Q2 2021 Church & Dwight Co Inc Earnings Call

[music].

Good morning, ladies and gentlemen, and welcome to the church.

And Dwight second quite of 2020, 1 earnings conference call before we begin I've been asked and remind you that on this call and 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 I.

Described in detail and the Companys SEC filings I would now like to introduce your host for today's call Mr. Matt Farrell, Chief Executive Officer of Church and Dwight. Please go ahead Sir.

Good morning, everyone. Thanks for joining us today.

And he came with the review of the Q2 results and then I'll turn the call.

Over to Rick Dierker, our CFO and when Rick is done we'll open up the call for questions, but before we begin I'd like to recognize all of the 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 and it's during this quarter of the company face the complexities.

And material shortages and labor shortages, and our suppliers and third party manufacturers.

Now, let's talk about the results Q2 was another solid quarter for the company reported sales growth was 6.4% organic sales growth grew 4.5% and exceeded our 4% in Q2.

And 2 outlook.

The 4.

5% organic growth is impressive considering Q2.2020 organic sales growth was 8.4% and.

Adjusted EPS was <unk> 76, and that's <unk> <unk> better than our outlook the.

The EPS beat is attributed to 2 things 1 of temporary.

<unk> and marketing and to our revenue growth handily exceeded our outlook. Another item that has no noteworthy as we overcame a tax rate, which was much much higher than expected in Q2.

We grew consumption and 13 of the 16 categories, and which we compete and in some cases on top of the big consumption gains.

Last year and.

Another way to look at this is to compare our Q2 consumption on those 16 categories to 2019 of pre Covid year, we have higher consumption and 14 of those 16 categories compared to Q2.2019.

Regarding brand performance 9 of our 13 brands saw double.

<unk> lagged consumption growth and I'll name them for you.

Gummy vitamins stain fighters cat litter condoms battery powered toothbrushes Depilatory is dry shampoo saline spray and waterflood.

And although many of our brands delivered double digit consumption growth. It is not reflected in our 4.5.

The 5% organic sales growth of shipments were constrained by supply issues, which we do expect of lessened by Q4.

And Q2 online sales of <unk> as a percentage of total sales was 14, 2% of.

And our online sales increased by 7% year over year.

But remember this is on top of the 70.

95% growth and ecommerce that we experienced in Q2.2020 versus 19, we continue to expect online sales for the full year to be 15% as a percentage of total sales.

And with 70% of American adults, having at least 1 vaccine shots. So for the U S has been opening up with consumers becoming.

For mobile and.

In recent days however, it appears that trend could slow down due to the delta variant combined with many people still being on vaccinated.

The U S. Many countries continue to enforce periodic lockdowns and we expect that to continue.

As described on the release, we face shortages of raw and packaging.

Becoming rules labor shortages at suppliers and third party manufacturers have reduced their ability to produce and.

And transportation challenges of further contributed to supply problems.

Besides shortages, we are dealing with inflation significant inflation of material and component costs as affecting our gross.

The materials and expectations, which Rick will cover in his remarks.

Due to a lower case fill rate we pulled back on Q2 marketing, especially for household products. We expect the supply issues to begin to abate in Q for the higher input costs and transportation costs are expected to continue though for the rest of the year.

On past earnings calls, we described how we expected categories and brands to perform in 2021 overall, our full year thinking is generally consistent to name a few categories demand for vitamins laundry additives and cat litter is expected to remain elevated in 2021.

Condoms.

Most of our dry shampoo and waterflood Sis are recovering and experiencing year over year growth and society opens up and consumers have greater mobility.

Baking soda and oral analgesics are expected to decline from Covid highs.

And I'm going to talk about the divisions consumer domestic business grew organic sales to 8%.

Condoms. This is on top of 10, 7% organic growth and Q2.2020 looking.

Looking at market shares and Q2.5 out of our 13 power brands met or gained share our share results are clearly impacted by our supply issues all of <unk>.

Comment on a few of the brands right now.

The fusion gummy.

And saw great consumption growth and Q2 up 10% consumers have made health and wellness of priority. It appears that new consumers are coming into the category and they're staying so here's the supporting statistic and the last year lot of fusion household penetration is up 17% that means the brand is now.

Percent 1 out of every 10 households.

Next up is waterpick.

Board of pick grew consumption and 72% in Q2 as it continues to recover from Covid lows and benefits from the heightened consumer focus on health and wellness. Waterpick is also benefiting from dental offices, returning to pre COVID-19 patient levels.

<unk>, we expect the frequency of our lunch and learn program to return to normal levels in the second half of this year.

And <unk> dry shampoo grew consumption and 37% dry shampoo is recovering of stores have reopened and consumers are becoming more mobile.

Similarly, Trojan delivered 11% consumption growth.

Now and that he has been opening up as restaurants bars and clubs of reopen people are hooking up again, here's a fun fact that might be a contributing factor and Q2 Trojan launched on tick tock with the explosive uptake from consumers with over 47 million views.

