Q2 2024 Church & Dwight Co Inc Earnings Call

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[music].

Operator: Please stand by. Your conference is about to begin. Should you require operator assistance today, simply press star and zero.

Speaker Change: France is about to begin should you require operator assistance today simply press Star zero.

Speaker Change: [music].

Operator: Good morning, ladies and gentlemen, and welcome to Church & Dwight's second quarter 2024 earnings conference call. Before we begin, I've been asked to remind you that on this call, the company's management may make forward-looking statements regarding, among things, the company's financial objectives and forecasts; these statements are subject to risks and uncertainties, and other factors that are described in detail in the company's SEC filing. I would now like to introduce your host for today's call, Mr. Matt Farrell, Chairman, President, and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

Speaker Change: Good morning, ladies and gentlemen, and welcome to Church and Dwight second quarter 2024 earnings Conference call before we begin I've been asked to remind you that on this call. The company's management may make forward looking statements regarding other things the company's financial objectives and forecasts. These statements are subject to risks and.

Matt Farrell: The 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, Chairman, President and Chief Executive Officer of Church <unk> Dwight. Please go ahead Sir.

Matt Farrell: Good morning, everyone. Thanks for joining us today. I'll begin with a review of the Q2 results, and then I'll turn the call over to Rick Dierker, who's our CFO and head of business operations. And when Rick is done, we'll open up the call to questions.

Matt Farrell: Good morning, everyone. Thanks for joining us today I'll begin with a review of the Q2 results and then I'll turn the call over to Rick Dierker, Who's our CFO and head of business operations and when Rick is done well open up the call for questions. So Q2 was another solid quarter for church <unk> Dwight reported sales growth was three 9%, which beat our outlook.

Matt Farrell: So Q2 was another solid quarter for Church & Dwight. Reported sales growth was 3.9%, which beat our forecast of 3.5. And that was thanks to strong results across the board from domestic, international, and specialty products. Organic sales grew 4.7%, which exceeded our 4% Q2 outlook, with volume accounting for a very healthy 3.5% of our growth. Adjusted gross margin expanded 150 basis points; at the same time, we increased marketing spending, and we gained market share in the majority of our category. Adjusted EPS was $0.93, which was $0.10 higher than our $0.83 outlook. That was a quality quarter, and Rick will take you through that later.

Speaker Change: A 3.5 and that was thanks to strong results across the board from domestic international and specialty products.

Speaker Change: Organic sales grew four 7%, which exceeded our 4% Q2 outlook with volume accounting for a very healthy three 5% of our growth adjusted gross margin expanded 150 basis points at the same time, we increased marketing spending and we gained market share in the majority of our categories.

Speaker Change: Adjusted EPS was <unk>, 93, which was 10 cents higher than or 83.

Speaker Change: Look that was a quality quarter and Rick will take you through that later.

Matt Farrell: Results were driven by higher-than-expected sales growth and gross margin expansion, and we continue to grow in the online class of trade, with online sales as a percentage of global sales now reaching 21.2%. Now I'm going to turn my comment to each of the three businesses. First up is the U.S. consumer business with 3.8% organic sales growth and volume growth of 3.3 percent, making this the fourth consecutive quarter of volume growth in the U.S. As you read in the release, Church & Dwight had the highest dollar consumption growth among our top 10 peers, and five of our seven power brands gained market share in the quarter, with a few hitting all-time highs. Now, let's look at a few important categories in the U.S.

Rick: The results were driven by higher than expected sales growth and gross margin expansion and we continue to grow in the online class of trade with online sales as a percentage of global sales now reaching 21, 2%.

Speaker Change: Now I'm going to turn my comments to each of the three businesses first up is the U S consumer business with three 8% organic sales growth.

Speaker Change: Volume growth was three 3%, making this the fourth consecutive quarter of volume growth in the U S. As you read in the release Church and Dwight had the highest dollar consumption growth among our top 10 peers and five of our seven power brands gained market share in the quarter with a few hitting all time highs.

Speaker Change: Now, let's look at a few important categories in the U S. Innovation is a big contributor to our success this year and as I comment on the categories I'll highlight the success of our new product launches and I'm going to start with laundry detergent, So arm <unk> hammer liquid laundry detergent consumption outpaced the one <unk>.

Matt Farrell: Innovation is a big contributor to our success this year, and as I comment on the categories, I'll highlight the success of our new product launches. I'm going to start with laundry detergent.

Matt Farrell: So Arm & Hammer Liquid Laundry Detergent Consumption Outpaced the 1.6% category growth and achieved an all-time high record share in the quarter of 14.8%, which is up 20 bits. Arm & Hammer Unit Dose, Arm & Hammer Scent Boosters, and Extra Liquid Laundry Brand all grew faster than their categories and also grew share in the quarter. Regarding new products, we have launched two new products into the detergent category, Arm & Hammer Deep Clean and Arm & Hammer Power Sheets. The first, Arm & Hammer Deep Clean, is our most premium laundry detergent, entering the mid-tier of liquid laundry.

Speaker Change: 6% category growth and achieved an all time high record share in the quarter of 14, 8%, which is up 20 bps.

Speaker Change: Arm <unk> Hammer unit dose arm <unk> hammer scent boosters, and Xtra liquid laundry brand all grew faster than their categories and also grew share in the quarter.

Matt Farrell: Armahammer Deep Clean accounted for 40% of Armahammer's liquid laundry detergent consumption growth in the quarter and is highly incremental to the Armahammer franchise. The second new product is Arm & Hammer Power Sheets, which is a laundry detergent. Arm & Hammer was the first major brand to offer this new unit dose form in the U.S. last year in August.

Speaker Change: Regarding new products, we have launched two new products into the detergent category.

Speaker Change: Arm <unk> hammer deep clean and arm <unk> hammer power sheets, the first arm.

Speaker Change: We have a deep clean is our most premium laundry detergent entering the mid tier of liquid laundry.

Speaker Change: <unk> hammer deep clean accounted for 40% of arm <unk> hammer liquid laundry detergent consumption growth in the quarter and is highly incremental to the arm <unk> Hammer franchise.

Speaker Change: The second new product is arm <unk> hammer repower sheets.

Speaker Change: This is a laundry detergent arm <unk> Hammer was the first major brand to offer this new unit dose form in the U S last year in August.

Matt Farrell: Since expanding the launch of this product into bricks and mortar retailers this year, we have seen high consumer interest in the form. Arm & Hammer Power Sheets is proven to be highly incremental to both the sheets category and the total laundry detergent category, and we are seeing repeat rates increase. We feel great about the future prospects for this product and form. Now, I'm going to talk about litter.

Speaker Change: Expanding the launch of this product into bricks and mortar retailers. This year, we have seen high consumer interest in the form arm <unk> Hammer power sheets has proven to be highly incremental to both the sheets category and the total laundry detergent category and we are seeing repeat rates increase we feel great about the future prospects.

Speaker Change: <unk> for this product and form.

Speaker Change: I'm going to talk about litter.

Matt Farrell: Arm & Hammer Litter grew consumption 6% in Q2, which was almost double the category growth. Our new lightweight Arm & Hammer Hardball clumping litter is outperforming our expectations, as our share of the lightweight category has grown from 4.5% in Q1 to 8.2% in Q2. And this is important because lightweight accounts for 16% of the clumping level category.

Speaker Change: They have a litter grew consumption, 6% in Q2, which was almost double the category growth, our new lightweight arm <unk> hammer hard ball clumping litter is outperforming our expectations as our share of the lightweight category has grown from four 5% in Q1 to eight 2% in Q2.

Speaker Change: And this is important because lightweight accounts for 16% of the clumping litter category and so we expect hard ball to continue to grow in the coming quarters, turning to personal care. The gummy vitamins business continued to be a drag on the total company organic growth in Q2, the gummy vitamin category declined one 9% in Q2.

Matt Farrell: And so we expect hardball to continue to grow in the coming quarters. Turning to personal care, the gummy vitamins business continued to be a drag on total company organic growth in Q2. The gummy vitamin category declined 1.9% in Q2, which is an improvement from the 5% category decline in the past two quarters. The bad news is that our consumption was down even greater; we were down 10.9%. We continue to move forward with our plan to stabilize our gummy business through new packaging, upgraded formulas to improve the consumer experience, new forms like chewables, and greater marketing investments that we've talked about with you in the past. However, the improvement is taking much longer than we anticipated. Next up is Batiste.

Speaker Change: Which is an improvement from the 5% category decline in the past two quarters.

Speaker Change: The bad news is our consumption was down even greater we were down 10, 9%. We continue to move forward with our plan to stabilize our gummy business through new packaging upgraded formula is to improve the consumer experience.

Speaker Change: New forms like Chewables and greater marketing investments that we've talked about with you in the past. However, the improvement is taking much longer than we anticipated.

Matt Farrell: Batiste continues to see strong consumption growth, with consumption up 14.5% in Q2, growing its share to 47%. Batiste continues to be the global leader in dry shampoo, and innovation is very important to the success of this brand. So listen to this.

Speaker Change: Next step is batiste batiste continues to see strong consumption growth with consumption up 14, 5% in Q2 growing showed a 47% batiste continues to be the global leader in dry shampoo and innovation is very important to the success of this brand.

Speaker Change: So listen to this this year, we launched batiste sweat activated and batiste touch activated dry shampoos. These products are bringing new users to the category and already these two new products account for a 2% share of dry shampoo and sweat activated as the number one new product in the category.

Matt Farrell: This year, we launched Batiste Sweat Activated and Batiste Touch Activated dry shampoos. These products are bringing new users to the category. And already, these two new products account for a 2% share of dry shampoo, and Sweat Activated is the number one new product in the category. Over in mouthwash, TheraBreath continues to perform extremely well. It is the number one alcohol-free mouthwash and the number three brand in total mouthwash with a 17% share.

Speaker Change: Over in Mouthwash Thoroughbred continues to perform extremely well.

Speaker Change: Third breath as the number one alcohol free mouthwash and the number three brand in total mouthwash with a 17% share.

Matt Farrell: This year, TheraBreath entered the antiseptic segment of the category with the launch of TheraBreath Deep Clean Oral Rinse. It's important to note that antiseptics represent 30% of the $2 billion mouthwash category. And our launch into antiseptics accounted for 100 basis points of our 400 basis point year-over-year market share gain in total mouthwash. So that's a great indicator of the future of the antiseptic launch.

Speaker Change: This year <unk> entered the antiseptic segment of the category with the launch of thorough breath deep clean oral rents.

Speaker Change: It's important to note that antiseptics represents 30% of the $2 billion mouthwash category.

Speaker Change: And our launch into antiseptics accounted for a 100 basis points of our 400 basis points year over year market share gain in total mouthwash.

Speaker Change: That's a great indicator of the future of the anticipate launch hero continues to drive the majority of growth in the acne category has grown to become the number one brand in the acne category with a 20% share.

Matt Farrell: Hero continues to drive the majority of growth in the acne category and has grown to become the number one brand in the acne category with a 20% share. Hero continues to launch innovative solutions and patches combined with adjacent consumer needs. An example would be the recently launched Dissolve Away Daily Cleaning Balm.

Speaker Change: <unk> continues to launch innovative solutions and patches combined with adjacent consumer needs. An example would be the recently launched dissolve away daily cleaning balm.

Matt Farrell: Now a few comments about Private Label. Regarding Private Label, the good news is that our weighted average Private Label exposure is relatively stable. We have seen notable Private Label share gains in Gummy Vitamins, where Private Label gained two share points, achieving a 16.7% share, which is back to pre-COVID historical highs. This has also contributed to our difficulties in that business. In the litter category, private labor, private label share has increased sequentially in the last few quarters from 13.1% in Q4, 13.3% in Q1, and 13.5% in Q2. Therefore, current levels are historical highs. The good news is that it's a different story for us as Armahammer litter continues to gain share in spite of its private label strength.

Speaker Change: Now a few comments about private label.

