Q4 2022 Church & Dwight Co Inc Earnings Call

Speaker 3: I was pleased with Patrick, I was young and an actress.

Speaker 4: And I left the footprints of a saint on the carpet And a heart like my heart did when you left town

Speaker 5: Late for the love of my life And when I die alone When I die alone I'll be your friend

Speaker 6: great to see so many familiar faces in the room. We've got great show for you today. I'm gonna start off with the Safe Harbor Statement. I encourage everybody to read that when you have some time.

Speaker 7: And who is here from management today? We have virtually the entire management team. So when we're done with the presentation, everybody will come on up, fill the stage, and then we can do Q&A.

Speaker 8: All right, we've got a pretty packed agenda. Some of it will be familiar to you, but these are all the things we think we want you to walk out of the room knowing more than when you walked in the room.

Speaker 9: All right, I want to start with a look back at 2022. So as you all know, we had significant inflation this past year. We had $250 million of increases in COGS year over year, 22 versus 21. And how we reacted to that, we increased prices both in 21 and in 22. And in some cases, we had a little bit of a decrease in COGS.

Speaker 10: look at some of our more recent acquisitions. That would be Zycam Thuroughbreath and Hero acquired in 2021 and 22 all had double digit growth and all time high market shares.

Speaker 11: And then finally we know we've experienced a Black Swan event over the past few years. We know there'll be others in the future, so we've done a lot of work in 21 and 22, spent a lot of money, a lot of effort getting ready for the next one. And then finally we ended the year strong. So you see on the slide here the categories that we're in, group consumption, 13 out of 17.

Speaker 12: this is kind of a leave behind. These are the 17 categories that we compete in, so you can take a look at this after class, which categories went up and which categories did not.

Speaker 13: All right, now here's a slide that we show every year and this is a very different slide than we've seen in the 16 years that I've been with Church and Dwight. So the first 15 years with Church and Dwight, every year we've had significant TSR and in many, many years it's been double-digit and this year we went backwards.

Speaker 14: And that's a disappointment to me, to disappointment to the management team, to the board and our shareholders. And so granted, we have that disappointment. But now we're just gonna broom ourselves off. And so we're just gonna broom ourselves off.

Speaker 15: Pick ourselves up. We got a great company We've got great brands and we're looking ahead with optimism to 23 and we plan on starting another 15 year streak starting in 2023.

Speaker 16: All right.

Speaker 17: So why do we have so much confidence in our future? Our first level of go left to right, US. So Barry's going to come up in a little while and talk about our plans for the US business and why we expect growth in the future. Mike Reed is going to come up and talk to us about international. For a long time, international has been growing.

Speaker 18: six percent annually. That, by the way, is our model and he's going to tell you why we believe that they will continue in the future.

Speaker 19: Innovation is well, Barry is going to talk about. Innovation, we are a very innovative company. It's been a big contributor to our top-length growth for many, many years. And Barry is going to take you through one innovation in particular, which is hardball. It's a new litter that we're launching this year. We think it transformed the litter category.

Speaker 20: Serebby is going to come up. She's our chief digital officer. She's going to talk about how digitally savvy we've become on our plans for the future. And finally, the Evergreen model. Everybody in the room, particularly long-term holders, you're very familiar with their Evergreen model. 3% top line, 8% bottom line growth. That model is healthy long-term.

Speaker 21: We have strong fundamentals in 2023, we think we'll return to that model in 2024.

Speaker 22: All right, so now who we are.

Speaker 23: So we're a 5.4 billion dollar company. You can see how we split. We're largely a US business, 77% domestic, 17% international, and our specialty products business, which is our legacy business, the business that the company was founded on, is about 6% today. So we have 14 power brands. Those 14 power brands make up 85%.

Speaker 24: of our revenues and profits. One brand you won't see up there today is flawless. That's a business that we bought four years ago. It obviously didn't turn out that the way we had expected as disclosed in the release. But as I said, these 14 power brands drive 85% of our revenues and profits.

Speaker 25: So here's our formula. We have a balanced and diversified portfolio. I'll take you through some stats in a minute We have low private label exposure. The weighted average exposure is 12%

Speaker 26: And Innovation Barra is going to take you through a little while, and we are an acquisitive company. We generate lots and lots of cash, and the first destination for our cash is a TSR creative acquisition.

Speaker 27: So here's some of the diversity stats I want to share with you. So we're 40% value, 60% premium.

Speaker 28: For us household and personal care split it's about even 46% household 48% personal care And here's our weighted average private label exposure and this is over a long period of time It's generally around 12% that really hasn't changed that much recently

Speaker 29: Here are the five categories that we're most exposed to. You can see on the chart there, see how the private level has moved up and down over time, it's generally stable even in this environment.

Speaker 30: And as far as consistent innovation, this is the lineup. A lot of the new products we're going to be launching in 2022. The upper left, you'll see hardball. I think you're really going to be excited about that when you hear about it later today.

Speaker 31: All right, we have a long history of growth through acquisitions. If you look at, go back 2004, 1.5 billion, we've added almost $4 billion to our top line, and a lot of that is through acquisitions. You can see they're all laid out through the bottom. Every year we add a new brand.

Speaker 32: And in the year 2000, the only brand we had was Armin Hammer. So we had 13 of our 14 power brands of the choir, been a choir since the beginning of the century. And most of those brands are number one and number two in their category.

And we have very clear acquisition criteria. It's got to be number one or number two in their categories. Notably, they need to be high growth and high margin brands that are fast moving consumables.

We've added fast-moving consumables because of our experience with Flawless.

asset life. We're a company that doesn't invest a whole lot in plants. We like to buy businesses that are already made by third parties, by co-packers. We like to be able to leverage our considerable supply chain.

And then finally, it needs to have a long-term competitive advantage.

All right so the short stories we have 14 branch today we hope to have 20 tomorrow.

All right, and I think that's it for me. I'm gonna pass it over to Rick.

All right, thanks Matt.

So we're going to go through quite a few things, Evergreen model.

How we finished 2022 we're talking about 2023 and we'll also talk about capital allocation cash flow

So first off, this is how we begin and end most presentations. This is our organic Evergreen model. So we start off with 3% of sales.

We have growth margin expansion of 25 basis points. We have marketing that's usually flat on a percent of sales, but higher dollars. We leverage SG&A to get to 50 basis points, and then we expand EPS by about 8%. That is our long-term algorithm.

So in Q4 what happened? So in Q4 we had a better than expected quarter. We were 300 basis points better on reported sales. Half of that was organic, half of that was a little bit the effects and then the hero acquisition did better than expected. So.

Thumbs up on reported sales growth, thumbs up on organic sales growth. Gross margin was contraction, that's what we expected. And we've stair stepped better throughout the entire year in 2022. We expect that to continue in 2023.

Adjusted EPS was 62 cents at the high end of our range, and then cash from operations I'll talk about on the full year, but we significantly beat our cash flow projections as well.

For the full year, we came in around 3.5 percent reported sales growth versus 3. About 1.5 versus 1 on organic and then gross margin was way down. You heard math say 250 million of year every year inflation was a driver behind that. Adjusted the P.S. was 297 high into the range.

And then reported EPS was down 49% or $1.68, and that was really the flawless non-cash impairment.

And then cash from operations was 885 million versus our outlook of 800 million and that's really strong cash earnings and improved working capital primarily inventories were coming down back in line especially for our discretionary businesses, which was good to see.

Okay, moving to 2023.

So we tried to simplify the outlook. We have a detailed outlook on the next page, but this is a chance just to take a step back and say how are we doing? Our outlook is 0 to 4 percent. The midpoint is 2 percent.

