Q1 2022 Church & Dwight Co Inc Earnings Call
Cool.
Good morning, ladies and gentlemen, and welcome to the Church <unk> Dwight first quarter 2022 earnings conference call before we begin I have 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.
Objective and forecast.
These statements are subject to risks and uncertainties and other factors that are described in detail in the company's F E SEC filings.
I'd now like to introduce your host for today's call Mr. Matt Farrell, Chief Executive Officer of Church <unk> Dwight. Please go ahead Sir.
Okay. Yeah. Good morning, everyone. Thanks for joining us today I'll begin with a review.
Of the Q1 results and then I'll turn the call over to Rick Dierker, our CFO and when Rick is done we'll open the call for questions.
Q1 was a solid quarter for US reported revenue was up four 7%.
<unk> sales grew two 7% and we exceeded our 1% to 2% Q1 outlook for organic growth. The adjusted EPS was <unk> 83, and that's eight cents better than our outlook.
We grew consumption in 11 of the 17 categories in which we compete and in some cases on top of big consumption gains last year. This is remarkable as our low fill rates held back our consumption. The good news is April fill rates across many categories are now mid to high Eighty's and improving.
Regarding brand performance, our brands saw double digit consumption growth in seven of those categories and I'll name them for you arm <unk> hammer scent boosters, so I'm going to have a baking soda arm <unk> hammer clumping litter batiste dry shampoo, waterpick waterflood, Sears zicam zinc supplements and their breath mouthwash.
In Q1 online sales as a percentage of total sales was 16% our online sales increased two 6% year over year.
Keep in mind. This is on top of 53% growth in E. Commerce that we experienced last year in Q1 versus 2020, we.
We continue to expect online sales for the full year to be above 15% as a percentage of total sales.
Since early 'twenty, one we have announced price increases to combat inflation and through early 2022, we had already announced price increases covering 80% of our global portfolio.
Since we spoke to you last in January we are now expecting $85 million of new incremental cost inflation.
And as a result, we recently announced another round of price increases on our fabric care litter products, which will be effective in July of this year.
In addition to pricing we are pursuing additional measures to offset higher than expected costs, such as productivity and pack size changes also in laundry you may know, we have now concentrating our portfolio by approximately 10%.
Now I'm going to talk about each business. So first up is the consumer business in the U S.
Consumer domestic business grew organic sales two 7% and this is on top of five 1% organic growth in Q1 of 'twenty one.
Looking at market share in Q1, 7% of our 14th power brands gained share.
Our most recent acquisitions are performing well, Sarah breath, which we acquired in December of 'twenty, one had a great quarter with 37% consumption growth.
Third breath grew share three six points to 15% of the alcohol free mouthwash category. In Q1 was the first full quarter in which their breath surpassed act as the fourth largest mouthwash brand and thorough breath remains the number two alcohol free mouthwash brand.
Total distribution points or T. D pieces, we call them for the thorough breath brand are up 20% versus a year ago.
Zicam also delivered strong results. This quarter you may recall, we acquired Zicam at December of 'twenty 'twenty.
We were hurt in year, one of our ownership do the masking and social distancing Zicam cold remedy consumption was up 56% in Q1, and we expanded our share of the cold shortening colds shortening segment to what a little over 75% share.
Turning to gummy vitamins total shipments of bite of fusion that little critters were relatively flat in the quarter. The man for Gummies remained high as the category consumption grew 11%, but our tasteful was low so we left money on the table in Q1. The good news is our fill rates also in vitamins are finally, starting to improve.
Next up is international despite significant disruptions our international business did deliver some organic growth in Q1, 0.3% primarily driven by.
Furthermore, teased oxiclean and BMS and the global markets group.
Lockdowns and transportation issues hurt our results we have the orders, we're just struggling to fill them.
We expect our difficulties to abate in the second half in international.
Next up is specialty products, our specialty products business delivered a strong quarter, 9.2% organic growth driven by both higher pricing and volume.
Want to spend a few minutes on the health of the consumer.
Private label trends innovation, and our ability to supply now.
Now we all know that inflation is at a multi decade high interest rates are rising to tamp down inflation, while wages have risen households are getting squeezed and we expect consumers will start to make choices to make their dollars go further.
We have seen Netflix lose subscribers, but here are a few indicators that we're seeing.
First consumption of value the Churchill was flat year over year in Q1, and this is after losing share to premium detergent for several quarters.
Over in Cat litter are traditional arm <unk> hammer Orange box cat litter, which is a value product grew faster than our premium arm <unk> hammer cat litter in Q1.
Over in personal care water Pik is seeing faster growth of lower priced price point models in the phosphate business and then in Showerheads Showerhead category consumption is slowing.
Which may be an indicator that consumers may be spending less on home improvement.
And we're keeping an eye on these trends and we are prepared if categories become more promotional in the second half.
It's important to point out that 40% of our portfolio is value and we expect to perform well in a difficult economic environment and just to remind everyone. Our largest businesses won't laundry detergent in vitamins are value products and then later our Orange box is also values. So we feel well positioned for what may be.
Coming.