The next I wanted to discuss international.

Despite.

The site and Lockdowns and our markets our international business came through with 10, 4% organic growth and the quarter, primarily driven by our strong growth and our global markets Group Asia continues to be of strong growth engine for us Waterpick Batiste and arm <unk> Hammer and led the growth for the international Division in the quarter.

And our.

In terms of the products business delivered a positive quarter with 11, 8% organic growth. This was driven by higher pricing and volume milk prices remain stable and demand is high for our nutritional supplements. The prior year quarterly organic growth for specialty products was 3%. So of 11.8 is an impressive result.

Now turning to new products innovative new products will continue to attract consumers and 2021, we have launched many new products, which are described on our press release and the household products portfolio of winter, we introduced Oxiclean laundry and home sanitizer, it's the first and only sanitizing laundry additives that boost stand.

<unk> filing and eliminates 99, 9% of bacteria and viruses and the personal care portfolio via the fusion launch elderberry gummies triple immune gummies and power sink gummies to capitalize on the increased consumer interest and immunity.

Waterpick launched Waterpick ion of water philosophy, which is.

The 30% smaller with the long less and long lasting lithium ion battery and is specifically designed for smaller bathroom spaces.

The capitalized on its earlier success Waterpick Sonic fusion the world's first flossing toothbrush was upgraded to Sonic fusion to point out with to brush head sizes and 2 for.

The third and that's doing extremely well and.

And finally fall of flawless is taking advantage of the at home beauty and self care trends with at home Manicure and Pedicure solutions now, let's turn to the outlook. Since we last spoke to you and April unplanned cost inflation has grown by another $35 million. In addition to the pricing.

The decreases on 33% of our portfolio that we announced in April we have just announced price increases on other categories, which means we have now priced up 50% of our portfolio.

Of course, there is a lag on the positive impact of these increases which impacts our earnings outlook, we now expect to be at the.

Pricing and of our range of adjusted EPS growth of 6.8% as a result of heightened input costs.

Although we expect to be at the low end of the range. It's really important to remember that we are comping, 15% EPS growth and 2020.

We expect full year reported sales growth of 5% with 4%.

Full year organic sales growth.

And it's also important to call out that we are committed to maintaining the long term health of our brands by ensuring sustained high levels of marketing investment and the second half.

In conclusion July consumption continues to be strong we are navigating through significant supply challenges and.

The lower inflation.

We believe we are well positioned for 2022 with the pricing actions we have taken.

We expect our portfolio of brands to do well both in good and bad times and in uncertain economic times such as now.

We have a strong balance sheet and we continue to hunt for Tsi accretive businesses.

Cost up as Rick the give us details on Q2.

Thank you, Matt and good morning, everybody, we'll start with EPS second quarter, adjusted EPS, which excludes the positive earn out adjustment was 76 down 1.3% to prior year and.

As we discussed on previous calls the quarterly earn out adjustment will continue until Q4.

Which is the conclusion of the earn out period.

76 cents was better than our shifting that's on outlook, primarily due to continued strong consumer demand for many of our products as well as a temporary reduction in marketing spend and supply chain shortages were impacting customer fill rates.

Which we expect to recover in Q4.

The 76 and concluded.

Next per cent drag from a higher tax rate and the <unk> drag from the Vms recall costs.

Reported revenue was up 6.4% organic sales were up 4.5% driven by a volume increase of 4.3%.

Matt cover of the top line and I'll jump right into gross margin.

Our second quarter gross margin was 43, 4%.

The 340 basis point decrease from a year ago.

This was right in line with our outlook for down 350 basis points for the quarter.

Gross margin was impacted by a 480 basis points of higher manufacturing costs, primarily related to commodity is distribution and labor costs and tear.

Tariff costs negatively impacted gross margin by an.

The 450 basis points.

These costs were partially offset by a positive 40 basis point impact from price volume mix and a positive 140 basis point impact from productivity programs as well as the 10 basis point positive impact from currency.

Moving to marketing marketing was down $5.3 million year over year, as we lowered spend to reduce.

Additionally, until fill rates could recover.

Marketing expenses of percentage of net sales decreased 100 basis points to 9.2%. We continue to expect full year marketing expense as a percentage of net sales to be approximately 11, 5% in line with historical averages.

For SG&A Q2, adjusted SG&A decreased of 140 basis.

Demand every year with lower legal costs and lower incentive comp.

Other expense, all and was 11.4 million and $3.3 million decline to the lower interest expense from lower interest rates and.

And for income tax our effective rate for the quarter was 24% compared to 19, 6% and 2020 and increase of 440 basis points.

Primarily driven by lower stock option exercises.

You will hear and a minute. This also impacts for full year tax rate.

And net of cash for the full for the first 6 months of 2021 cash from operating activities decreased 42% to $344 million due to higher cash earnings being offset by the increase in working capital accounts payable and.