EPS growth. Before we get into the investments on marketing SGNA and the impacts below the line.

Our core adjusted EPS growth is 10%, double digit. So we're really pleased with how strong the business is performing. We've chosen to make investments in brands and people. And so we're increasing our marketing spend up to 10.5% of sales, and that's about a $30 million investment or a 3% drag on EPS.

Instead of comp normalization, we didn't have a very good sort of comp here this year, back to par, there's about $30 million or so, and that's another 3% drag. And then interest and taxes is a 2% drag.

Here's a detailed financial outlook. So 5 to 7% reported sales growth. 2 to 4 reported 2 to 4% organic sales growth. That 300 basis point difference is largely the hero acquisition.

The detail for organic is for the divisions is two to three percent for the domestic division three to five for international and SPD is five to six.

Gross margin for the first time in a long time expands by 120 basis points. That is...

Exciting for us, right? We've had a stair step down over the last few years This is a road to recovery and we'll get into the details in a minute Marketing, that's the investment I talked about. SG&A is higher and we'll talk through that. Operating margins flat.

And then other expense we're calling out as a drag of 110 million. We're 35 million higher on interest expense next year because of hero debt and and we have some variable debt that has rates going up Effective tax rates 23% and then the EPS growth is 0 to 4% and cash is strong up 5% or so

to $925 million. Here's a track record of reported sales growth. I don't think we've shown this slide before. We usually just show organic, but we thought we'd show both. So over the last 10 years, we've averaged 6% of reported sales growth. And in 2023, we expect no different, 5 to 7%.

Organically, here's the 10-year track record. Our average is around four. Our organic model, evergreen model is three, and our range in 2023 is two to four.

Now, one of the most important things about organic sales growth is how do you get it? And I'd say if you look back at the last eight to 10 years, most of our growth is volume growth. If historically our Evergreen model was 3%, then we would have 3% volume growth and pretty much flat on pricing. 2022 is a little bit of an aberration, all the pricing that's happening all over the industry because of the...

all the inflation that's happening all over the industry. But you can see in Q3 of 2022, we had really the low point for void growth and we have an improvement in Q4. We have further improvement, although negative in Q1, further improvement, although negative in Q2, and then we inflict positively in the back half of 2023 is the expectation.

Now moving to gross margin. So 100 and 120 basis points. Why do we believe that we can expand? Inflation is moderating. We still have inflation. It's just moderating. productivity programs are doing well. Margin accretive acquisition, that's hero. And we're improving our case still in a big way.

So you can see that 41.9 goes to around the midpoint 43%. And if you look at the track record, 45 is kind of where we were. So we have room to run over the next few years.

And here's the detail-grace margin. This is the bridge in 2022. We were down 170 basis points and there was a massive headwind because of inflation.

In 2023, we think, yep, we still have inflation down 240 basis points, but price-volume mix plus productivity offset inflation for the first time in a long time, and then we have help from our acquisition. So that's how we're up 110 basis points year over year.

On marketing.

So similar story, we have full year marketing support, we have better product supply, we're going to get to 10.5%. If you do the simple math and look at our high watermark back in 2020, it was around 12%. Now remember, we took price these last three years, and we don't raise marketing dollars just because we...

the price of the widget went up. So 12.1, effectively, if you strip out the price increases, is around 10.7%. So between 10 and 1,000 and 1,000,000, is equivalent to that 12%. So by stair stepping up to 10 and 1,000, we really feel good about the support we have for the brands. So let's go inside and order.

SG&A is higher, and it's higher for a few reasons. Hero has standalone SG&A. That business is often running and doing a great job. $30 million of normalization for incentive comp and equity. And then number three, I also want to leave this group with our long-term evergreen leverage targets remain in place.

We have a stair step up in one year, but the behavior doesn't change going forward.

And we've had consistent strong adjusted EPS growth, high double or high single digit growth for a long time to track record. Last year we took a step back down one and a half percent but we're taking a step forward this year in 2023 and we expect that to have further steps forward as we move along.

There is a first half second half story first half EPS is expected to be down Why because we had continued choppiness of our discretionary brands. We've we've kind of telegraphed that last quarter we said for the next six months or so we have

Continue to tap into those discretionary businesses like Waterpik, Flawless, and even Vitamins as we're lapping Omnicron impacts. International supply challenges, return to normal promotional levels, and higher marketing dollars. Higher marketing spend year over year in the first half and the second half.

And then the second half is impacted by improved productivity, improved global supply. We have volume growth. That was that chart I showed you earlier.

Moving on to cash flow. Our free cash flow conversion for many, many years has been industry leading, on average around 120%.

And this past year, we're around 97%. Why is that? Because of the effects investment we're making in capacity, laundry, litter, vitamins.

And then in 2023, we'll also expect a free cash flow conversion to be in the 90s.

How do we generate cash? Well, part of it is how we manage working capital. We've gone from 52 days cash conversions like all the way down to 19 days. Overall, just extremely happy on how we've leveraged our balance sheet and improved our working capital.

We took a stair step up in 2022 because we had elevated levels of inventory, primarily for our discretionary businesses. But as you heard in the Q4 release, we've improved those inventories. We still have more room to go, but we've improved those inventories.

And then we have a really strong balance sheet. So we ended the year at 2.1 times in 2022, and we expect to end the year at 1.7 times. So we have plenty of firepower to do an incremental dealer deals. We have

enough room to go up to $3.2 billion of a deal and stay and maintain our investment grade rating.

Okay, just talking about capital allocation. Number one that we always talk about, TSR, Crib M&A. We want to do the hero deal. We want to do the thoroughbred deal again and again and again. Those businesses are great. Those are the fast-moving consumer goods that we're focused on that Matt just mentioned.

CapEx for Organic Growth. We'll talk more about that in a minute. MPD, debt reduction, and return of cash to shareholders.

So this is the capacity slide. Laundry, litter, baking soda, vitamins all have capacity, projects in place, technology, sustainability, all those things help drive our organic growth.

But overall, we're not a capital intensive company. Look at the long track record for Church and Dwight. We're around 2% of sales. In 2022, we took a step up to 3.3%. As we started the investment cycle for laundry, litter, and vitamins, in 2023, we'll be around 4, 4.5. And then in 2024, we expect a stair step down.

and then in 2025 we return to historical levels in that serospectation.

And then finally, our dividend increase. We had a 0 to 4% EPS outlook, and this is the high end of the range. We've been paying a dividend for many, many years, 122 consecutive years.

And then finally, I'd like to turn over to Barry, who's going to talk through MPD and how the US consumer business is doing.

Thanks Rick. Hey everybody, good afternoon. Nice to be back live with you here. I'm Barry Bruno. I lead our US business and I'm going to talk to you a little bit about our categories, our brands, a little bit about innovation, and then a new marketing campaign. We call it Give It The Hammer. You might've noticed it when you walked in as we've wrapped the building in orange today. So pretty good work there that I hope you like as much as we do.

We thrive in difficult environments. We've been through a lot over our 150 plus year history, and we thrive in those environments. We bring more consumers in. Stick with us as we emerge from them.

And our acquisitions have a lot of room to run on the top with you a little bit about Zeitcam, a little bit about TheraBreath and about Hero.

When I say that we're leaders in healthy growing categories, you can see what's going on here. Green means the category grew in that year, red it contracted. You can see we've added a few new categories over the years as we bought brands in the cold shortening, mouthwash, and acne patch categories, but healthy growth across each of those 6.4% weighted average last year.

We also know how to hold and grow share, right? Seven of 14 last year is not ideally where we want to be. We had supply challenges in a number of them that held us back from where we'd like to be ultimately. We plan to do far better as we go forward, as we aspire to do better than seven out of 14.

