Q1 2023 Church & Dwight Co Earnings Call
The company's management May make forward looking statements regarding among other things the company's financial objectives and forecasts.
This is statements are subject to risks and uncertainties and other factors that are described in detail in the company's SEC filings.
I would now like to introduce your host for today's call Mr. Matt Farrell, President and Chief Executive Officer of Church <unk> Dwight. Please go ahead Sir.
Good morning, everyone. Thanks for joining us today.
And with a review of the Q1 results and then I'll turn the call over to Rick Dierker, our CFO .
And when Rick is wrapped up we'll open the call for questions. So Q1 was a solid quarter reported revenue was 10, 2% organic sales grew five 7% and exceeded our 1% Q1 outlook of.
Of the 10, 2% reported sales growth beat our outlook of 4% thanks to stronger results from several brands, including hero.
Sarah Breaths arm <unk> hammer laundry and.
And arm <unk> hammer litter and exceptionally strong sales growth in our international business. The other good news is that the vitamin business and the water pick business hit their Q1 sales plan and we're right on expectations.
And finally, it's also fair to say.
We had a degree of conservatism in our original Q1 outlook, both topline and Bottomline.
Our Q1 top line growth reflects the strength of our brands, both premium and value and also our focus on execution. The combination of consumer demand and improved case fill which is now over 93% in the U S.
As a resulting in strong revenue growth something else that is noteworthy we had flat volume growth in Q1, which is an encouraging sign after declining volumes in the last six quarters. We now expect volume growth in our full year net sales outlook.
Adjusted EPS, yes, it was 85.
Which was 10 cents higher than our <unk> 75, EPS outlook and that was driven by higher than expected sales in the U S and especially in our international business, which posted 11, 6% organic growth in.
In Q1 global online sales as a percentage of total sales was over 16% and we continue to expect online sales for the full year to be about 16%.
Private label shares remained consistent with historical weighted averages both domestic and internationally private label is stable in our categories and now I'm going to comment on each business first step is to the U S. The U S consumer business had five 5% organic sales growth in eight of our 14 power brands held or gained.
Market share in the quarter.
Now I want to look at a few of the important categories in the U S and I want to start with laundry.
If we look at the Big picture.
Value laundry detergent grew 9%, while premium detergent declined 3% so.
So the trade down to value detergent continues into 2023.
During Q1 deliberate laundry category grew three 6% while arm <unk> Hammer grew nine 3% arm.
Arm <unk> hammer liquid laundry detergent grew share by 80 basis points in the quarter to 14, 3%.
So with more consumers migrating to arm <unk> hammer laundry detergent.
We have the potential for a long term benefit to the arm <unk> Hammer brand similar to the last recession.
Now over in litter category grew 12, 7% while arm <unk> Hammer litter grew 13, 5%. So we gained market share in the quarter, we did see a trade down from our premium arm <unk> Hammer cat litter to our arm <unk> hammer value litter, which is in the Orange box. So consumers are staying in the arm <unk> Hammer franchise.
And our give it the hammer advertising campaign.
Which halos met the many categories that arm <unk> hammer competes and is resonating with consumers.
Now in dry shampoo, the dry shampoo category was up 11, 8% in Q1.
Driven by Batiste consumption, which was up 20%, we now enjoy a 46, 2% market share in dry shampoo.
In the carton categories Con category was up four 1% in Q1, while Trojan consumption was up five 3% or again, we gained 80 basis points of market share. Thanks to our new Trojan bearskin raw condom and the success of more targeted marketing.
Our most recent acquisitions Thoroughbred mouthwash and hero are performing extremely well thorough breath, which we acquired in December of 2021 had just a great quarter with 70% consumption growth.
<unk> grew share six eight points to 22, 5% of the alcohol free mouthwash and as promised when we bought the brand distribution of Thoroughbred has doubled since we acquired it in December of 2021.
<unk> is now the number two non alcohol mouthwash brand and the clear number four in total mouthwash we.
We expect this brand to be a long term grower for church <unk> Dwight.
Zicam. This as at December 2020 acquisition also delivered strong results this quarter.
<unk> is the number one brand in the cold shortening segment with a 78% share.
Now to our latest acquisition hereof, which grew year over year consumption by 43, 5% and gained one six share points to achieve a $9 one market share in the total acne treatments category.
And distribution has expanded by 50% since the October acquisition date, and as we said in the release there continues to be a great deal of excitement around here about the hero brand and especially the hero team.
From our oldest brand to our recent acquisitions, our brands are driving category growth I'm going to give you a few examples arm <unk> hammer liquid laundry detergent, which has a has a 14% share of the liquid laundry category drove 35% of the category growth.