Speaker Change: Private label. The good news is our weighted average private label exposure is relatively stable. We have seen notable private label share gains and gummy vitamins, where private label gained two share points, achieving a 16, 7% share which is back to pre COVID-19 historical highs.

Speaker Change: This has also contributed to our difficulties in that business.

Speaker Change: In the litter category private labor private label share has increased sequentially.

Speaker Change: The last few quarters from 13, 1% in Q4 13, three in Q1 13, 5% in Q2.

Speaker Change: So current levels are at historical highs.

Speaker Change: Good news that.

Speaker Change: It's a different story for US is arm <unk> hammer litter continues to gain share in spite of their private label.

Matt Farrell: I'll close my comments on the U.S. by saying that although consumption has been strong through the first half of the year, we did experience a slowdown in June and July. For context, and you can read this in the release, our categories averaged 4.5 percent dollar growth through May of this year, but since then, it has been closer to 2 percent. Now, this is not entirely a surprise, as we expected a deceleration as year-over-year pricing rolled off. However, unit consumption also saw a deceleration from the first five months to what we saw in June and July.

Speaker Change: Brent.

Speaker Change: I'll close my comments on the U S by saying that although consumption has been strong through the first half of the year. We did experience a slowdown in June and July for.

Speaker Change: For context, and you read this in the release our categories averaged 44, 5% dollar consumption growth through may of this year, but since then it has been closer to 2% now this is not entirely a surprise as we expected a deceleration as year over year pricing rolled off however.

Speaker Change: Unit consumption as well also saw a deceleration from the first five months too.

Speaker Change: Two what we saw in June and July.

Matt Farrell: So it appears that the consumer may be getting extended and is making choices around spending habits. While we have only seen this trend for the last couple of months, we expect that categories are likely to grow at a slower pace than we experienced in the first half of the year. And as you know, our balanced portfolio of value and premium offerings performs, and I should say, is well suited to changes in consumer buying patterns.

Speaker Change: So it appears that the consumer may be getting extended and is making choices around spending habits. While we have only seen this trend for the last couple of months, we expect that categories are likely to grow at a slower pace than we experienced in the first half of the year and as you know our balanced portfolio of value.

Speaker Change: And premium offerings performs I should say is well suited to changes in consumer buying patterns.

Matt Farrell: Turning now to international and especially products, our international business delivered organic growth of 9.3% in Q2. This was driven by strong growth in the subsidiaries as well as our global markets group. Just a few call-outs, we had strong growth in Canada, Mexico, Germany, and our global markets group. And finally, specialty products. Organic sales increased by 3.9%, and that's two quarters of solid organic growth for this business. We're confident that this division will achieve 5% organic sales growth this year, which would hit our evergreen growth target.

Speaker Change: Turning now to international and specialty products, our international business delivered organic growth of nine 3% in Q2.

Speaker Change: This was driven by strong growth in the subsidiaries as well as our global markets Group now just a few call outs, we had strong growth in Canada, Mexico, Germany, and our global markets group and.

Speaker Change: And finally specialty products organic sales increased three 9% and thats two quarters of solid organic growth for this business.

Speaker Change: We're confident that this division will achieve a 5% organic sales growth this year, which would hit our evergreen growth target I want to wrap up my comments by reiterating that the company is performing well all three divisions delivering strong growth.

Matt Farrell: I want to wrap up my comments by reiterating that the company is performing well, all three divisions delivering strong growth. I want to thank all the Church & Dwighters out there for doing such a great job each and every day. Now I'm going to turn it over to Rick to give you some more color around the quarter and fill you in.

Speaker Change: Thank all of the church <unk> Dwight is out there for doing such a great job each and every day and now I'm going to turn it over to Rick to give you some more color around the quarter and full year outlook.

Rick Dierker: Thank you, Matt, and good morning, everybody. We'll start with EPS. Second quarter adjusted EPS was $0.93, up 1.1% from the prior year. The $0.93 was better than our $0.83 outlook and is a high-quality beat, primarily driven by higher-than-expected sales growth and gross margin expansion. We'll walk through the details of the P&L, but this was a strong quarter with 8% growth in profit before tax versus the prior year, excluding the tariff benefit.

Rick: Thank you, Matt and good morning, everybody, we'll start with EPS second quarter. Adjusted EPS was <unk> 93 up one 1% from the prior year. The 93 was better than our 83 outlook and is a high quality beat primarily driven from higher than expected sales growth and gross margin expansion will walk through the details of the P&L.

Speaker Change: But this was a strong quarter with 8% growth of profit before tax versus the prior year, excluding the tariff benefit another important highlight for the quarter was the majority of our brands gained share.

Rick Dierker: Another important highlight for the quarter was that the majority of our brands gained share. Reported revenue was up 3.9%, and organic sales was up 4.7%. Organic sales were driven by volume of 3.5% and a positive price mix. Volume was a primary driver of organic growth, and we expect volume growth to continue for the rest of the year.

Speaker Change: Reported revenue was up three 9% and organic sales was up four 7% organic sales was driven by volume of three 5% and positive price mix of one 2% volume was the primary driver of organic growth and we expect volume growth to continue for the rest of the year and as Matt mentioned earlier this.

Rick Dierker: And as Matt mentioned earlier, this makes four consecutive quarters of volume growth. Our second quarter gross margin was 47.1%, a 320 basis point increase from a year ago, reflecting a one-time benefit on a favorable ruling and rebate related to historical tariffs. Excluding this impact, adjusted gross margin increased to 150 basis points due to productivity, volume, and mix, net of the impact of higher manufacturing costs. Let me walk you through the Q2 bridge.

Matt Farrell: Four consecutive quarters of volume growth.

Speaker Change: Our second quarter gross margin was 47, 1%, a 320 basis point increase from year ago, reflecting a one time benefit on a favorable ruling and rebate related to historical tariff payments. Excluding this impact adjusted gross margin increased 150 basis points due to productivity volume and mix net of the impact of higher manufacturing costs.

Speaker Change: Let me, let me walk you through the Q2 bridge gross margin components are as follows positive 80 basis points impact from price volume mix and a positive 120 basis points from productivity. This was partially offset by a 10 basis point drag from currency and a 40 basis points.

Rick Dierker: Gross margin components are as follows: a positive 80 basis points impact from price volume mix and a positive 120 basis points from productivity, which is partially offset by a 10-basis point drag from currency and a 40-basis point drag from inflation. Moving to marketing, marketing was up 20.2 million year over year; marketing expense as a percent of net sales was 10.1% or 100 basis points higher than Q2 of last year, and this led to share gains.

Jack: Jack from inflation.

Speaker Change: Moving to marketing marketing was up $22 million year over year marketing expense as a percent of net sales was 10, 1% or 100 basis points higher than Q2 of last year and led to share gains.

Rick Dierker: For SG&A, Q2 adjusted SG&A increased 20 basis points year-over-year, primarily due to international R&D and costs related to the Graphico acquisition. Other expenses decreased by $7.8 million, primarily due to lower outstanding debt and higher interest income.

Speaker Change: For SG&A Q2, adjusted SG&A increased 20 basis points year over year, primarily due to international R&D and costs related to the graphical acquisition.

Speaker Change: Other expense decreased by $7 8 million, primarily due to lower outstanding debt and higher interest income.

Rick Dierker: For income tax, our effective rate for the quarter was 24%, compared to 17.9% in 2023, which is significantly higher than a year ago due to a high level of stock options exercised in Q2 of 2023. We continue to expect the full-year rate to be approximately 23%.

Speaker Change: For income tax our effective rate for the quarter was 24% compared to 17, 9% in 2023, which is significantly higher than a year ago due to a high level of stock options exercised in Q2 of 'twenty three.

Speaker Change: We continue to expect a full year rate to be approximately 23%.

Rick Dierker: For the first six months of 2024, cash from operating activities was $499 million, or almost $500 million, a decrease of $9 million with higher cash earnings offset by higher working capital. We now expect full-year cash flow from operations to be approximately $1.5 million. BillionAid. Capital expenditures for the first six months were $76.6 million, a $13.4 million increase from the prior year as capacity expansion projects proceeded as planned. We expect 2024 CapEx of approximately $180 million as we complete the majority of those investments that were initiated in 2023.

Speaker Change: And now to cash for the first six months of 2024 cash from operating activities was $499 million.

Speaker Change: Almost $500 million, a decrease of $9 million with higher cash earnings offset by higher working capital. We now expect full year cash flow from operations to be approximately one.

Speaker Change: $1 80.

Speaker Change: Capital.

Speaker Change: <unk> for the first six months was $76 6 million or $13 4 million increase from the prior year as capacity expansion projects proceeded as planned we expect 2020 for Capex of approximately $180 million as we complete the majority of those investments that were initiated in 2023, and we continue to expect capex to return to historical levels of 2% of sales.

Speaker Change: In 2025 and beyond.

Rick Dierker: We continue to expect CapEx to return to historical levels of 2% of sales in 2025 and beyond. And now for the full year outlook. As Matt mentioned, strong financial performance in the first half of the year and strong categories and share gains. As we move into the second half, consumption growth has moderated in many categories. Tumor Remains Under Pressure

Speaker Change: And now for the full year outlook as Matt mentioned strong financial performance in the first half of the year and strong categories and share gains as we move into the second half consumption growth has moderated in many categories as a consumer remains under pressure.

Rick Dierker: Consequently, we are tightening our organic revenue outlook and now expect organic sales growth to be approximately 4%, the low end of our prior 4% to 5%. Reported sales growth is expected to be approximately 3.5%, which also reflects a drag from currency and the impact from divestiture. We continue to expect full year adjusted EPS in the range of 8-9% growth, but now at the low end of the range. In round numbers, the sales call down would normally be offset by the gross margin raised at the EPS line.

Speaker Change: Consequently, we are tightening our organic revenue outlook and now expect we're getting sales growth to be approximately 4%. The low end of our prior 4% to 5% range reported sales growth is expected to be approximately three 5%, which also reflects a drag from currency and the impact from divestitures.

Speaker Change: We continue to expect full year adjusted EPS in the range of 8% to 9% growth, but now at the low end of the range in round numbers. The sales call that would normally be offset by the gross margin raised at the EPS line. However, we have two other factors for the change.

Rick Dierker: However, we have two other factors for the change. Number one, as you saw in the release, full-year SG&A is now expected to increase as a result of higher spend for Grafico. That drag went from a penny to two pennies as we made incremental investments. And then number two is dry powder, and the event categories get more promotional in the second half. Turning to gross margin, we now expect an expansion of approximately 100 to 110 basis points, up from our previous outlook of 75 basis points of expansion.

Speaker Change: Number one as you saw in the release full year SG&A is now expected to increase as a result of higher spend for graphical that drag went from a penny to two pennies as we make incremental investments.

Speaker Change: And then number two is dry powder in the event categories get more promotional in the second half.

Speaker Change: Turning to gross margin, we now expect expansion of approximately 100 to 110 basis points up from our previous outlook of 75 basis points of expansion. We continue to expect an increase in manufacturing cost to be more than offset through productivity mix and higher volume we.

Rick Dierker: We continue to expect an increase in manufacturing costs to be more than offset by productivity, mix, and higher volume. We continue to expect marketing as a percentage of net sales to be approximately 11% as we continue to grow share across many of our brands. And with that, Matt and I would be happy to take any questions. Ladies and gentlemen, at this time, if you would like to ask questions, simply say

Speaker Change: We continue to expect marketing as a percentage of net sales to be approximately 11% as we continue to grow share across many of our brands and with that Matt and I would be happy to take any questions.

Operator: Ladies and gentlemen, at this time, if you would like to ask questions, simply press star and 1 on your telephone keypad. Pressing star and 1 will place your line into a queue and will take your questions one at a time. Once again, ladies and gentlemen, that is star and 1 on your telephone keypad. We'll hear first from Rupesh Parikh at Oppenheimer. Good morning, and thanks for taking my question. So, Rick, I just want to, I guess, go back to your comments on the promotional backdrop. So, we'd love to hear about what you guys are seeing right now in the promotional backdrop.

