Q1 2025 Church & Dwight Co Inc Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Church and Dwight's first quarter 2025 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 among other 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 filings.
Good morning, ladies and gentlemen, and welcome to the Church <unk> Dwight first quarter 2025 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.
Among other 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 SEC filings.
Rick Dierker: I would now like to introduce your host for today's call, Mr. Rick Dierker, President and Chief Executive Officer of Church & Dwight. Please go ahead, sir. All right, good morning, everyone. Thanks for joining us today. I'll begin with some thoughts on the macro environment and review our Q1 results, and then I'll turn the call over to Lee McChesney, our new CFO. When Lee is done, we'll open the call up for questions.
Speaker Change: I would now like to introduce your host for today's call Mr. Rick Dierker.
Rick Dierker: Evident and Chief Executive Officer of Church <unk> Dwight.
Speaker Change: Please go ahead Sir.
Speaker Change: Alright, good morning, everyone. Thanks for joining us today I'll begin with some thoughts on the macro environment and review our Q1 results and then I'll turn the call over to Lee Mcchesney, our new CFO. When he is done we will open the call up for questions.
Rick Dierker: As you read in the release, we have several topics to discuss this morning, including Q1 results, portfolio changes, tariff management. U.S. Consumer Spending, and a revised Full Year Outlook.
Speaker Change: As you read in our release, we have several topics to discuss this morning, including Q1 results portfolio changes tariffs management.
Speaker Change: U S consumer spending and our revised full year outlook with Atlas with that let's turn to how we performed in Q1.
Rick Dierker: With that, let's turn to how we performed in Q1. During our presentation at Cagney in February, we stated, we expected our organic sales growth to be at the low end of 0 to 2% range due to retail. the stocking and weakening consumer demand as it turned out organic sales decreased 1.2% falling short of our outlook Retailer de-stocking accounted for a drag of approximately 300 basis points on organic growth. The good news is our strong brand performance. We gained share in nine of our 14 major brands as our consumption outpaced category growth. Eighty percent plus of our business grew volume share in the quarter.
Speaker Change: During our presentation at Cagny in February we stated we expected our organic sales growth to be at the low end of zero to 2% range due to retail.
Speaker Change: Takeda and weakening consumer demand as it turned out organic sales decreased one 2% falling short of our outlook.
Speaker Change: Retailer Destocking accounted for a drag of approximately 300 basis points on organic growth.
Speaker Change: The good news is our strong brand performance, we gained share in nine of our 14 major brands as our consumption outpaced category growth, 80% plus of our business grew volume share in the quarter.
Rick Dierker: Contributing to our Q1 results is our success in the online class of trade, with online sales as a percentage of global sales now reaching close to 23%. In a few minutes I'll contrast our Q1 consumption with category growth when I comment on a major category.
Speaker Change: Contributing to our Q1 results as our success in the online class of trade with online sales as a percentage of global sales now reaching close to 23%.
Speaker Change: In a few minutes I'll contrast, our Q1 consumption.
Speaker Change: Category growth when I comment on the major categories rigs.
Rick Dierker: Regarding earnings per share, adjusted EPS was $0.91, bidding on Outlook. Now let's discuss the strategic actions we outlined in the press release. Each year, our management team reviews our brand portfolio with the Board of Directors, and in concert with that review, the company completes a valuation exercise for each and every brand. As a result of that review, the company is pursuing strategic alternatives for the Flawless, Spin Brush, and Waterpik showerhead business. Which means we'll be shutting down or selling these businesses. These businesses generate $150 million of net sales, or around 2% of our total net sales.
Speaker Change: Regarding earnings per share adjusted EPS was <unk> 91, putting our outlook by a penny.
Speaker Change: Now, let's discuss the strategic actions, we outlined in the press release.
Speaker Change: Each year, our management team reviews, our brand portfolio with our board of directors and in concert with that review of the company completes the evaluation exercise for each and every brand as a result of that review of the company is pursuing strategic alternatives for the flawless spend brush and Waterpick Showerhead business, which means we will be shutting down or selling these businesses. These.
Speaker Change: Businesses generate a $150 million of net sales were around 2% of our total net sales with below average profitability.
Rick Dierker: with below-average profitability.
Rick Dierker: We expect to take a charge in Q2 relative to this decision. This decision will prune our portfolio, sharpen our focus on core brands, and mitigate a significant tariff exposure, which is the next topic I would like to discuss. Turning to tariffs, while the tariff situation remains fluid, the company is currently projecting a gross 12-month run rate tariff exposure of $190 million. The net impact of the portfolio decisions and a series of supply chain actions is expected to reduce our tariff exposure by approximately 80%. Supply chain actions include no longer sourcing waterpik flossers from China for the U.S.