That's going to happen as our supply chain improves, right? You can see here where we were last year, Q1 below 80% improving throughout the year. Some of those supply challenges made share growth difficult. But as we get into the new year ahead, you can see we're at 93% growing to 97% through the course of the year. That's good not only for us, it's good for our retailers. As we bring growth back to these categories, we're again, we're the number one or number two player.

And you saw this before, we like difficult environments. We do pretty well in challenging environments. Our portfolio split 40% value, 60% premium, allows us to bring new consumers in in tough economic times and keep them. And as Matt said about private label, relatively low exposure, only five of 17 categories have material private label.

This is a look at consumption in Q4. So in 13 of 17 categories, in Q4, growth took place. You can see some categories that are new to us. If you look at the top, cold shortening, if any of you navigated November , December , without a cold, a cough, COVID, RSV, I commend you. Many of your fellow...

compatriots here in the US did not do as well and you can see what drove category growth there but what I like about this categories that we've been in for a long time are growing, new categories are growing as well.

So let's take a look at some of those categories that matter to church and white fabric care

Left hand side, category growth, right? You can see category growth was 6%, 7%, moderating a little bit in Q3 when the consumer took a step back. And then you can see what church and white growth was on the right hand side. So while we lagged a point in Q1, we grew faster in Q2, three times faster than category in Q3 and Q4.

And as you all know, when you're growing faster than category, you're gaining share. And that led us to an all-time share high 14.9% as we ended the year. And I want you to take away that's part of a long-term trend, right? We were at an 11.5 share in 2017. We're at a 14.9 now. Consumers who try Arm & Hammer love the brand and stay with us over time.

And we think that's only going to happen more in this environment, right? You can see where the consumers trading down from premium into value, which is where Arm and Hammer squarely sits, and we're keeping those consumers as you saw in our all-time share high.

Litter is another really important category. I'm gonna talk to you about innovation in litter, but right now let me show you where our existing business is, double digit growth each quarter last year, 14%, 12%. You can see what's going on there. And again, the story of share growth here in tough economic times.

We're continuing to gain share. You can see where we've gained a point and change over the year. But really what's going on are value orange box. Cat litter is gaining material share again. If you look at Q3, Q4, when the consumer was most stressed and they were trying arm and hammer litter, they've moved to us and they're sticking with us.

So another story about tough economic times and church and white persevering. And it's not just economic times that are tough, cough, cold, flu, again RSV. We really like the addition of Zycam to our portfolio. You can see over years on the left hand side how the category has been moving, took a step back in 2021.

But in 2022, as consumers were socializing and going out again, masks were going away. The category bounced back, and Zaycam's share of cold shortening has built strength upon strength in this. At a 77 share, and actually, if you look at the far right here, we exit in December a 78 share of the category. And again, this is an interesting chart on the left.

That is, influenza reports to the CDC just in November and December of 2022, versus the last five years, that gives you a little bit of flavor for House of Year, the cough cold season was, and flew this year.

So that's good and those are some important categories. We haven't even really talked about acquisitions yet, so I'm gonna talk a little bit about mouthwash and acne care. As a reminder, we bought TheraBreath in December of 2021. We bought Hero in October of 2022. So Hero's only been with us for 90 days. But it's a story of strength to strength and growth.

New distribution for TheraBreath plus our Waterpik hygienist detailing it have led to outstanding growth and heroes on the same path Let me tell you a little bit more about each of those

So TheraBreath sells on the left here, so percentage growth year over year, you can see where that business was up 59%, 45, 50%.

Ultimately, though, that growth far faster than the category has led us to an 8 share of the overall mouthwash market. Where it's almost a 20 share of the alcohol-free mouthwash category, right? Where the number two player there, we're growing as we're investing more in marketing and advertising and distribution.

And speaking of distribution, when we last met with you guys, we talked about the huge runway that TheraBreath had. And you can see we're realizing some of that now, up 60%. But we still trail all of our main competitors, Act and Crest and Listerine. We're way under skewed. And as a brand that retails for double the category average, we're at about a $10 price point versus a $5 average.

Retailers are happy to engage with us in those conversations as we bring a lot of penny profit to the category. So a great track record for TheraBreath already and that's going to continue into the future.

Hero, our newest addition. The Acne patch category almost didn't exist five years ago. You can see $20 million in retail sales in 2018. It has grown dramatically to $340 plus million fueled by Hero and you can see the percentage growth for Hero on the right-hand side in each month driving that category growth.

And what's remarkable about that, I think, Hero was only in distribution in bricks and mortar and Target and Ulta last year, right? We're on Amazon as well, but only Target and Ulta. That's why you can see the TDPs are difficult to calculate even in terms of how small they were. All of that growth is ahead of us as we look to get our fair share and drive more growth. And we're gonna be launching all of the major bricks and mortar retailers that you'd expect.

have tons of room to run.

And we haven't talked about innovation yet. So I'm gonna spend a little bit of time on that. It might surprise you, I'm gonna focus on cat litter, because I think we've got something really noteworthy that our R&D group has created for us. The category, just to give you a look back, we started with our orange box products going back to 1998. We added black box, which is our premium back in 2016. We've got a 12% CAGR over decades in the business.

That value, cat litter, 280 million in retail sales, that's our end box, that's one pillar for us. Second pillar, clump and seal, our premium price litter has been 80% incremental to us.

and we think we're on the cusp of launching our third pillar. We call it hardball or lightweight litter perfected.

Why do we care so much about lightweight litter? Well, we've got a 25 share in the total pumping category. We've only got a 5% share in the lightweight category. And lightweight's about a 16% subcategory of the total category. So absolutely going after our fair share there, and we think hardball is going to help us do it. What is hardball?

it's a new and different kind of litter. It's sorghum, which is a sustainable, non-clay, lightweight grain. We turn that into virtually indestructible clumps, which makes for easy, no-mess scooping.

And I could tell you more about it, but I'm going to show you a video of some of our scientists having a little bit of fun that I think will bring it to life. Let's play the video, please.

I.

The.

I like the roof drop as the demo right that's a compelling one. Hopefully that gave you a flavor for what hard balls all about Again category benefits. It's surprisingly lightweight yet incredibly strong It's virtually indestructible clumps makes cleaning the litter box of breeze If you've had to clean the litter box at home, you know, it's probably one of the least favorite household chores

and hardball makes it far, far easier. And it's sustainable, right? Renewable, lightweight, easy to transport as well.

So that's only one of our innovations, you can see in the top left corner. We've got innovation across laundry and condoms and acne patches and water flossers and vitamins. Nair Prep and Smooth, by the way, a great new innovation that's going to make facial hair removal far, far easier. Batiste Spin Brush and we're going to bring TheraBreath to a whole new generation of mouthwash users as we launch our kids line. So lots of innovation across it.

Carlos Lineris can't be with us here today. He runs R&D and Leslie Dribelvice this year. That team's done a great job giving us this marketer's incredible innovation to launch.

So I'm going to tell you just about one more thing. We call it Give It The Hammer. It's our new master brand campaign for Arm & Hammer. You see it all around the building. And I don't know if technically we're in a recession or not, as judged by economists, but I can tell you our consumer sure feels that we're in a recession. If you look at the top right hand corner, that consumer is paying $396 a month more for goods.

this year than they were a year ago. And that's forcing them to make difficult decisions. 53% are making different choices. 90% as you might imagine are anxious and stressed about that.