In the dry shampoo category Batiste has a category, leading 46 share, but contributed 75% of the category growth and in the mouthwash category. Their breath makes up 11% of the total category, but delivered over 50% of the growth in mouthwash.
Next up is international.
International business delivered organic growth of 11, 6% in Q1, driven by strong growth in the subsidiaries and double digit sales growth from our global markets group and that was quite balanced across all of our global regions and the growth was headlined by batiste vitamins firm fresh water Pik and.
Gravel.
As far as the consumer goes similar to the United States.
Unemployment remains low and there are international countries, where we have subsidiaries. However in many of these markets, particularly in Europe . The consumer is facing inflation in energy and food, but so far with consumption has remained strong in China. While it is a relatively small market for us we are experiencing stronger growth in Q.
One and remain optimistic about the full year opportunity.
And finally specialty products specialty products organic sales decreased five 9%, primarily due to lower volume in the dairy business as low priced imports returned to the U S market I want to wrap up my remarks, right now by saying consumption is strong R.
Our value offerings are performing well as our premium offerings acquisitions are on track, we're ramping up our marketing this year in support of our brands and new product launches and we expect to have the opportunity to invest even more behind our brands in future quarters, and now I'm going to turn it over to Rick to give you some more color on Q.
One.
Thank you, Matt and good morning, everybody, we'll start with EPS first quarter. Adjusted EPS was <unk> 85 cents up two 4% prior year to 85 was better than our <unk> 75 outlook, primarily due to continued strong consumer demand for many of our products and higher than expected gross margins reported.
Reported revenue was up 10, 2% and organic sales were up five 7%.
Half of the reported revenue growth year over year was hero Org.
Organic sales were once again driven by pricing in Q1, However, as Matt mentioned, the fact that volume was flat was encouraging and gives us gives us confidence that we will return to volume growth later this year.
Matt cover the segments I'll go right into gross margin.
Our first quarter gross margin was 43, 5%, a 90 basis point increase from year ago, primarily due to improved pricing productivity and the impact of the hero acquisition net of the impact of higher manufacturing costs.
Let me walk you through the Q1 bridge gross.
Gross margin was made up of the following positive 160 basis points impact from price volume mix positive.
Positive of 120 basis points from acquisitions, a positive 160 basis points from productivity and 10 basis points from currency, partially offset by a drag of a 360 basis point impact due to higher manufacturing costs, including the inventory charges related to discretionary brands, primarily flawless for the balance of the.
Year, we still expect sequential improvement in gross margin year over year expansion throughout the year.
Moving to marketing marketing was up $20 million year over year marketing expense as a percentage of net sales was eight 6% or 70 basis points higher than Q1 of last year.
For SG&A Q1, adjusted SG&A increased 90 basis points year over year other.
Other expense all in was 23 million and $8 6 million increase due to higher interest rates.
Our expectations for interest rates for the remainder of the year remain unchanged from our prior guidance.
Do not have any looming longterm debt refinancing and <unk>.
Fact August of 2027 at the time of our next maturity.
For income tax our effective rate for the quarter was 24, 4% compared to $23. Two in 2022, an increase of 120 basis points. We continue to expect a full year rate to be approximately 23%.
And now to cash for the first three months of 2023 cash from operating activities increased to $273 million due to higher cash earnings and improvements in working capital.
We now expect full year cash flow from operations to be approximately $950 million previously, we expected $925 million that $25 million increase was driven by higher cash earnings and an improvement in working capital.
Our full year Capex plan continues to be approximately $250 million as we continue to make capacity investments and we expect to return to historical levels by 2025 and.
And now for the full year outlook, given the strength of our Q1 results and our confidence for the remainder of the year, we're raising our outlook for sales EPS gross margin and cash flow. We now expect the full year of 2023 reported sales growth to be approximately 6% to 7%.
Organic sales growth to be approximately 2% to 4%.
We now expect full year EPS in the range of 2% to 4% growth.
Given the strength of the business, we see opportunities to make incremental investments in our brands and capabilities in future quarters.
We now expect full year reported gross margin to expand approximately 120 basis points.
And as we expect as we expect pricing and productivity more than offset inflation.
Our full year inflation expectations remain unchanged from our previous outlook gross margins.
Expected to benefit from pricing pack size changes laundry concentration.
And the full year impact of the higher margin hero business.
As you read in the release two items of note that are aiding our margin recovery, our new litter pricing that went into effect in February one in the latest round of concentration for laundry.