Speaker Change: Ladies and gentlemen at this time, if you would like to ask a question simply press star and one on your telephone keypad pressing star and one replace your line into a queue and we will take your questions. One at a time once again, ladies and gentlemen that isn't star and one on your telephone keypad, we'll hear first today from <unk> per week at all.

Rick Dierker: Yeah, let me give you a sense of what's going on promotionally, Rupesh, and as everybody knows, the household is far more promotional than personal care. But if you look at your liquid laundry detergent sold on deal from Q1 to Q2, it actually was down 180 basis points year over year and was down 200 basis points sequentially. And you might be scratching your head about, you know, why would that be, but, you know, you guys probably have this in your circana data as well, but a large premium brand. It's actually down 900 basis points sequentially and 600 basis points. Of course, that's not the whole story.

Speaker Change: <unk>.

Speaker Change: Good morning, and thanks for taking my question. So Rick I just wanted to I guess go back to your comments on the promotional backdrop. So would love to hear about what you guys are seeing right now and the promotional backdrop and then what your expectations are for the balance of the year.

Rick Dierker: Couponing is not tracked. It's not in the consumption numbers, but that would explain, you know, how you went from 33.5 sold on deal in Q1 to 31.6 in Q2. So, it's largely driven by a large brand. If you look at Litter, Q1 versus Q2, that's a different story. Q1 sold on deal was about 15.5, and Q2 was a little over 18, like 18.3.

Rick Dierker: So it's up sequentially, but that was generally driven by one competitor. You know, their sales on deal, Q1 versus Q2, almost doubled. It's 24% for this other brand in Q2.

Rick: Yes, let me give you a sense for what's going on promotional Lee.

Speaker Change: <unk>.

Speaker Change: Everybody knows household as former promotional than than personal care, but if you look at liquid laundry detergent sold on deal from Q1 to Q2, it actually was down 190 basis points year over year and was down 200 basis points sequentially.

Speaker Change: He might be scratch your head about why would that be but.

Speaker Change: You guys probably have this in your second of data as well, but Ah.

Speaker Change: A large premium brand.

Speaker Change: It's actually down 900 basis points sequentially and 600 basis points.

Speaker Change: Year over year.

Speaker Change: That's not the whole story couponing is not tracked it's nothing in the.

Speaker Change: <unk> numbers, but that would explain how you went from 33 five.

Speaker Change: Sold on deal in Q1 to 31 six in Q2, so it was largely driven by.

Speaker Change: A large brand.

Speaker Change: If you look at litter.

Speaker Change: Q Q1 versus Q2.

Speaker Change: Different story.

Speaker Change: Q1 sold on deal was about 15 and a half.

Speaker Change: In Q2 was a little over 2000, Eighteen's like 18 three.

Speaker Change: So is up.

Speaker Change: Sequentially.

Speaker Change: But that was generally driven by one competitor.

Speaker Change: They are sold on deal Q1 versus Q2 almost doubled.

Speaker Change: 24% for this other brand in Q2 so.

Rick Dierker: I would say as far as our brands go, as I said, we had an all-time high share in a quarter for liquid laundry and also very close to an all-time high share for litter in Q2. But that's just to give you a little bit of color on promotions. It's kind of the same story as well, you know, Q1 to Q2, just round numbers went from 26% to 31%, that's year-over-year, I'm sorry, but sequentially, it went from 26% to 31% to 36.

Speaker Change: I would say as far as our brands go.

Speaker Change: We've as I said, we had an all time high share and.

Speaker Change: In the quarter and liquid laundry and also very close to an all time high share for litter in Q2.

Speaker Change: But that's that's give you a little bit of color on promotions.

Speaker Change: Unit doses, so it's kind of a same story as well.

Speaker Change: Q1 to Q2.

Speaker Change: Just round numbers went from 26% to 31.

Speaker Change: That's year over year, I'm, sorry, but sequentially it with.

Speaker Change: From 2006 two.

Rick Dierker: So there's a lot of big changes happening in each of the categories. But I would I would say if you're just looking at the second quarter, you wouldn't say it's any more promotional. It's just an anomaly with one brand in Q and liquid laundry and one brand and litter swinging the numbers. Okay, great.

Speaker Change: 236 so.

Speaker Change: There's a there's a lot of big changes happening in the inner.

Speaker Change: In each of the categories, but.

Speaker Change: I would say if you're just looking at the second quarter, you wouldn't say, it's any any more promotional.

Speaker Change: It's just an anomaly with one brand in Q liquid laundry and one brand in litter swing in the numbers.

Matt Farrell: And maybe just one follow-up question, just going back to the slow down in June, June, and July. It sounds like it's across categories, but I don't know if there's any more color you can provide between your discretionary offerings and maybe some of your more, you know, more essential categories. Yeah, well, I can give you some color on that.

Speaker Change: Okay, Great and then maybe just one follow up question just going back to a slowdown in June June and July.

Speaker Change: It sounds like it's across categories I don't know if there's any more color you can provide between your discretionary offerings and maybe some of.

Speaker Change: You're more more.

Speaker Change: The essential categories, yes.

Matt Farrell: You know, we look at the commentary from a food company, and we see call-outs like, hey, the consumer is being price conscious; you've got value seekers out there. And then we look at fast food chains, and we see, you know, spending is less per trip.

Speaker Change: Yeah, well I can give you some color on that.

Speaker Change: We look at the commentary of.

Speaker Change: Food companies and we see call outs like Hey, there.

Speaker Change: Tumors being price conscious.

Speaker Change: You've got value seekers out there and then we look at fast food chains, and we see spending is less per trip.

Matt Farrell: Then we look at our data, you look at Staples, and you see decelerating consumption in a lot of categories. I mean, if you just look at the Chicano and Nielsen data, you can see it.

Speaker Change: When we look at our data and you look at Staples.

Speaker Change: You see decelerating consumption and a lot of categories. I mean, if you just look at the second of our Nielsen data you can see it.

Matt Farrell: And I guess the last thing you hear today is, you know, unemployment's ticked up a little bit. Well, as I said on the call, the expected... You know, dollar growth year-over-year, we expected it to peel back. As a result, the price increase is flapping, but we're also looking at volume. It's year-over-year volume growth, but it's also decelerating in the categories. We're doing better than the categories, as evidenced by our brand success. We would say the consumer is likely a bit weary of balancing the household budget and making choices to satisfy their needs. Now we have three things going for us.

Speaker Change: And I guess the last thing you hear today as unemployment has ticked up a little bit.

Speaker Change: I don't know as I said on the call.

Speaker Change: <unk>.

Speaker Change: Dollar growth year over year, we expected that to Peel back as a result of price increases lapping.

Speaker Change: But we're also looking at volume, let's say year over year volume growth is also decelerating in the categories, we're doing better than the category as evidenced by our brand success, but.

Speaker Change: We would say to consumers likely a bit weary of balancing the household budget.

Speaker Change: Making choices to satisfy their needs.

Speaker Change: We have three things going for US one is the strength of the brand. So you saw on our release five out of seven brands grew share. If you went back to our old.

Matt Farrell: One is the strength of the brands. So you saw in the release, you know, five out of seven brands grew share. If you went back to our old standard, 10 out of 14 of our major brands grew share in Q1 and in Q2.

Speaker Change: Standard 10 out of 14 of our major brands grew.

Matt Farrell: And that's the strength of the brand should be number one. Two is innovation. You know, you heard the proof points in my opening remarks.

Speaker Change: Grew share in Q1 and in Q2.

Speaker Change: So that's the strength of the brands would be number one or two of the innovation you've heard the proof points in my opening remarks and number three you know the split we have 60 40 between premium and value. So.

Matt Farrell: And number three, you know the split we have, 60-40 between premium and value. So... Therefore, we said, hey, given the category movement in June and July, we concluded that 3% organic in the second half is probably a sensible outlook. But I can give you just some round numbers. So if you look at the laundry detergent category, May, June, and the first few weeks of July, you know, May was around 2%, June flat, and then July down, you know, close, June flat, and then July up slightly.

Speaker Change: Therefore, we said hey, given the category movement in June and July we concluded 3% organic in the second half is probably a sensible outlook, but I can give you just some some round numbers. So if you look at the laundry detergent category.

Speaker Change: Hey June and the first few weeks of July.

Speaker Change: May was around 2%.

Speaker Change: June flat and then July down close to a point and that is in dollars and then again the litter category.

Speaker Change: Round numbers may was 3% up.

Speaker Change: June flat.

Speaker Change: And then July up slightly.

Matt Farrell: And, you know, if you look at another category, like non-alcoholic mouthwash, it goes 14, 13, 11, you know, May, June, July. So do you see how the categories are kind of trending down? And I could give you other examples, but that's where we come out and say, you know, based on everything we hear from other industries, unemployment, and what we've seen in the Circon and Nielsen data, it seems pretty obvious to us that 3% makes a lot of sense for the next... and Rupesh, this is Rick. I would just...

Speaker Change: <unk>.

Speaker Change: If you look at another category like non alcohol.

Speaker Change: Mouthwash, who goes 14 13 11 May June July so you see how the categories are kind of trending down.

Speaker Change: And I can give you other examples, but that's where we come out and say you know.

Speaker Change: Based on where everything we hear from other other industries unemployment, what we've seen in and these are kind of Nielsen data and it seems pretty obvious to us that <unk>.

Speaker Change: 3% makes a lot of sense for the next.

Rick Dierker: Yeah, and Rupesh, this is Rick. I would just, you know, just to tack on to that: it's not just one category; that's kind of what Matt's going through. If you take the weighted average, and you look at every category individually, there is a slight deterrence, and most. Great, thank you. I'll pass it along.

Speaker Change: Six months, Yeah, and rapacious as Rick I would just.

Rick: Just to tack onto that it's not just one category, that's kind of what Matt going through there.

Rick: The weighted average and you look at every category individually there is slight deceleration in most okay.

Speaker Change: Great. Thank you I'll pass it along okay.

Rick Dierker: Our next question today comes from Chris Carey at Wells Fargo.

Speaker Change: Our next question today comes from Chris Carey at Wells Fargo.

Chris: Hey, Chris.

Chris: Hey, guys.

Rick Dierker: Rick, you mentioned potentially keeping some dry powder for additional spending. Is that additional spending now factored into the outlook? for the year, or are you saying that you're now considering a bit more of that dry powder should you need to deploy it in certain categories? And then what are the categories that you have your eye on? Specifically, I think the litter category, well taken, the step up in promotional spending, I think we heard enough last night to corroborate that, but can you just expand a bit on the dry powder piece and just what you're kind of preparing for?

Chris: Rick you mentioned potentially keeping some dry powder for additional spending is that additional spending now factored into the outlook.

Speaker Change: For the year or are you, saying.

Rick: You are now.

Speaker Change: Guarding a bit more of that dry powder should you need to deploy it.

Speaker Change: In certain categories and then what are the categories that you have your eye on specifically I think.

Speaker Change: The litter category well take again the step up in promotional.

Speaker Change: Promotional spending I think we heard enough last night.

Speaker Change: Corroborate that but can you just expand a bit on the dry powder piece and just what youre kind of airport.

Rick Dierker: Yeah, no worries. I would say it's really the second one in your example.

Speaker Change: No no no.

Speaker Change: Worse.

Speaker Change: I would say, it's really the second in your example.

Speaker Change: Dry powder is if if categories further decline if the promotional environment heats up because.

Rick Dierker: The dry powder is, if categories further decline, if the promotional environment heats up because volume growth gets harder to come by, we're saying we're ready for it, we're prepared if that happens. We haven't deployed it yet, but if it happens, we will. And that's really primarily around our household businesses, like laundry and litter. And then, of course, as the category is down for vitamins, that would be applicable as well.

Speaker Change: Volume growth gets harder to come by we are just we're saying we're ready for it we're prepared if that if that happens we havent deployed it yet, but if it happens to be well and that's really primarily around our household businesses like laundry and litter and then of course the <unk>.