And I grabbed a spot from a consumer that was posted here before we ever started this campaign, but this is the inspiration. When you worked hard to get a good job, but it doesn't even feel like it mattered. Gas is $5, rent increased by hundreds, frozen chicken is $25, it's impossible to buy a home, and inflation is so high that the dollar tree is now the $1.25 tree, right? That's what our consumers are dealing with and they feel powerless about.

And we say, our M&HAMR is made for this moment. We're the hardworking brand to pack with power, price to be accessible to all, and eager to help. And we're launching a new campaign, a new video to consumers. Next week, we're going to share it with you now. Let's play the video.

Price pinch, give it the hammer. Workload overload, give it the hammer. Stuck in a bunk, give it the hammer.

Hard times, no time, when times get tough, the tough. She is at the hammer. Arm and hammer, more power to you.

So we think right message, right brand, right time. We're gonna be launching it to consumers on Monday. So you guys have got a sneak peek here, national TV, digital, all the influence in social media you'd expect on e-retail and through PR. We're excited about the campaign. We think it's gonna bring a whole new generation of consumers back into Arm and Hammer and they're gonna stick with us after.

So thank you for your time. I'm going to turn it over to my partner in crime and the leader of all things digital, Sarabi Pokhrayal.

Thank you Barry.

Hi everyone, so good to see you. Flattered to be here, leading digital searchers in Dwight. My name is Ruby Pokhriyao. So I would say digital acceleration is actually stated and acted upon priority for us. Because this is a new section, I'll do a little bit state of the union of what the industry is seeing and then give color and what Churra's in Dwight is saying.

So you will notice here we say 70% of all purchases in the US are going to be digitally influenced by 2027. Just for context, 60% of all sales in 2023 are already digitally influenced. What that means is not just the sales that we do on Amazon, Walmart.com, Target.com and so on, but sales that are happening in brick and mortar because of how the consumer feels in sales.

shopper because the consumer doesn't discriminate online or wicked motor. They just want the right price, the right value and the right product. And we know from the industry that consumer that shopper both online and in store have a larger basket size.

One example on online how the digital shelf changes, this is a GIF image of every hour how our results change and how fungible and how volatile the online digital shelf is. It literally changes by the minute depending on what you are searching and how the results show up. We are inspired to win on the top 5-10 results so our brand shows up.

we want to make those authentic, relatable relationships with the consumers and truly make it more education, so while we are educating them, we are also entertaining them and not really showing a media creative out explicitly. At the same time, the proverbial marketing funnel has so on flattened because the consumer has the right to go from inspiration, liking a product.

and flooding the marketing funnel.

Let's talk some numbers. Back in 2016, about six years back, only 2% of our sales were digital, quote unquote, e-commerce sales. We closed 2022 upwards of 16%. Of course, COVID accelerated this behavior because the consumer chose to buy online when they had no other options.

But what we are seeing is when the consumer learns a new behavior, you cannot take convenience back from them. It becomes a very sticky behavior and we see sustained post COVID momentum. And that's how we see digital sales accelerating for all our brands.

Saying that we have a digital first ambition actually means that we are pivoting from digital being a capability builder to digital being a business builder. So we come with a commerce worst mindset. We spend a ton of media in overall marketing and a large part of that is digital media.

We also are very cognizant that digital cannot be a function by itself and we need to elevate all boards and this is why we are investing a ton of effort into training and educating quote unquote traditional folks who may not have a digital responsibility and launching educational programs internally.

This is a good example of how in-store and online, we want to make sure that we win with the consumer when she's on her way and doing footfalls in the store. At the same time, we want to make sure our content online is truly thumb-stopping so that we win with her in every single channel. So in-store, you want to be at eye level.

win in both of those eyes, both in-store and online.

Personalization is also a big focus for us. We know that the consumer yearns for a one-to-one kind of connection and we can no longer serve the same creative to every demographic. So in this example, a fantastic dry shampoo brand, the number one in the U.S. and with the largest market share, we saw a ton of consumer engagement and much higher

at the helm in the future of. On the left you will see a lot of examples from Daoine, that is TikTok in China, and you have probably seen many examples of how live streaming is a huge thing in China, and we sold, say, 60,000 bottles of Batiste in under five minutes. At the same time, in the Western world, live streaming is a newer concept.

because it's not meant as much for social commerce as it is meant for social discovery. So we are partnering with a lot of retailers, Walmart, Amazon included, to see how might live streaming be a bigger concept and we have experimented a decent amount of this. This keeps us at tip of the spear to make sure we do well, not just what we already do well in digital but find newer avenues to scale.

Our current marketing spend of all the monies we spend in media, 70% is via digital channels. That is a big jump from, if you see on the left hand side, about till 2016, 2017, this number was 35%. So a large part of the media used to be print, store and TV where we just had

personalize the messaging at the cohort level and get better reach, sufficiency, and of course media ROI for that.

All this cannot be done without raising the intellectual capital of the most prized asset in our company, that is our people. We are very committed to raising digital IQ of everybody within the organization and we launched large scale digital commerce certification programs for not just the people who do digital data.

That's exactly the sentiment we live and breathe in terms of digital acceleration in the company. Beat consumer insights and analytics where we want to listen to the consumer using their ratings and reviews, consumer sentiment on social, and design new product innovation or get back to them with the right solutions. Beat our acquisitions with digitally savvy brands like Hero and TeraBread who do a fantastic job at elevating all boats within the company.

and having a one commercial team mindset where digital is truly a center of acceleration for church and white.

So with that I will pass it on to my peer in International that also sees a ton of digital acceleration. So that is my grid.

Thank you.

Thanks, Erby.

Great to be here. My name is Mike Veed. I run the international and the SPD business for Churchill White. So I just want to take the next few minutes to talk about how we're doing in international and then close with some updates on our SPD business.

So the international story, so from the Evergreen model we're planning to grow six percent organically each year and just to give you a little bit of makeup of the business, we're about 900 million in sales. It's basically two different parts. We have our subsidiary markets which are six. This is fully staffed direct models that we have entities who sell directly to retail.

And then we've actually supported that with five regional offices, China, Singapore, Panama, the UK, and most recently in Mumbai, India, which we opened in March of 2022.

If you look back, we've got a very strong track record of growth against that 6% ever remodel going back to 2015. We did take a little bit of step back in 2022. We've got really strong demand in orders in the system. We did have some supply challenges we referenced earlier in the presentation and we did have some drag within our China market largely with some roll lockdowns and some waterfloss or contraction but...

is performing extremely well. I think as supply chain recoveries and as China starts to recover, we'll be poised to take advantage of that and get back on our evergreen model.

The reason we have confidence in that is threefold. One is just the strength of our brand portfolio. Our brand's travel extreme we well across the world. I kind of frame it up into three different ways. You know, traditionally and certainly a big part of what we do today is we leverage our US power brand, so Armand Hammer, OxyQueen, BMS Trojan, et cetera. Those brands travel extremely well across the globe.

Arm & Hammer across all its segments is our single largest brand and some of those perform extremely well for us. But those are also complemented with a strong international portfolio in the personal care and OTC space. Brands like Starimar, Femme Fresh, Gravelle, Agnusol, those are unique brands to the International Division. High margin and high growth categories we perform quite strongly there.

And of course, we've taken great benefit from our acquisitions. In many cases, they're US-based. We're adding TheraBreath and Hero to the family in 2023. So really excited about those. So across the portfolio, those are kind of the three ways we look at it. But together, it gives us a lot to play with internationally.

The second part is geographic expansion. So while we've got a great international story, we're still very early in our journey. If you look at most of our peer set, most of the revenues are in the 60% range outside of the U.S. We're in that 17 to 18 percent range, so we have a long runway to go.

Lots of geography, lots of brands to go into those geographies. I'm really excited about the runway ahead.