We intend to increase marketing as a percent of net sales to 10, 5%. We continue to expect SG&A, both in dollars and as a percent of net sales to increase compared to 2022 as the companys incentive compensation planned returns to normal levels in 2023.
As a reminder, our EPS guidance includes a step up in our level of marketing investment as well as higher SG&A.
For Q2, we have a strong outlook and expect reported sales growth of approximately 7%.
Our organic sales growth of approximately 3% and gross margin expansion and higher marketing spending.
Math would show a sequential decline in sales growth, but it's easy to explain first distribution pipeline fill for hero and thorough breath accounted for 1% of growth in Q1 that will not repeat in Q2. The other is around quarterly comps and how that impacts the current year for the domestic business. There was a large improvement in case fill from Q1 to Q2 last year, which leads to a tougher.
Comp in Q2 of this year compared to Q1 last year as an example.
Our international business in Q1 in 2022 organic growth was zero.
And then in Q2 was six 5% in 2022.
As a result, adjusted EPS is expected to be 78 per share a two 6% increase from last year's adjusted Q2, EPS and with that Matt and I will be happy to take questions.
Okay.
Alright. Thank you so as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced sort of a generic question. Please press star one again.
Please standby, while we compile the Q&A roster.
Okay.
For your first question. It comes from the line of Chris Carey from Wells Fargo. Chris. Please go ahead.
Okay.
Hi, Good morning, Hey, Chris.
So I just wanted to ask about.
Chris you're breaking up.
Okay.
Hey, operator, why don't we go to the next question and Chris can get back in the queue.
Alright sure no worries.
One moment please for our next question.
We're not hearing anything hurting next question.
Alright, so for any next question. It comes from the line of Kevin Grundy from Jefferies. Kevin. Your line is open. Please go ahead.
Great. Thanks. Good morning, everyone can you guys hear me okay.
Yes.
Great.
I wanted to start on the gross margin outlook some of the key drivers there and maybe how you're seeing that a little bit differently, given the strong start to the year and some of the moderation in commodities and sort of tie that in with how you're thinking about potential reinvestment. So the outlook now.
120 basis points on gross margin year over year. The prior outlook was the 100 to 120, so modestly better Rick maybe just comment on how youre seeing the contribution from pricing commodities and productivity. The key levers and then Matt maybe you want to chime in on just how youre thinking about restoring advertising and marketing levels as we've kind of a stair step.
Function at least that was sort of the thinking coming into the year is there any thought to maybe accelerating that sort of within the context of advertising marketing had been 12% of sales down to 10%. This year that thank you use 10, 5% how should we be thinking about the potential reinvestment in growth margin exceeds expectations and I have a follow up thanks.
Yeah. Thanks, Kevin I'll go I'll go first I think.
Margin and we said in the release and in my script that really we expect gross margin to expand the expansion continues to improve throughout the year.
Did do better than we expected in Q1, that's why we raised the fee.
Full year from a pricing perspective, as we go through the year there will likely.
B.
Less pricing overall, there'll be less inflation overall and productivity kind of ramps up as we go through the year as well. So all of those things we think are well it will be a tailwind.
And to the extent that we over deliver on gross margin. That's why we put the investment commentary in the release as well Matt.
Yeah, Hey, you're asking a good question.
With respect to marketing so everybody knows last year in 2022, our marketing as a percentage of sales was.
10% was a kind of a low point for us and what contributed to that was our difficulties with the fill rates et cetera, and we said hey, we're going to build that back we want to get back to 11, we go halfway there in 2023.
You can see from we had a really good first quarter, we let some of that flow through to EPS on a full year basis. So we took up our our estimate from Azure to Florida to two to four but we always take a long term view.
With the company. So so yeah to the extent that we have even better performance in future quarters, it's going to give us an opportunity to go higher than 10, 5% as a percentage of sales.
And we know whenever we are in a position like this and it's been a few years since we had been flush.
But.
Three destinations in a first is going to be growth. So we'd be looking to pay for marketing can we go higher than 10, 5%.
For international we have a lot of runway there. So one thing we can do there with respect to our regulatory we'd get a third party help to help us knock out a product registrations that might've been scheduled for next year or the year after and Theres always R&D projects as well that.
We can allocate to and then from an efficiency standpoint.
Like most companies, we're trying to automate this place and there are discrete projects, we can accelerate to automate some repetitive transaction processing in the company and also as always it investments and finally with respect to the environment. We're in.
We're a real focus on R&R sustainability. So there are projects with respect to sustainability like alternative packaging that we could we could fast forward as well. So it gives us the degrees of freedom that so we're in a good spot here looking forward for the rest of the year Kevin.