Speaker Change: <unk> is down for vitamins that would be applicable as well and the other thing is you heard us talk about the success, we're having so many categories, where there are new products and that's where we've concentrated.

Rick Dierker: Yeah, and the other thing is, you know, you heard us talk about the success we're having in so many categories with our new products, and that's where we've concentrated our promotions, displays, et cetera, not just in household but also in our personal care products. And we've got marketing coming behind it, too, you know; we've got a lot more marketing in the second half behind those brands, so we definitely like our chances, regardless of, you know, the slowing category.

Speaker Change: Our promotions displays et cetera.

Speaker Change: Not just in the household but also in our personal care products and we got the marketing coming behind the two you'll get a lot more marketing in the second half behind those behind those brands. So we definitely like our chances regardless of.

Speaker Change: Slowing categories.

Rick Dierker: Okay, makes sense. The one quick, one quick follow-up is just on the 3%, and I kind of think that's the right range for the next six months. Did I hear you correctly?

Speaker Change: Okay.

Speaker Change: It makes sense.

Speaker Change: One quick one quick follow up is just on the.

Speaker Change: The 3% and kind of.

Speaker Change: Thinking that's the right range for the next six months did I hear you correctly, it's a bit of a category, which makes sense youre gaining share.

Rick Dierker: It's a bit above category, which makes sense, you're gaining share. Where, you know, just given the trend line, where are you, you know, keeping a particular eye on regarding whether, you know, maybe by Q4, we're talking about 2% or something of the sort? I suppose your dry powder would help you, you know, counteract that. But, you know, any call-outs on just, you know, the categories that you really have your eye on where things are developing a bit differently relative to your expectations? And then, you know, just connected to that, can you just frame the BMS business?

Speaker Change: We're just just given the trend line where are you.

Speaker Change: Keeping.

Speaker Change: Our ion regarding weather.

Speaker Change: Maybe by Q4, we're talking about 2% or something in the store I suppose your dry powder would would help you counteract that but.

Speaker Change: Yes.

Speaker Change: Any call outs on the categories that you really have your eye on where things are developing a bit differently.

Speaker Change: All of your expectations.

Speaker Change: And then just connected to that can you just frame.

Speaker Change: The BMS business.

Speaker Change: Whether you are just seeing stabilization or whether there is any kind of sequential worsening not related question to be clear, but just given that the business that fields.

Speaker Change: Less predictable.

Speaker Change: To make sure I got it because of that.

Speaker Change: <unk> 17 categories, if you're just craft those categories and you.

Rick Dierker: [inaudible] draft those categories. You just see pretty much across the board, you know, a soft. So it's not just, hey, it's just one or two big categories. Everything is really broad. So consequently, you know, they're all in it. [inaudible] Vitamins: if you do May, June, July, category dollars, down one, down two, down three, down four, down five, down six, down. So you'd say it's more about us than the category. We have not been able to... renovate our portfolio as fast as we can.

Speaker Change: You just see pretty much across the board.

Speaker Change: Softening.

Speaker Change: So it's not just hey, it's 111 or two big categories.

Speaker Change: We think it's really broad based so consequently, they are all on the table for keeping an eye on.

Speaker Change: For the second half.

Speaker Change: Your permanent.

Speaker Change: Permanent vitamins.

Speaker Change: Yes.

Speaker Change: Just are you stable or is it <unk>.

Speaker Change: Faster than other businesses, just maybe trying to ring fence vitamins for everything else, where youre clearly.

Speaker Change: A lot of relevant momentum first category. Thanks, Yeah, yeah, well the category I gave some numbers there before about May June July for.

Speaker Change: A bunch of different categories vitamins. If you do May June July category dollars down one down to down one that May June July so I'd say its more us than the category and.

Speaker Change: We have not been able to renovate our portfolio as fast as we had hoped.

Rick Dierker: You know, some of it is retailers, Every Shelf Physician, etc. And some of it is us, the speed at which we can renovate the portfolio. I'd say it's more on us, you know we uh... we know we need to do and uh... think about how good we would be if we could get that one turned around considering how all the other Yeah, there's more work to do there.

Speaker Change: Some of it is.

Speaker Change: No.

Speaker Change: The retailers.

Speaker Change: Much additional shelf space will that change your your shelf position et cetera.

Speaker Change: And some of it is us the speed at which we can renovate the portfolio. So I'd say, it's more more on us for.

Speaker Change: <unk> then.

Speaker Change: The external the external environment, but.

Speaker Change: We know we need to do and.

Speaker Change: We think about how good we would be if we could get that one turnaround considering how all the other businesses are doing well, but yes more work to do there Chris.

Rick Dierker: Okay. All right. Thanks so much.

Chris Carey: Okay, alright, thanks, so much alright.

Operator: Our next question comes from Bonnie Herzog at Goldman Sachs.

Speaker Change: Our next question comes from Bonnie Herzog of Goldman Sachs.

Operator: Thank you. Good morning.

Bonnie Herzog: Thank you good morning.

Bonnie Herzog: I had a question on your organic growth guidance, Matt I believe you mentioned that your guidance assumes the underlying category growth remains pressured but does your guidance also assume further slowdown from here just trying to understand potential downside risk and then how do you see the balance of price mix.

Matt Farrell: I had a question on your organic growth guidance. Matt, I believe you mentioned that your guidance assumes the underlying category growth remains pressured, but does your guidance also assume further slowdown from here, just trying to understand potential downside risk? And then, how do you see the balance of price mix and volumes playing out, especially in the context of the category slowdown?

Speaker Change: And volumes playing out, especially in the context of the of the category slowdown.

Matt Farrell: Yeah, well, look, some of the categories have slowed down, you know, some of them, for example, laundry and litter, you get to July, they're pretty much flattish. So, you know, when you have flat categories, the only way you're going to grow is, you know, you have to take share. And, you know, we obviously like our chances because that's what we've been doing so far this year, especially driven by our new products.

Speaker Change: Yeah, well look at the categories, if slowed down some of them for example, laundry and litter.

Speaker Change: Two.

Speaker Change: To July and are pretty much flattish so.

Speaker Change: You have flagged categories, where you're going to grow.

Speaker Change: You have to take share and.

Speaker Change: So obviously, we like our chances because that's what we've been doing so far this year.

Speaker Change: Especially driven by our new products.

Matt Farrell: You know, a lot of our share growth in litter was driven by hardball, you know, on the launch there. So, no, we're not saying, hey, this is going to, this graph, if you're going to graph it, is going to continue to go down, down, down the rest of the year. We're just saying it looks like a step change from the first five months of the year to where we are now, and I think it's more likely than not that I'll stay this way.

Speaker Change: A lot of our share growth in litter was driven by <unk>.

Speaker Change: <unk>, our new launch there so.

Speaker Change: Now we're not we're not saying hey, this is going to this graph if you've got a graph is going to continue to go down down down rest of the year, we're just saying it looks like a step change.

Speaker Change: The five months of the year to where we are now and I think it's more likely than not that'll stay this way the rest of the year. Yes, we still think category is it going to grow and take share. So thats, how we get to our 3% for the back half.

Matt Farrell: Yeah, we still think categories are going to grow and we're going to take share. So that's how we get to our 3% from the back half. And then, in terms of price, volume mix, it's kind of unchanged from what we've said before. We're primarily a volume-driven, organic growth grower in the last four quarters. And that'll continue, we think, for the next two.

Speaker Change: Then in terms of price volume.

Speaker Change: Kind of unchanged from what we've said before we're primarily a volume driven.

Speaker Change: Organic growth grower in the last four quarters and that will continue we think for the next two yes. So.

Matt Farrell: If you look at dry shampoo, the dry shampoo, you know, the first five months of the year were double digits. She was made with 12%. And if you look at June-July, it's more like 6-7%. So, you know, the category's still growing, just not growing as fast. So it looks like it's just kind of a notch down. And this is where innovation's really gonna matter, I think, going forward.

Speaker Change: It might help you to if you look at dry shampoo for dry shampoo.

Speaker Change: First five months of the year.

Speaker Change: Double digits.

Speaker Change: So it was may was 12%.

Speaker Change: And if you look at June July.

Speaker Change: It's more like 67% so.

Speaker Change: It's still growing just not growing as fast so it looks like it's just kind of a notch down and this is where innovation is really going to matter.

Speaker Change: I think going forward.

Rick Dierker: All right, that's helpful. And then my second question is on your marketing investment that you called out for Q3. I guess I'm, I'm curious to understand how much of that step up that you expect in Q3. Is it essentially, you know, new, and incremental? Or is it really just a shift coming out of Q2 where, you know, your spend levels were a little bit below what we had anticipated? And then should we expect sustained spending levels into Q4? And I'm thinking about that in the context of some of your new launches.

Speaker Change: Alright, that's helpful. And then my second question is on your marketing investments that you've called out for Q3 I guess.

Speaker Change: I'm curious to understand how much of that step up that you expect in Q3, it's essentially new incremental or is it really just a shift coming out of Q2, where you spend levels were a little bit below what we had anticipated and then should we expect sustained spending levels into Q4.

Speaker Change: And I'm thinking about that in the context of some of your new launches.

Rick Dierker: Yeah, I'll take that, Bonnie. So our Q2 marketing spend was right where we expected it to be. We were at 10.1%. If you take a big step back, we spent quite a bit of marketing in Q4 2023. And we had one of our best new product years ever this year on par. And so we're taking hundreds of basis points out of the marketing spending that would normally be there because we just want to get that phasing correct to support new... Sankar All right.

Speaker Change: I'll take that Bonnie.

Bonnie Herzog: So our Q2 marketing spend was right, where we expected to pay we were at 10, 1%.

Speaker Change: Take a big step back we spent.

Speaker Change: Quite a bit of marketing in Q4, and 2023, and we had one of our best new product tiers ever this year on an on par.

Speaker Change: And so were taken hundreds of basis points out of the marketing spending that.

Speaker Change: Would be naturally in Q4, if you kept it flat and putting that throughout the year and so Q1 was up.

Speaker Change: 150, Q2 was up 100, Q3 is going to be up significantly more like Q1, and Q2, and then Q4 will be down significantly because we just want to get that phasing correct to support new products. Okay.

Rick Dierker: Okay. All right. Thank you for that.

Speaker Change: Okay.

Speaker Change: Alright, thank you for that.

Operator: Next up, we'll hear from Peter Grom at UBS. Please go ahead; your line is open.

Speaker Change: Next up we'll hear from Peter Grom at UBS. Please go ahead. Your line is open.

Operator: Thanks, operator. Good morning, everyone. Hope you're doing well. Maybe just one quick, quick housekeeping.

Peter Grom: Thanks, operator, good morning, everyone hope you're doing well.

Peter Grom: Maybe just one quick housekeeping I think the release mentioned.

Rick Dierker: I think the release mentioned, you know, domestic consumption outpacing sales, primarily due to some retail inventory reductions. Can you maybe just talk about that? Where did you see the reductions? What categories specifically?

Peter Grom: Domestic consumption outpacing sales.

Speaker Change: Primarily due to some retail inventory reductions can you maybe just talk about that where did you see.

Speaker Change: The reductions what categories specifically.

Speaker Change: Yes. So we said there are two reasons why circon I would say, 6% and domestic organic was three 8%. So it's like 200 basis points of a disconnect. It was.

Rick Dierker: Yeah, so we said there were two reasons why, you know, Circana would say 6% and domestic organic was 3.8%, so the 200 basis points of a disconnect was... One we had talked about before, which was we had Hero Pipe a year ago, and then the second one, which actually was more of a surprise for us, was Retail Inventory Adjustment in the quarter. That was primarily on laundry, but I would tell you, you know, there's more noise in the system these days as, you know, categories start to move around from retailers on how they manage inventory. We are at good levels across the chain, and we're set up for success.

Speaker Change: One we had talked about before which was we had a hero pipe in a year ago.

Speaker Change: And then the second one which actually was more of a surprise for us was retail inventory adjustment.

