits and of women's electric grooming.
Household categories, such as laundry detergent and baking soda were down in the quarter and unable to comp of the huge COVID-19 sales spikes seen in Q1 2020.
Looking at market share in Q1, eight out of our 13 power brands met or gained share within our U S consumer domestic business, which grew organic sales five 1% I'll comment on a few of the brands right now.
Consumer says made health and wellness of priority by the fusion of little Critters Gummy vitamins, so great consumption growth in Q1 up 24% with the help of the new launches described in the release it appears that new consumers are coming into the category and they're staying well.
One survey showed the consumers who are new to the category had a 90% repeat rates.
Waterpick grew consumption, 15% in Q1 as it continues to recover from COVID-19 lows and benefit from the heightened consumer focus on health and wellness. Waterpick is also benefiting from dental offices, returning to pre COVID-19 patient levels.
We expect the frequency of our lunch and learn program to return to normal levels in the second half of this year.
Now the teeth, while the team remains impacted by social distancing consumption was up 6% and we achieved a record high quarterly dollar share of 39% behind our international Women's day campaign.
Now I want to talk about the international Division Despite European Lockdowns, our international business came through with three 2% organic growth in the quarter, primarily driven by strong growth in our global markets Group Asia continues to be of strong growth the growth engine for us.
Waterpick, Ben Frisch and arm <unk> Hammer led the growth for the international Division in the quarter.
Our specialty products business delivered a positive quarter with 6% growth primarily due to higher pricing.
No practice were stable in Q1 and are projected to increase later in the year due to higher demand now turning to new products innovative new products will continue to attract consumers.
In 2021, we have launched many new products, which are described in our press release in the household products portfolio, we are introducing oxiclean laundry and home sanitizer. It is the first and only sanitizing laundry additive the boost stain fighting and eliminates 99, 9% of bacteria and viruses the Pratt.
It is also designed for cleaning throughout the house and in the on a variety of surfaces.
In the personal care portfolio by diffusion of launched Elderberry gummies triple immune gummies and power zinc gummies the capitalized on increased consumer interest in immunity Waterpick once were to pick island of waterflood true, which is 30% smaller and contains I one last thing lithium ion battery and its specifically designed for.
For smaller bathroom bathroom spaces to capitalize on its earlier success Waterpick Sonic fusion the world's first flossing toothbrush was upgraded to Sonic fusion to point out the two brush head scientists and two breast speeds. The finally flawless is taking advantage of the at home beauty and south care trends with the fascia.
Cleanser system of shower want for a full body spa like experience and at home Manicure and Pedicure solutions now, let's turn to the outlook.
We're off to a good start in Q1, we continue to expect full year adjusted EPS growth of 6% to 8%, which is in line with our evergreen targets. Despite the heightened input costs.
Given our expectations for consumer consumption, we have raised our full year outlook for reported sales growth from four 5% to now 5% to 6% organic sales growth growth expectations were raised from 3% to 4% to 5% and if you look at consumption trends through the middle of April of 14 of our <unk>.
<unk> categories were up in consumption year over year.
Now in conclusion, I would like to remind every one of the many reasons to have confidence in church and Dwight our track record shows that we are positioned to do well in both good and bad times and in uncertain economic times such as now.
Categories in which we play are essential to consumers, we have of balance sheet the value and pardon me, we have a balance of value and premium products. Our power brands are the number one or number two in their categories and we have low exposure to private label and with the strong balance sheet. We continue to be open to acquiring <unk> accretive businesses next up is Rick.
Think of US details on Q1.
Thank you, Matt and good morning, everybody, we'll start with EPS of <unk>.
First quarter, adjusted EPS, which exclude the positive earn out adjustment was 83 flat to prior year as we discussed in previous calls the quarterly earn out adjustment will continue until Q4, which is the conclusion of the earn out period.
83 cents was better than our <unk> outlook, primarily due to continued increase in consumer demand for many of our products.
The revenue was up six 3% organic sales were up four 9% driven by a volume increase of three 1% and of positive price mix of one 8% now let's review the segments.
First consumer domestic organic sales increased by five 1% due to higher volume and positive price mix overall growth was led by a vote of fusion Lil Critters gummy vitamins Waterpick oral care products flawless beauty products arm, <unk> Hammer clumping cat litter and kaboom bathroom cleaners, as well as to the scale of hair thinning products.