Yes.
Appreciate the commentary if I can just get in one more Matt.
And for Rick as well Europe seems to be performing much better I think maybe than folks that model how is it coming in relative to your own expectations, presumably better I would think and why is that distribution ramped more quickly is the velocity been better both in sort of Y and then maybe just updated thoughts on your outlook.
Brian and I'll pass it on thank you.
Give you a couple of comments, Kevin It's Rick I think both is the answer velocities are even better than we expected and I think no distribution gains and tvp's or even better than we expected faster than we expected I think in the.
Maybe Matt script. He commented about Tvp's for hero and were 50% higher since we bought the business already.
One mile for your next question.
Yeah.
Okay.
Yeah.
Your next question comes from the line of Chris Carey from Wells Fargo. Chris. Your line is open. Please ask your question.
Okay.
Hi, good morning, sorry about the technical difficulties.
Last question.
So I just wanted to ask about.
Personal care business.
Clearly, we're continuing to see a little bit of sequential improvement I guess can you just comment on your visibility on the business.
Relative to even a few months ago and also just what youre seeing from a kind of a gap between what we can see in the consumption data, which remains stronger relative to what you're actually delivering from an organic sales standpoint, just any visibility on when you think your organic sales will start to look.
And look a little bit more than like what we see in the company that it was just a little bit better. Thanks, so much.
Yes, I can hear you.
By the way via loss Christmas line at this time.
If we move on to the next caller.
No we're still life and your line is still open.
Alright, I'll just go ahead and check here.
Yeah.
Yes.
By the way I'm sure, we'll talk about the audio.
Yes, sure just trying to stop the stream for now then let's say staff with refreshed connection so.
Oh.
Okay stopping to stream for now.
Alright, good day, ladies and gentlemen.
I apologize for the technical difficulties, so where can it be or soon will be the Q&A. So.
Once again as a reminder, if you'd like to ask a question. Please press star one again.
So for your next question it comes from the line of.
Laura Lieberman.
Hello.
Okay.
I feel like reorient myself to the fact that we're alive again okay.
Hi.
Let me just go back to my questions.
<unk>.
So I guess.
Domestic was like let's call. It 500 basis it was much stronger than what we saw in Nielsen.
So I was just kind of curious what drove that kind of anything you can talk to us about untracked channels.
It was there any rebuilding of retailer inventory I know Rick you called out the one point on.
On a hero and thorough breath, but I'm just curious anything else just helpful to know about on track. Thanks.
Hey, Matt.
Hello.
Hi, Laura.
Just wanted to I guess you can hear me. This is the operator I can hear you.
Okay.
People are messaging me that they can hear me, but not here at the company.
Okay. So for.
Okay. So for Mr Farrell and Mr. Barker.
Please.
Redial.
Please try to dial back in.
Okay sounds good.
So Laura please standby all I'm really sorry about the technical.
Technical difficulties at this time.
Yeah.
Thanks, Paul.
Okay.
Hello.
Hello.
Hi, Jeff This is Kyle I can't hear you.
Okay well this is our cell phone now we're all in this way fastest in default Paul.
Hey, Rick as Loren I can hear you.
Desert Tonight, I'll turn the call now.
Alright, well hey take place.
Okay did.
Did you catch my question or no because I can repeat it if you need me to know.
No I got it and I think everybody okay.
The question was really.
How does consumption match up with with organic for domestic.
Yes, and just particularly on track right just curious in untracked channels.
Yeah, Yeah, we we don't think there's a huge disconnect actually we IRI consumption, 7% that included some of the hero consumption and so that guidance. If you back that outlets around 6% to 6% is what IRI would say is our organic consumption.
And we were at five five and the drag is that you would say it's from untracked channels like water pick for example.
Online or.
Our other other businesses. So we think the disconnect is a little bit closer.
Okay and there was just the.
You'd called out there was the one point benefit to total company from them.
Pipeline on hero and thorough breath when we.
Small, but when you look at the second half of the year.
I know you've talked about improving volume and volume now being up the total company for the full year I was just curious on any updated thoughts on what you've deemed a more kind of discretionary categories and how youre thinking about.
Shipments for water Pik vitamins.
As we go through the year.
Yes.
Partially thought I was answering that one I answered Chris's question I, probably got cut off.
In 2022, those three businesses, we said in the release at the end of 2022, they were about a 4% drag for those three businesses in Q1, they were closer to a 3% drag and I've said.
We expect.
Personal care organic.
Organic to inflect positively in the back half and a big reason is because those businesses are not.