And accrued expenses decreased due to the timing of payments as a reminder, in the year ago numbers. There was an $80 million benefit in Q2 related to the timing of U S. Federal income tax payments shifting from the second to the third quarter and the prior year.

And we expect cash from operations to be approximately $950 million for the full year.

As of June 30th cash on hand was 100 and.

$49.8 million, our full year Capex plan is now $140 million as we continued to expand manufacturing and distribution capacity, primarily focused on laundry litter and vitamins and the decrease from our previous $180 million and project timing related for.

And for Q3, we expect reported sales growth of approximately 3%.

Organic sales.

Of approximately 1.5% entirely due to supply chain constraints, we expect gross.

Margin expansion and the quarter.

Led by our price increases adjusted EPS is expected to be 70 per share flat from the last year's adjusted EPS and strong operating performance is offset by higher tax rate.

And now for the full year out.

<unk> dropping now expects full year of 2021 reported sales growth to be approximately 5% organic sales growth to be approximately 4% our consumption is strong and outpacing shipments and we.

Expect our customer fill levels to improve by Q4.

Turning to gross margin, we now expect full year gross margin to be down 75 basis points. This represents.

Outlook and an impact from our last guidance due to broad based inflation on raw materials and transportation costs for April.

April outlook expected gross margin to be flat for the year and $90 million of inflation from our original guidance now, we're absorbing $125 million of incremental costs for the full year. This additional $35 million of inflation drives.

And the inclusion of our gross margin outlook, we've taken another round of price and actions with over 50% of our global brands have an announced price increase.

On some of this benefit helps the second half of 2021 most of the benefit is in 2022 and as a reminder, we price to protect gross profit dollars not necessarily margin.

The 35 million dollar moves.

The changes of our previous outlook is primarily non commodity related transportation labor third party manufacturers and other raw material price increases make up the majority of commodities are also up and while we have 80% of our commodity hedge let me give you a sense of what's going on with major commodities.

Over the past few months second half expectations.

<unk> for resins have moved up considerably for example, previously and our forecast was based on the <unk> being up 30% and the second half of the year now it's up 60% polypropylene moved from being up 40% to now 90% and addition of transportation costs such as diesel have continued to rise we previously expected second.

Half diesel to be up 18% and Alice of 27%.

Cartons and corrugate previously were single digit and other low double digit.

So that's the latest thinking on commodities and now we will move the tax.

Our full year tax rate expectations are now, 23% higher versus our last expectations due to lower stock option exercises this as of <unk>.

And that drag versus our previous outlook.

And we now expect adjusted EPS to be at the lower end of our previous range of 6% to 8%.

Our brands continue to go from strength, the strength of strong consumption and organic sales growth lapped almost 10% organic growth a year ago. While inflation is broad based we have taken pricing actions to mitigate which gives us confidence and margin.

And from the back half and.

And with that and Matt and I will be happy to take any questions.

Thank you as a reminder to ask a question you will need the press star 1 on your telephone to withdraw your question press. The pound key please standby will be compile the Q&A roster.

Our first question comes.

For the Camino Gosh for all Waller with credit Suisse. Your line is open.

Thank you.

Afternoon, and Boehringer whenever it is.

Couple of questions on the supply.

Fly constraints, which is are you running into constraints because perhaps demand is better than you thought you can't keep up.

And expanded debt there are certain pieces within the supply chain that just tightened up maybe a particular bottleneck.

Isolated and could you just maybe just give us a bit of from May.

And maybe more detail on the.

And what's going on there yes.

The issue is not that we're capacity constrained and we have we have capacity.

It's the issue is getting components and that can be of raw or packaging materials chemicals et cetera and.

And the reason there are shortages of because our suppliers are having trouble getting labor into their plants to actually make the raw and packaging materials and then that's exacerbate.

And by the fact that sometimes you can't get the product delivered and particularly if you are having if youre, if youre sourcing components or ingredients from Asia, and you're dealing with containers. So non a capacity issue it's entirely due to the ability to get good labor and in some cases it's.

And because of the freeze.

<unk> force majeure for for a half of dozen of our suppliers chemicals.

The recall on the earlier in the year, the Texas free so when a quite out of the woods on that 1 yet either.

And the only thing I would add to that.

As of the force Majeure comment like we said publicly back in Q1, and we got around 6 of them we had 10.

And this quarter, so its just pure disruptions and the supply chain.

Okay got it and maybe just your best guess on is the labor issue abating and all these comments related to <unk>, and maybe youre seeing and a beat of it doesn't seem as your view that it's likely to be and ongoing thing well.

Well it's.

And our 11th we think it's starting to abate and we're seeing that from some of our suppliers and.

And on co Packers.

You'd have to say that the.

On the weekly.

Unemployment and supplement is contributing.

Contributing to the labor shortages and of course, that's going to roll off.