Now regarding private label private label shares are stable and the five categories, where we have meaningful exposure to store brands.
As you saw on the release, we have a strong lineup of innovation across our personal care and household categories. Most of these new products are shipping in Q2, and we believe our consumers always attracted to new and improved product offerings regarding our ability to supply we hit bottom early in Q1 with the AUM of Congress Omicron Surgeons and we saw.
Fill rates dip below 80%.
As I mentioned earlier April fill rates are trending toward the mid to high Eighty's and we're on track to be at historical fill levels by the end of the year. So.
So we have confidence that our full year outlook for several reasons, we have improving fill rates we have.
New product innovation hitting the shelves by July one two thirds of our marketing spend is concentrated in the second half.
We have the incremental impact of pricing and we have the positive effect of concentration on consumption. So in closing we expect our portfolio of brands do well both in good and bad times and we continue to hunt for New T. S are accretive businesses and next up is Rick to give you more details on Q1.
Thank you, Matt and good morning, everybody, we'll start with EPS first quarter adjusted EPS was <unk> 83 cents flat to prior year.
It is three cents was better than our <unk> 75 cent outlook, primarily due to continued strong consumer demand driving higher than expected sales as well as better gross margin than expected reported revenue was up four 7% and organic sales were up two 7%.
Now, let's review the segments first consumer domestic organic sales increased by 2.7% due to positive price mix offset by lower volume.
As anticipated the discontinuation of water Pik shower club programs was a drag to organic growth. We also experienced some bumping us in the months of March and continued into April due to the laundry concentration transition. Good news is we're through that now.
Consumer International had flat organic sales in Q1 due to broad supply chain disruption in laundry portfolio decisions with Canada and for our SPD business organic sales increased nine 2% due to higher price mix and volume milk prices have increased throughout Q1.
The low out as 2022 moves forward.
Our first quarter gross margin was 42.6% 190 basis point decrease from a year ago. Let me walk you through the Q2 bridge gross margin was impacted by 550 basis points of higher manufacturing costs, primarily related to commodity inflation distribution and labor as well as a 10 point 10 basis point drag from currency.
These costs were offset by a positive 270 basis point impact from price volume mix positive 30 basis points from acquisitions, and a positive 70 basis points from productivity.
Moving to marketing marketing was up $3 million year over year marketing expense as a percentage of net sales was seven 9%.
For SG&A Q1, adjusted SG&A decreased 50 basis points year over year.
Other expense all in was Fortunately, a half million dollars or $2 $9 million increase resulting from higher average debt outstanding and for income tax our effective rate for the quarter was 23, 2% compared to 24, 2% year ago, a decrease of 100 basis points. We continue to expect the full year rate to be 23%.
And now to cash for the first three months of 2022 cash from operating activities increased 53% to $153 million due to improvements in working capital, partially offset by lower cash earnings. We continue to expect cash from operations to be approximately $920 million for the full year and as of March 31 cash on hand was 100 and <unk>.
$74 million.
Our full year Capex plan continues to be approximately $200 million as we continue to expand manufacturing capacity.
Focused on laundry litter and vitamins.
For Q2, we expect reported sales growth of approximately 5% to 6% and organic sales growth of approximately 3% to 4%.
This is sequentially higher from Q1, as we expect an improvement in K cell levels. After seeing April trend up into the mid to high Eighty's. We expect Q2 gross margin to contract 200 basis points as we continue to experience higher inflation ahead of the latest round of price increases.
Adjusted EPS is expected to be 70 per share an 8% decrease from last year's adjusted Q2 EPS.
This means our first half earnings will be down approximately 4% consistent with what our outlook was in January .
And now for the full year outlook, we continue to expect the full year.
Reported sales growth to be approximately 5% to 8% and organic sales growth to be approximately three 6%.
As you read in the release, we now expect an incremental 85 million of cost inflation compared to our original outlook.
On the incremental pricing laundry compaction and productivity to help offset.
We continue to expect 10% plus operating income growth to offset a 320 basis point increase in the effective rate.
Effective tax rate, we continue to expect full year EPS in the range of 4% to 8%. However, we now expect to be at the low end of the range and with that Matt and I will be happy to take any questions.
As a reminder to ask a question you will need to press star one on your telephone until we got your question press the pound key please standby while we compile.
The Q&A roster.
Your first question comes from the line of Kevin Grundy of Jefferies. Your line is open.
Great. Thanks.
Good morning, guys.
Matt maybe just start on international you talked a little bit about some of the supply chain issues. You guys are contending with and she found pretty pretty optimistic that that will recover in the back half.
Haven't been it caused the business has been so good now for a number of years, we just haven't been accustomed.
Youre seeing that maybe just walk through the issues and a little bit more detail I think you mentioned locked down we haven't talked about China in a while but I think that's a smaller part of your international business, maybe just get a little bit more granularity on the international business in the quarter and your confidence for the balance of the year.
Yeah, So we had a 0.3% organic growth.
In Q1, it won't be much better by the way in Q2 so.