A drag and Furthermore, Matt that it in his script, but it was very encouraging that our water pik and vitamins hit their internal plan numbers.
Okay.
Okay do you expect them to those those businesses in particular for volumes to be up in the second half or not.
Now, calling and don't need to.
I wouldn't call that yes, I would just say, we don't expect them to be a drag in the back half.
Got you I will pass it on to anyone that's dialed in and we can here.
Thanks Lauren.
Yes.
Please standby for your next question.
For next question. It comes from the line of free cash Parekh from Oppenheimer. Your line is open. Please go ahead.
Thanks for taking my question and can you also hear me right now we.
We can hear you okay great.
So I guess, just just just just continuing on but just vitamins I'm just curious what youre seeing right now in the category.
I believe your fill rates have now improved vitamin so just curious if youre starting to see progress on the share front.
Yes, the vitamin fill rate has been improving sequentially month by month.
November December January February March, which is a really good thing.
As far as the category goes if you look at the last few categories for gummies.
You may remember in the third quarter of last year. It took a big declines of gummies at 8%.
In Q4 was down 2%.
Q1 down two 3% so I would say, it's really stabilized which is a good thing for US now we did obviously lose share in the first quarter again due to our fill rate difficulties, but.
We anticipated some of that.
We benefited a bit because the category was stronger than we expected. So consequently, the vitamin business wasn't a drag on our outlook. They hit their plan for the first quarter and we think things should improve from here for the rest of the year.
Great and then maybe just one follow up question. So I know at the Analyst day. Your team gave expectations for organic growth expectations by segment. So it appears that we have consumer domestic stronger international sooner, maybe just talk to your product was weaker. So I'm. Just curious if you have updated views on expectations by segment for the year.
Yes, sure rapacious, Rick domestically or in alcohol in 3% to 4% international between 5% and 7% SPD is actually slightly negative and that gets us to the total company organically at three to four.
Okay, great. Thank you I'll pass it along.
Okay.
Okay.
Please standby for your next question.
Okay.
For our next question comes from the line of Alicia Thong from Raymond James <unk> <unk>. Your line is open. Please ask your question.
Thanks, Good morning.
I got a little bit of an update on your view on the U S consumer, particularly any early read on the incremental pricing you talk impact of compaction.
And the extent that you've seen any change in promotional levels. Thank you.
Okay. That's a broad question Olivia.
Talking about the U S consumer look we're all reading the same day.
Data.
The U S unemployment remains low although it's clear the job growth is slowing and you also staffs will suggest that that the growth of year over year growth in household income is also decelerating.
And you can see how often you have come in the head as a student loan payments resume late summer name I think that may not be a big deal but.
40% of millennials and 25% of Gen X consumers have student loan debt and yes, I think the combination of all that is contributing to.
Consumers being sold feeling pinched and trade down from from premium to value. What was your second question Olivia Your second part.
Sorry, it was around a compaction that.
Pricing or any early reads on those and yes.
Yeah.
Ben.
And taken price for the past couple of years in some cases, we've taken it to.
Two or three times, depending on the category like <unk>.
Later or laundry detergent so.
The gas the price gaps between brands or actually largely similar to where they were pre COVID-19.
So I would say that.
There's no story there right.
Yes, that's correct.
Early to call.
Impacts from concentration that just rolled out late late Q1.
We expect that will be positive yes.
Great. Thank you.
Okay.
Okay.
Alright. Thank you. Your next question comes from Don have Dara <unk> from Morgan Stanley . Sir Your line is open. Please ask your question.
Hey, guys good morning.
Sure.
So.
Clearly a strong Q1, it was better than you expected in the guidance for Q2 looks favorable relative to consensus also.
Just trying to understand if you look at <unk> sales and EPS, you didnt necessarily fully flow through the upside in the quarter to the full year.
Full year raise for more modest so just help us understand that there are some specific limiting factors there or is it more just the reinvestment you talked about earlier.
Conservatism in a volatile environment and particularly on org sales of questions on org sales and earnings, but org sales youre not assuming a sequential acceleration in the back half despite easier comps. So just wanted to understand that relative to the first half expectations. Thanks.
Thanks Sheila.
I think he answered the question for me.
Dara.
We're three months into it.
Uh huh.
We follow a lot of companies and so we're not alone.
Having a.
A good first quarter, but not necessarily falling off through just because there's always a certainty with respect to the economy.
That hasn't helped.
So we do have the freedom to take a long view and increase our marketing from <unk>, 5% higher.
And we have all of that.
The place.