Speaker Change: We expect to take a charge in Q2 relative to this decision.
Speaker Change: This decision will prune our portfolio sharpen our focus on core brands and mitigate significant tariff exposure, which is the next topic I would like to discuss.
Speaker Change: Turning to tariffs, while the tariff situation remains fluid. The company is currently projecting a gross 12 month run rate tariff exposure of $190 million.
Speaker Change: The net impact of the portfolio decisions and a series of supply chain actions is expected to reduce our tariff exposure by approximately 80%.
Speaker Change: Our supply chain actions include no longer sourcing water picks losses from China for the U S market.
Speaker Change: Our ability to move with urgency to execute these changes is a testimony to the church <unk> Dwight culture, I'm very proud of the company and the reaction that we've we've done here.
Rick Dierker: I'm very proud of the company and the reaction that we've done.
Rick Dierker: Now, I'm going to turn my comments to each of the three businesses.
Speaker Change: Now I'm going to turn my comments to each of the three businesses first half as the U S consumption was positive in the quarter for the U S business, while organic sales declined 3% entirely driven by negative volume from retail Destocking.
Rick Dierker: First up is the U.S. Consumption was positive in the quarter for the U.S. business, while organic sales declined 3%, entirely driven by negative volume from retail destocking.
Rick Dierker: So let's look at the trend line. In the U.S., consumer spending continues to sequentially weaken.
Speaker Change: So let's look at the trend line.
Speaker Change: In the U S consumer spending continues to sequentially weekend for contacts it's instructive to look back at our USC every year category growth since around mid 2024.
Rick Dierker: For context, it's instructive to look back at our U.S. year-over-year category growth since around mid-2024. In the second half of 2024, category growth averaged 2.5%. Q1, our categories grew around one and a half. March was flat, and April was negative 1%.
Speaker Change: In the second half of 2020 for category growth averaged two 5% in Q1, our categories grew around one 5% March was flat in April was negative, 1% and remember for context over the last 10 years or so category growth is typically around 3%.
Rick Dierker: And remember, for context, over the last 10 years or so, category growth is typically around In addition to the consumer, retailers took inventory actions which impacted our Now I'm going to provide a bit of color for a few of our important categories. Let's start off with laundry detergent. Arm & Hammer Liquid Laundry Detergent consumption grew 3.4% in contrast to zero category. Armahammer's share in the quarter reached 14.7%. There's a similar story on unit dose, arm and hammer unit dose saw consumption growth which drove a 120 basis points share gain to reach a 5.5 share. This is in contrast to a weak unit dose category.
Speaker Change: In addition to the consumer retailers took inventory actions, which impacted our topline.
Speaker Change: Now I'm going to provide a bit of color for a few of our important categories.
Speaker Change: Start off with laundry detergent arm <unk> hammer liquid laundry detergent consumption grew three 4% in contrast to the zero category growth arm <unk> hammer share in the quarter reached 14, 7%. There's a similar story on unit dose arm <unk> Hammer unit dose saw consumption growth of 26, 9%, which drove a 120 basis points.
Speaker Change: Fair game to reach a five and a half share.
Speaker Change: This is in contrast to a weak unit dose category, which declined one 1%.
Rick Dierker: Now moving to Litter. Similar story to Laundry. The category was up 1.9%, while Arm and Hammer Litter consumption grew 2.3%, which outpaced the Share. Reach.
Speaker Change: Now moving to litter similar story as to laundry. The category was up one 9% while arm <unk> hammer litter consumption grew two 3%, which outpaced the category and share reached 24, 9%.
Rick Dierker: The gummy vitamin business continues to be a drag on the company's organic growth. The gummy vitamin category grew 4.8%, which is the second consecutive quarter of growth. The bad news is our consumption was down.
Speaker Change: The gummy vitamin business continues to be a drag on the companys organic growth gummy vitamin category grew four 8%, which is the second consecutive quarter of growth. The bad news is our consumption was down 19%.
Rick Dierker: The plans that we shared with you on previous calls will begin to be visible in the market starting in May. Those actions include new products, an enhanced taste profile, and new creative marketing. We'll update you on our progress on the Q2 call.
Speaker Change: Plans that we shared with you on previous calls we'll begin to be visible in the market. Starting in May those actions include new products and enhanced taste profile and new creative marketing.
Speaker Change: What date you on our progress on the Q2 call.
Rick Dierker: Next up is Batiste. Consumption was down 5% in the quarter with share declining 3.4%. There are a couple of contributing factors, one is we were experiencing some supply chain issues that have since been resolved. In addition, a competitor had a significant price increase that impacted our dollar share.