And thirdly and equally important is we are making some key investments in the international division. So we continue to invest in e-commerce and digital maturity and growth. Similarly in pricing and revenue management, we're adding some supply chain within our Asia community as well as putting infrastructure in people around quality regulatory.

R&D and some of our key emerging markets, particularly in the APEC region.

So overall, a very long runway of growth for international, very strong portfolio of brands. So it's really a matter of continuing to extend our portfolio into new geographies. We'll continue to leverage our acquisitions. TheraBreath and Hero will become really important brands for the portfolio. Most of our growth will continue to come from our global markets group and within our emerging markets.

This year, 2021, we grew at 12%. It's broken up two thirds, one third between animal nutrition, which is 69% and especially chemicals at 31%.

The animal productivity is largely a prebiotics, probiotics, and food processing safety. It's all under the Arm & Hammer Master brand, so we have a whole host of product lines in order to service the animal productivity space.

And just if you go back to 2015, international was not a big part of the business. We have made a conservative effort to move into our global markets, not to similar to our consumer business. 2022, it's 12 percent and we'll continue to grow an international footprint. But as we grow an international footprint, we're also going into new species as well. So what used to be a large, a dairy business is now.

cattle, swine and poultry as well, so diversifying also the species range. So with that, this is probably the last time we'll show this slide. If you go back in history, we often had our dairy business and our productivity is largely linked to the fluctuations in milk prices.

since we've diversified in terms of our species to include dairy cattle and swine and also are moving internationally. We've been able to smooth out our revenues. So we won't have the ups and downs cyclical effect that we've had in past years. So this will be the last time we show this chart, but I think it's important context so a lot of much stable revenues moving forward on SPD.

So overall, Trusted brand from a Church and Dwight, but also Arm & Hammer, Umbrella brand, both in the animal nutrition and the specialty chemicals. We're very aligned with key trends around prebiotics, probiotics, and available and affordable proteins. We've got a diversified around multiple species and we're growing internationally. So the

for all those reasons we're pretty excited about where SPD is headed as well as international. So with that I will hand back over to my friend.

Okay, all right, thanks Mike. I'll kind of try to bring it home here.

You haven't seen this slide before. We're talking about how we run the company. And this is a snapshot of our consumer business. We have seven SPUs. You see the first six on the left side or the US business is an international on the far right. So this is how we break down all the brands that we manage. And we manage dozens of brands, but you see.

Most of the power brands are listed here. You may be wondering why Arm & Hammer appears for fabricare, homecare, and personal care. In fabricare, we have an Arm & Hammer detergent. In homecare, we have baking soda and litter. And over in personal care, we have a toothpaste and underarm drinder, et cetera. These are all broken down into very manageable.

businesses and over an international as Mike just described to you we have what third of the business is the GMG our export business and two thirds of the subsidiaries.

Okay, so here are five operating principles which I'm going to kind of walk through.

The first thing is leverage brands. So we focus on brands that consumers love. It's not brands consumers like.

brands consumers love. They're going to stick with you and going to walk out of the store looking for your brand. The second thing is we've been a long time friend of the environment. This company was founded in 1846 and the founders of the company were environmentalists and that's continued to this day. Leverage people I'm going to talk about. We have a wonderful group of people in our company.

5,200 employees. We have over five billion dollars in sales. We have over a million dollars of sales per employee. And leverage assets. Many of you who are long-term holders know that we're focused on being asset light. And finally, if you do the first four right, you get good returns, but if you're able to make smart acquisitions, you get good returns.

integrate them and grow them you're going to get great returns and that's what we have gotten over the years. Okay leverage brands already mentioned that we have 14 power brands that make up 85% of our leverage of our sales and profits. Friend of the environment and we'll go in a little bit deeper on that.

So you probably seen this before. It's a good reminder that if you went back to the 19th century We were we were putting trading cards in our in our boxes of baking soda

those carts were pictures of birds and they said save the birds, save the planet. In 1907 we started using recycled paper board in our cartons. No one was doing that back then. We were the first to take phosphates out of laundry detergent back in the 70s and we were the first and only sponsor.

the first Earth Day and 20 years later in 1990, Church & Dwight was still the only corporate sponsor for Earth Day.

More recently we started to plant trees in the Mississippi River Valley, try to offset the carbon dioxide that we put into the air, and if I go all the way to the far right we're now committed to science-based targets. So when you plant trees, you remember from fifth grade science, you take CO2 out of the atmosphere.

Science-based targets, what we're focusing on is spending money on cat-backs to reduce the amount of CO2 we put into the atmosphere.

All right, so here's some of our goals. So you see we aim to be 100% carbon neutral by 2025. That means we will have planted enough trees since 2016 to offset all the CO2 we put into the atmosphere, and it's pretty considerable. For a small company like ours, we put 350,000 tons of CO2 into the atmosphere annually, so this is really important to us.

You see the mention of science-based targets below there. Water, we're trying to reduce water usage 10% annually and then solid waste recycling, we'd like to recycling 75% of the solid waste from all of our sites.

Got a lot of recognition about that, the FTSE, EPA, Green Power, Safer Choice partner. We've been a Safer Choice partner for the past seven years.

And you know, this is important to our management team. It's important to our employees. It's important to the families of our employees as well. It's also important to our consumers. So you can see it's really a top priority for so many consumers today, particularly younger consumers.

All right, the fifth principle is leverage people. So we say we highly productive people in a place where people matter.

When you invest in a company, you bet on people and you bet on ideas and their ability to execute those ideas. And I can tell you, we have a really strong management team, but it's not just a management team, it's also the 5,000 people that we have in our company. 3,000 of those people are in supply chain.

60% of the company that is the backbone of Church and Dwight and when you think about what's the culture in Church and Dwight any Member of our management team could take you through this. It's a blue-collar company. That's not a dress code thing This is how you will go to work every day. It's a roll up your sleeves environment.

We got a lot of high-appitude people in the company. Many of them have worked in other large CPG companies. Wanted to go smaller where they could make a difference.

So it's blue collar, high aptitude, underdog.

So we compete against companies that are far far larger than us and you know who they are We never use that as an excuse, you know, we beat these big companies every day. The fourth thing is getting the facts

So it's a company. We're maniacal about numbers and data. And you know, once part of time people made decisions based on the person who had the gray hairs in the room, the gray beards like me. So I know best I've got 40 years experience. No more. That is not how business is done. Now it's done based on data.

and we're oriented towards data. And we have data scientists in the company now, and we're becoming more and more focused on predictive analytics. Just to kind of round it out, digitally savvy is something that's very important to us. That's something we've focused on over the past five or six years. Diversity is the last one. But second, the last one. And finally, it's...

our competitors and is our revenue for employee and I think this is an underappreciated statistic when it comes to investing. It makes a big difference when you get fewer people, you get focused on on fixing things, making things better and it's magic.

All right, we have a simple compensation structure in the company. You can see many of you know from the following list for many years. It's Revenue Gross Margin Cash and EPS.

And what that does is it makes the company financially literate so when we're talking about gross more we talk about gross margin in every part of the company.

When I go into a plant with 15 plants we do town halls with all three shifts. We'll talk about gross margin What is it? How you get it? It's part of our compensation.

And then as far as how do you get gross margin? I was good to great is the name of our productivity program. And it's a book that everybody's heard about, probably no one's read. But that's the name we used to describe our productivity program. Supply chain optimization. That's also how do we run our plants? What kind of capital we're putting in our plants?