Places, where we can put money, which I went through with Kevin growth efficiency or sustainability projects, they're all available to us. So so yeah, we feel like we got a lot of flexibility for.
For the rest of the year and it's very rare that as you look back at our history that we've ever raised after one quarter and typically we talk about that in the second quarter. So this is a bit of a.
Positive.
Okay. That's very helpful. And then can you just give us a little more detail on some of the problem areas recently Waterpick faultless vitamins just sequential performance in Q1 relative to recent trend I know you mentioned in a couple of them you were on plan, but just wanted to get a little more detail on.
Sort of a year over year performance, both in terms of consumer demand as well as retailer inventory levels. If you can just give us a little more insight there. Thanks.
Yeah, I'll give some insight.
So as I said, we're happy with.
This award it takes really hit their internal number so not a drag on our outlook.
But the economy is affecting consumer behavior of consumers.
Are either not buying or trading down to lower cost but on philosophers.
On the on the push side, our lunch and learns are back to normal with.
On the high volume of dental offices and of course, that's very important to recommendations for purchases.
Our waterflood.
I would say, it's we went into the year, saying, it's going to be a little choppy. The first six months and I think that the comps will get easier in the second half.
And and vitamins on the vitamin side, while the category.
Performed better than expected it was only down 2%.
In the first quarter.
As I said, our fill rates have improved monthly so that now we're getting into the high <unk> and so that's one.
One of the drags on our on our total company fill rate and as that progresses, we're gonna be better positioned to.
To win back share. So those two are stabilizing I mean your expectations, if everyone's flawless retail inventories are moving slower than we expected that's partly.
Have an impact on our inventory reserves for slow moving inventory on our end, but we think we've appropriately captured that from here.
We're moving forward.
Great. Thanks, guys.
Yeah.
And for your next question. It comes from the line of Anil Leesville from Bank of America and your line is open. Please ask your question.
Great. Good morning. Thank you so much for the question.
I'm curious around volumes volumes were flat in the quarter and Youre now expecting volumes to be positive overall for Q2 and the full year. You commented previously on Economization on volume expected in certain categories, such as laundry litter and Tuesday. So I was wondering if you're seeing a reversal in that front.
Consumers, who maybe are more accepting of price increases orange us more benefit from trade down first of all with economy based on.
Yes ill start and that probably has a point or two to add too.
What we said on volumes and just to be Super clear. It was they were flat in Q1, and we expect to inflect positively in the second half and for the full year. So you can infer that that means we think theyre going to be negative in Q2. Originally our outlook was down in Q1 down in Q2 and inflect positively in the back half so.
We're encouraged by what happened in Q1 that was largely because that.
That was our largest year over year Delta in case, Bill a year ago Q1, Queso was 72% Q2 was 89%. So we just have less volume to make up there.
Yes, so I would probably say.
Volumes continued to impact inflect positively in the back half, we're now call I'm going to be positive for the year.
And that's kind of a short story.
And I would add to that as though we were out of the gate early some of our categories with respect to pricing.
So consequently, with the passage of time pricing is going to have less of an impact on us and volume greater so we think the flat volume. This is a great story for the company.
Expecting positive volumes for the year again this shows.
Typically what investors expect from us.
Great and then just in terms of pricing and margins you know just curious how it how would you attribute.
Fit to outright pricing versus the package size changes.
Yeah, we haven't.
Okay.
It all it all gets bundled into that price volume mix on the gross margin.
Bridge and so our outlook in February was 180 basis point tailwind. It still is that in April 180 basis point tailwind from price volume mix in that that would have.
For example, the litter list price increase but it would also have.
Pack size changes that are happening it would have.
At times it would have the laundry.
Tracy benefit in there so.
It's a mix, we don't break them out any more independently from that.
Okay. Thanks very much.
Alright. Thank you Andrew next question.
Comes from the line of Bill Chapell from curious Bill. Your line is open. Please ask your question.
Thanks, Good morning, Hey.
Bill.
Hey, Matt.
A little bit more on kind of your commentary about consumer trade down and I'm just trying to understand how you feel like why do you think it's consumer trade down as Youre benefiting versus just the power of the arm <unk> Hammer brand because.
Especially in laundry detergent for years, you've been taking share from.
The smaller old Unilever on whatever their whoever owns them now brands, you're looking at a lot of the stores in a lot of those brands have lost some or all of their shelf space and you have gained shelf space. So I'm trying to understand like what you are seeing that.
Where do you think it's trade down benefit versus just power of the brand benefit that isn't sustainable regardless of what the economy does.