Speaker Change: Step is batiste consumption was down 5% in the quarter with share declining three 4%.
Speaker Change: There are a couple of contributing factors. One is we were experiencing some supply chain issues that have since been resolved and addition of competitor had a significant price increase that impacted our dollar share on a positive note <unk> continues to be the global leader in dry shampoo and this year, we're launching batiste light as the leading brand our innovations continue to attract new <unk>.
Rick Dierker: On a positive note, Batiste continues to be the global leader in dry shampoo, and this year we're launching Batiste Light. As a leading brand, our innovations continue to attract new users to the category and increase household benefits.
Speaker Change: Users to the category and increase household penetration.
Rick Dierker: Over in mouthwash, TheraBreath continues to perform extremely well. While the mouthwash category was flat in Q1, TheraBreath consumption... is now the number 2 mouthwash with a 20% discount. Share. Remember, we believe there's a lot of runway here as our household penetration for TheraBreath currently sits around 10.5% versus the category of 65%.
Speaker Change: Over in mouthwash their breath continues to perform extremely well.
Speaker Change: While the mouthwash category was flat in Q1 third breath consumption grew 26% and is now the number two mouthwash with a 23% share remember we believe theres a lot of runway here as our household penetration for Thoroughbred currently sits around 10, 5% versus the category of 65%.
Rick Dierker: Hero is the number one brand in acne care with a 22% share and continues to drive growth. Hero grew consumption by 13%, outpacing a 1.1% decline in the category. Hero market share grew 280 basis points in the quarter. And similar to the TheraBreath story, we believe household penetration growth is key for this brand. Currently it sits at 8.7% versus a category of 25%.
Speaker Change: Heroes the number one brand in acne care with a 22% share and continues to drive growth hero grew consumption by 13% outpacing a one 1% decline in the category.
Speaker Change: <unk> market share grew 280 basis points in the quarter and similar to the Thoroughbred story. We believe household penetration growth is key for this brand currently sits at eight 7% versus the category of 25%.
Rick Dierker: Hero continues to launch innovative solutions and patches is entering the growing body care segment in 2025 with the Mighty Patch. Looking ahead, we're excited about our pipeline of new products, which remain a key driver of our success. In 2025, we expect continued innovation to power our growth and build on our momentum, especially in several core categories where we're leading the way. And we spoke about many of these at our Analyst Day in New York.
Speaker Change: <unk> continues to launch innovative solutions and patches is entering the growing body care segment in 2025 with the Mighty patch body.
Speaker Change: Looking ahead, we're excited about our pipeline of new products, which remain a key driver of our success. In 2025, we expect continued innovation to power our growth and build on our momentum, especially in several core categories, where we're leading the way and we spoke about many of these at our analyst day in New York.
Rick Dierker: Now turning to international and SPD. Our international business delivered sales growth of 2.7% in the quarter. Organic sales increased 5.8% largely due to higher volume. Growth was led by Hero, TheraBreath, and Waterpik, and was broad-based with all of our subs delivering growth. Finally, SPD organic sales increased 3.2% due to a combination of higher price and product mix and higher volume. This business continues to deliver and we continue to be excited about the future.
Speaker Change: Now turning to international and SPD, our international business delivered sales growth of two 7% in the quarter organic sales increased five 8% largely due to higher volume.
Speaker Change: Growth was led by hero their breath and water back and was broad based with all of our subs delivering growth.
Speaker Change: Finally, SPD organic sales increased three 2% due to a combination of higher price and product mix and higher volume. This business continues to deliver and we continue to be excited about the future.
Rick Dierker: Looking ahead, our full year organic growth outlook is now zero to 2% driven by a weaker US consumer. We expect our Q1 brand share momentum to continue. Bolstered by our new product launches, our distribution gains, and sustained full-year investment in marketing. After considering the trend line that I shared with you, we do not see a catalyst for improvement in the U.S. consumer. Our outlook also reflects no bounce back from Q1 retailer destocking.
Speaker Change: Looking ahead, our full year organic growth outlook is now zero to 2% driven by a weaker U S. Consumer we expect our Q1 brand share momentum to continue.
Speaker Change: Bolstered by our new product launches or distribution gains and sustained full year investment and marketing <unk>.
Speaker Change: After considering the trend line that I shared with you we do not see a catalyst for improvement in the U S. Consumer our outlook also reflects no bounce back from Q1 retailer Destocking.