Consumer International delivered three 2% organic growth due to higher volume, partially offset by lower price and product mix. This was a great result, just by European markdowns.
For our SPD business organic sales increased 6% to the higher pricing, partially offset by lower volume milk prices have remained stable month to month and are projected to rise as 2021 moves forward.
Now turning to gross margin our first quarter gross margin was 44, 5% of 120 basis point decrease from a year ago gross margin drag was impacted by 360 basis points of higher manufacturing costs, primarily related to commodities distribution tariffs and COVID-19 impacts commodities, which were exacerbate.
The into due to the Texas freeze where of 90 basis point drag on margin.
Tariff costs negatively impacted gross margin by 40 basis points. These costs were partially offset by a plus 190 basis points from price volume mix and a positive 170 basis points from productivity programs as well as the 10 basis point positive impact from favorable currency.
As a reminder, our outlook for the quarter on gross margin was down 50 basis points. The entire variance was related to the spike in commodities and tight transferred patient market.
The good news is for the back half of the year, we expect margin expansion behind the pricing and promotional actions, we laid out in the release as well as we start to lap some of the higher inflation and tariffs that we experienced in the back half of 2020.
Moving to marketing marketing was up $2 $3 million year over year as we invested behind our brands marketing expense as a percentage of net sales decreased 30 basis points to 8%.
For SG&A Q1, adjusted SG&A increased 60 basis points year over year, primarily due to the acquisition related intangible amortization. We also had higher investments with the 19 R&D as well as some transition costs from the <unk> acquisition.
Other expense all in was $11 6 million of $3 6 million decline due to lower interest expense from lower interest rates and for income tax our effective rate for the quarter was 24, 2% compared to $23. Two in 2020, an increase of 100 basis points, primarily driven by lower stock option exercises.
And now the cash for the first three months of 2021 cash from operating activities decreased 57% of $100 million due.
Due to higher cash earnings, which was offset by an increase in working capital inventories higher to support increase in sales as we continue to improve customer fill levels.
The payable and accrued expenses decreased due to the timing of payments.
As of March 31, cash on hand was $120 million.
Our full year Capex plan continues to be approximately $180 million as we continue to expand manufacturing and distribution capacity, primarily focused on laundry litter and vitamins for.
For Q2, we expect reported sales growth of approximately four 5%.
Organic sales growth of approximately 4% and gross margin contraction of 350 basis points as higher input costs continue in the lab artificially low promotional levels from a year ago.
Adjusted EPS is expected to be 69 per share of 10% decrease from last year's adjusted Q2 EPS as you read in the release, we did of voluntary recall of selected products within our vitamin business. We expect the EPS impact in Q2 to be approximately <unk> <unk> for.
For the quarter and we are seeking reimbursement by insurance.
And after the full year outlook, we now expect full year 2021 reported sales growth to be 5% to 6%, which is above our previous four 5% outlook. We're also raising the full year organic sales growth to approximate 4% to 5% up from the previous outlook of 3%.
Turning to gross margin, we now expect full year gross margin to be flat for the year, primarily due to the impact of higher raw material and transportation costs and the Texas freeze in March we had previously expected gross margin expansion of 50 basis points for the year and recently recently, we have seen a large increase in raw materials interest of tissue costs.
We're absorbing $90 million of incremental costs for the full year higher sales reductions in promotions and price increases across all three of our divisions represented about one third of our portfolio offset a large part of the cost increases.
As a reminder, we price to protect gross profit dollars not necessarily margin our full year tax rate expectations are now, 22% higher versus our last expectations due to the lower stock option exercises.
This is the <unk> <unk> headwind versus our previous full year outlook adjusted.
Adjusted EPS expectations continue to be in the range of $3 to $3 six of 6% to 8% increase year over year, our cash from operations outlook continues.
The off to a great start and we expect 2021 to be another strong year and with that Matt and I would be happy to take any questions.
If you would like to ask a question. Please press Star then the number one on your telephone keypad again, if you have a question. Please press star one on your telephone keypad.
We have a question from the line of Kevin Grundy with Jefferies.
Okay.
Sure.
Let's start I guess on pricing and commodities, Rick if you can just spend a moment on how much of.