Speaker Change: In the quarter that was primarily on laundry.

Speaker Change: I would tell you.

Speaker Change: There's more noise in the system. These days as you know categories start to move around from retailers on how they manage inventory.

Speaker Change: Are at good levels across the chain and.

Speaker Change: We're set up for success.

Rick Dierker: That's helpful, Rick. And then, you know, kind of going back to the category discussion, but maybe shifting gears to kind of international. Can you just talk about what you're seeing from an international perspective, both from an underlying category standpoint, but also when we think about the 3% implied back half growth on a total company basis? What do you expect to see from your international business?

Speaker Change: That's helpful. Rick and then.

Rick: Kind of going back to the core.

Speaker Change: Category discussion, but maybe shifting gears to kind of international can you just talk about what youre seeing from an international perspective.

Speaker Change: On an underlying category standpoint, but also when we think about the 3% implied back half growth on a total company basis, what do you expect to see from your international business, Yes.

Rick Dierker: Thanks.

Speaker Change: Yes.

Speaker Change: Our international business had a very strong first half so we expect them to sell a punch above their weight for the full year.

Rick Dierker: Yeah, well, our international business had a very strong first half, so we expect them to still punch above their weight for the full year. You know, our international algorithm is going to grow 8% on an annual basis, and they're tracking above that right now. Before I give you some remarks with respect to the U.S. consumer, we're still keeping an eye on the international consumer as well. So far, things have been holding up pretty well; they've been more resilient, at least in our markets and in our categories so far. But I think the commentary that I had before is more focused on the U.S. than international, but still, it's something to keep an eye on, Peter, but right now, it's not working.

Speaker Change: Our algorithm is international is going to grow 8% on an annual basis, and they're they're tracking above that right now.

Speaker Change: I gave you some remarks with respect to the U S consumer we still keeping an eye on the international consumer as well so far things have been holding up pretty well.

Speaker Change: It's been more resilient.

Speaker Change: At least in our markets and in our categories.

Speaker Change: So far but I think the commentary that I had before is more focused on the U S than international but it's still it's something to keep an eye on Peter but right now it's not.

Rick Dierker: It's not a worry.

Peter Grom: It's not a worry and does this give you a little bit more granularity if our full year call for <unk>.

Speaker Change: International is 8% we saw around 9% for the first half so that would mean, we think its around seven.

Speaker Change: Back half.

Rick Dierker: Great, thanks so much; I'll pass it on.

Speaker Change: Great. Thanks, so much I'll pass it on.

Speaker Change: Okay.

Operator: Steve Powers at Deutsche Bank, your line is open for our next question.

Steve Powers: Steve powers that Deutsche Bank. Your line is open for our next question.

Operator: Okay, that was very enthusiastic. I'm happy that you're here, Steve. Yes, me too. Hey, so the shipments versus consumption discussion that Peter just started, I guess I just extended, I guess I'm curious whether you... have visibility of any known timing differences favorable or unfavorable as we go into 3Q-4Q?

Speaker Change: Okay that was very enthusiastic.

Speaker Change: Just on that Andrew here Steve.

Steve Powers: Yes me too I'm happy to be here, so the shipments versus consumption discussing that Peter just started I guess I'd just extended I guess I'm curious whether you.

Speaker Change: Have visibility of any known timing differences favorable or unfavorable as we go into <unk>.

Rick Dierker: Yeah, at this point in time, we don't have any. I mean, different classes of trade always talk about store closures or right sizing, and so, you know, all that's kind of baked into our outlook. It's a little noisier than normal, I would say. We were caught by surprise a little bit on the one in Q2, but the good thing is we still, you know, despite that, we still met or beat our outlook on organic.

Speaker Change: Yeah at this point in time, we don't have any I mean, there are.

Speaker Change: Different classes of trade always talk about historic closures or right sizing and so.

Speaker Change: All of that's kind of baked into our outlook.

Speaker Change: A little noisier than normal I would say, we've got caught by surprise a little bit on the one in Q2.

Speaker Change: But the good thing is we still.

Speaker Change: Despite that we still met or beat our outlook on organic so drug and dollar.

Rick Dierker: Yes, so drug and dollar are the two classes of trade that are a little bit turbulence, I guess that's the right way to say it, looking ahead, but we have a pretty good handle on things, on what we have out there and how we think that will move around as a result of store closures.

Speaker Change: The two classes of trade that.

Speaker Change: A little bit.

Speaker Change: Turbulent I guess, you're right way to say it looking ahead, but but we've got a pretty good handle on.

Speaker Change: What we have out there and how we think that'll move around as a result of us store closures.

Rick Dierker: Okay, great. And this is, I guess, the topic we've all been talking about in terms of the flow and the kind of promotional environment. But I guess it's more just a philosophical question at this moment. You know, there are so many companies as we've gone through this second quarter earnings season that are exiting the first half with higher gross margins than expected, yourselves included. Does that, from your perspective, raise the risk?

Speaker Change: Okay great.

Speaker Change: I guess, it's on the topic, we've all been talking about in terms of the slowing in the kind of promotional environment, but I guess, it's more of a just a philosophical question in this moment. There's so many companies as we gone through the second quarter earnings season that are exiting the first half with higher gross margins unexpected yourselves included does that from your perspective.

Speaker Change: Raise the risk.

Rick Dierker: Even more than, you know, seemingly rational levels of competition and, and what have you devolved, you know, alongside the slowing, it just seems like we're in a pretty precarious moment where so many companies have been calling for volume improvement or volume sustainability, where things have been good, and now things are slowing abruptly. But at the same time, they're carrying more gross profit into that moment, and I just question whether you think that elevates the risk versus what you've seen historically, that things do get, you know, more competitive more quickly.

Speaker Change: Even more that.

Speaker Change: Seemingly rational levels of competition and what have you.

Speaker Change: Devolve.

Speaker Change: Alongside this slowing it just seems like we're in a pretty precarious moment, where.

Speaker Change: So many companies have been calling for volume improvement or volume sustainability, where things have been good now things are slowing abruptly but at the same time, there they're carrying more gross profit into that moment and I'm just questioning whether you think that elevates the risk versus what you've seen historically.

Speaker Change: Things do get.

Speaker Change: More competitive more quickly.

Matt Farrell: Yeah, well, look, I think if people look back through history, and you say, you know, when do people start, you know, promoting? And yeah, you're right when you have slowing categories. So that's why, you know, Rick said, it's probably prudent to say, hey, you got to have a top line call and a bottom line call that kind of bakes that in. And so you have some dry powder if that were to happen.

Speaker Change: Yes look.

Speaker Change: I think if people look back through history.

Speaker Change: You said.

Speaker Change: Got it.

Speaker Change: When do people start promoting and yes, youre right when he says slowing categories.

Speaker Change: So thats why <unk> said, it's probably prudent to say hey, you got to have a topline call in our bottomline call that kind of bakes that in and so you have some dry powder if that were.

Matt Farrell: But that's why we spent so much time this morning talking about innovation, and we got innovation beyond the categories that we described. So I think that's going to be really important for economic growth and consumer growth in the next six to 12 months.

Speaker Change: To happen.

Speaker Change: And that's why we.

Speaker Change: So much time this morning talking about innovation and we've got an innovation beyond the categories that we've described so I think that's going to be really important to share growth in consumption growth.

Speaker Change: Next six months to 12 months.

Rick Dierker: One thought to add to that: normally, if you look back at history, really hyper-promotional environments happen when categories are negative or volumes are negative. But neither of those things are happening. In general, it's still positive growth from a dollar perspective and still positive growth from a volume perspective. So in that context, private label shares are still relatively stable. All those things are still true, but we're just trying to give you a heads up to say there is something going on.

Speaker Change: No one thought to add to that normally if you look back at history really hyper promotional environment as happened with categories are negative or volumes are negative neither of those things are happening right in general it's still positive growth from a dollar perspective, it's still positive growth from a volume perspective, so that's context.

Speaker Change: Private label shares are still relatively stable.

Speaker Change: All those things are still true, but we're just trying to give a heads up to say there is something going on.

Rick Dierker: Yeah, so Steve, that's sort of our MO, you know; we were always palms up, and we say what we're saying. So that's what we're doing today.

Speaker Change: So Steve yes sort of.

Steve: We were always Pops up then we said what we're seeing so that's what we're doing today.

Rick Dierker: Okay, I appreciate it. Thank you very much.

Steve Powers: Okay I appreciate it thank you very much.

Operator: Next, we'll hear from Dara Mohsenian at Morgan Stanley.

Speaker Change: Next we'll hear from Dara <unk> Morgan Stanley.

Speaker Change: Sarah.

Operator: Hey, good morning, guys. So just wanted to touch on a couple pieces of your portfolio, TheraBreath obviously continues to post very strong growth, you can see that in the scanner data or your call commentary on MarketShare, but it is a higher priced product, so just hoping you could give us a bit more detail on the brand performance and as we move through the quarter, the performance, any signs of trade down there, is the therapeutic benefit of the product really mitigating any impact from a weaker consumer?

Dara: Hey, good morning, guys.

Sarah: So just wanted to touch on a couple of pieces of your portfolio thorough breath. Obviously continues to post very strong growth you can see that in the scanner data or your call commentary on market share.

Speaker Change: But it is a higher priced product.

Dara: So just hoping you could give us a bit more detail on the brand performance.

Speaker Change: As we move through the quarter their performance any signs of trade down there as the therapeutic benefit of the product really mitigating any impacts from a weaker consumer and just your view on growth potential for that brand as you look out over the next few quarters given the strong momentum recently.

Operator: And just your view on growth potential for that brand as you look out over the next few quarters, given the strong momentum recently, and then just on the VMS side, you know, understand all your points around The Intervention in terms of packaging, forms, marketing, just any more detail on when the timing of some of those things may pay off and how you guys think about that, given the progress hasn't been as strong as expected so far. Thanks. Yeah, well, let's Thoroughbred it.

Speaker Change: Then just on the Vms side.

Speaker Change: I understand all your points around.

Speaker Change: The intervention in terms of packaging forms marketing.

Speaker Change: Any more detail on when the timing of some of those things may pay off in how you guys think about that given the progress hasnt been as strong as expected. So far thanks, yeah, well looked at here thorough breath as there was a big success story for the company.

Matt Farrell: Yeah, well, look, TheraBreath is a big success story for the company, as you know. We have a 17% share. We're number three in the category. Number one is Listerine at 38, and Crested at 18.

Speaker Change: As you know we have a <unk>.

Speaker Change: 17% share we're number three in a category of number ones LISTERINE.

Speaker Change: 38 crested.

Matt Farrell: And, you know, we've been getting, you know, more facings from different retailers and different classes of trade. And the launch into antiseptic is something that we think is going to be a source of growth for us for a good long time because when it's 30% of the category, and we now have a 4% share of the non-alcoholic category. Yeah, so we've got a long way to go before we get there, but I would say we feel really good about TheraBreath.

Speaker Change: At 18.

Speaker Change: <unk>.

Sarah: We've been getting.

Sarah: More facings from from different.

Sarah: Retailers in different classes of trade.

Sarah: The launch into antiseptic.

Sarah: Something that we think is going to be a source of growth for us for for a good long time, because when it's 30%.

Sarah: The of the category.

Sarah: And we now have a 4% share of.

Sarah: Of the non alcohol.

Sarah: So we've got a long way to go there so I would say.

Sarah: We feel really good about about third breath and yes. It is it's more highly priced but that's not something new we don't promote the product.

Matt Farrell: And, yeah, it's more highly priced, but that's not something new. We don't promote the product. I think one interesting proof point. If you look at what happened on Prime Day, TheraBreath actually was the number three unpromoted brand, and we had a really good Prime Day for TheraBreath. So there are lots of indicators to say this brand has a lot of staying power, even as a premium brand in this environment.

Speaker Change: I think one.

Speaker Change: Interesting proof point.

Speaker Change: If you look at.