Rick Dierker: For adjusted EPS, we now expect 0% to 2% growth, which reflects the impact of lower sales and the impact of tariff. I'll close by saying that despite a slowdown in category consumption, our brands are strong. They're doing well. We're gaining both dollar and volume share across much of the portfolio with a healthy mix of value and premium offerings, and we're well-equipped to navigate the current environment.
Speaker Change: For adjusted EPS, We now expect zero to 2% growth, which reflects the impact of lower sales and the impact of tariffs.
Speaker Change: I'll close by saying that despite a slowdown in category consumption. Our brands are strong they're doing well.
Speaker Change: Gaining both dollar and volume share across much of the portfolio with a healthy mix of value and premium offerings and we're well equipped to navigate the current environment. The strategic actions, we announced today will position the company well for the future and we continue to be on the hunt for the right acquisitions I'd like to thank all of the church <unk> Dwight employees for executing well in a volatile environment.
Rick Dierker: The strategic actions we announced today will position the company well for the future. continue to be on the hunt for the right equity.
Lee McChesney: I'd like to thank all the Church & Dwight employees for executing well in a volatile environment and now I'll hand it over to Lee for more detail on Thank you, Rick. And good day to everyone. Before I jump into the quarter, I do want to say thank you to Rick and the entire CHD team for the warm welcome. I've only been here for a month or so. I've already seen what makes this company such a strong performer as a team is focused on excellence. We're acting swiftly to address the challenging macro environment that nearly every company is facing today.
Lee McChesney: And now I'll hand, it over to Lee for more detail on the quarter.
Lee McChesney: Thank you Rick and good day to everyone before I jump into the quarter. How do you want to say, thank you to Rick and the entire CHD team for the warm welcome.
Lee McChesney: Well I've only been here for a month or so I've already seen what makes this company has such a strong performer as a team is focused on execution.
Lee McChesney: We are acting swiftly to address the challenging macro environment that nearly every company is facing today.
Lee McChesney: With that, let's dive into the first quarter and our outcome. Let's start with EPS. First quarter adjusted EPS was $0.91, down 5.2% from the prior year. The $0.91 was slightly better than our $0.90 out. Reported revenue was down 2.4% and organic sales was down 1.2%. The organic sales decline was due to lower volume of 1.4%, partially offset by positive pricing and mix of 0.5%. Our first quarter-adjusted gross margin was 45.1%, a 60 basis points decrease from a year ago, with improved productivity, positive mix, and higher margin acquisitions being offset by the impact of commodity inflation, higher manufacturing costs, and lower volume.
Lee McChesney: With that let's dive into the first quarter and our outlook.
Lee McChesney: I will start with EPS first quarter adjusted EPS was <unk> 91.
Lee McChesney: Five 2% from the prior year than anyone was slightly better than our 90% outlook.
Lee McChesney: Reported revenue was down two 4% and organic sales was down one 2%.
Lee McChesney: The organic sales decline was due to lower volume of one 4%, partially offset by positive pricing and mix of 0.2%.
Our first quarter adjusted gross margin was 45, 1% a 60 basis point decrease from a year ago with improved productivity positive mix and higher margin acquisitions being offset by the impact of commodity inflation higher manufacturing costs and lower volume.
Lee McChesney: Let me walk you through our Q1 gross margin. We saw 160 basis points from productivity, a favorable 10 basis points from the combination of mix and price, and a positive 10 basis points related to the acquisition. Those factors were offset by the headwinds I just mentioned above and 20 basis points related to FX.
Lee McChesney: Let me walk you through our Q1 gross margin bridge, we saw 160 basis points from productivity and favorable 10 basis points from the combination of mix and price and a positive 10 basis points related to the acquisitions.
Lee McChesney: Those factors results were offset by the headwinds I, just mentioned above and 20 basis points related to FX.
Lee McChesney: Moving to marketing. Our marketing expenses, the percentage of sales was 9.3%, we're 80 basis points lower than 1Q of last year. For the year, we are targeting 11% of net sales. And accordingly, we expect to continue our first quarter momentum in gaining market share. For SG&A, Q1 adjusted SG&A increased 40 basis points year-over-year, primarily due to the year-over-year volume. Other expense decreased by $7.7 million, inclusive of lower interest expense and higher interest income. We continue to expect other expense for the full year to be approximately $50 million on an adjusted basis. In Q1, our effective tax rate was 22% compared to 19.9 in Q1 of 24, a 210 basis point year-over-year increase.
Lee McChesney: Moving to marketing or marketing expense as a percentage of sales was nine 3% were 80 basis points lower than <unk> of last year.
Lee McChesney: For the year, we are targeting 11% of net sales and accordingly, we expect to continue our first quarter momentum in gaining market share.