It's going to be backend loaded starting in Q3, and yet or we said in the remarks that the we have lockdowns were dealing with and and international and the bigger private actually as deliveries just getting product deliveries and this is especially prevalent in the gmg business Global markets group.
Bull markets group is has grown significantly over the past five or six years and now it's a third of international and it has been the fastest growing in that part of the business has been growing 15%.
So what when that one slows down it affects the entire business.
The important thing to keep in mind is we have the orders.
We just revlon to fill them either due to production problems or transportation issues.
But we do expect those to continue in Q2, but be behind us in the second half.
Got it.
Yeah go ahead I'm sorry.
Yeah, one thing to add to that.
That business is really.
Supplies from different countries and are exported from the U S. For example, and as our fill rates in the U S improved that's going to of course improve the fill rates internationally.
Got it got it thanks, Rick just one more follow up for both of you just just on the elasticity.
I think broadly it's not lost on you guys for a moment, what we're seeing in the data and what we're hearing from others in staples. So far maybe just comment on what Youre seeing there and.
What what's embedded really in the balance.
Of your guidance for for the remainder of the year and then Matt just broadly any any hesitancy to take further pricing in your categories, just sort of worry around the state of the consumer and I'll pass it on thanks guys.
Yeah, I'll take the first one Kevin and maximum.
Take the second no really.
On pricing, we've seen and what I said last quarter about 20% to 30% impact and are better than we expected on elasticity is for volume.
We've continued to see that overall I would say.
And as we transition to the year of course now everyone talks about consumer and the health of the consumer and as Matt laid out in his prepared remarks, we've we have assumptions as our fill levels get back to normal.
Trade spending that gets back to normal or a marketing two thirds, one third loaded in the back half.
No concentration hitting shelves now and will be there in the back half and so theres a lot of things as tailwind through the back half of our spell it I'll, let Matt talk more about the consumer yes, he as far as the pricing goes Kevin. Your question is do we see a further pricing in the futures are right.
It's twofold, it's sort of state of the consumer demand elasticity in general what you guys are seeing that and what Youre embedding and then.
Related to that and sorry for being a bit for Bose.
The inflationary environment start to give you any cause to push harder you announced additional pricing in some of your categories.
Any more reluctant to do that now than you were even six to nine months ago.
Yeah, well look.
Monthly savings rates are back to pre brand demick levels, we know there's significant inflation and wage increases haven't necessarily caught up with inflation, it's 80 Bucks to.
In a tank of gas.
Household balance sheets are thought to be strong because of accumulated savings, but you know as I said in my prepared remarks, they're definitely indicators that would suggest the consumer is becoming more cautious right now.
So.
If there is a downturn, we think we're well positioned because of our our value products of course. The other thing we have going for US is we have number one and number two brands to give you some color on price. So we did take price on laundry detergent and in mid 'twenty, one and those were high single digits and we've seen.
Others take a pay price as well in larger Henkel for example across all Sun and purex they've taken.
This increases.
High single digit to mid teens and in PNG.
P&G is for tide gain in a tight simply is up six.
6% to 10%.
We're in the valley.
<unk> products, so we've given the most.
Most recent tranche of <unk>.
Inflation.
<unk> taken another step up which we won't quantify that until we see you again in July so that's the story on.
Laundry and litter.
Our first round, we took a high single digit and we're taken another round right now.
Nationally with tidy cat they've already taken two rounds of price increases and that's amounted to about 20% up and Clorox recently bumped our fresh step by a high single digit so and then if you went over to the vitamins.
We raised prices low teens.
And we were value.
And vitamins, so we have more room, because historically, the the value gummy, but competitors going up right now as well the 6% to 10%. So it's happening broadly so we do watch what the competitors are doing as Rick said, you know this elasticity saddened and had been too bad but we.
We think we're done for now with respect to pricing.
A couple of rounds in laundry and litter, we've done something with vitamins and we've done made a surgical strikes and all the other categories and because.
Because we have our.
Split between premium and value 60 40.
We think we're in good shape whenever it comes.
Got it thanks for all the color guys. Good luck.
Right.
Your next question comes from the line of Bill Chappell with <unk> Securities. Your line is open.
Thanks, Hey, good morning.
I guess.
First on back on kind of the guidance I guess the surprise is just the you're tempering the P. S.
This early in the year when most of your peers reporting or I guess, maybe you would view as the hope trade that everything will recover in the second half kind of just help us understand like what were the major drivers of that thought process was it the recession was it international was it.
Just want to be conservative.
And without knowing all the details yet I'm just trying to understand because where do you see you're kind of guiding down second quarter does not always got example, full year.
Is that a multiple choice question Bill.
Yes take C.
Well, Hey, Bill, it's Rick I'll take that.
It's.
Relatively straightforward right, we didn't change our revenue outlook ranked at all so.
Still feel like Oh.
Overall net the health.
No.
Wrong and as we improve our supply chain.
We have the ability to Atlanta anywhere within that range from a revenue perspective, that's true international that's true.
<unk>.
We will get better and international.
Well so the top line I would put that in the SaaS space. The primary reason, we adjusted the EPS outlook, but because of inflation $85 million of inflation.