Your commodity exposure you have hedged for the year I think that would be helpful. And then shifting to pricing, Matt you mentioned laundry and your international portfolio I think typically the company will lead and baking soda contraceptives and oxy what percentage of of your portfolio do you expect to take.
Pricing how much is in your outlook I know pricing is a sensitive topic, but maybe just sort of triangulate between how much is in your outlook and then how much you there might be additional pricing that may not be in your outlook I suppose and then what are you seeing from competition, specifically in your bigger categories like laundry and litter and vitamins on the pricing front.
Yes, Okay, Kevin it's Rick I'll take the commodity piece really quick maybe two parts.
Moving to give you comfort on the back half gross margin expansion as well, but we're.
We're about 80%.
Hedged from a commodity perspective remember, we said if we could hedge those whenever of key six or seven commodities.
Lot of the volatility does go away.
We do have a lot of confidence and gross margin expansion in the back half as we are lapping.
Some of those higher commodity costs in the back half of 2020, just an indication ethylene for example in the first half of 2021 is up 70%. If we keep that current spot rate for the remainder of the year the back half would be up 30%.
Versus the second half of 2020 so.
Like I said, we are comping some of that and Thats why we think we have confidence in the back half gross margin expansion as well as the price volume mix.
Okay and Kevin your question about the.
Pricing, so we'll start with laundry.
So if you look at over the past 18 months of.
Our competitors have taken price in a different way journaling through changes analysis, where estimate as of anywhere from maybe 8% to 12%.
Price and so we announced in early April that we're raising the price.
Price, so we sort of discussing that with retailers now and but we don't think we're going to be out of bounds with respect to price.
We've had a third of the portfolio and that would include domestic international and.
Also SPD <unk> in the in the U S business, it's arm <unk> Hammer and Xtra sheets business scent boosters. So it's pretty much the concentrate on the laundry couple of other categories in there from raising some price and also just a couple of specific variance within the the Trojan category internationally.
Largely a personal care business. So the price increases are largely around the.
The personal care business and the SPD in particular.
Some of our products are being impacted by PSA D, which is the palm fatty acid distillate, which is affecting.
The inputs for one of our products called <unk>. So we've been increased increasing prices now monthly for Mega lack and will be doing it as well for some of our other.
The products as far as.
I think of related question might be sold on deal. So how promotional is the environment today.
As everyone knows.
Did the household side of the business is the one that's promotional so laundry was down 300 basis points. The laundry category was down 300 basis points year over year sold on deal and litter. The similarly was down 500 basis points year over year in Q1.
We think that's probably going to reverse in Q2 and this is the simple reason for that.
Because last year in Q2 promotions were pulled in these categories.
For example last year in the second quarter year over year. The laundry sold on deal was down seven 700 basis points two.
2020 versus 19, so obviously a different kind of comp in Q2. So we think it may be up.
That help you Kevin Yeah, Yeah. That's helpful. Matt a quick follow up on the pricing comment.
The broader question. If you don't mind, you mentioned about one third of the portfolio is taking pricing is that the suggest that the the other two thirds of potentially upside should presumably youre not going to lead so youre waiting for the competition to leave because it's probably hard to envision many categories, where there is not a cost justification for the price increase.
Presumably in that two thirds youre waiting for the competition to lead if you could just sort of confirm that has that potential.
Additional offset to the commodity cost pressure you are seeing.
Yes, that's the right way to think about I mean the.
The price increases were the costing and input costs were very acute and the in the laundry category. So that's where we thought we'd have to move but as.
As far as we wouldn't speculate on any other category, but what we might do later in the got it just one more quick I apologize for monopolizing time here, but sort of like the million dollar question, Matt the long term implications from COVID-19 understanding still of lot of volatility of lot of uncertainty in the environment. It would seem like at a minimum the.
The company's view would be expect higher consumption and vitamins, even as we sort of get through this and looking out to next year.
How are you thinking and planning internally and what could the potential implications be broadly for churches portfolio and I'll pass it on thank you.
Hang on Kevin.
As your questions in the next six months what are expectations with just the questions are longer term, Matt. The question so relative to the 3% organic sales guidance, which you guys are pretty consistently beaten for some time now at a minimum it would seem like household penetration has been well to some degree of sustain a higher degree in vitamin.
At a minimum within the portfolio how are you thinking broadly about churches portfolio in terms of.
Gibson consumer behavior as a consequence of the pandemic focus on health and wellness et cetera.