Yes, well look it's a combination of both yes. The arm <unk> Hammer brand is a very powerful brand, we got $5 $4 billion in sales at $2 billion of it is arm <unk> hammer. So we're able to advertise arm <unk> hammer across lots of different.
Categories.
When we look at the macro numbers just look at it.
Value laundry detergent grew 9%.
While premium large attrition declined 3% that's in the category all brands premium all brands value. So it's.
It's clearly happening and Thats, our biggest our biggest category and then we look at literally we see the same thing we have a black box, which is our premium cat litter and we got the yellow box, which says our value cat litter and and we see this consumers have traded traded down within the category.
The black box or the yellow box, but that's where you have the power of the brand where people stick with arm <unk> hammer as opposed to move over to a different brand.
Say, if there's probably a combination of both of that bill.
Well I guess just a follow up on that are you seeing outsize or accelerating growth for the extra brand or for that deep value or more shelf space for the big given by retailers for the deep value.
Yes, yes, no that's a good one.
Eight out of 14 brands gained share in the quarter, we were almost at nine.
Just missed by her with the with the extra and I would say in recent weeks extra has shown a lot of strength. So we think that that one could turn positive for us as a share grower.
Future quarters.
Great. Thanks.
As more evidence of trade downs right extra Carolyn fire.
Yeah.
And for our next question. It comes from the line of Peter <unk> from UBS. Peter Your line is open. Please ask your question.
Thanks, operator, and good morning, everyone. So I was hoping to get some perspective on what youre seeing from an input cost perspective kind of building on Kevin's earlier question question can you maybe just help us understand where you are seeing costs moderate we're seeing costs be stickier and Rick I know you've previously mentioned that you were less hedged on commodities than you've typically.
B heading into this year, so to the extent that commodities continue to moderate how quickly could we see that benefit flowing through thanks.
Yeah, Okay. Thanks, Peter for the question.
In the release, we said that.
Largely for us and our inflation expectations are unchanged.
And there is puts and takes on the commodity side and the transportation costs are down.
Our residents the outlook is slightly higher soda ash is higher.
Sugar is higher.
Some some resins are down ethylene is down so it's a mixed bag, but it kind of nets kind of neutral from our original outlook Youre right. We did say in beginning of the year that we were less hedged this year than we have in many years just thinking that.
Commodities would come down over time as the recession was potentially looming.
And it just takes.
A few months for cost to actually be down and stay down before you start seeing those commodities trickle into material pricing and trickle into <unk>.
To buy them. They go on the balance sheet and good expense the P&L when you sell it. So I don't know if you see something down now is to be down for a few months and then probably within six months it would flow through the P&L.
That's super helpful. Thank you so much I'll pass it on.
Alright, Thank you and your next question. It comes from the line of Andrew <unk> from Jpmorgan. Andrea Your line is open. Please ask your question. Thank.
Thank you good morning, So I wanted to just one as a clarification. The other one is the real question one on the on the whole pricing and mix dynamics and volume Understandably you have this dynamics in the second quarter, you've got a house.
The first quarter.
But the second quarter, the second half sorry.
As you imply the new guide.
And do you still have some pricing should come through I understand you're lapping as everybody else the pricing that you put in but you put in some pricing even towards the end of last year and beginning of this year. So I was just trying to reconcile what should we expect in the second half implied.
And price mix in your <unk> Guide and then.
The real question is on their arm <unk> hammer share gains, which obviously you have been remarkable.
Just wondering on liquid.
Biggest competitor also we do some price points that were I think more sticker.
Sticker shock to some to some consumers have you seen that change these dynamics as you exited the quarter or you continue to gain share.
If I had my all channels. Thank you.
Yes, I'll take the just the the first half second half dynamic of pricing, but Matt comment is true in a lot of.
A lot of.
Pricing does rollover.
First half average.
We think is in the 106 days in the second half we think is a 100% <unk> 90. So the full year 2008. So we do think there is a little bit naturally because of our.
Litter price increase in February .
And the concentration impact that kind of flows through there as well. So those are the two things that help in the back half a little bit.
Yes, and with respect to.
Pricing, obviously, we do watch what happens so what our competitors do in all of our categories, but with respect to any recent price increases.
In laundry, but elsewhere it would be too early to tell renewed a quarter or two before we can comment on what I will add though is that.
I think Olivia might ask this question earlier.
If rents sold on deal. So if you look at liquid laundry detergent.
And look at it a year ago.
Sold on deal was.
31% and if you look where it is today that Q1 2023 31 seven.
So not a big change year over year and.
Promotions and even sequentially.