And in September so you'd think that things would loosen up a bit come in the fourth quarter and we look at demand planning all the way back through the entire supply chain and and all of our independent forecasts say debt and <unk>.

Raw material input costs, and whatnot and where it recovery.

The late Q3 early Q4.

Okay, great. Thank you.

Great.

Thank you. Our next question comes from the Apache pilot with Oppenheimer. Your line is open.

Good morning, and thanks for taking my question. So I just wanted to kind of.

And also have a few questions on the supply chain disruptions and anymore color you can provide in terms of what categories are impacted and then.

And you about the adjustment to your organic sales growth guidance for the year.

Is it fair to say that you know maybe you could've even raise the if you didn't have the supply chain disruptions.

And that's a fair question of <unk>, I think and Ah.

And what it should have.

The consumption is really strong and Matt said, it and in his prepared comments and I did as well and.

So.

If you look of consumption, it's really high single digits, and and the quarter and and we were closer to 2.8% organic so definitely.

We are constrained and if you roll that forward to the full year, then we likely would have been at the top end of the range on revenue if not for supply chain.

<unk>, yes.

The answer the other half of your question if you pick up the release and you look at the schedules in the back and I'm sure you have you'll see the the household products is down your per year, and so that's where it's most acute.

Fabric care shipments are constrained.

<unk> the supply shortages and we got plenty of demand out there but.

The shortages are affecting the household side of the business, which would include both the laundry detergent and stain fighters and and litter. So we do expect there'll be out of the woods.

By the end of the third quarter.

Okay, Great and then and I guess sort of from a retail perspective. If you go to I know you work on your leading retailers Walmart and some of the other players are you are there are theyre starting to be out of stocks out there or do you expect the fee out of stocks and I guess sometime this quarter within some of those categories.

And I think I think we've got.

And of living hand to mouth, the right now.

If were to get worse than what we have today I think we would have out of stocks.

Our most of acute area for out of stocks would be on Oxiclean sprays.

Now.

The triggers.

Okay. Okay. That's really helpful. Thank you very much okay.

Thank you.

Question comes from Kevin Grundy with Jefferies. Your line is open.

Hey, good morning, guys.

And.

Question for both of you on pricing.

I think the comment was that you've now and we'll price over 50% of the of the portfolio.

A couple of questions.

Our next weighted to that because of it certainly seemed like there's a cost justification across the board have you led where you can lead at this point.

Is there and expectation then that the competition.

And will ultimately move and that's not in the guidance, maybe just some parameters of little bit around what has not been priced and why not at this point.

<unk> really and and Rick maybe just layer on there what portion of the commodity price exposure over the next 12 months do you think you have captured here with current pricing.

Yeah well.

And you hit the nail on the head count and price increases do need cost justification, they are greater and some categories and other.

But you also have to keep an eye on the on.

Point, Pat and upset.

So we are looking at the rest of the portfolio now.

To see whether it makes sense to have a.

2022 price increase and the other thing we're going to do is we're going to review the price increases that we've already taken on the first 50% and ask yourself, if those need to be.

On the <unk>.

As far as the price increases go.

We announced in April for for laundry those were taken effect now in July.

We know at least 1 other competitor has said publicly that their prices are going up in Q4.

So we may have some temporary price.

GAAP and Q3, but.

And then on the on the litter side.

And we raised price there that pricing hits shelf mid October and we know that a 1 major competitor has already raised price as well. So we've seen that and I think Rick mentioned on the on the earlier call in April debt.

That when we were planning. This we were we were not assuming that competitors would follow.

So the fact that.

Since then.

And the laundry and litter, we've heard and seen that from a couple of competitors. That's a good indication for us Rick anything that and I don't have that is on your first.

Question Kevin.

And as for kind of a roll forward for 2022, and the simple way to think about it is.

When we gave our April outlook inflation was a -300 basis points and that was what was included in our flat Guy.

Guidance now are and inflation number is closer to a minus $3.75, that's kind of the entire.

The change from going flat.

And the minus <unk> 75.

And that -3 some of these 5 for the full year, it's kind of an indication of the inflation that we've seen for the whole year.

Inclusive of the first 90 inclusive of the new 35 million that we're talking about as we exit the year.

We think price volume mix will be a tailwind of like 285 basis points. So that's probably a good day.

Gauge it as we're not quite recovery and all of our inflation, yet, but we've only price to half the portfolio.

Okay got it thanks, if I can squeeze in 1 more guys, maybe just on M&A the pipeline and.

And if any of the volatility which certainly.

I think we would say we'd be transitory over the next call. It 2 to 4 quarters your supply chain and working through some of the COVID-19 volatility of et cetera, or at least certainly that would be the hope does any of that give you pause with true.

<unk> from an M&A perspective until things kind of settle a bit and then I'll pass it on thank you.

Yes, the question Kevin.

We were reluctant to buy a business that had COVID-19 bump.