And whereas before a quarter ago, I said, Hey, you know this new.
And online in the back half for Radnet ethylene and we think that it's going to be down anywhere between nines.
Over 99%, 10%. We just said you know what we just saw the biggest spike in one month and our full year forecast at least that we've probably seen in the last couple of years.
And we're now assuming spot rates at the end of March all the way through the end of the year now could that come down because demand comes down because of other macro things, yes, but that's what we're assuming now.
Okay now that helps for the color just one more on that.
With that on the topline is you've added price increases so presumably that would raise your topline outlook are you expect expecting some more elasticity.
That kind of brings it back to maintain whereas there is not that scientific.
Two things one we're we continue to be conservative just because we've seen 20% to 30% improvements doesn't mean, thats, how where it necessarily in our forecast on a go forward basis, especially with everything happening with the macro and we have a big range and revenue really but for the easy way to think of it right now is yes.
Prices went up by.
A couple of points and then volume would come down by a couple of points is and that's why we stay in that range we had before.
Got it last one from me thorough breath would you expect T. D piece to go up again further in <unk> at the resets happen I mean, it seems to be pretty widely distributed over the past three months, but I assume theres still some resets to go.
We got a lot of them behind us already they were.
Little bit better than we actually expected, but we do think that this brand is going to be a big grower for us in 'twenty three 'twenty four 'twenty five bill with additional distributions overtime.
Great. Thanks, so much.
Alright.
Your next question comes from the line of Dara <unk>.
MS Morgan Stanley Your line is open.
Hello Derrick.
Hey, guys.
So just to follow up a bit on the Kevin and Bill's question.
You know the volume was a bit weaker than we expected in the quarter and I think consensus also so just wanted to get your perspective on that particularly the 6% decline in the U S. In consumer domestic because you sounded still pretty enthusiastic about the retail takeaway.
Is that more sort of supply chain related.
Are you seeing any more consumer demand elasticity as you move through the quarter in March or maybe so far in April .
Just love a bit of perspective, there on sort of the supply chain.
And availability issues relative to any elasticity youre seeing and thoughts on that front.
Yeah, Hey, Dara, it's Rick I think that the easy one is in Q1, we expected volumes to be down.
About 4% and it came down minus 5% and that was all due.
To our laundry transition right, we compacted our laundry business about 10% and what does that mean it means we had to replace all 150 plus skus.
One size to another size and when you have tight inventory there was some bumping. This in March and so we had less than optimal fill levels for a period of March and April and the good news is we've recovered on that now so but thats what youre seeing in terms of the expectation is that's why we were slightly worse on volume Yeah, and you may remember that in my prepared.
Our remarks, we hit rock bottom in Q1 with the fill rates with them.
Although credit research, we hit we had more.
People call now for Covid and one month that we had the prior two years.
Okay. That's helpful. And then just on retailer relationships in the U S.
You guys have done a great job over time expanding shelf space.
Putting through with a second round of increases now in a couple of categories. The summer you had supply chain issues. So any issues in terms of retailer relationships and how that impacts shelf space going forward, obviously, it's sort of a unique environment and a lot of competitors are taking a lot of pricing, but just curious for your perspective there.
And just any thoughts beyond the categories, you announced today for the summer.
The rest of the portfolio if there could be pricing at some point and just how you guys think about that thanks.
Yeah as far as retailers go first inning.
The pandemic, we've been palms up and very transparent with the retailers with respect to all of our difficulties.
Category by category.
So I would say our relationship with our retailers is as good right now and the price increases have not tarnished paired that that relationship.
Like I said with our most recent one is being sold through right now for laundry and litter and we expect that to go well.
Well, but.
I would say.
Commercial team would say we're in good shape as far as the relationships with the <unk>.
With the retailers.
And then with your pricing question right. After this next tranche that Matt just alluded to that's going to be really effective in July or so.
Youll, probably see more more to the pack sizes versus pure price increases from us but.
We will see and we will adapt to the environment.
Okay, Great and then any thoughts on shelf space in the balance of the year and where you see it in the U S. How we should think about that.
Yeah Noah.
I talked to our head of.
Sales this morning.
We've got a lot of new distribution.
<unk> and 'twenty two.
Notably in the laundry detergent with that baby product that we just launched is incremental so we're spreading out on shelf. So yeah. We are one of the reasons why we feel confident about the year.
Okay. Thanks, guys.
Your next question comes from the line of Roger <unk>.
Open.
Line is open.
Good morning, Thanks for taking my question. So I guess just on the gross margin line, Rick any more specificity you can provide in the magnitude of the gross margin decline youre expecting for the full year and then do you still expect to exit the year with positive gross margins.
Yes, no great question refresh.
So we just said we are in in our original outlook contract and Thats kind of what we re emphasized today contract.
So I'm not going to give you an order of magnitude I would just say that yes, we expect improvement.
Q1, and Q2 are going to look similar but then we're going to expect improvement as we go through the entire year and we expect to be positive as we exit the year in Q4, largely because of pricing concentration supply chains back in stock right when supply chains back in stock and fill levels. We have fewer trucks, we're very inefficient bill in <unk>.