Which plants should we make a product at? New products, if you introduce new products that have higher gross margins, it's gonna help you as well. And then finally, acquisition synergies. We like to buy businesses that have gross margins that are at or higher than our current gross margins.

plants should we make a product at. New products, if you introduce new products that have higher gross margins, it's going to help you as well. And then finally acquisition synergies. We like to buy businesses that have gross margins that are at or higher than our current gross margins. All right, leverage assets.

We took you to this before. We pride ourselves on being asset light. And historically, we've been around 2% of sales. It spiked back in 2009 when we built our gigantic plant in New York, Pennsylvania. It spiked in more recently because we're investing in so many different categories. But that's a good signal. You don't put in a new capacity if you don't think you're going to grow. So we're going to be able to fill that up over the next few years.

You're not going to see us invest in a brand that's number four or five and tell you, the investor, oh, we're going to drive that to number one. That's not going to happen.

The brands are number one and number two for reasons. That's what we focus on.

They need to be high growth, high margin, and fast moving consumables. Asset light is our preference. We want to be able to leverage our substantial footprint around the world, and again, needs to have a long term competitive advantage.

So with respect to cash, we have 14 brands today, we're like 20 tomorrow. I just want to kind of end on the look ahead. So you saw in the release, we said, hey, we got strong fundamentals going after 2023.

We got top-line strengths, both reported and organic.

We got gross margin expansion. We've got a terrific new product pipeline. You only heard about one today, but there are many others as well We're jacking the investment in advertising that's going to help us not only at 23, but in future years We took you through the capacity expansion and finally we generate lots of cash, and so we're on the hunt for our next power brand

With that I'm going to bring up the rest of the management team and we'll do some Q&A. I stumped the band for a little while.

Come on up gang.

Go ahead.

It's a good-looking group, huh? I don't know about that. All right.

Okay, you got that. All right, Kevin, I'm going to call on you. First, you go on.

Okay, you got that? All right. All right, Kevin, I'm going to call on you first. You got one? There's a microphone coming right behind you. Kevin, we want to get you a mic.

Great. Kevin Gruddy at Jeffery. So thank you for the presentation. The question for the group would Matt certainly start with you. So last year certainly probably one more challenge. I guess that's the most challenging unit the company has dealt with. The Mac Reckon of Eigenvart, economic environment. Excuse me, certainly challenge, but it was for your competition.

And then looking forward, what's the message for the investment community that there should still be a lot of confidence in the Evergreen target? Thanks. Okay, it's quite a big question. I think…

Every company has flexibility, so creates options. And I think going into the COVID of the pandemic, and certainly the recession is faster on our supply chain side, we didn't have the options. I think less than 15% of our raw materials had redundancy. We are now here at the regression yet for

And our target right now is to have 50% redundancy. So we've come a long way over the last couple of years. And that's why I said earlier that we're focused on be ready for the next black swan event. As far as the portfolio goes, 80% of our portfolio did exceedingly well. We had 20% of the portfolio went backwards.

And some of it is self-inflicted, and that is with respect to vitamins and our ability to supply. That has certainly hurt us both in sales as well as in the market share, but we're starting to turn on the RAM. And then from a device standpoint, certainly learned our lesson with respect to flawless.

You know, flaws struggled in 20 and 21 through COVID, 22 because of the pullback as it's a discretionary purchase. But Waterpik is different. Waterpik is also a device, but you have a secular trend towards interest in gum health. And that's the business we bought in 2017. The grew high single digit.

back and say, yeah, okay. We've got a little bit differently now, but now we got our eyes open going forward.

Thanks, Kale. Rupesh.

Thanks for taking my question. So just on pricing, you know, I guess looking forward to this year, is there any pricing, new pricing incorporated in your guidance for this year? And if you look at elasticities, how do they play out versus expectations? Have they gone back to where you historically have been, or are they still better than the history? Was the second question price gaps? God SP spatial texture needs a lot easier.

question was

Just press. Well, it just start off and he's going to have a little bit of chance to think of a better answer, but my answer would be the following. We already have pricing in place. It's going to be in the marketplace in February and March, but it was sold in already. So we don't have anything ahead of us.

with respect to, hey, we got pricing planned in the second half or fourth quarter, because it's going to be, it's becoming exceedingly more difficult in order to push price through.

That was a great answer. The organic outlet for us is 3%. It's price in 2023 and volumes are flatish. We had that in the release and that's really because we had carry over price from 2022. And then there's additional price and it's already been sold in like you said. It's effective and February . So that's really the preponderance of the 3% organic growth next year.

Okay. Yeah, Lauren.

Thanks. In the release this morning and then also in the presentation today there was a notable absence of discussion around the VMS business. So I thought it'd be great to just get an update on where things stand from an internal standpoint, supply, you know, raw material availability and also from a consumer demand standpoint.

had early cough and flu, cold and flu, so where do we stand on normalizing demand or what you think that will look like? Yeah, that's a good question. I'll let Barry and Paul comment as well. But the vitamin business in January , it's a vitamin category in January , it's down 10%.

year over year. And the reason for that is because if you went back to last year you had Omicron and Delta and a huge spike. In fact, that was the first quarter last year, you may remember from the slides, we had only 70% fill rate because we just couldn't staff our plants. So that's an issue for the category right now.

As far as our issues go, yeah, we've had some self-inflicted wounds over the year. Our supply is starting to come back as well. Now we have to win back the consumer. But I'll dish it over to Barry first and then Paul if you want to add to that. Yeah, Lauren, I think we see the category as struggling as we're comping Omikrom and it's a discretionary category, right? When you're making a decision about $15, $20 vitamins, you're making a decision about your Liaf very well.

position to meet consumer demand as we get into the back half of Q1 here. And just a quick follow-up. Yeah. Because the outlook range, I mean, it's the beginning of the year, it's not just early in the year, and giving yourself a lot of room as you navigate through makes infinite sense. So I'm curious how much of the year's outlook is actually contingent on what happens with VMS, because it's got attractive margins.

in the aggregate in 2020. A three, but it's not going to be pulling the train.

Those businesses in 2022 remember those three businesses were about a 4% headwind to organic growth in the quarter They were as well, right? We had 0.4% organic, but we would have been at four and a half if not for those three Businesses and we said for the full year that's kind of true as well 4% headwind It's the absence of that headwind there, you know flattish to slightly positive next

Thank you. Olivia, your hand up before. Thank you. My question is around the cadence of margins, because obviously you're starting the year at a lower point. But you said that gross margin will be up in Q1. So could you talk a little bit about what's embedded in the outlook as you progress through the year? What is it?

expect that SG&A is up pretty considerably in Q1. Is that advertising or is there other expenses that we should be mindful of and what happens as the year progresses? Thank you. Rick do you trust me to handle this one? You want me to handle that? Gross margin is like we said step up to the year.

97% fell rates in the back half. So as you have fewer truck loads, as you have fewer fines from retailers, all those things, hub cross margin, as your supply improves. SGNA, we haven't really gotten to the quarterly SGNA. SGNA is higher in Q1, and part of that we put in the release was just timing of equity grants as well.

Okay, yes. That's thanks Mark Astrocan, that's Steve. I'm two related questions, so one MNA was just a stronger contributor I think than the many expected in the fourth quarter. What drove that and then how do we think about the contribution from MNA for 23 relative to what you said about hereup?

Well, we had a really strong quarter from our new acquisition, Hero. It actually exceeded expectations. I think there's consumers driving that. We also had the opportunity to spend more on marketing in the fourth quarter for Hero after we bought the business that came in in October . But yeah, as far as 2023, I would say, yeah, it's probably a little stronger than we expected when we first bought it.