Certainly the focus on health and wellness is going to benefit not just our gummy vitamin business, but our water business, which has been of just a high single digit growth perennially since we acquired the business I think what youre going to find is that the 2021 is going to be kind of a.
A reset that we.
We live with the with COVID-19. This year, we'll be able to grow from there, but we have such a broad portfolio.
In household and personal care.
We do think that we're well positioned frankly.
For 22 of them beyond it.
Okay got it I'll leave it there thank you Paul and good luck.
Your next question comes from the line of Andrea takes share.
With J P. Morgan.
Yeah. Thank you I wanted to go back just two.
Basically coming back for.
The categories that are.
Kind of like more impact of my mobility. What are you seeing now and then as a follow up to the recall what is the obviously you've called out for foreign of sense impact and you're trying to get insurance.
Insurance.
Pay back on that one is that any additional potential.
Potential charges, there and have you had any issues with E com.
Shelf space or anything else for the balance of the year on the vitamins any any comment on the at all or any potential changes on the production or any disruptions that we shouldn't be thinking thank you.
Yeah, So I'll, let Matt take the categories of mobility and I'll just talk about the <unk>.
Insurance from the recall, so trying to be very clear.
Essential impact of that's of up to <unk>.
We think of it.
Relatively limited to that.
The chart analogies, there have been new additional shelf reset.
The issue. This was a small window of production we've been very clear in the release of always talk about.
And thats, the kind of the extent of it.
Yes as far as of the categories go just give you some color on that the gummy category was up nine.
<unk>, 19% in Q1, and even Depilatory is were up 9% again people, who discovered the pull towards the year ago when using at home solutions. So those are the couple of examples two of the categories. We expect it to be elevated this year, what are the letters and other ones and theirs through 6% more households that have cats. So thats.
Sort of the.
The tailwind for for litter.
The room number of categories, we expect it to recover.
For example, waterflood or.
The waterflood <unk> was up 29%. This is the category in Q1, and even electric grooming was up 3% in Q1.
Dry shampoo.
Was down 1% in Q1, so the so but it's way better sequentially and we have as I mentioned in my remarks earlier, we have had a record share of we grew sales in Q1 year over year in the dry shampoo and as far as the ones that will decline baking soda has already started to decline in Q1.
To think as well was off 3% the category and in Q1 and also called shortening as Rick made reference to the Zicam category was down 70% in Q1, So let's give you a little bit of color on what's going on in the in the categories. We have Andrea I think Matt comment in his.
The prepared remarks about 13 of 16 categories being positive in April from it's pretty broad based across household and personal care. So all of those socially distant impacts are starting to mitigate.
Okay. Thank you so much.
Yeah.
Your next question comes from the line of Chris Carey with Wells Fargo Securities.
Hi, good morning.
So a couple of questions just first.
On the back half gross margin expectations, I guess, it feels like something like 225 basis points average midpoint of gross margin expansion of our 2020 I. Appreciate your comps appreciate lower promos the pricing, but it's also I guess, implying of slightly higher gross margin level debt even in.
2019, despite this higher inflation environment I Wonder if you can just.
Maybe number one is that a fair way to look at it and then number two.
Maybe just unpack that a little bit.
And how much of that is maybe a little of a promo the mix of the business relative to the 2019 higher pricing levels, just anything you might think relevant too.
So is it better to think through that dynamic and then I have one follow up.
Yeah, sure and I'll do it two ways. The first way I'll just give you some of the details of the full year outlook River.
In New York.
Annual.
Or at Cagny, We gave you of full year outlook on gross margin. We gave you the pieces. So we'll do that again and then I'll kind of bridge the team so the full year outlook for sure.
Margin is plus 200 basis points for price volume mix, plus 120 basis points from productivity. So those of the two big tailwind price volume mix. For example is a lot higher than it was given all of our expectations for the room now.
Number one lower promotional spending and higher pricing and really baseline of volume is doing better than the expected. Then we have inflation down 300 basis points in the tariffs down 40 M&A of 'twenty, that's how we get to zero now if you take a step back and you think while the first half of this year to get to the around the first half could be down about $2 35.
In the back half is going to be up about $2 35.
The Delta.
About 470 basis points of why are we convinced that we can go from the first half down to the second half of them.
200 basis points of debt $4 70 is because of price volume mix those are the <unk>.