Just just in general Matt just in terms of even buying off putting multiples on MTM sort of earnings and right and just given some of the volatility around supply chain. There's COVID-19 flare up here a little bit you guys have done a fantastic job over the years from an M&A perspective, but even.

You said the thing that gives you some sort of pause here given the volatility over the next 12 months.

Yeah, well look we are wary of of businesses that had a big Covid bump we remember we bought 1 and December.

Zicam.

Number 1 and co shortening 73% market share and.

We bought that for the future because we know that's going to be of strong contributor to sales and profit metal and 'twenty 2 but years ahead. So so yes, we will have a degree of skepticism, but I can tell you. There are things for sale right now that we are looking at the question of whether they are going to meet our criteria.

Got it.

Good luck guys. Thank you okay. Thanks, Kevin.

Thank you and our next question comes from Olivia Tong with Raymond James Your line is open.

Great. Thanks, good morning.

I wanted to ask you a little bit about your view on trade promotion and the levels of trade promotion right now, particularly as you put it in the pricing.

And you can just talk to you the first few.

Impact of that I know, it's very early days with respect to laundry and and but and he retail respond to consumer response. So far that you can see and then for the second tranche of pricing. If you could just talk to the magnitude of change that you're looking for there.

Great. Thank you.

Yeah. Thanks for Olivia So your second question first.

The weeks of the won't really get into the magnitude of change right, we'll be very clear next quarter after its and market and will disclose somewhat of what we did for laundry.

Laundry was high single digits and and so we'll do the same thing for litter and some of the other other items and 3 months will be for that detail.

And on your on your first question, Yeah with respect to what sold.

Hold on deal.

A little early to draw any conclusions about what's going on at shelf I think it's important to have the backdrop of Q2 for both laundry and litter you know take litter for example of year over year sold on deal for litter was actually down.

80 basis points.

Category.

And right now promotion and the second quarter around 13% sold on deal historically, it's around 19% to 20% and.

And so it's pretty off it's it's it's normal the sold on deal percentages.

So what we do know as a debt.

1 major.

And your competitor besides the arm <unk> Hammer has had supply issues as well and the second quarter, which I'm not going to name. So that may have contributed to the fact that litter sold on deal was down in the Q2 for just about won't competitors.

For laundry.

Q2 was up almost 200 basis points.

230.

And 32% sold on deal for a liquid laundry detergent and remember last year promotions were pulled so not surprising that there would be a rebound this year.

We actually had the lowest increase and sold on deal up 700 basis points and Q2 and are lower.

Promotions made sense.

And the context of supply shortages, and obviously going forward, we want and what the price to stick so.

The promotions would also be limited as well and as for the price increase and again.

And it was early July so it's only been a few weeks. So we're reluctant to comment I would just.

Tell you that.

As as we expected them to date.

Got it thanks.

And if I could just ask 2 more questions first in terms of your sales guide that net change in the sales guide on.

Obviously, some supply chain.

And.

Disruptions, but specialty.

He was actually up quite a bit better I know, it's a lot smaller, but just thinking about your view in terms of the mix of of.

<unk> contribution to the top line for the full year and then.

And then a follow up on on the margins.

And just kind of curious how you're thinking about operating margin expansion and long term and the leverage you can pull in order to get back.

With respect to margin expansion, because obviously pricing is the piece of that but mix is not as big of a factor for you guys relative to some of your peers and then you're on.

So good and overhead controls too. So just wondering how much you can you.

You can push on on the G&A or the M&A.

And as an officer. Thanks, so much appreciate it.

Olivia you squeezed and a multi port half of dozen questions Dara as youre walking off the stage.

Start with SPD.

As far as the SPD business goes yes, it had a really good quarter.

Quarter last year, the quarter was up 3%.

On chart, 10%, but if you look on the release you see the price was half of that debt growth. So we have been raising prices and SPD.

And we probably were the earliest.

For all 3 divisions of raising price and specialty products and.

And that's both on the on the.

The animal side and also on the bulk sodium bicarbonate side brookstone.

<unk> said and bicarbonate is off and oftentimes the contracted business, but the non contracted volume we've been racing raising price so.

And that's a steady business a good quarter. It will have a good third quarter as well.

Yes, the only thing I'd add to that Olivia.

This year of our outlook for the divisions, we told you last quarter was.

Domestic was 4% international of 6 and the SPD was 6 I think if we had to rejigger that today it would be more like 369, and so domestic of 3 largely because of the supply constraints and international consistently at 6 and then SPD now as of 9.

As far as your gross margin question look I think Youre right, you know pricing over the long term recovers the inflation and so that is.

And a good guy and a bad guy and they kind of kind of a wash over time look we have a lot of confidence and our evergreen model and it's only 25 basis points of expansion. So we're going to get that over the.

The long term through productivity through innovation and through mix and and we're doing a lot of work internally on mix actually and and using technology to the trade optimize and product to optimize across retailers and so that work is ongoing but those are 3 levers that we have.

Thank.

And as.