One and then productivity built throughout the year as well. So that's why we think we're going to be in a good spot as we exit the year.
Okay, Great and then I guess my second question. So I think in your press release do you guys expect supply chain issues to be in the back half of 2022 for the most for most of your brands.
Why wouldn't it be for all of your brands like I guess why headwinds do you still expect to have windows, you're entering 2023.
No. We I mean, that's just the wording in the release, we expect that to really kind of be at pre COVID-19 type levels by the end of the year.
Okay, Great and then maybe my last question just on organic growth do you have updated organic growth expectations by segment.
No change.
Since our outlook in January our company outlooks Hussein and Theres no change to the three pieces.
Okay, great. Thank you.
Your next question comes from the line of Jason English with Goldman Sachs. Your line is open.
Hey, Jason.
Hey, good morning folks thanks for sneaking me in.
So you mentioned that youre off the bottom in terms of supply chain constraints and it sounds like you've kind of worked through a lot of that earlier in the quarter.
And it's sequentially improve through the quarter.
But when we look at the Nielsen data, it's almost the universe like as the quarters progressed your volume trends eroded in the most recent data points, probably the weakest we've seen in a very long time.
Can you unpack that a little bit like what what's the difference of why we're seeing the volume trends road with later and when when your narrative in terms of supply constraints suggested it should actually be going the other way.
Yeah sure Hi, Jason It's Rick I don't know if I answered it for Dara or not but it's really has to do with laundry right in our volume guidance for the quarter was down 4%, we really came in.
Down, 5% and I would've said, we would have beat our volume guide.
We had the orders for it but as we go through this transition of 10% compacted.
For laundry all these new bottles and against 150 Skus as that goes up and the other 150 has to come out then the execution was not flawless because theres a lot of complexity. When you think of a new product in your in your slotting in two or three skus and typically a retailer. That's no problem is is that every day, but when you were talking.
About 150, Skus, we couldnt build the inventory that we wanted and so we had hard cutoff dates and so we were we were at a time when we would want in our laundry business in March and even in some in April and so that's why you see that kind of nuanced that as supplies.
Recovering and were fully recovered we are at 90% fill levels on laundry for example, this week, but as we went to that bumping is thats why you have out of stocks at laundry one of our biggest businesses for a period of.
Three or four weeks.
And did you go in isolation, whereas the rest of the category compacted of comparable magnitude at the same time.
Yeah, now we mentioned maybe six months ago that a lot of the competitors have moved previously already anywhere between nine and I don't know, 13% and so we lagged that move.
But we've moved and that's this is.
A big step for us, 10% and and we May do more in the future.
So you've had you've had a relative price value advantage over them for the last number of months.
And now the advantage is fading and there's always been concerned like if you go in isolation.
You shrink your bottles same price like it's a perception of price perception.
Given that youre going out of sequence now.
How are you assessing the risk that the consumer is now perceived to be less attractive value and you lose volume or market share as a result.
The way to think about it is yes, maybe there was an advantage but returned to.
Storable gaps as yourself of a concentration. So we don't think that's gonna be it an issue keep in mind that.
Call that some of the price increases that the competitors have taken like Henkel has gone up.
High single digits to mid teens, so there's a lot of movement in the category right now so I don't think it's going to change the relationships with the consumers perception of value.
Got it understood. Thanks, a lot guys I'll pass it on.
Okay.
Your next question comes from the line of Chris <unk> with Wells Fargo. Your line is open.
Hi, guys how are you.
Hey.
So just.
One question just around price versus volume just being a bit more specific I guess.
If I just think about the pricing that you've already announced and some of the new pricing coming through.
It would suggest that maybe year end.
5% pricing range and in Q2, and so getting volume elasticity is that fair and then similarly for the full year.
It seems pricing, it's going to shake out at least in that 6% range. So again embedding.
Oh, you mean elasticity or otherwise and I guess is that is that a fair characterization and then secondly is just how much of that.
Is pure elasticity is the recovery in the supply chain is laundry is still catching up and so I'm just trying to frame.
Those.
<unk> dynamics.
Yes, no problem, Chris It's Rick I'll, just refresh your memory on what we said previously I won't get in the quarter, but I'm talking about the full year. We had said pretty I had said previously and we thought volume was minus one in price was plus five and a half and that's how we got to the midpoint of our revenue range of four and a half.
Organically and now I would probably say, it's closer to minus three on volume and plus seven.
Or so on price and it's the.
The volume pieces of course.
The new pricing the elasticities for fabric care in litter.
And then also you know Matt alluded to it in his comments the DIY shopper.
Shopper foot traffic some of those hardware hardware stores are down by about 10 or 12%. So we think that the showerhead business from water Pik will be down.
As well so that's how we get the volume of minus three and then on the price of course, the pricing is up because of those those actions we've taken and also favorable mix our personal care portfolio.
Is there a precedent or a lot of the brands in the portfolio for personal care Domo.
Yeah.
That's very helpful.
Just one follow up on.
You had a prior line of questioning just around gross margins.