We said when we bought it, it'd be a 15% rower in 2023. You roll that four, then that means it's about 3%, and you're going to take the Q4 of 2022 out of the comp, but it's about a 3% tailwind for 2023. And on the EBITS line, I know what you said about interest expense. So what about from contribution there given higher revenue?

same sort of flow through? Well, we're investing more marketing, and I'll let Barry talk to you a little bit, but we are, as we expand distribution, we're gonna spend more marketing for national campaigns. Right, so it is a virtuous cycle for HERO. Yeah, we've never had a national campaign before because we weren't in national distribution, right? And it might seem obvious, but.

as we're building distribution at the same time. So I think it's a pretty exciting hero story. We've kept the whole hero team with us, by the way. They're a great strong team, and they're leading that business today. So excited about your going forward.

Okay, Jonathan. Right here.

Right here.

I'll start, thanks. John Feeney, Consumer Edge. You mentioned, Matt, a lot of...

talking about elasticities are better, but yet everybody's got gross margin headwinds. And I wonder, the data seems to say that consumers are quite receptive, and yet you get retailers in November and December talking about how hard things are. You have one that was talking to food companies about why they need to lower prices. So could you give us a little more, shed a bit more light maybe on like that pricing process where you have a lot of people who are

I mean, why wouldn't you just price in some of these categories until you got the elasticity you were looking for and optimize the profit pool that way?

Yeah, well I'm sure you know the way it works is in order to raise price you have to have a cost story.

And without the cost story, you don't get the price. And the retailers have all the data about what's going on in the marketplace, with respect to commodities, transportation, et cetera. So it is a negotiation about, hey, this is what we're seeing at cost side, we need this price increase, and then there's a debate.

Paul lives this every day. You give Paul the mic and he can share it a little bit with you. But yeah, that is it around the world with all the retailers. You can only go as far as you can justify with cost.

Yeah, simplified as transparency. The retailers expect you to be transparent with them to that cost story that he said. I think we've been extremely successful in being transparent. That develops a trust. So when we do come in and share a transparent story, and timing is important to. Retailers have financial demands and controls and different things. And I think we've been very good at being showing them where the world's moving, where we expect.

So we have these conversations that are not surprising. So trust, transparency, and timing, I would say has been our secret sauce. And while it may seem cliche and everyone should do it, I think that's what's allowed us to experience the elasticities we have and make the choices we have as well.

and they're not surprised. So trust, transparency and timing, I would say has been our secret sauce, and what may seem like cliche and everyone should do it. I think that's what's allowed us to experience the last days we have and make the choices we have as well. Okay.

I was wondering if we could go back to the conversation around marketing investment. I'm just wondering if you can talk a little bit more about how you're planning to allocate this increased investment between your legacy brands and maybe some of the more recent acquisitions. And then just in terms of acquisitions, how are you thinking about, you know, maybe the personal care side versus discretionary? I'm thinking about, you know, maybe the personal care side versus discretionary.

So, I'm just curious, if you could talk a little bit about just given the success of some of your more recent acquisitions like Hero versus some which maybe have been less successful in the past. Thanks. Yeah, I'll let Barry comment on the marketing. With respect to acquisitions, we only have one person in our entire acquisition M&A department,

So we're not have a dozen people that are studying categories saying wouldn't it be wonderful to be in this category? Yeah, it might be but you can only buy what's for sale. So anything that's for sale, particularly in the US, that's consumer products we are aware of and you know what our acquisition criteria is as well and we've even

even in the last six months, there's three acquisitions that we diligence that we passed on had good economics but they just didn't we didn't think they had good long-term potential for the company. But because we're able to make so many different products, we're in so many different categories, you know we can put liquid in the bottle, we can put powder in a box, we put anything in it.

take and it won't surprise you there's seed and there's grow and there's sustain and milk. 80% of the incremental dollars that we're putting in is going against those seed and grow brands. It won't surprise you if I say a seed brand is a hero is a thorough breath where we're pouring kind of gasoline or maybe seed is better say pouring water on them maybe gasoline is a bad example but that's where the spend is going right we make hard choices about it. We'd always like to spend more but those in our brand classification we know where we want to be.

Some of your competitors have talked about retailers reducing their inventory levels. I wonder if you guys have seen any impact in your business and particularly what categories you've seen most of the impact. Yeah, okay. Well, I'm Barry and Paul, I deal with this every day, but I can tell you that in the fourth quarter we had a major e-reteller, I've significantly reduced the room and doors and their days of supply.

So that was a hit with respect to the fourth quarter. We did see a lot of that pullback habit mid-year in 2022, but more recent it was more retailers, but I'll let Paul and Barry comment on that. Take your way. Yeah, by and large, we're back to a shifted consumption model. I'd say the retailers.

Some may have their other challenges within their own network. They want to ship more product But they may have constraints at their DC's or getting it out of their own DC's to their stores But by and large it's a shift of consumption You guys are in stores across the country. You see what I see we need more inventory on the shelves It's just a matter of catching up, but I do not feel like what Matt described last year Is anywhere near more the other side of that bookshelf and we want to get back

assumptions standpoint. You know we've continued to see scanner trends which are a lot stronger than your underlying results right so even this quarter there might have been a-

10-point gap between what you did and personal care delivery versus what we can see in scanner and so are we starting to get to the point where

you know non-etaler so large e-retailer. That is going to remain noisy. But are you getting back to a shift of consumption in your core, you know, brick and mortar retailers? Because again, you know, we're seeing stronger results.

in personal care consumption than what you're actually reporting, right? And it's making it a lot harder to actually call quarters and understand what the underlying trend here is, right? So if you're back to shift to consumption, that would seem to be a positive development, but I guess what I'm hearing is actually that inventory will remain volatile in the front half of the year. So I'm just trying to square this. Yeah. Chris, you're...

You know, the major difference between what you guys can see in Nielsen or IRI versus what's actually happening on the personal care side is really what's happening in discretionary business. Like the water pick coverage that you don't see. I remember the universe is this small for your view through Nielsen or IRI on the water pick business.

Your view is largely a little bit smaller for the flawless business as well. I think those two things are a big part of the disconnect, but take a step back. A lot of the portfolio is growing consumption really well.

I think as you see hero add to distribution other retailers you're gonna see that that gets picked up correctly It's just has to get scaled up to a greater degree anything you guys would add Yeah I was gonna answer if you had funded to be first I would have said the syndicated piece does matter right a lot of the personal care brands and what those retailers Are which you can see versus what we see and it's not an excuse that just kind of where the business is and some of those just

in the quarter and can you just describe that promotional activity, whether it certainly looks like it was more offensive as supply came back, you promoted behind laundry. But, you know, am I reading that situation wrong and just again, any impact on the quarter would be helpful. Yeah, let me give you some help with sold-on deal for the categories that generally have lots of promotion.

dose it was 28% sold on deal in Q2 and it's 33% in Q4 so it's 500 basis points move and then the other category that's a lot of promotion in is litter. So litter was 11.5% sold on deal in Q2 and it's it's a 14% in Q4 so you've seen a move up.

Now, historically, liquid laundry detergent is kind of mid 30s sold on deal. Litter however is still low. It's typically high teens. So things have heated up a little bit in the last couple of quarters, but it hasn't gone to the point where it's a rocket ship or it's a big spike. It's sort of gradual.

And as we look ahead to the 2023, which our Sol-Von deal will probably be similar to what we did in Q4 evenly throughout the year. So if anybody wants to chime in, you can. I would also say year over year, yeah, it's a drag because we're lapping a period where we didn't really have as much promotion.

Fill levels are low. So now as we get back to normal levels of promotion, is it the year-to-year drag? Yes. Is it all set? Is it off based from what our historical levels have been now?