Actions that we took we talked about the.
The other 300 basis point is really cost related inflation of gave the example in relation to Kevin's.
<unk> that ethylene for example is up seven.
70% of the first half of 2021 Hte is up 85% in the first half of 2021.
<unk> only of 30% in the back half the keep current spot levels ADP is only up 50% if we keep current spot levels.
Lapping tariffs right, we had tariffs in the year ago numbers in the back half.
We had some higher COVID-19 costs net in the back half of 2020. So those are that's a little bit more color, but I just wanted to walk you through.
Okay I appreciate that and then just one follow up would be.
Vitamin category.
No that this was.
As the approach of a few different ways already just from a category of growth and higher per capita consumption.
Respective but.
It's not just that right I mean, you outperformed the category.
No.
The scanner roughly 50 points.
It may be a little bit less in 2020 and.
The relative outperformance has.
Certainly at the state dot not that high level, but it certainly sustained on the year to date basis. So there's clearly a pretty significant share gain story here too.
There's different ways of the past but.
Can you just offer a little bit of perspective on exactly why you think thats the case, whether that's the.
The incremental capacity that you had already invested into.
Whether you think your EBITDA.
Alex Skus or the.
The price tiers or the specific subcategories that you are in are particularly relevant in the current environment. Just broadly what you think is key.
Contributing to the relative outperformance in the category, that's doing quite well so thanks for that.
Okay, well remember in the gummy category, we have number one brands. So let's start right. There. We know there is the transition from pills and capsules continues to gummies.
And earlier that household penetration is up so the households that were already buying of.
The fusion mill cruise gummies.
Taking more and new consumers of being attracted to the category. So we stand the benefit from that being the number one brand.
We've had a lot of success with new products over the last couple of years. So we were able to spread out on shelves and something else to us.
You may recall from earlier calls that we had the third party production come online in late 'twenty 2020.
So our end Socs are way better right now so a combination of all of those is what's going to sustain the elevated consumption.
<unk>.
Operator, you there.
Yes, I'm here okay.
Yes.
Your next question comes from the line of repurchase.
<unk> with Oppenheimer.
Good morning, Thanks for taking my question. So I wanted to go to the International segment. So clearly Q1 was impacted by some of the European Lockdowns I was curious how you guys are thinking about it for the balance of the year and do you still think of 6% type growth rate is achievable for that for that segment.
Yes.
And the full year basis, we're still expecting 6% from international.
The engine for international growth in the last few years has been the global markets group, so that those spread your risk quite broadly across many regions around the world. So we're not wholly dependent upon the countries, where we where we have operations.
You may recall at the global markets group is about a third of our business and it's been growing at 15% of better for the last four of five years. So we think that will be sustained in the 2021.
Cash and just to give you a little more color of past our outlook in February for organic was 3% and that was 2% domestically of 6% internationally and 5% of SPD now, we're thinking it's closer to 4% domestically, 6% internationally in the 6% interest.
Okay, Great and then maybe just one follow up question. So on Zicam. It looks like I think if I'm reading the numbers correctly that you guys took down your expectations for XI count this year, and clearly everyones, calling out the cough and cold challenges. So I don't know if you as you guys look out this year next year like do you think what do you expect the business to be back on track I guess next next fiscal year.
You mean 2021, yeah, absolutely look I mean, it's kind of announce that the debt.
Debt incidence of flu and cold and cough is way down so it's affected <unk>.
Many many brands in the category.
We remain focused on the fact that we are the number one share and we had of 73% share and cold shortening. So it is the strong brand we bought it for the long term and we do expect it to be of contributed to organic growth, particularly in 'twenty to 'twenty two and beyond.
Okay, great. Thank you I'll pass the one.
Okay.
Your next question comes from the line of the Mill current Wala with credit Suisse.
Hey, guys. Good morning, maybe good afternoon.
That's a good question maybe about.
Stimulus and the impact on demand in particular, you mentioned waterflood search strength waterfall shows were very strong. We've also heard from pretty strong device sales at Procter and Gamble. In this morning current Dr. Pepper do you think there's maybe something in the figures that we're seeing which are very strong debt is bit less sustainable because of the inc.
Pact of stimulus.
I Wouldnt thinks of that would apply to waterflood is just because of the the.