Q4 was 32% in Q1 hundred $31 seven so things are pretty pretty stable and liquid laundry detergent.
This is a different story in cat litter cat.
Cat litter year ago sold on deal was 10, 7%.
And first quarter. This year was $14 nine so it's been kind of a stair step up.
Quarter by quarter over the last five quarters. In fact Q4 was 13, 9%. So it's up another 100 bps and historically and we've talked about this on previous calls.
Litter sold on deal is typically much higher.
It's 18 19, 20%.
And I guess, the other promotional category would be would be vitamins and <unk>.
Last year was 38, 9% sold on deal in Q1 of this year's 38 five.
I think that gives you a little bit more color on what's going on with respect to pricing and promotions.
So do you expect to continue to accelerate as we go I. Appreciate this backward looking but forward looking youre embedding that obviously calculator will be one and perhaps vitamins or you think that pace is going to be a similar dynamic.
No, but Andrew we never Telegraph, our plans, but typically we're going to react.
React to our competition when it comes through.
Yeah, and I would just say in laundry.
Q1 looks a lot like Q4 from a promotional perspective, yes that was going.
And just on that sorry, just a clarification and then 181 nine is the you mentioned on the pricing front.
That's on top of that is what the incremental.
Pricing would come from this two founders two price increases that you mentioned right.
Well that's for the full year, so theres also parse.
Partial pricing, finishing from last year, when we took it midyear that would be a benefit in our <unk>.
Tailwind as well and that's price volume mix is that line, we don't break out the three so that's also volume growth.
Higher margin.
So as an example year over year. So there's a lot in that number but I guess the.
The answer for you Andrea as a tailwind and the tailwind gets a little bit better in the second half.
Uh-huh. So you should say like all set and done the accordion.
By my math is right you're going to have a second half with pricing of about 2%.
Yes, that's what.
Comes out with your guide.
If that makes sense.
Yes, I'm, not saying I'm, just saying that that 180 basis point is.
Also.
Volume and mix that is not just price by itself. Okay Uh-huh, okay, perfect Alrighty ill pass it on thank you.
Thank you and your next question comes from the line of Javier Escalante from Evercore.
Your line is open please ask your question.
Good morning, everyone and hopefully you can hear me I would like to double click on the ever and the greater degree of conservatism built in guidance.
And what we're going to see in tracked channels. So one is you have positive volumes in the second half despite of compaction and detergents is it.
We will not see a gap between tracked channels and what you'll report because you're correct per wash loads.
On hero doing very well do Upsized III impact.
The impact of restricted stock.
Certainly on the marketing investment do you have you built any sales lift in the second half or just basically investment for the longer term. Thank you.
Yes, I'll take the first two.
Maybe Matt has the third one but.
And I'll, even take your second one first.
Artists use for hero.
Our adjusted EPS excludes any impact of amortization related related to <unk>, So thats kind of not a factor in our outlook or.
And our adjusted EPS, So that's apples to apples.
Sure.
Number number one.
We don't expect to see much of a gap between shipments and consumption.
At all and when you see traction versus our Nielsen our consumption versus our.
Organic growth in the back half it should be really.
Close is the short answer in Q2, you may see a little bit of disconnect again, because some of those brands like water pik as they as they continue to stabilize and go backwards a little bit that's largely in untracked channels. Some of hero growth from a reported perspective is also in untracked channels, whether it's online or <unk>.
A few specialty retailers, so I would say overall.
We've kind of talked about.
We had a great quarter, we're raising our full year on a reported organic EPS across the board.
We've made the comment that we're going to make investments if we continue to outperform on revenue and profits and Matt, yes, as far as marketing goes.
What we have in our forecast as we model and 10, 5%, but if you look at what are having the first quarter first quarter were up 70 bps. So we said for the full year would be up 50. So our track record. So far is as we get into a quarter.
And to the extent we have the same experience we had.
In Q1, and Q2 do we have the opportunity to take it up again, where there's 50 bps.
But it's going to be.
Pay as you go.
And if I can follow up.
On the on the on the detergent side because of perhaps site.
I myself is that.
When you compare <unk> don't you have a negative impact on volume or deaths youll reporting basically adjust for wash loads something that we cannot see in IRI channels.
Yes, these compaction levels or not to the extent that happened.
Five years ago 10 years ago, when we were doing 100% compaction. They are a lot a lot more marginal round one happened a year ago.
Yes. This is round around two for us and they just don't anticipate them throwing volumes or price off in a major way.
Thank you very much.
Okay. I think that was the last question, we're going to wrap it up right now and we'll talk to you at the end of the second quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.