Clearly.
Inflation tracking worse, maybe four or 500 basis points for the full year.
Gross margin is expected to rebound in Q4, I think that all all makes sense.
How does productivity factor into the equation this year and are there opportunities to perhaps accelerate the amount of savings that you're getting or just given the tight supply chain environment is that just going to be a more difficult thing to accomplish this year. Thanks so much.
I would just say on the productivity front.
<unk> throughout the year and the reason it builds us because remember journal those key Covid times, and just really tight capacity times, we were unable to get line trials that plants to run some of these productivity projects and as our capacity increases because our throughput is.
Improved in our case, so numbers rise we will have more time to do some of those qualifications and that's why it builds throughout the year.
Okay. Thanks, so much.
Your next question comes from the line of <unk> Tong with Raymond James Your line is open.
Great. Thank you.
And just one follow up on a couple of things first in terms of the supply chain.
Constraints, you're talking about incremental pricing in laundry and litter.
On an annualized basis does that catch how much of that cost inflation that you mentioned.
Thank you.
Get gets covered by that pricing and then.
Also some of the first categories to go last year you know.
Should we be thinking that at current level, you'll be evaluating sort of the same playbook as last year.
Different pricing when universe lap or is this pricing that you're planning to take right now and not putting inflation forecast that you already see combined with the productivity initiatives that you think your update at that time.
Yeah. So let me let me try to answer both of those.
So so first of all.
Your first question was really how does our.
Litter and laundry pricing.
Recover versus inflation and I would just say, we take a big step back and we've looked at really the two years of inflation since Covid started and the good news is.
With this.
Next price increase to 80%.
This next tranche.
As we exit the year, we will have recovered.
Through pricing and productivity all the cost inflation largely.
So that's good news what was your second question Olivia.
Yeah, just around the cadence of a potential potentially more price increases because laundry and litter. We're the first to go last year should we assume that as the year progresses, then you're continuing to evaluate more pricing with respect to the categories. The rest of the categories that went back to the year progressed.
It all depends on the consumer and the macro environment as well, but I think what I said earlier was.
These two price increases are underway and then we're also going to look.
Different pack sizes and other other forms and moves just list price increases unless there's another shoe to drop some inflation again.
Got it that's helpful. And then just in terms of this quarter, you know 8% pricing in total 9% consumer that's obviously.
Pretty unprecedented as far back as <unk>.
My moniker so.
Realize of course that we're also experiencing unprecedented levels of inflation.
Those numbers are pretty big and given that you were able to achieve that.
I'm kind of curious how that might influence your future plans and pricing does it make you more optimistic about Europe .
Elasticity is longer term or do you just kind of talk to us up market macros or is still relatively healthy consumer environment tight capacity all of these things that are playing a part.
Youre talking about 9% price increases on average, but you're also talking about 9% of Cogs inflation, a year ago, and that's our new outlook for this year as well so.
Big Big.
Numbers are priced because theres unprecedented levels of inflation I don't think it would give us any more confidence in the future and it's great that when we price in our branch number one or two.
We've been able to do that and it's been relatively straightforward, but the entire ocean has kind of risen because of.
This global macro inflict all competitors everywhere in every category, we're taking price.
Yeah.
Got it and then just lastly in terms of some of the international supply chain issues like what's happening to the business that you lost is it going out there players or just consumer is sort of.
Yes.
Completed in terms of their inventory or you know like I just.
Playing consumption just kind of curious what's what's happening to that last sale. Thank you.
Yeah, no there's definitely some some lost sales and in some cases.
You can lose shelf space remember, particularly in our global markets group, we're dependent upon distributors to interface with the with the retailers.
We have very strong distributors.
Many countries. So we think once we get back in and supply. These two core not going to hurt us long term.
Got it thank you so much.
Okay.
Your next question comes from the line of Andrea Teixeira with Jpmorgan. Your line is open.
Thank you good morning, so following up on inflation I thought I thought you were 60% hedged heading into the quarter end.
I believe you.
Obviously with makes us, saying like the 85 million and then additionally, inflation hits your 40% as you rolled the hedges, how we should be thinking longer term. So that means that you have to take additional pricing for the remainder of 60% and that was.
Hedged as you go into 'twenty three.
And then just as a final point on clarification on the pricing in laundry and <unk> all seen in the later side. So you said I think you said high single digits at the time made the last shear in.
In laundry and then would we expect a similar magnitude early.
Now in June .
Or in the or you were just using the concentration on compaction too.
She'll help you most of that or it's both.
Yeah I'll take the.
We're only community.
Andrew we are only communicating that price increase right now.
The retailers. So so that exercise is not complete so we won't be updating everybody on the magnitude of the price increase for laundry and litter until we talk to you in July .
Yeah, and then on your comment on the hedge Yep, you're right, we are 60% hedged when in the year.
A lot of this is diesel and.
Diesel costs in oil based.
Inputs that we have that now flow through other raw materials as an example.
So those specific we do at times have hedge diesel we just have not hedged a lot of diesel in 'twenty 'twenty. Two so although that is diesel very quickly and then all of the.