The growth rate that we saw beginning in 2017, we first of all of the bit bought the business. So we've had a high single digit growth.
For the past several years and we have so much opportunity internationally.
That's where all of the growth is going to come from long term and I do think that remember we're comping over periods of time of year ago that we're just super depressed and nobody was in retail stores.
Shopping for devices. So I do think it's also comp.
Yes, the super easy comp year over year, so I wouldn't be.
Swayed by the fact that the category might of been up 29% in Q1, but.
Long term, it's going to be a.
Grower for church <unk> Dwight.
Outside of Waterflood says any of you on impact of stimulus.
Well look I think the stimulus can affect virtually every category I mean the way.
The way to think about the economy.
And when we think about it is is.
As the savings rates are.
Our app.
That's what I've seen is 13% of the.
Disposable income than the average for the last five years is between six and eight.
And certainly of stimulus checks are helping those in need there is there is the labor shortages range. So there's more jobs are available in our.
Average hourly earnings is up so I think all of that suggests that the household balance sheets and the consumer is healthier and getting healthier. So I think that benefits all of our categories.
Yeah.
Okay, Great and then the very quick one obviously, there's a lot of discussion about raw material prices in the transportation prices and stuff, but we're also hearing about kind of real supply issues.
Maybe just can't get what you need is that impacting your business anywhere at all.
Well it certainly does the right I think I gave the example of the board that the other day that in the normal year, we might have one force majeure.
One of our suppliers.
In the quarter, we had six so there is tightness in supply of our option of R&D teams are doing a great job getting substitutes supplies or working with suppliers to.
To get through that.
<unk> largely unscathed.
The stuff of the hand to mouth on.
Bye bye.
Outside of the most.
Great. Thank you.
Okay.
Your next question comes from the line of Bill Chappell with true Securities.
Thanks, Good morning.
Yes.
Hey.
A follow up on a one of the kevins 23 questions on pricing.
In terms of timing P&G, you had said that they were looking at pricing kind of in September I think you're talking about a little bit sooner. So do you think there is any.
Risk of kind of price gaps are being extended kind of over the summer before everybody kind of pushes it through.
The timing for our price increases are.
Starting in July <unk>.
Bill this is that what you're trying to drive.
And bill the I.
I think what Matt was trying to allude to before is some of the compaction activities of the happened with some of our competition kind of means that our price gaps arent really that out of line versus historical levels.
Gotcha. So you said you see everybody kind of in terms of the competitive front, everybody kind of taking price in lockstep with the at the same time.
Perfect.
Our decision with respect of raising price in the laundry was the unilateral and was driven by the cost increases that we've been experiencing.
My reference was just simply the fact that hey.
Over the past 12 months or so where our competitors had.
<unk> had raised the prices by by reduction in ounces and things like that in their products. So.
Consequently, we didn't see the debt raising prices on our part was going to create.
A difficult GAAP for us in pricing.
Got it got it and then just the follow up can you give a little bit more of an update on kind of.
Where you see the flawless franchise.
Since you bought it there hasn't been a normal environment from the.
Bed bath tissues to supply issues to COVID-19 from people staying at home to somewhat kind of of turned to normal.
No I mean, it seems like on shelf, it's gotten better positioning at the retail more with the with the shaping kind of category. It seems like use of expanded some skus. So it's a it's a bigger block when you walk through the retail doors, but kind of any thoughts ex kind of of the COVID-19 bounce back yeah, you see on that franchise.
Yeah, well, we've talked about this in the past and you're right, we've kind of gone sideways since we bought the business.
For a variety of reasons.
We bought the business in 2018, it had net sales of 186.
And then 2019 180 and last year 171. So this year, we expect to be up approximately 20% and of the reason why we believe that it's because we got a nice array of new products to go with our existing products and I mentioned those.
In my remarks.
Body cleanser phase cleanser, and some many petty products, which are really good plus we've got the influencers now that are getting behind the the products, So, notably Ashley Graham and Doug Cameron. We also have of celebrity Halle Berry, who is pitching the flawless. So I think and all of those are hit.
In 2021, so consequently, we're optimistic about the future for flawless.
Got it alright, thanks, so much.
Your next question comes from the line of Lauren Lieberman with Barclays.
I was hoping you guys could talk a little at the two things and the primary thing is the driver of the change in outlook for consumer domestic from 2% cash.