Speaker Change: What happened on Prime day.

Speaker Change: <unk> actually was the number three brand in the on promoted and we haven't had a really good prime day for their breath. So.

Speaker Change: There's lots of indicators that say this brand has a lot of staying power even as a premium brand in this environment.

Matt Farrell: And then with respect to vitamins, yeah, I think that's probably going to be over the next six to 12 months. We do not expect we're going to be able to stabilize that as we had planned when we started the year. We thought that in the first half, we would be down, and then by mid-year, things would start to turn around, so we'd be exiting the year with a stable business, no loss of share. But I don't see that happening right now. We've got lots of different irons in the fire here, and some are working, some aren't. We just need a little more time.

Sarah: And then with respect to vitamins.

Speaker Change: And I think that's probably going to be over the next six to 12 months, we do not expect we're going to be able to stabilize that as we had planned to when we started the year, we thought that in the first half we would be we'd be down and then by mid year with things starting to turnaround. So we would be exiting the year with a stable business.

Speaker Change: <unk> no loss of share.

Speaker Change: Don't see that happening right now but.

Speaker Change: We got lots of different irons in the fire here and someone working some arent.

Speaker Change: Just a little more time.

Ted: Thanks Ted.

Operator: Lauren Lieberman at Barclays: please go ahead; your line is open.

Speaker Change: Lauren Lieberman at Barclays. Please go ahead your line is open.

Lauren Lieberman: Thanks, Good morning.

Lauren Lieberman: So sticking with their breath and also layering in here if I may.

Speaker Change: Both brands continue to have very very strong growth, but they have decelerated and we were looking at it more than anything else is kind of law of large numbers, but I was curious if you could comment on what youre seeing in the spaces in which those brands compete in terms of those category growth rates changing and as we kind of look forward.

Operator: They continue to have very, very strong growth, but they have decelerated, and we were looking at it more than anything else as kind of a law of large numbers. But I was curious if you could comment on what you're seeing in the spaces in which those brands compete in terms of those category growth rates changing. And as we kind of look forward, you know, this law of large numbers, like, do we think they keep migrating down to earth?

Speaker Change: Sure.

Speaker Change: Just law of large numbers like do we think they keep migrating down to earth to the growth isn't 30%, but it's like 20% as we move forward.

Operator: So the growth isn't 30%, but it's like 20% as we move forward. And how to frame that, because I think it's important in terms of the big picture, the, you know, the aggregate outlook for the company is the growth rate of those two brands actually matters a lot.

Speaker Change: And how to frame that because I think it's important in terms of the big picture at the aggregate outlook for the company as the growth rate of those two brands actually matters a lot.

Matt Farrell: Yeah, well, I'll give you some category data, like the acne category, May, June, and July is steady, up 8% May, June, and July, so no worries there. We've got the number one brand in the category, not only in the category, but also in patches in a subcategory at 54% share. That's not a worry for us right now, either one of those brands.

Speaker Change: Yeah, well look I'll give you some.

Speaker Change: Category data like the acne category May June July is steady.

Speaker Change: Up 8% May June and July so.

Speaker Change: No worries there.

Speaker Change: We've got the number one brand in the category and not only in the category, but also in patches and a subcategory of 54%.

Speaker Change: Sure. So it's.

Speaker Change: That's not a worry for US right now either one of those brands and of course with the passage of time.

Rick Dierker: Of course, with the passage of time, you're not going to have 30% growth rates. This is math, as you think ahead to 2025, but we're still expecting that we're going to have really strong years next year. Yeah, and just to add to that, you're right, like 30% or 40% growth, and as that comes down, it's because we're really lapping distribution in general, but consumption is just still extremely strong. I would say we're not going to point to a growth rate in the future, but we still expect to see double-digit, strong double-digit growth as we look out over the horizon.

Speaker Change: Youre not going to have 30% growth rates.

Speaker Change: This is just math as you think ahead to 2025.

Speaker Change: We're still expecting that we're going to have really strong years next year, yes, and just to add to that youre, right 30, or 40% growth and as that comes down because were really lapping distribution in general but consumption is there.

Speaker Change: It's still extremely.

Speaker Change: Extremely strong and I would say, we're not going to point to a growth rate in the future, but we still expect it to be double digit strong double digit growth as we as we look out over the horizon.

Rick Dierker: Okay, great. And then, on market share trends, we are still on Nielsen. So I know that there are some pretty significant differences lately between Nielsen and Surkhana, and coverage matters a lot. So take that as a preamble.

Speaker Change: Okay, Great and then if I can ask a second question.

Speaker Change: Market share trends. So we are still on Nielsen. So I know that there are some pretty significant differences lately, Virginia sent in Tacoma and coverage matters Lavazza take that his preamble.

Speaker Change: But as we see it market shares for church in aggregate.

Rick Dierker: But as we see it, market shares for church in aggregate were softer in June and July. So along with the categories slowing, some of the share performance wobbled a bit, particularly if you take out Hero and Thera. So just if you could comment on that. Again, that might be completely different than what you're seeing in your data. So I'd like to know if that's the case. And if not, you know, what do you think is why, if in fact, shares have been more sluggish, why that is?

Speaker Change: Were softer in June and July for along with the category slowing that some of the share performance level that that particularly if you take out here on thorough. So just if you could comment on that and that might be completely different than what youre seeing in your data. So I'd like to know if that's the case and if not what is it do you think that why if in fact shares have had.

Speaker Change: And more sluggish why that is.

Rick Dierker: Thanks, Lauren. I would just say that's not what we're seeing. In Q1, I think we were 10 out of 14. If you go back to our old vernacular of all of our power brands, because this question is a little bit more detailed, so 10 out of 14. I think Q2 was 10 out of 14. I think July was 9 out of 14. So no real change.

Speaker Change: Thanks, Loren I would just say that's not what we're saying.

Speaker Change: In Q1, I think we were 10 out of 14, if you go back to our old vernacular of all our all of our power brands is this question is little bit more detail. So 10 of 2014, and then Q2 was 10 of 2014 I think July June July or July was nine of 2014, So no real change.

Rick Dierker: And what about the pace of that growth, though? You know, not just like, is it up, but is it down less?

Speaker Change: And what about the pace of that growth, though so not just like is it up but is it up.

Rick Dierker: Well, I think it's reflected in our second-half call, right? You know, we said we grew 5% organically in the first half, 3% in the second half, so I think that's all baked in. It's more of a...

Speaker Change: Well I think thats reflected in our in our second half call right. We said, we grew 5% organic in the first half 3% in the second half. So I think that's that's all baked in.

Speaker Change: Into the numbers.

Speaker Change: Wouldn't give like mid sort of it's more of a that's more of a category.

Rick Dierker: That's more of a category. We still feel really good about the share. We expect share gains in the second half, and we're positioned to do that.

Speaker Change: We still feel really good about the share we expect share gains in the second half and we're positioned to do that.

Operator: Okay, great. Thank you. Our next question comes from Kaumil Gajrawala at Jefferies. Go ahead, your line is open.

Speaker Change: Okay, great. Thank you.

Kamil <unk>: Our next question comes from Kamil <unk> at Jefferies. Go ahead. Your line is open.

Kamil <unk>: Hey, if I could ask a little more on Vms, which is.

Kamil <unk>: It's not that long ago, you were increasing capacity for the space I'm curious if anything has changed maybe there's some.

Speaker Change: Product changes you need to make or innovations you need to catch up on but has your view generally about that segment changed.

Operator: Ah, well, look, it's a very competitive category. There are well over 60 competitors. There aren't a lot of barriers to entry, simply because you can find commands to make your product. So if you get an idea and a catchy brand name, you can pretty much enter.

Speaker Change: Well look it's a very competitive category.

Speaker Change: They're well.

Speaker Change: Well over 60 competitors.

Speaker Change: There aren't a lot of barriers to entry.

Speaker Change: Simply because you can you could find comments to make a product.

Speaker Change: If you get an idea.

Speaker Change: And can't you Brendan you can pretty much enter so that's really what we've been experiencing and and of course.

Matt Farrell: So, you know, that's really what we've been experiencing. And, of course, you know, we've definitely struggled with bricks and mortar. We do have some bright lights here on... and the online class of trade. So we're doing extremely well on Amazon. We've got a lot of growth there, but then that's a smaller piece of the pie. You know, we mentioned before about renovating the category, meaning that this year we've been changing the formulas to improve the consumer experience, meaning that, you know, taste and bite. We're launching into chewables, you know, different forms. But all those have gone slower than expected, and we haven't got a lot of help from the retailers.

Brendan: We've definitely struggled in the Brixton.

Brendan: Bricks and mortar.

Speaker Change: We do have some bright lights here in on them.

Speaker Change: The online class of trade. So we're doing extremely well on Amazon, We've got a lot of growth there, but then that's a smaller piece of the pie.

Brendan: We have.

Speaker Change: I had mentioned before renovating the category meaning.

Speaker Change: This year, we've been changing the formula is to improve the consumer experience, meaning that taste.

Speaker Change: Bye.

Speaker Change: We're launching into Chewables.

Speaker Change: Current forms.

Speaker Change: But all of those have gone slower.

Speaker Change: Than expected and then we haven't got a lot of help from the retailers and remember for context right. This category grew through Covid on a rocket ship pace accrue probably over 50% of our four or five years, and so everyone's rushing to put the capacity in.

Rick Dierker: Yeah, and remember for context, right? This category grew through COVID at a rocket ship pace. It grew probably over 50% over four or five years. And so everyone's rushing to put the capacity in to accommodate that, and the category itself is still finding its feet as it comes off of those highs. That's why we keep seeing negative growth. And then there are other forms now. It's just not hard pills and gummy. There's liquid, there's powder, there's other forms.

Speaker Change: Accommodate that in the category itself still finding its feet as it comes off of those high and Thats why we keep seeing negative growth.

Matt Farrell: And then Theres other forms now, it's just not hard pill and gummy, there's liquid theres powder theres other forms and so that's a category story and we're being impacted by that as well, but as Matt said, we think innovation Super important we're trying to move at the speed of light to get the right innovation out there as fast as possible.

Rick Dierker: And so that's a category story, and we're being impacted by that as well. But as Matt said, we think innovation is super important. We're trying to move at the speed of light to get the right innovation out there as fast as possible. Yeah, but we'll call it out because it has been a struggle for us. Yeah, it's actually, you sort of, when you first started talking about the category, it sounds like it

Rick Dierker: But we'll call it out because it has been a struggle for us. Yeah, it's actually when you first started talking about the category, it sounds quite different from how you'd like to be positioned or how you'd like a category to be positioned. It's still making, so we just saw Clorox divest their VMS. I recognize it's different, but it still makes sense to own. Yeah, well, that's. We evaluate all of our businesses, all of our categories.

Matt Farrell: Yes, but it would qualify as great as it has been a struggle for us.

Speaker Change: Yes, it's actually sort of when you first started talking about the category it sounds quite different from <unk>.

Speaker Change: You'd like to be positioned or how would you like a category two.

Speaker Change: Deep positions.

Speaker Change: I'll make some we just saw clorox divested their vms I recognize it's different but theres still makes sense to own.

Matt Farrell: Yeah, well that's it.

Speaker Change: We evaluate all of our businesses all of our categories annually. So obviously, we put a lot of investment into this.

Speaker Change: But.

Matt Farrell: Can't go any further than that.

Speaker Change: Okay. Thank you.

Matt Farrell: Okay.

Operator: Andrea Teixeira, JP Morgan, please go ahead with your question.

Matt Farrell: Andrea to sure J P. Morgan. Please go ahead with your question.

Operator: Thank you. Good morning.

Andrea: Thank you good morning, I wish I was hoping to see if you can call cutting shifts a little bit of a conversation.

Andrea: And so M&A and I know you've been booking and at your Analyst Day, you had bad.

Operator: I was just hoping to see if you can shift a little bit of the conversation into M&A. And I know we've been looking at your analyst, who you had said you looked at back last year around four potential acquisitions. None of those kind of fit your profile or were enough to be attractive.