But supply allows us to get back to advertising and trade. They're at normative levels, I would say, right? We're not wildly off where we've been historically, but that allowed us to, in Q4, get back to normative levels.

Okay, all right, finally this side of the room coming to life. I'll take a second shot at M&A and I think that some of what was in the earlier question was if perhaps you're thinking about discretionary differently in the context of future M&A.

It does feel like when you think about something like Zicam where you bought a cold remedy company at a time where nobody was getting a cold. It also sounds like a lot of discretionary assets that you might be looking at are also equivalently struggling forgetting about what's in your business right now. So can you maybe just talk about how you're thinking about M&A in terms of...

Is discretionary still on the table or has this recent experience maybe changed your mind about discretionary as part of your. Let's go back to the site cam for a minute and we bought psych in that that's a brand a very strong brand brand equity and we knew we were buying it in the middle of of covert.

We thought long term this is a business that opportunity to grow. And the opportunity with respect to Xi came as similar to a brand like emergency, which is not episodic. Now, it's sort of an everyday brand that many consumers use. That's the opportunity for Xi-Camp of long term is converted. Also is having Xi-Camp in a gummy form. We were in supplements.

If you're going to buy a discretionary brand, the question is going to be how resilient is going to be to downturns in the marketplace. Because obviously, certainly with respect to vitamins, flawless and waterpick, the economy did affect the performance of those brands over the past year. It doesn't influence that. It doesn't mean that it's hard and fast. We're going to put an X through them. But I will tell you the devices you can put an X through.

brand the question is going to be how resilient is going to be the downturns in the marketplace because obviously with certainly with respect to vitamins flawless and water pick the economy did affect the performance of those of those brands over the past year so it does influence that it doesn't mean that we're it's hard and fast we're going to put an X through them but I will tell you the devices you can put an extra going forward

Thanks. Okay, see you. Yeah, so it's Steve Powers from Deutsche Bank. So I wanted to go back to pricing two-part question. The first one is just pricing in the quarter relative to what we're seeing in scan data. Pricing came in light. So I don't know how much of that is the promotion, how much of that is some of the mix that we don't see. But just...

you can bridge that gap would be helpful. And then as you go forward, for as much pricing as you have taken and are taking, your pricing net of cost inflation still has not cut up and it's not expected to catch up in your gross margin bridge. All your gross margin is productivity and fill rates and mix, which is great. A lot more emphasis on...

volume resumption in your messaging and value. So just philosophically how you're thinking about that and I guess a little bit to John Feeney's question about just why not price a bit more if the elasticities are favorable to close that price versus cost inflation gap. Yeah, I'm starting on addition to.

So as far as the fourth quarter goes, certainly mix had an impact, as we talked about earlier with respect to water pick and vitamins and folios year over year. Promotions, which I went through also, since that's kind of been heating up Q2, three, four. It's gradual, but it still had an impact in the fourth quarter, but I would say the two factors would be mix number one. Things were at a good level that we look forward to in the future, which is that remember is the season nine not the season N or the second seasonnam season title or it's a little bit of a wrestlers index. This Please on National Weather1900," the national sectors N discount Mary that has had an impact on us. That's why we're trying to push this again,

And number two was heat up and sold on deal, as far as the trend with respect to price mix. Yeah, and as for 2023, if you look at the components in the gross margin bridge, they're all squished together. But I'll tell you, by the end of 2023, we do think that we've priced the dollars on inflation. OK, what you're seeing there is...

Negative mix, again, from the first half of the year on flawless water pick and vitamin businesses. Now we talked last quarter as an example of, in water pick units were flattish to down slightly, but everyone was trading down to lower price units. That's where it shows up on the gross margin bridge as a headwind. But overall, we feel really good about our pricing and what we've done. And if you remember,

So really good about our pricing. It's a core competency in the company now. I would say about seven years ago, we started a pricing department and we have people that all they do every day does look at pricing, where we should be and what we should do. So we have all these plans in place and we've had successful selling at retail because we have transparency and we have the facts to back it up. And so we're not timid about raising prices, you know?

Steve, you just heard what the history was with respect to when we've raised price. We also have to be cognizant of what's going on in the category, in the category dynamics and our price gaps with our competition. So I think you and John are beating on the same topic, but we've taken it as far as we can at the moment.

impact on the fourth quarter and the full year 4% for those 20% of your businesses that were down. So I'm thinking as we're thinking to the first half of this year, right, we're calling for a declining volume. Is that mostly on that or you're adding on a bit of a loss to see in this first half of the year.

for the first six months of 2023. Thank you. Thank you.

Okay, these are coming down. All right. We got a mic on the center of room. All right.

Okay.

Thanks Peter Ram, UBS. So Rick, you showed the slide talking about gross margin performance.

Over time and recognizing you're expecting have a nice bounce back here here in 23 You're still kind of you know 200 basis points or so below You know kind of the 2019 2020 gross margins, and you know I don't want to sit here and ask a question for 2024 guidance in February of 2023, but

And you spoke to multi years of opportunity of gross margin expansion. So I guess how big of a priority is that in terms of getting back to that level over time? And as you think about the cadence of the year and then kind of look forward here, how quickly can you get back to 45% gross margin? Thanks. That's a great question. Number one priority in the company is always to grow our brands, have brands consumers love.

Gross share over time in good categories. The number two priority is probably gross margin. Gross margin expansion leads to EBITDA expansion, leads to cash flow, right? We're known for cash flow generation. And I would say,

You know, two things really helped give us confidence over the next few years. If you look back at our history, we normally have about 50 million of inflation. We haven't had 50 million inflation, it feels like, for a decade. It's only been three or four years, but it feels like so long. You know, 290 million of inflation in 2021, 250 million in 2022.

We're calling 125 million in 2023. That is not normal, right? And we're gonna return to the days of normalized inflation. And meanwhile, our productivity program is alive and well, even stronger than it's ever been. So as that, you saw in the bridge, I think that was closer to 100 plus basis points.

We target closer to 2% on productivity. So if that equation normalizes, I think that's a great way we're going to have gross margin expansion. And then number two, as our businesses like TheraBreath and like Hero continue to grow and expand globally, that's going to be a great tailwind too.

And just some math, I think the our gross margin just a few years back pre-COVID was around 45%.

It's 41.9 in 2022. We'll call them 100, 120 basis points improvement. So pick the mid points. So you go 41.9, 43 in 2023 and then I'll just get over to Rick Spahn for a minute. By the way, Matt Duffy is here today. He's one of the people that drives our Good to Great program and we target 2% of sales.

for cost savings, annual, $100 million. That's a big number. It's a huge effort to make that happen, but it's what it works for for us. For example, it's just saying that going forward and any kind of help from commodities and input costs will be able to return to expand across margin in the future, but Rick, anything to add?

about the target rich environment? You've all seen Top Gun, right? Sure. You know, four years ago, we made a conscious effort to increase our focus on our good to great program, our productivity program. We brought Matt Duffy in who's in the room, as Matt said, to lead the program.

And it was a push in the beginning. We couldn't get a lot of traction in the company. It's now part of our culture. We have marketing leaders asking us what else we can do to drive cost savings. We have the R&D community focusing on it. We've created a value engineering team.

whose sole focus is to break down our products and figure out more effective ways to go to market with those products from a cost standpoint. So it really is part of the culture now, and it's driving much bigger savings than it was four years ago. As far as call-outs go, I neglected to point out that our entire M&A department is actually here on the stage.

I think this is Brian Buchert. Hold the partner. So if you want to talk to him after class, please do. All right, any other questions to know? I guess that concludes it today. I was so happy we were able to do this in person this year. I look forward to seeing everybody next year. Thank you.

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