Lee McChesney: For SG&A Q1, adjusted SG&A increased 40 basis points year over year, primarily due to the year over year volume change.
Lee McChesney: Other expense decreased by $7 7 million inclusive of lower interest expense and higher interest income. We continue to expect other expense for the full year to be approximately $50 million on an adjusted basis.
Lee McChesney: In Q1, our effective tax tax rate was 22% compared to $19 nine in Q1 of 'twenty for a 210 basis point year over year increase.
Lee McChesney: The expected adjusted effective tax rate for the full year continues to be 23%.
Lee McChesney: Expected adjusted effective tax rate for the full year continues to be 23%.
Lee McChesney: And now to cash. For the three months of 2025, cash from operating activities was $185.7 million, a decrease of $77.3 million versus last year due to lower cash earnings and the sales timing impact on working capital. Capital expenditures for the first three months was $16.5 million, a $29.8 million decrease from the prior year. We expect 2025 CapEx of approximately $130 million as we return to historical levels of 2% of sales in 2025.
Lee McChesney: And now to cash.
Lee McChesney: For the three months of 2025 cash from operating activities was $185 7 million a decrease of $77 3 million versus last year due to lower cash earnings and the sales timing impact on working capital.
Lee McChesney: Capital expenditures for the first three months was $16 5 million or $29 8 million decrease from the prior year.
Lee McChesney: We expect 2025 capex of approximately $130 million as we return to historical levels of 2% of sales in 2025.
Lee McChesney: Let's now take a few minutes to walk through our outline. For the full year, we now expect our Organic Revenue Outlook to be approximately 0-2%, previously that was 3-4%, the Sales Outlook now reflects a slower category growth, and the Retail Inventory Reductions that we don't expect to recover. Four-year gross margin is now expected to contract 60 basis points versus 2024. Previously, that was a positive 25 basis as we expect the tariff impacts, persistent commodity input inflation costs to offset the incremental productivity. We now expect full-year adjusted EPS to be 0-2%, down from our previous view of 7-8%.
Lee McChesney: Let's now take a few minutes to walk through our outlook.
For the full year, we now expect our organic revenue outlook to be approximately zero to 2% previously that was three or four the sales outlook now reflects the slower category growth and the retailer inventory inventory reductions that we don't expect to recover.
Lee McChesney: Full year gross margin is now expected to contract 60 basis points versus 2024 previously that was a positive 25 basis point outlook as we expect the tariff impacts persistent commodity input inflation cost to offset the incremental productivity.
Lee McChesney: We now expect full year adjusted EPS to be zero to 2% down from our previous view of seven to eight this is primarily due to lower sales outlook and the tariff pressures.
Lee McChesney: primarily due to the lower sales outlook and the tariff pressure. Cash flow from operations for the full year is now estimated to be approximately $1.05 billion due to the impact of our lower EPS and the one-time charge. For QQ, we expect organic sales of approximately negative two to flat, and as a result, we expect adjusted EPS of 85 cents per share, a decrease of 9% versus last year, last year's adjusted Q2 EPS. As our outlook implies, we expect EPS growth to be weighted towards the back half of 25 to the marketing investment timing versus last And finally, as we noted in the release, this Adjusted Outlook, as of April 1, 2025, excludes charges and the ongoing results for the Flawless, Spinbrush, and Waterpik showerhead business.
Lee McChesney: Cash flow from operations for full year is now estimated to be approximately $1 5 billion due to the impact of our lower EPS and the one time charges.
Lee McChesney: For <unk>, we expect organic sales of approximately negative two to flat and as a result, we expect adjusted EPS of <unk> 85 per share.
Lee McChesney: A decrease of 9% versus last year.
Lee McChesney: Last year's adjusted Q2, EPS as our outlook implies we expect EPS growth to be weighted towards the back half of 'twenty five to the marketing investment timing versus last year.
Lee McChesney: And finally as we noted in our release this adjusted outlook as of April one 2025 excludes charges and the ongoing results for the flawless spin Russian Waterpick Showerhead business. Those charges are expected to be between $60 million to $80 million largely recorded in <unk> and two thirds is expected to be noncash.
Lee McChesney: Those charges are expected to be between $60 million and $80 million, largely recorded in 2Q, and two-thirds is expected to be non-cash.
Operator: With that, Rick and I would be happy to take any questions. We will now begin the question and answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad.
Lee McChesney: With that Rick and I would be happy to take any questions.
Lee McChesney: We will now begin the question and answer session, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Rupesh Parikh: Your first question comes from the line of Rupesh Parikh with Oppenheimer. Please go ahead. Yeah, sure, Rupesh. Yeah, Q1 was spot on for international.