Thank you and our next question comes from Steve Powers with Deutsche Bank. Your line is open.

Hey, guys. Thanks.

You gave some comments on the supply constraints and the flurry of issues.

2 questions. The follow up first and you talked about this a bit on on litter, but is there a way you can frame or clarify of the issues.

With the competition and whether you or are you, saying youre disadvantaged on this front and the silver.

If that's of concern or not really number 1 and.

And then number 2.

If these constraints and <unk>.

For longer than you expect is the playbook, so pull back on marketing for longer.

And at what point would that become a.

The concern.

Not saying that it is now but just at what point do you get concerned about on that front. Thanks.

1 of the first 1.

Competition.

Yeah all of your question about litter.

No no it wasn't really sorry about it wasn't really about later I think you'd mentioned that you share the same issues on litter as your competition, but just generally.

Is it is it you or is it everybody.

I think we have different issues, we don't have the same issues as a competitor. We just happen to know that there is some supply constraints and theyre dealing with that are affecting their ability to ship that song I think everybody's got the.

Issues and and other.

<unk> is it.

Is it again is it everybody or is it is it you've got the issues differ.

Well, the Texas free isn't just us most of those chemicals effect of lots and lots of companies and lots of competitors. So I would say on the chemical side and transportation side, it's very similar between us and competitors and labor shortages as well if you.

You have suppliers of co Packers, that's the universal.

And I don't know that Theres anything that's unique to church and Dwight.

Okay great.

And maybe Rick on marketing.

Yes on marketing I think we've been very clear when we look at all of our forecasts and all of our internal information and we think we're gonna be recovered by late.

Q3 early Q4, we think the mark and his good dimmed.

And driving activity and.

And kind of healthy and we have put price increases the other for the back half of we want to make sure we're supporting our brands and a healthy way.

And to 13 brands gain share and part of that was.

The lower than normal and part of that's because of their supply constraints and we want.

And once that's not a factor that we're supporting the brands like we should and Thats. The plan if for some reason of the supply constraints last longer than of course, we would adjust as necessary.

Okay. Okay, and then just real quick on the tax rate do we is the application that we revert back lower beyond 'twenty, 1 or is the higher tax rate.

The extrapolated.

Yes, the core issue with the tax rate is really it all comes down to stock options exercised and typically we've had around 2 million stock options exercised every year. If you go back and look for many years and 2020, it was $3 million and our forecast. This year is a little less and $1 million now and so we.

And to make sure.

And perhaps due to the 2 of the run up and the share price last year that was really maybe a pull forward of every year with the stock options potentially.

Potentially so we think that will normalize back to 2019 levels of the quick answer.

Okay, great. Thank you.

Thank you. Our next question comes from Bill Chappell the true of Securities. Your line is open.

Thanks, Good morning.

Hey, Bob.

So maybe oversimplify, but I need that because on a fairly simple person.

Is it safe to say just <unk>.

Commodities and input costs for kind of moving.

Moving higher when you last reported in late April you were kind of taking a a best guess of where they would play out for this year. They kept moving throughout the quarter, but did peak at some point in the quarter. So now you of a lot more confidence.

Kind of where pricing and costs are for the remainder of the year.

Is that the right way to look at it.

I think thats, 1 aspect of it and that's a good way to say it and then also we've had more broad based inflation beyond commodity than we expected right I use. The example of our board meeting how we've never talked about pallets and the history of of <unk>.

<unk> been here for cost impacts and our pallets went up by.

2 million Bucks on the back half so it's just really broad based.

And all the all of the third party manufacturers are passing on the 2% to 3% to 4% issues that we've been talking about so I think we are of great handle on it now and Meanwhile, what are we doing about it we've we're qualifying and a lot more suppliers just to have backup redundancies.

CS and and and flexibility.

And and on the cost side of do you feel like Theres any disadvantage.

In terms of your scale and I'd say that if youre of $5 billion business, but really your for.

<unk> $3 million to $500 million businesses, and so I just didn't know if the suppliers.

Or treating you differently versus maybe a $1 billion competitor or if it's kind of across the board fairly similar.

This is across the board, it's pretty broad based I think if you look at and you have but other other peers and the industry right now even some of our European partners.

It appears.

It's pretty broad based and it's across the spectrum doesn't really matter if youre at $2 billion of 5 billion of $50 billion company.

Got it and then 1 last 1 kind of follow up I don't typically ask about the the M&A pipeline, but you know the.

With the sheer number of specs and consumers focus backs with the IPO market being fairly prolific.

<unk>.

Is it.

Kind of safe to say that some of the.

Traditional 203.

The $500 million revenue businesses that you would target or less likely over the foreseeable future just because they have other options I imagine most of these companies are getting on all for a day to go public 1 way or the other.

And just any thoughts there.

And there's a lot of logic and that Bill and there's no question that there are other destinations.

Mike's backs that the company.

Companies looking to monetize their investments and can take.