The 4% growth I guess, one to what degree of that greater optimism on how well the vitamin business the whole Jan and secondly, how does that.
What we're starting to see in the Nielsen data, which is the market shares in laundry.
<unk> are down and softening its not multiple periods.
Now, we're talking about going in cash into a pricing environment. So just curious on your thoughts on laundry market share performance and how that ties the and again with the changing outlook to a more optimistic view on consumer domestic thanks.
Yes, I'll take the change in the organic outlook and what brands are driving it and Matt can add on sales.
Lauren it's <unk>.
Really two or three things that are driving the.
Confidence of the strength in the outlook from $3 to four 5% of.
The mid point vitamins is the big one waterpick is doing exceptionally well PTK and our approach the test kit business is doing well sorts of kind of broad based those are all of those three that are certainly.
And helping raise our outlook now in terms of the laundry real briefly.
We review share information of all the time really there is two things.
When primarily the unit dose the dose is down slightly in the share and thats not.
Because consumers aren't choosing to buy our products. That's because we continue to have the transition from making that outside of bringing that in house and so.
Outside of supply is very tight at the mall.
But the good news is we are in the ramp up stage right now of bring everything in house. So.
I guess short term.
Blip.
As far as the laundry category Laurent if you look at Q1 arm <unk> hammer gain share extra.
Extra did not we had been prioritizing the arm.
Arm <unk> hammer for quite a few quarters now throughout the day.
Of the pandemic.
We do expect debt.
The shares could be impacted certainly by our actions with respect to price I mean, that's pretty normal so.
How how competitors react to that is.
As announced and certainly if the if competitors are willing to raise price or reduce.
<unk> less sold on deal, obviously that can affect our shares as well, but unpredictable right now.
Committed to raising price starting July one yes, I'll also give you an optimistic comments.
For all of our assumptions in our outlook.
<unk> assumptions debt.
The competition doesn't follow so we've taken down the volume on the elasticity of and everything else. So that's kind of a conservative way to do it.
Okay, great. Thanks, so much.
Your next question comes from the line of Steve powers with Deutsche Bank.
Yeah, Hey, thanks, guys.
Just building on that last comment on the elasticity.
Yeah.
You've got momentum in brand strength of it seems like you've you've approached it.
<unk> relative of competition, but yeah.
At this point as we listen to.
So many CPG companies talking about raising price either already having done so we're pricing to come in and the whole. The majority of the consumer shopping baskets seems like it's poised to be going up. So just could you talk about how that factors into your thinking and.
Relative cross category.
The elasticities that might might benno.
Benefit of complicate it.
Your scenario analysis.
Yeah, it's sort of an umbrella statement.
Steve.
We've pointed out to investors for years that we have a balanced portfolio between the.
Premium value and when you have number one brands typically youre going to fare better in difficult economic times than.
The company has to do not have number one brands.
We like where we are right now going forward, we think we're going to burn of good position of one of our brands our value brands and even the laundry example, despite any any increase the.
Price gaps are in line with historical levels and are of great values compared to competition.
Okay fair enough I guess.
Just a tremendous amount of volatility and shipments and consumer takeaway of patterns as inventories rebalanced, both at retail and.
I presume in household pantries as you try to cut through that.
Of those dynamics from where you sit do you have a sense of how.
Actual consumer usage of your brands or your categories is trending today, but I don't know what the right benchmark is whether sequentially versus the fourth quarter of last year versus 2019, or a year ago, but just.
Any benchmark of actual usage that might give us more insight into your confidence in raising the full year outlook.
Certainly just based on looking at consumption patterns in the categories and consumption equals usage.
I wouldn't I wouldn't point too.
Pantry loading panic buying anymore.
I think I'd say its steady state in the now Steve.
And just to add to that Ryan talked about.
And the release of our personal care organic categories of Theyre up double digits the consumption.
Because theres low comps a year ago, but gummy vitamins as an example of Matt referenced it's growth on top of growth and if you look at most of our categories and whatnot. It's growth of type of growth because April April of last year, we grew but April of this year, Matt just said.
13 of 16 categories are up so again growth on top of growth.
Okay. Thank you.
Your next question comes from the line of Nik Modi.
<unk> with RBC capital markets.
Hello, Vanessa I noticed a so there's been a lot of talk about declining birth rates and I noticed in the release and in the commentary during the call you called out positive pregnancy test kit trends. So I was just curious is this a relation to just easy comparisons or do you think there's something else going.