Speaker Change: Your first question comes from the line of pass <unk>.
Lee McChesney: <unk> with.
Speaker Change: With Oppenheimer.
Lee McChesney: Go ahead.
Speaker Change: Thanks for taking my question. So obviously a lot of areas to cover but maybe I'll just start out just as we look at your update organic sales growth guide is there any way to get updated expectations by segment and its related tied to international play out your expectations for Q1.
Speaker Change: Yeah sure Yeah.
Speaker Change: Q1 was spot on for international.
Lee McChesney: Lee, do you have the division that you can share? Sure. So, you know, international, as we talked about, had good growth in the first quarter and organically about 6%, SPD was about 3%. As we look forward, you know, we expect international to, you know, to be in that zone, maybe a little bit of pressures, some of the macro pressures spread across the globe, SPD. will be maybe slightly better than it was in the first quarter.
Speaker Change: Lee do you have that.
Lee: Sure sure So international as we've talked about it had good growth in the first quarter and into organically about 6% SPD was about 3% as we look forward, we expect international to be in a zone, maybe a little bit of pressures some of the macro pressures spread across the globe.
Speaker Change: SPD.
Speaker Change: We'll be maybe slightly better than it was in the first quarter.
Lee McChesney: The domestic business, you know, obviously, you can apply on the outlook, we had negative three in the first quarter, we're looking for a similar performance here in 2Q and then an improvement in the back half. Still be slightly negative to get to the overall outlook of still zero to two percent organic for us. Great.
Speaker Change: The domestic business you know, obviously, where you can apply in the outlook, we had negative three in the first quarter. We're looking for a similar performance here in <unk> and <unk> and then an improvement in the back half.
Speaker Change: Still be slightly negative.
Speaker Change: To get to the overall outlook is still zero to 2% organic for us in total.
Lee McChesney: And then I guess maybe just my follow-up question, just given a softer category outlook and a backdrop that you're seeing right now, what do you see on the promotional backdrop in the quarter, and then how are you thinking, and then do you expect the promotional backdrop to intensify from here? That's a fair question. You know, for the quarter, when we talk about promotional, we really talk about laundry. And laundry in Q1 was 34% amount sold on deal. Very similar to what Q4 was, very similar to what Q3 was. So not a huge step up right now.
Speaker Change: Great and then I guess, maybe just my follow up question, just given a softer category outlook and it backs up that you're seeing right now.
Speaker Change: What do you see on the promotional backdrop in the quarter and then how you think and then do you expect the promotional backdrop.
Speaker Change: Intensify from here.
Speaker Change: Yeah, No. It's a fair question for the quarter when we talk about promotional we really.
Speaker Change: Talking about laundry and laundry in Q1 was 34% amount sold on deal.
Speaker Change: Similar to what Q4 was very similar to what Q3 was so.
Speaker Change: Not a huge step up right now a lot of things happening, though in the laundry category, you know theres concentration happening.
Lee McChesney: A lot of things happening in the laundry category, you know, there's concentration happening.
Speaker Change: From one of the peers are some price increases.
Speaker Change: The other part of the peers as they switch out different offerings and so it looks like there's a little bit more promotional going on right now as they worked through those old.
Lee McChesney: Coop, Vlaad Jamieson. I'm sorry, 17.8% in the quarter, it was 18.8% last time. So again, stable. As categories are flat though, people tend to increase their promotional spend. We're well-positioned for what we think is the right level of promotion. Our assumption for category growth used to be around 2.5% for the year. It's closer to...
Speaker Change: Inventory and transitions litter is the other example litter promotion was around 18, 8% in the quarter.
Speaker Change:
Speaker Change: Sorry, 17, 8% in the quarter was 18, 8% last time, so again stable as categories are flat, though people tend to increase their promotional spend I'd say.
Speaker Change: We are well positioned for what we think is the right level of promotion.
Speaker Change: Our assumptions for category growth.
Speaker Change: You know it used to be around two 5% for the year, it's closer to them.
Speaker Change: 115% these days.
Unknown Executive: Great, thank you, Apostle.
Oh, great. Thank you I'll possible.
Anna Lizzul: Your next question comes from the line of Anna Lizzul with Bank of America. Please go ahead. Hi, good morning, and thank you so much for the question. Hi, Rick.
Speaker Change: Your next question comes from the line of Anna result, with Bank of America. Please.
Speaker Change: Please go ahead.
Speaker Change: Hi, good morning, and thank you so much for the question.
Speaker Change: Yeah, Hi, I was wondering.