Based on what we're looking at right now about what's.

So just going to market and will be of auction.

We think we will have plenty to look at least and the next 6 months and keep in mind similar to private equity Bill I mean, the specs of the same.

We have and ability to pay more typically because of the synergies that we can generate so that's always know when it's down the middle acquisition and that's always a great benefits.

The common.

Got it thanks, so much for the color okay.

Thank you our next question comes from.

And <unk> with Jpmorgan Your line is open.

Thanks, guys. So first on international.

And Dan of clarification on the cost outlook.

All.

On the international side I know, it's the smaller portion, but we dedicated most of the time for you asked so.

Wanted to just see like the U S. The 6% growth for that debt you just reiterated for international because obviously, that's the long term algorithm, but given that you had a very strong start of the year and.

And how are you seeing given that you're.

You've got the like more conservative guidance for top line and the back half.

And you're obviously up against on the team's calm for the balance of the year are you assuming that it goes negative in the back half so I wanted to clarify that and.

Of the new guidance, Rick you were expecting commodities are you embedding the commodities interest of rotation will ease or you assuming that they would stay as we see on spot on on you'll have the yes.

And I was talking about international for.

For starters.

Yeah, we've had a we had a.

A good second quarter.

And also we're saying 6% for the full year and but we are cognizant of the fact that do.

Do we see intermittent shutdowns and.

And many of the markets, where we have businesses.

So we have we have to keep that and get it and that in mind and.

And you don't get this delta variant as.

As well, which could result in even further and more expansive locked.

Of Lockdowns and effect on consumer mobility and international markets.

That's what we'll tempers our enthusiasm and in terms of comps Andrea you do have to be mindful of our growth rates a year ago International.

National right and Q2 year ago, we were flat and we were <unk>, 6% on organic growth and so the 10, 4%. This year very impressive it's off of flat prior year Q3, and Q4 last year. The back half was mid teens, so 13% growth.

And so if you look.

And it implies.

And on a 5 or 6% growth and the back half, but when you do the stack, it's actually it looks like the international business is very very strong.

Okay and then your second question was really on the.

On the commodity.

Outlook well as of right now I kind of just.

Went through some of the numbers with the latest expectations on resins as an example, and paper and diesel.

And right now on outlook implies that the commodity stay where they're at today, we're not we're not banking on a decline or.

On movement down on commodities for the balance of the year.

Okay. That's great. Thank you I'll pass it on.

And.

Thank you. Our next question comes from Lauren Lieberman with Barclays. Your line is open great.

Great Thanks, and good morning.

And I know, we've talked a lot of that supply chain, but I had to just follow up.

And I think and the line of question that the Bill Chappell and embarked.

And I mean, my question and looking at what happened this quarter and what Youre talking about is just if there isn't something to consider in terms of you guys just running too lean right. I mean, that's been a hallmark of the way that you operate the business, but when you look at this quarter and the conversation on supply and and so on and it feels like you've expose yourselves.

The business risk that other companies are frankly, finding the way to manage through so.

Maybe it's too early to talk about but just thoughts about how looking forward you might want to set up differently. So that you can better weather these sorts of storms.

Yes.

On surprised.

The your conclusion.

Considering that we're saying that our full year organic is going to be up 4% and it's gonna be the fourth year in a row.

We have organic sales of 4% of better and in spite of the fact that we have of $125 million and unplanned incremental costs that.

Our full year range of 6% to 8% we found our way to 6%. So I would say that the company has proven that it's resilient actually face.

Faced with those kind of.

On the cost increases and I think its temporary with respect to the supply issues and we will get that will be behind us.

And at some point.

Yeah I'll go ahead Jim.

The only thing I would add is.

And look some of our competition.

Is vertically integrated and some aspects of their supply chain and some of these examples we're not hurdles. The integrated we've chosen not to do that we don't think it makes as much sense.

And in times like this it might heard.

A little bit, but overall, we're doing the best we can do to move or whatever it is 3 to 4 and our suppliers and add.

And 90 more add on.

Flexibility and the capacity there so our flex capacity as we exit this COVID-19 type of environment is going to be greater than it's ever been before yeah. That's a good point on line.

And that's.

Throwaway comment over the past 18 months, we've we've qualified 90 additional suppliers and co Packers so that as we as we come out of this we're going to be far more resilient and that started last year. When we when we saw where were the how COVID-19 exposed some of the.

That sounded links and our supply chain, okay. Thank Rick Rick and Matt Thats exactly what on what I was asking and and looking for.

The next question was just on on gross margin and I'm actually having a little bit of trouble as I play around with numbers and the sequential improvement that you're talking about and.

The volume I would think.

And the weekly you get pricing coming in but volume will be a little bit challenge on that price volume mix line I guess, the implied sequential improvement and then also.

Guess, the commodity headwind and I, just I don't know if we the best way to attack and it might be offline, but kind of the big sequential changes in the gross margin bridge that help you.