Matt Farrell: Yeah.

Speaker Change: He had no touch back last year around for potential acquisition.

Speaker Change: None of those kind of.

Matt Farrell: Kind of CTO profile.

Matt Farrell: Enough to be attractive.

Matt Farrell: So I was hoping to see what has changed, anything that we should be thinking of. Is it more that the targets are not willing, or are the private equity funds not coming up with some interesting ones for you? What is preventing you from growing organically, which is something that you historically have done?

Matt Farrell: I was hoping to see what has changed anything that we should be thinking.

Speaker Change: Is that more of the targets are not willing or the private equity fund.

Speaker Change: Coming up with.

Speaker Change: Some interesting ones for you what is preventing into so growing organically which is.

Speaker Change: Which is something that just started and then also just a housekeeping on water peak I think that's the only brand that we need to then talk about what our peak inflation pool.

Rick Dierker: And then also just housekeeping on Waterpeak. I think that's the only brand that we really didn't talk about. And Waterpeak and Dry Shampoo, just thinking of how you quoted in the first quarter that there was a one percent headwind from Waterpeak and Gummies each. So I was hoping to see what the headwind was in the second quarter, if any.

Speaker Change: Just thinking of like how you quoted in the first quarter, there was a 1% headwind from <unk> and gummies. Each so I was hoping to see what was the headwind in the second quarter if any.

Speaker Change: So I mean, there's still headwinds there and what is embedded into the second half. Thank you.

Matt Farrell: Yeah, as far as M&A is concerned, you're correct in that last year we looked at four or five different brands. We didn't pull the trigger on any of them.

Speaker Change: Yeah as far as M&A you are correct in that last year, we looked at four or five different.

Speaker Change: Brands, we didn't pull the trigger on any of them, but what I can tell you is that we're as busy as ever right now.

Matt Farrell: But what I can tell you is that we're as busy as ever right now. We're always looking for opportunities. And they are out there, and we're just going to stick to our criteria. But we do realize it's been 18 months since we made an acquisition. We have cash building up on the balance sheet, as you'll see when we follow the queue. But yeah, we're very busy, and the market is active. And then on Waterpeck.

Speaker Change: We're always looking at opportunities and they are out there and we're just going to stick to our criteria, but we.

Speaker Change: We do realize it's been 18 months since we made an acquisition.

Speaker Change: Cash building up on the balance sheet as you'll see when we file the Q.

Speaker Change: Yes.

Speaker Change: Very busy and the market is active.

Rick Dierker: And then on Waterpik... The good news on Waterpik is that consumption is up high single-digit, low double digits. So we really worked through that retail inventory issue that we talked about last quarter. I would say Waterpik's flattish for this quarter. Slightly down for the full year, largely based on... What Happened in Q1 from a Sales Perspective. Not ignoring Waterpik, but I'd tell you that the consumption looks good for Waterpik. Thank you. Next, we'll hear from Filippo Falorni at Citi. Hi, good morning, everyone.

Speaker Change: And then on water Pik.

Speaker Change: The good news on water Pik as consumption is up.

Matt Farrell: High single low double digits. So we really work through that retail inventory issue that we talked about last quarter.

Speaker Change: I'd say waterpick flattish for this quarter, we think it's slightly down for the full year largely based on.

Speaker Change: What happened in Q1 from a sales perspective so.

Speaker Change: Not not ignore and water pick, but I would tell you that the consumption looks good for water Pik.

Speaker Change: Thank you.

Speaker Change: Okay.

Operator: Next, we'll hear from Filippo Falorni at Citi.

Filippo <unk>: Next we'll hear from Filippo <unk> at Citi.

Filippo: Hi, good morning, everyone.

Filippo: I wanted to ask about the gross margin outlook for the second half.

Speaker Change: Have you embedded from.

Speaker Change: Pricing standpoint that didn't.

Speaker Change: You will kind of drive to comment on dry powder on promotional activity is and then from a commodity standpoint are you seeing some modest inflation on what is the commodity outlook for the second half. Thank you.

Operator: Yeah, sure. I would say inflation is maybe a little bit higher than when we talked about it three months ago. Pulp and paper are up. HGPE is up a little bit. Ethylene is up a little bit.

Speaker Change: Yeah, sure I would say.

Speaker Change: Inflation is maybe a little bit higher than what we talked about it three months ago pulp and paper up <unk> is up a little bit ethylene is up a little bit but.

Rick Dierker: But, you know, no change from a net perspective as productivity is coming out a little bit better as well. Yeah, we do have some trade and couponing and promotional spending assumed in the back half. Again, it's dry powder, not necessarily that we are going to do it. But we also want to spend behind our new products in terms of displays and support and whatnot. So that's kind of our.

Speaker Change: No change from a net net perspective as productivity is coming a little bit better.

Speaker Change: As well, we do have some trade and couponing and promotional spending assumed in the back half again, it's dry powder and not necessarily that we are going to do it but we also.

Speaker Change: I want to spend behind our new products in terms of displays and support and whatnot. So that's kind of our assumption.

Speaker Change: Great. Thank you.

Rick Dierker: Kevin Grundy at BNP Paribas, please go ahead.

Speaker Change: Kevin Grundy BNP Paribas. Please go ahead.

Operator: Great, thanks. Good morning, everyone.

Kevin Grundy: Great. Thanks, good morning, everyone.

Kevin Grundy: Covered a lot of ground most of the portfolio I wanted to kind of taking a different direction I guess and maybe if you could comment at all on on Barry.

Operator: We've covered a lot of ground, most of the portfolio. I wanted to kind of take it in a different direction, I guess. And maybe you could comment at all on Barry's departure, because it's an area we've gotten a lot of questions about recently. Obviously, you know, a key executive with the company is the CMO and president of your domestic business, and probably one of the handful points of interface with the investment community

Speaker Change: Sure.

Speaker Change: We've got a lot of questions from recently.

Speaker Change: Obviously key key executive with the company as CMO and President of your domestic business and probably one of a handful of points of interface with the investment community.

Operator: So maybe just comment on how high a priority it is to fill that role, maybe the skill set you might be looking for, and I know he's with the company through early October, and whether the search is going to include both internal and external candidates. So thanks for that.

Speaker Change: Maybe just comment on it.

Speaker Change: Priority it is to refill that role maybe skill set you might be looking for is with the company through early October and whether the search is going to include both internal and external candidates. So thanks for that.

Matt Farrell: All right, Kevin, that's a multi-part question, many of which I can't respond to. What I can say is that, you know, Barry's been here for 11 years, he had an eight-year stint in International, three in the U.S., he's a big part of our success, and, you know, sad to see him go. Through early October, it's business as usual here, so we have some time to figure out how we're going to fill the position, but I think that's as detailed as we'd go into on a call like this.

Speaker Change: [laughter] Alright, Kevin Thats, a multi part question many of which I can't respond to what I can say is that.

Barry: Barry has been here.

Kevin Grundy: 11 years.

Barry: Eight year stint in international three in the U S.

Speaker Change: I think part of our success.

Speaker Change: Sorry to see him go.

Speaker Change: Sure through early October.

Speaker Change: It's business as usual here.

Speaker Change: So we have some time to figure out.

Speaker Change: How are we going to fill that position but.

Speaker Change: Think that's detail as we go into on a call like this.

Operator: Okay, I'll leave it there. Thank you. Our next question comes from Olivia Tong at Raymond James. Great, thanks. Um, my question is primarily around gross margin and trying to understand the

Speaker Change: Okay I'll leave it there thank you okay.

Operator: Our next question comes from Olivia Tong at Raymond James. Great, thanks.

Speaker Change: Our next question comes from Olivia Tong at Raymond James.

Olivia Tong: Great. Thanks, Mike.

Olivia Tong: My question is primarily around gross margin and trying to understand the upside in Q2.

Olivia Tong: And then in terms of the.

Speaker Change: Uh huh.

Speaker Change: The deceleration in second half it sounds like that 100 basis points. It sounds like primarily around the dry powder, but wanted to see if there are other factors that are driving that expectation for deceleration in the second half.

Operator: Yeah, deceleration for gross margin. Yeah, exactly. Yeah.

Speaker Change: Yeah deceleration for gross for gross margin.

Rick Dierker: Okay, well, in the quarter, we had favorable mix, really because of mix. Within our personal care portfolio, we had higher-margin products sell even more than we expected, and some of the lower-margin personal care products didn't sell as much. So that was kind of a tailwind in the price-volume-mix line. That's what happened for the quarter. For the back half of the year, there are a couple things.

Speaker Change: Yeah, exactly yeah, okay, well in the quarter, we had favorability really because of mix within our personal care portfolio.

Speaker Change: <unk>.

Speaker Change: Higher margin products sell even more than we expected and some of the lower margin personal care products not sell as much. So that was kind of a tailwind from the <unk>.

Speaker Change: Price volume mix line, that's what happened for the quarter and for the back half of the year.

Speaker Change: It's that's a couple of things.

Speaker Change: There is.

Speaker Change: A little bit more inflation, it's not as favorable year over year.

Rick Dierker: It's not as favorable year over year. You know, personal care mix as those categories come in a little bit. But the dry powder we're talking about in terms of trade and couponing in the back half, as well. So those are probably two or three things I'd point to in the back.

Speaker Change:

Speaker Change: Personal care mix as those.

Speaker Change: Those categories come in a little bit.

Speaker Change: But the dry powder, we're talking about in terms of trade and couponing in the back half as well. So those are probably the two or three things I'd point to in the back half.

Speaker Change: Great. Thank you.

Operator: Anna Lizzul, at Bank of America, you have our next question.

Speaker Change: And all the Xul at Bank of America, you have our next question.

Operator: Thank you, this is Jon Kepor on the line for ANNA. I also just want to say I'm glad Steve Powers is here because he opened the way for the question I have, which is, I guess on pricing, is there any... Is there any risk that the promo environment gets to such a place that we see negative prices in the back half, and then follow up to that? In terms of the innovation pipeline and like, you know, the route to market and kind of time to market, given where the categories are stabilizing at this lower kind of growth rate and the idea that maybe this becomes a 25 issue as well, are you guys able to pivot your innovation pipeline?

Speaker Change: Thank you this is John keep where on the line for Anna.

Speaker Change: Yeah.

Steve Powers: I also just wanted to say I am glad Steve powers. This here because he opened.

Speaker Change: He opened the way for the question I have which is.

Speaker Change: I guess on pricing is there any.

Speaker Change: Is there any risk that they that the.

Speaker Change: The promo environment, such a place that we see negative price in the back half.

Speaker Change: And then follow up to that in terms of the innovation.

Steve Powers: <unk> pipeline and like.

Steve Powers: Our route to market and kind of time to market.

Speaker Change: Given where the given where the categories are stabilizing at this lower kind of growth rate and the idea that maybe this becomes a twenty-five issue as well are you guys able to pivot your innovation pipeline and have new products in market by next year that cater more towards.

Operator: And have new products in the market by next year that cater more towards, I guess, the mid or low end consumer more than potentially what you had in the pipeline last year or expect to have in the pipeline for next year?

Mitch: Yes Mitch.

Mitch: Or low end consumer more than potentially what you had in the pipeline last year or expect to have in the pipeline for next year. Thank you.

Matt Farrell: Thank you.

Mitch: Yes, well there is.

Mitch: There's two types of innovation, one is innovation, where we're identifying a pain point or a need for the consumer.

Rick Dierker: Yeah, well, there's two types of innovation: one is innovation where we're identifying a pain point or a need for the consumer. Another is when it comes to pack size, which I think is what you're getting at. So yeah, we're pretty good at pivoting quickly to create different price points in various categories in order to satisfy the consumer in a changing environment like this. And then on your first question about...

Speaker Change: Another is when it comes to pack size, which I think is what you're getting at so yeah.

Mitch: We're pretty good at pivoting quickly to create the different price points in various categories.

Mitch: In order to satisfy the consumer in a changing environment like this.