And on the happened over the last 12 months you know as we're all locked up in their homes.
Yeah.
I think one way to look at it is if you look at the period like February March April last year.
That was down versus 2019, so you sort of have easy comps year over year and when you look at kits in the first quarter. You said the category is actually of the 23% and that's one of the categories. We thought that would fall back a bit in 2021. So I think best case, maybe it doesn't fall back of maybe it's flat year.
Year over year, but.
It's.
The only of the fact that I could give you. The Nic is it typically if you're in a recession the.
The birth rate decline.
With the economy.
I think in last people mean part of <unk> session Thats clearly clearly we are not.
So the category could be better than we had.
For 2020.
Great and one other question that I was just thinking about how more and more of these kind of testing kits that you can do at home.
Diagnosed a lot of things like you know in terms of what you should be eating and what kind of vitamins you would need and things like that and I'm. Just curious you know given that you're already in that business have you ever thought about expanding the portfolio.
The deal with other types of diagnosis.
Nick I think you have the future of new products I think that's the.
Exactly the types of things that the.
We'd be looking at Allen of course, we have a great brand name and first response.
The certainly portable in other categories, but yes.
Great Alright, thanks, guys.
And our final question comes from the line of Jason English with Goldman Sachs.
Thank you first of all of it again, and let me off the bat clean up here I appreciate it.
I wanted to come back to the gross margin question I think was Australia, because I don't I don't think of are fully answered it.
The guidance suggest that you're going to hit a pretty high gross margin of the back half of the tax going back over the last 10 years. It will be the highest back half margin you've ever achieved.
Which in context of the environment.
Seems it seems surprising.
So I was hoping you could you could explain like why structurally you're going to be at a higher margin even when these cost pressures and then the second related question is gosh. If you can hit all time high margins in the back half of this environment. What is the right margin for this portfolio to the streets out there looking at fiscal 'twenty three maybe are 46 46th Street.
How do you think with the portfolio you have today you Youre your normalized gross margin rate should be in the 47% 48 type range.
Yes, Jason.
So I gave some context, but I hear you on absolute numbers.
Thank you.
Im trying to explain that we're going to have we have a lot of confidence of being up in the back half and part of it was the competency nation of the comp the comp on COVID-19 the comp on tariffs, but underlying that remember.
All of the things we talked about with our Evergreen model are certainly true right. Our productivity program over the last couple of years has almost doubled in relation to where it was just five years ago. So we are of new capability. That's offsetting these things that it's been masked for a period of time because of all of this inflation all of these tariff discussions.
While these COVID-19 costs. So that's certainly come into bear in just a great way MPD as an example, when we buy businesses at higher have higher gross margin of typically the AD as well so zicam, even though as an example of that revenue number will be lower than than we had hoped for because there is zero cold and flu season.
The margin impact is still a tailwind so all of those things that are structural are also tailwind I think over the long term, we have a lot of confidence in the evergreen model expanding gross margin we've got to get past all of these one timers like tariffs and whatnot, but I really do believe that we have more upside more room to run and so I do.
Think that we're going to be into the the higher forty's over the long term.
Okay. Okay, Yeah, no I appreciate all of the year on year of stuff you gave but just.
Sequentially.
The about year on year, you've got a cost structure in the first half.
Do you expect it to be a lot lower in the back half.
Yes, so not year over year, but just sequentially do we sit to be lower for right now like all of the inflation. As an example, we are assuming that it's kind of a spot pricing we've locked in like I said before of about 80% of the come out of commodities.
It's really that the absence of higher inflation in the absence of higher tariffs the absence of higher COVID-19 costs from that in theory of COVID-19 cost actually.
To help us in the back half we don't have the same extent.
And all of those things help but then we're going to get the positive price mix, that's new to the portfolio that is incremental.
Pricing on those brands that that Matt talked about and then the incremental productivity program that we always talk about as well and the M&A tailwind. So those are the kind of the things that are structurally higher.
Okay.
Thank you.
Yeah.
And there are no further questions in queue.
Okay, Hey, thank you everybody for joining.
Joining us today, where obviously the world is available for follow up questions and we'll talk to you again in July.
Thank you for participating in today's conference call you may now disconnect.
Yeah.
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