Get to.

And I think you said modest expansion and in <unk> that would just be helpful. Yeah. So maybe what I'll do for right. Now is just give you the second half kind of gross margin bridge and and.

And of course.

Q3 will be.

And it will be positive it will be slightly positive.

And more of the margin benefits in Q4, as we fully lap our fully have the price benefit, but the second half gross margin outlook right. The first half is down $2.30, the second half is up 80 and.

Price volume mix was a tailwind of of what we think is 285 basis points inflation is a headwind of around 285.

Point, we of incremental tariffs of.

Of the 35 basis points, which is a little bit better than it was and the first half because we had tariffs starting a year ago, we of productivity programs of around plus 85.

The acquisition.

For for the largest zicam helps on margin by about 40 basis points, and then currencies of little.

And of a drag so that's how we get the plus 80 of the back half.

Okay.

Helpful.

And then final thing was just on the incentive compensation.

And call out this quarter I guess I was curious if that was.

At the outset of the year of what you had anticipated or if that's something that was a true up this quarter.

Think about that in terms of SG&A for the balance.

Yes, no, it's and impact on the quarter its impact on the full year, it's probably why our SG&A is down and in both cases for the quarter and the full year and that wasn't expected, but it's a reality now because we're 1 of only and where the exception of the industry that has gross margin tighter and incentive comp and.

And right now of our gross margins down 75 basis points of that was not the plan that was not the incentive plan and so that has a favorable impact unfortunately on the <unk>.

SG&A.

The numbers okay understood. Thank you so much both of you.

Hey, Lauren.

Thank you. Our next question comes from Chris Carey.

And how does the Fargo Securities. Your line is open.

Hi, Thank you and just wanted to clarify.

Couple of things around pricing.

Yes, I think you said your main competitor of large competitor litter has already price.

Clearly there was some revenue.

With wealth management initiatives by competitors and laundry.

And so those are 2 categories, where presumably it seems people companies have already moved the day you were moving.

Is there a read there that youre comfortable following with pricing and so you want to see pricing happened and other categories first day.

And the growth of those just confirm whether.

Yeah, I heard that right and then just connected to that.

It sounds like pricing and the laundry is wondering okay early days.

But you also have supply issues and household.

And it sounds like it's mainly and.

So areas, where it's like components or or could could supply chain issues actually.

You have an issue on debt.

And getting pricing through and laundry.

If you start to experience about the stocks. So just some clarification for the perspective on some of those line items would be helpful.

Yes.

And lastly, the price.

Pricing has been accepted by the trading and and laundry. So so that's sort of behind us right now.

<unk> ahead of us that's going to be taken effect in Q4.

But we think both for laundry and for for litter by by Q4, we'll be out of our our supply issues.

The other question about.

Raising price and not just in laundry and litter, but in other categories, which we have so for example on.

And there.

Oxiclean stain fighters baking soda and we announced 1 variant of Trojan condoms.

Water Pik will be raised and price as well so.

We've been able to 2 we're announcing price increases and <unk>.

Many categories and keep in mind that we are the number 1 brand and the St fighters Depilatory is water philosophers baking soda et.

Et cetera. So we do have did have some strength and the ability to lead there.

And I'm, sorry, I think thats and ear.

The other question with respect to the.

What are the issues with respect of laundry.

I mentioned earlier and my comments that because of the Texas freeze their issues with chemicals and that affects both liquid laundry detergent and unit dose and we expect that to be of abating as well and I don't expect that the.

For the Jews to impact the our ability to succeed and pushing through price.

Okay. Thanks, so much of it if I could just squeeze 1 and yes.

Yes, again and keep it quick.

If promo and coupon and it's been a relative lever for Tricia Dwight.

Because of the.

Got it got it again.

Some of your competitors.

Have you.

Exhausted that flexibility that you did have in the P&L of the bag to opposite of the way of thinking here.

The couponing and promo levels closer to peers or does that remain elaborate your disposal of the things get worse.

Yes.

Yes, I mentioned earlier on.

And on litter.

On the litter category sold on deal is around 12%, 13%, so, whereas historically historically, it's around 19%, 20%. So we Ana and competitors are all have the press sold on deal and with the.

And our announced price increase and.

And.

Other competitor has we've seen price increases as well.

We don't expect that to change and the second half and as far as the laundry goes. It is we are up quite a bit year over year to 700 basis points were not as high as our competitors nor do we.

To be able to at least for the next 90 days as our price increase and it has to take hold of them and we don't want of detract from that but for the promotions.

Okay. Thanks, so much alright.

Thank you and.

And that's the last question of the day I would now like to turn the call back over to Matt.

We expect for closing remarks.

Well, thanks, everybody for joining us today, we will talk to everybody again in 90 days and we'll see how the Q3, 1 so talk to the end of October.

So on.

This concludes today's conference call. Thank you for participating you may now disconnect.

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And.

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Okay.

Yeah.