Rick Dierker: I was wondering if you could just discuss maybe your expectations for the category relative to market share growth, since you did mention softer trends in April. Are you seeing a significant difference here across the premium and value segments of the business in terms of a slowdown? And just on the value side, are you trying to see any benefit here from trade down or anticipating a benefit as we're moving through the year? Thank you. Yeah, so you know, if you take a big step back and you look at our outlook, organically, we're saying the midpoint is around 1%.
Speaker Change: Hey, Rick I was wondering if you could just maybe your expectations for the category and market share growth.
Speaker Change: You did mentioned softer trends in April.
Speaker Change: Are you seeing a significant difference here across the premium and value segments of the business in terms of the slowdown and just on the value side are you trying to see any benefit here from trade down or anticipating a benefit as the reading through the year. Thank you.
Speaker Change: Yeah. So if you take a big step back and you look at our outlook organically, we're saying the midpoint is around 1% and we saw minus one in Q1.
Rick Dierker: We saw minus one in Q1, we're saying Q2 looks a lot like that, so maybe minus one, and then that implies something closer to around two in the back half. Like I just told Rupesh, the categories themselves, we used to think we're going to grow two and a half percent. And we are going to grow faster than that. We think the categories are going to grow maybe 1 to 1.5% and we grow a little bit faster. In terms of trade-down, surprisingly, we're still not seeing the amount of trade-down that we would expect if this type of environment perpetuates.
Speaker Change: Were saying Q2 looks like that so maybe minus one and then that implies something closer to around two in the back half.
Speaker Change: And.
Like I just told you a patch.
Speaker Change: The categories themselves, we used to think were going to grow two 5% and we're going to grow faster than that we think the categories are going to grow maybe one to one 5% and we grow a little bit faster than that.
Speaker Change: In terms of trade down.
Surprisingly, we're still not seeing the amount of trade down that we would expect if this type of environment perpetuates.
Rick Dierker: So orange box still isn't growing faster than black box on litter, as an example. The value part of the laundry category is... not growing as fast as the mid-tier. And the mid-tier, again, is growing a lot behind DeepClean, our new innovation. When trade down happens, those two things will be a trigger. And I expect our extra business as well will do better. It's just we have to be down like this for a period of time. So I believe that we're in early days of this type of environment. And we're well positioned for when we stay here.
Speaker Change: So orange box still isn't growing faster than black box on litter as an example.
The value part of the laundry category.
Speaker Change: Is.
Speaker Change: Not growing as fast as the mid tier and the mid tier again growing a lot behind deep clean our new innovation, but win.
Speaker Change: When trade down happens those two things will be a trigger and.
Speaker Change: I expect our extra business as well, we'll do better. It's just we have to be down like this for a period of time. So I believe that we're in early early days at this type of environment and and we're well positioned for win.
Speaker Change: We stay here.
Unknown Executive: Okay, thanks very much.
Speaker Change: Okay. Thanks very much.
Chris Carey: Your next question comes from the line of Chris Carey with Wells Fargo. Please go ahead. Hey, hey, good morning, everyone. Can you guys frame? Within the reduction in earnings for the year, how much was the revenue call down versus tariff And maybe just, you know, simply put, you know, what is the tariff effect that you're betting for this year? And can you help? Give us a bit of clarity on the wraparound tariff impact in the 2026 unmitigated for some of the sourcing changes you're making, and then perhaps how you're thinking about your 2026 absolute tariff exposure.
Speaker Change: Your next question comes from the line of Chris Carey with Wells Fargo. Please go ahead.
Chris Carey: Hey, Hey, good morning, everyone.
Speaker Change: Can you guys.
Speaker Change: Graeme.
Speaker Change: Within the reduction in earnings for the year.
Speaker Change: How much was the revenue call down versus tariffs.
Speaker Change: Tariffs.
Speaker Change: And maybe just.
Speaker Change: Simply put what does the tariff impact that you are embedding for this year.
Speaker Change: And can you help.
Speaker Change: Give us a bit of clarity on.
Speaker Change: To wrap around tariff impact into 2026.
Speaker Change: For some of the sourcing changes you're making.
Speaker Change: And perhaps how youre thinking about your 2020, thanks, absolutely tariff exposure.
Rick Dierker: I mean, effectively, there's this $190 million number, but what we're going to end up seeing in the P&L is substantially lower. So how does that look in 2025 and 2026 that I'm a follow-up? Yeah, sure.
Speaker Change: Effectively they're just they're $90 million number, but what we're going to end up seeing in the P&L as supply substantially lower so how does that look in 25 years.