Derivative products of oil that go through the supply chain. So that's really the basis of that.
And just as a follow up is that also the third party manufacturing that obviously has a trickle down and a pass through and to that end.
With levels I understand obviously, you had to shift all of this 150 skus in.
Is that the service level as you exit the quarter.
Proved so can you update us on the service levels as you ask that and then how you should be soon and that's the reason why you're probably feeling confident that you can keep that top line and obviously increase the topline range.
Yeah, Yeah, you're right those costs, but also include third party manufacturing costs that are.
Especially for raw materials and components that they would have to.
So thats, our best guess for the full year impact of that.
And then fill levels, Matt said in his remarks that in Q2 was our bottom.
Quarter for the last seven or eight quarters. So we hit below 80% and that was a bumpy transition for laundry, but it was also as Matt said in one month, we had more labor.
Labor issues than we had in many many quarters last year. So the net of it though is I think to end on a positive as we are heading mid to high eighteens for the month of April and in some key brands were heading in the Ninety's again already so we have a lot of optimism we can see the light at the end of the tunnel and that's why we're.
We're calling the back half of being recovered from a supply chain perspective.
Thank you I'll pass it on.
Your next question comes from the line of Lauren Lieberman with Barclays. Your line is open.
Great. Thanks, good morning.
One question was a clarifying question because in the release.
Pretty explicitly says that the volume performance was accommodation of supply chain effects and also elasticity, but then I feel like in your commentary, there's a lot less around elasticity at least in the current quarter. So I was just hoping to get some clarification on that point.
And then secondly expectation that promotional levels normalize in the back half of the year.
I'm just curious why are you thinking about that in terms of frequency depth both.
Because they don't feel like that's something we're hearing from many other.
From a product company, just given the inflationary environment of course and.
I was curious on your perspective on that point. Thank you.
Okay, I'll take the promotional environment.
First.
Right now Lauren we should really be talking about household.
Alex because personal care products are.
That heavily promoted.
Look at laundry detergent, where it is right now if you look at.
Liquid laundry detergent.
The sold on deal is around 31, 32%.
Normally its in.
It's in the mid <unk> so.
Off the historical levels.
And if you look at on a <unk>.
Brand basis.
They are kind of the value brands are sort of tightly bunched arm <unk> hammer purex tide simply.
All 24 25, 26% sold on deal so.
The big promoter is tied.
Over 40% to 42% actually and you know.
There were lower promotions frankly for a while now.
Primarily due to supply shortages and as you point out the introduction of a price increase.
<unk>, so you're right it may not return to.
To our historical levels this year, but if it does.
We're prepared for it.
Ricky I think with that take on that first question.
No nothing else to add on that one on the on the volume question you had.
Lauren.
I think it's just a combination and of course, there's always volume implications to raising price and.
Harder to measure these days with all the.
Different attributes going on with supply demand competition lags on when pricing happens all of those things, but we think there are two contributors to the quarter. We think it was it was the pricing elasticity is and we think supply chain and I walk through some of the laundry bumping as well so the.
The good news is as we go through the year, we hope that the supply chain stuff is improving and then we're left with really just purely some of the price elasticity on the volume side and.
Lauren.
Can you give a little more color too on the household just talking about litter. So really that litter sold on deal right now it's around 10% and it's typically in the high teens and.
Everybody had problems in Q1.
Clorox necessarily church and Dwight.
As far as supply intermittent outer stocks, so again low promotions so.
Yeah, It will probably be a slow roll for that to come back.
Remainder of anything, but as I've said before if it does it'll be we'll be.
Perry.
Okay great.
So just again to clarify in the quarter itself not the forward look but in Q1 in what businesses have you already seen elasticity.
Everywhere, we raise price we have seen elasticity negative impacts on volume.
Our comment has been those negative elasticities that were historical I'm going to make it up for a second.
Yes.
Laundry, we we say we raise price by 1%, we expect volume to decline by 1%.
Context that we've said our elasticity as had been 20% to 30% better than we expected. So that would mean that if price was up by 1% our volume will be down by <unk> eight.
Alright, So I would just say in every in every case, we've raised price we have seen negative volume elasticity, but they've been better than we expected.
Okay, Alright, thank you for the clarification.
Alright.
Your next question comes from the line of Steve Powers with Deutsche Bank. Your line is open.
Hey, guys good morning.
Just on the supply from a just a bigger picture perspective.
Obviously multiple factors in place in different parts of the business in the world.
Everybody's had.
<unk> transmission issues, but.
It just feels like you guys were early in terms of calling out.
The materiality of supply issues going back.
About a year.
Just let me extend a I think the impacts.
There have been a little bit more severe you'd be talking about leaving money on the table.
For multiple quarters now so I guess just the question is acknowledging your optimism.
For the balance of the year just has it caused you to rethink at all.
The balance of in house versus third parties.
Or just your diversification of suppliers.
And of course to contemplate any changes as you go forward or are you kind of holding Pat on the on the supply chain.
Structure as it exists.
No. It's a good question, Steve we've made major changes in our supply chain and you know what.