Rick Dierker: And then on your first question about volume and price mix, as we look forward, we do not expect to have negative prices in the back.

Speaker Change: And then on your first question about volume and price mix as we look forward, we do not expect to have negative price.

Mitch: Back half of the year.

Speaker Change: Great. Thank you.

Operator: Our next question will come from Javier Escalante at Evercore.

Mitch: Our next question will come from Javier Escalante at Evercore.

Operator: Hey, good morning, everyone. I have a couple of clarifications on the detergent side. One is whether you have enough data. You mentioned that deep clean was 40% incremental. Do you have enough data to know whether this is people trading up from around Hammer, or you're gaining share, or you're getting users from other brands? The other, I mean, we both used Arcana and chose personal prices down. Do you think that that is a promotional activity or that is a price correction?

Javier Escalante: Hey, good morning, everyone I have a couple of clarifications on the detergent side.

Javier Escalante: One is whether you have enough you mentioned that deep clean was 40% incremental do you have enough data to know whether this is people trading upfront around hammer or you're gaining share.

Speaker Change: Getting user for another brand.

Ken: The other I mean, we both used to Ken and shows.

Speaker Change: For steel prices.

Speaker Change: Down do you think that that is promotional activity or that is a price correction.

Matt Farrell: Yeah, on the first question, we fully anticipated when we launched DeepClean that you would have some Arm & Hammer consumers trade up. So DeepClean is part of our good, better, and best strategy. So, good would be the basic Arm & Hammer detergent, and Arm & Hammer with OxyClean is the better, and DeepClean is the best. So yeah, we do have some data that says we have people trading up, and we also have consumers that are leaving other brands and migrating over to DeepClean. And that's why, long-term, DeepClean is going to be a source of growth for the company.

Speaker Change: Yes on the on the first question, we fully anticipated when we launched the deep clean that you would have some arm <unk> hammer consumers trade up so deep clean as part of our good better best strategy. So good would be the basic.

Speaker Change: Hum.

Mitch: Harman Hammer detergent and arm <unk> hammer with Oxiclean.

Mitch: The better and deep clean is the best so yes, we do have some data that says we have people are trading up.

Mitch: And we also have.

Mitch: Consumers that are leaving other brands and migrating over to deep clean and Thats why we think long term deep clean is going to be a source of growth for the company.

Rick Dierker: Yeah, we probably wouldn't comment much on looking at this Recona data about Henkel or Persil or any of those things. We would just say we continue to gain share in laundry, and as the category is slowing a bit, but we continue to gain share and do better than that.

Speaker Change: Yes, we probably wouldn't comment much on looking at this we're kind of data about henkel or personnel or any of those things.

Mitch: Yes.

Mitch: We would just say we continue to gain share in laundry and and as a category is slowing a bit but we continue to gain share and do better than the market.

Operator: Understood. Fair. The other is... Curious about how fast this so-called dry power can be deployed vis-a-vis retailers and to what extent this is also contingent on, you know, the Supply Chain, the strength of the supply chain because one of your competitors continues to have issues with it.

Mitch: Understood.

Speaker Change: The other is.

Speaker Change: Curious about how fast these so called dry power can be deploy.

Speaker Change: Beside the retailers and to what extent. This is also contingent too.

Speaker Change: Supply chain.

Mitch:

Speaker Change: The strength of their supply chain, because one of your competitors continue having issues with it. Thank you.

Rick Dierker: Yeah, Javier, it's a fair question. You know, typically, as you're putting in incremental promotions, that maybe is a longer lead time, but if you want to heat up a promotion, that can be done relatively easier, and you go after incremental volume that way as well, or through couponing. But again, dry powder is the key.

Operator: Thank you. Yeah, Javier. It's a fair question. You know, typically, as you're putting in incremental promotions, that may be...

Mitch: Javier It's a fair question and typically as.

Speaker Change: As you are putting in incremental promotion that maybe has a longer lead time, but if you want to heat up a promotion that can be done relatively easier and you go after incremental volume that way as well or couponing.

Speaker Change: But again, it's dry powder.

Mitch: The key message.

Speaker Change: Alright next question.

Operator: Thank you. The next question will come from Robert Moscow at TD Cowan.

Speaker Change: Thank you. Our next question will come from Robert Moskow with TD Cowen.

Operator: You have a lot of analysts covering your stock.

Speaker Change: You have a lot of analysts covering your stock.

Speaker Change: That's correct.

Matt Farrell: Yeah, we're not doing it in alphabetical order either. We're just... I'm glad to participate. This year, as a newcomer, it looked like your new product pipeline was extraordinarily good. You have a lot of really responsive products in a lot of different categories all at once. As you think about it for next year, do you expect it to be as strong as it is this year? And in light of slowing category growth and maybe some more value-seeking, is there anything you need to tweak in terms of the mix of premium versus more value-oriented products?

Speaker Change: Yeah, we're not doing in alphabetical order either we're just.

Speaker Change: Oh much.

Speaker Change: But glad to glad to participate.

Speaker Change: This year it just.

Speaker Change: As a newcomer it looked like your new product pipeline was extraordinarily good like you have a lot of like really resonate products and a lot of different categories all at once.

Speaker Change: As you think about it for next year do you expect it to be as strong as it is this year.

Speaker Change: And in light of slowing category growth and maybe some more value seeking is there anything you need to tweak in terms of the mix of premium versus.

Speaker Change: More value oriented products.

Matt Farrell: Yeah, well, one thing you want to keep in mind about new products is, yeah. We're having a great year with all these new product ideas we came up with. Remember, we're going to have year two of these next.

Mitch: Yes, well one thing I want to keep in mind about new products as well.

Speaker Change: Having a great year with all these new product ideas, we came out with but.

Speaker Change: Remember, we're going to have a year or two of these next year.

Matt Farrell: So you only have a partial year, only building distribution this year in many cases, building awareness. So we think the products that some of the ones I talked about and others will be big drivers next year. And on top of that, we have new product ideas coming as well. So, like I said, I do think that in any environment, but particularly this one, new products are going to... And then your other question was about tweaking the portfolio, which was about premium and value.

Speaker Change: So you only have a partial year really building distribution. This year in many cases building awareness. So we think that the.

Speaker Change: Products at some of the ones I talked about and I and others will be big drivers next year and on top of that we have new product ideas coming as well.

Speaker Change: Like I said I do think that in any environment, but particularly this one new products youre going to make the difference and then your other question was tweak.

Speaker Change: Tweaking the portfolio between premium and value.

Matt Farrell: I've been with the company for 18 years. The 60-40 split, it's now 63-37 on premium value, has been sustained over a couple of decades, so it's unlikely that it's going to change in the near term, and that's why we always like our chances when you have periods with changing consumer buying patterns.

Speaker Change: I've been with the company for 18 years.

Speaker Change: The 60 40 split $63 37 premium value has been sustained for a couple of decades. So.

Speaker Change: Likely thats going to change in in the near term and that's why we always like our chances when you have peer.

Speaker Change: Periods with change in consumer buying habits.

Speaker Change: Okay. Thank you.

Speaker Change: Okay.

Operator: And our final audience question today comes from the line of Mark Astrachan at Stiefel.

Speaker Change #101: And our final Audi audience question today comes from the line of Mark Astra's, Sean at Stifel.

Speaker Change #104: Yeah. Thanks, good morning, and thanks for squeezing me in here too.

Speaker Change: Two quick ones, one just asset prices on potential M&A are you seeing it come down.

Operator: On potential lemonade, are you seeing it come down similarly in the market? And then on vitamins, just again, you go back to when you bought the business; it was partly about the adoption of the form factor of gummies. There's more press out there not saying that I agree or don't agree with the efficacy of gummies versus some other forms. Is that partly what's impacting the consumer in your business and gummies in general?

Emily: Emily to the market and then on vitamins just again.

Speaker Change #103: Go back to when you bought the business. It was partly about adoption of the form factor of gummies.

Speaker Change #105: There's more press out there not saying that I don't agree with the efficacy of a gummy versus some other forms.

Speaker Change #118: Is that partly what's impacting the consumer in your business in general is there an opportunity to educate the consumer or is there opportunity to attack to be.

Operator: Is there an opportunity to educate the consumer? Is there an opportunity in tech to make the product more effective? If not, how quickly can you pivot some of the other stuff that you talked about in terms of chewables and potentially powders and whatnot within the brand that you have?

Speaker Change #101: Product more.

Speaker Change: Effective.

Speaker Change: How quickly can you pivot some of the other stuff that you talked about in terms of chewable and potentially powder and whatnot within the within the brands you have.

Matt Farrell: Yeah, as far as, you know, vitamins go. Yeah, there's been quite a change over time. I think we bought the business in 2013.

Speaker Change #104: Yes, as far as the vitamins goes.

Speaker Change: Yes, theres been quite a change over time and then we bought the business in 2013.

Matt Farrell: The gummies reclaimed 3% of the market, and now it's in the 20s. So it's changed quite a bit. I would say as far as your comment about efficacy, I think it's more that people are moving to powders, and chewables, and other forms. You know, the larger vitamin category has pulled back. But remember, it's pulling back from COVID. You had several years of growth in just a couple of years.

Speaker Change #102: Gummies represented 3% of the market and now it's now it's in the twenties.

Speaker Change #103: It has changed quite a bit I would say as far as your comment about efficacy I think it's more that people are moving to powders and.

Speaker Change #103: Chewables in other forums.

Speaker Change:

Speaker Change: Larger vitamin category has pulled back but remember it's pulling back from Covid.

Speaker Change: Several years of growth.

Speaker Change: And just a couple of years. So I think household penetration is greater as a result of COVID-19 and that has kind of plateaued and started to pull back but.

Matt Farrell: So I think, you know, household penetration is greater as a result of COVID, and that's kind of plateaued and started to pull back. But now I wouldn't say that our issues are related to the fact that there's an issue with efficacy. It's been more around our own issues in-house.

Speaker Change #110: No I wouldn't say that our issues are related to the.

Speaker Change: The fact that that.

Speaker Change: There is an issue with efficacy speed more around the.

Speaker Change: Our own issues in house.

Rick Dierker: Yeah, the other area that folks are moving away from companies at times is, you know, from a sugar perspective, they want to go towards sugar free. So we're rapidly going after the sugar free part of the portfolio. We're rapidly going after improving our taste profile, so that gap widens again versus Yeah, so one of our disadvantages is we don't have as broad a range.

Speaker Change #107: The other the other area that folks are moving away from gummies at times or from a sugar perspective, they want to go towards sugar free. So we're rapidly going after the sugar free part of the portfolio, we're rapidly going after improving our taste profile, so that gap widens again versus competition.

Rick Dierker: Yeah, so one of our disadvantages is we don't have as extensive a portfolio of sugar-free products as some of our competitors, and again, that's one of the areas when I talk about renovating the portfolio. That's one of the areas we're focused on. Okay. Operator, we are at the end of the line.

Speaker Change: So one of our disadvantages as we don't have a broader portfolio of sugar free as some of our competitors and again thats one of the areas when you're talking about renovating.

Speaker Change: The portfolio, that's one of the areas we're focused on.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change #107: Alright, operator that were at the end of the line.

Operator: Correct. There are no further questions from our audience today.

Speaker Change: Correct no further questions from our audience today.

Matt Farrell: Okay, hey, thanks everybody for joining us. We had kind of a great first half. We're looking forward to a strong second half, and we'll talk to you all at the end of the third quarter. Ladies and gentlemen, this does conclude our conference call. We thank you all for your participation.

Speaker Change: Okay, Hey, thanks, everybody for joining us we have that kind of a great first half for looking forward to a strong second half and we'll talk to you all at the end of the third quarter.

Operator: Ladies and gentlemen, this does conclude our conference call. We thank you all for your participation. You may now disconnect your lines.

Speaker Change #105: Ladies and gentlemen, this does conclude our conference call. We thank you all for your participation you may now disconnect your lines.

Speaker Change #105: [music].

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