We're trying to do right now is to have a shorter.
More resilient supply chain.
And if you talk to our folks to supply chain, you'll hear that.
We've qualified dozens and dozens of new co Packers and suppliers.
So that we have.
Across the system, because theres, no tell whether or not theres, some theres going to be another pandemic, Chris Black Swan event.
So we said we gotta be prepared for that and it's created just a ton of work for our teams over the past couple of years, but.
And when we come out of this we're going to feel like we are even more resilient than we were going in so it did definitely expose some some of the weaknesses.
Our structure, which we've now cured.
In the last 18 months and just add to that you know most of these issues that we have or is it because we outsource a lot of our finished good third party manufacturers. Most of this is because we've had one or two were on that.
Key raw material supplier or we haven't been.
Fully vertically integrated for example, but the good news is all those choices and decisions were made.
12 months ago to adjust and improve and so we're seeing every month now more and more of these coming online. So again, that's why our fill rates are improving so rapidly in April and that's why we expect it to continue.
Okay, that's great.
So the changes the kind of the strengthening of the overall supply chain redundancy has been built kind of in real time, as you're correct, but here in the here and now issues and so when.
When things are back online you should also have got redundancy back online in the business of the whole system should be stronger into 'twenty. Three I think that's that's my takeaway that's fair yeah.
That was the goal when we started and that's where we're going to land Steve.
Okay perfect. Thank you. Thank you both.
Your next question comes from the line of Peter Grom with UBS. Your line is open.
Hi, Peter Hey, Good morning, Hey, good morning, everyone I Hope Youre.
Youre doing well so I just wanted to ask specifically about the <unk> organic revenue guidance and maybe I missed this but did you discuss volume versus price mix in that in that outlook and then.
You know, Matt I know you discussed some of the recent trends in value detergent and cat litter shower heads et cetera that I guess lead to some of the comments in the release around the portfolio's performance during <unk>.
Session I guess, but.
Just wondering if you could comment as to whether you saw an acceleration of these trends as you exited the quarter and through April .
You are a bit more concern versus maybe earlier in the year or has it been largely stable throughout the quarter.
No I would say you know our remarks about.
What we're seeing with <unk>.
Just to remind you.
<unk> detergent had been losing ground to.
Premium for many quarters and in Q1. So this is recent.
<unk> kind of flattish and the trends we saw our Q1 trends.
Our orange box in.
In litter, which is value is now moving faster than our.
Black box, which is premium and thats a reversal of prior.
Trends.
Yeah, I mean, just the commentary is as of recent.
We're generally very transparent on these calls so I.
Tell you what we're seeing in it that those influence.
Thinking with respect to Huawei may be ahead now is it could it be just them, we're going to have a few months where people are now traveling more and.
Spending more money on experiences versus versus products out.
Could be that could be part of it but we did want to alert everybody to what we're seeing and then in terms of volume price in Q2, I would say its kind of looks a lot like the mix. We saw in Q1 right at the mid point of organic growth in Q2, I think is going to be around three 5% I would say volume is still going to be down around 5%.
Because we saw some of that laundry again concentration pumping. This in early April because some retailers were not all the way full on shelf and then from a price perspective that last 80% tranche of pricing is actually a full quarter effect, so it'll be at or above Q1.
Okay. Thank you so much best of luck.
Thanks.
Our last question comes from Wendy Nicholson with Citi. Your line is open.
Hi, I appreciate I know the call has gone on a long time I just had a small question really about the Dms business.
Thank you said earlier on that you were taking a double digit or mid teens pricing on that business and that surprised me because I would've thought that has a higher gross margin business, maybe the cost of ingredients wasn't as large so number one with like right that the price increases that high and then secondarily, just and I know, it's a small business, but that's still interested in it.
Given that it's kind of more of a discretionary product you know, we don't need it maybe as much as I don't eat vitamins as much as I need laundry detergent do you expect to see more elasticity of demand in the EMS space. Thanks, So much.
[laughter] Vms is actually holding up well.
So demand is still high as far as the price goes.
What I said is we've raised prices are low teens and that competitors are going up as well, 6% to 10% and the historic.
<unk> had been the value gummy and we still will be even at these price increases so we've had more room.
To move up and yeah ingredients and inputs.
And obviously transportation Cogs are all impacting the vitamin business. So it's not it's no different than any other business as far as our logic.
For raising price, but the category is healthy.
Man is still strong the gummy category was up.
Consumption was up 11% in Q1 and household penetration is up appears to be sticking and.
You always have the tailwind of.
The wellness trend not just vitamins. We also have a business for nasal hygiene and that was a pretty sleepy category.
Wisconsin, it's much much bigger outside the U S, where we have a proud of exterran more but no.
You know a nasal hygiene category as it's been.
<unk> been picking up.
I guess the other comment on that on the categories as private label share Gummies has declined.
Last year first quarter was 24% and right now it's 22%. So it's down 200 basis points. So yeah I think the categories is strong our issues are our supply issues frankly right now.
Got it that's very helpful color. Thanks, so much okay.
Okay.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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