Speaker Change: Then I have a follow up.
Rick Dierker: I'll give you my thoughts, and if Lee has anything to add, he can do it. Just taking a big step back on the tariffs, I really do think this is a great example of Church & Dwight moving with speed and urgency, a gross impact of around $190 million on a 12-month run rate basis. And I just want to be clear, we're not taking those strategic actions cut because of tariffs. We've been discussing internally for some time, and they've been on the list of businesses that we believe are... are either have a better owner elsewhere, or we're going to shut down.
Speaker Change: Yeah sure I'll give you my thoughts on initially has anything to add he can you can do it just taken a big step back on the tariffs I really do think this is a great example of church <unk> Dwight moving with speed and urgency.
Speaker Change: Gross impact of around $190 million on a 12 month run rate basis.
Speaker Change: And I just want to be clear were not taken those strategic actions cut because of tariffs we've been discussing internally for some time and they've been on the list of businesses that we believe.
Speaker Change: Our.
Speaker Change: Are you either have a better owner elsewhere or or we're going to shut down and even as recently as this past summer. We went we went through those details with the board.
Rick Dierker: And even as recently as this past summer, we went we went through those details with the board. And so those three businesses, though, at marginal profit levels at $150 million of sales, are are really hit extremely hard by tariffs. So it made sense to kind of fast forward that that discussion and that decision So that $190 million goes down to $100 million when those three businesses have strategic options around it. And then it goes down to around $40 million after we've made the manufacturing decision. for Waterpik Flossers as we've moved that. out of China over time.
Speaker Change: So those three businesses, though at marginal profit levels at $150 million of sales.
Speaker Change: R.
Speaker Change: Our really hit extremely hard by tariffs. So it made sense to kind of fast forward that that discussion in that decision.
Speaker Change: So that 180 $180 million goes down to $100 million when those three businesses have strategic options around it and then it goes down to around $40 million. After we've made the manufacturing decisions.
Speaker Change: For water Pik fosters as people move that business out of China over time.
Rick Dierker: And so to be able to go from 190 gross to kind of a $40 million number is fantastic. And then we're going to continue to be working, you know, through supply chain. activities, and maybe nuanced pricing over time to reduce that even further.
Speaker Change: So to be able to go from 190 gross to kind of a $40 million number is fantastic and then we're going to continue to be working.
Speaker Change: Through supply chain.
Speaker Change: Activities in maybe nuanced pricing.
Speaker Change: Over time to reduce that even further so in the P&L for 2025 to answer. Your question. There is a net number of around $30 million and our outlook.
Rick Dierker: So in the P&L for 2025, to answer your question, there's a net number of around $30 million in our outlook. If you do the wraparound at 2026, you know, that's why we kind of say it takes 12 months to do some of the rest of the supply chain activities. We won't go through all the detail, but we expect to further mitigate that number over time. And that's a, that's a, you know, is it an issue? Yes. But after all that work, that's a manageable issue that we feel pretty confident on. be able to medicate over the next 12 months.
Speaker Change: If you do have a wrap around the 2026 you know that's why we kind of say it takes 12 months to do some of the rest of the supply chain activities. We won't go through all the detail, but we expect to further mitigate that number over time and that's a that's a.
Speaker Change: Is it an issue yes, but after all that work that's a manageable issue that we feel pretty confident on being.
Speaker Change: <unk> been able to mitigate.
Speaker Change: The next 12 months or so.
Speaker Change: Thank you from the.
Rick Dierker: From the connected in a way, what you were saying about some of these businesses that you know, you had presented to the board and, you know, have thought about strategic alternatives, Conscious, the vitamin business, you know, how to plan for this year on a performance to category, you know, is widening, you know, at what point does Patience with Plan, you know, run out? I'm conscious you have, you know, a strong balance sheet, which gives you a lot of options to do many things. And so maybe give us updating thoughts on, you know, where vitamin sits within your medium to long term plans and, and maybe what's happening this year that hasn't gone as well as maybe what you would have hoped relative here, you know, go in plans.
Speaker Change: Connected in a way that what you were saying about some of these businesses that you had presented to the board.
Speaker Change: Thought about strategic alternatives.
Speaker Change: Cautious the vitamin business.
Speaker Change: The plan for this year.
Speaker Change: On a performance category.
Speaker Change: Is widening.
Speaker Change: At what point does.
Speaker Change: <unk> with plan run out I'm conscious you have.
Speaker Change: Our strong balance sheet, which gives you a lot of options to do many things and so maybe you can give us updated thoughts on where vitamin sits within your medium to long term plans and maybe.
Speaker Change: What is happening this year that hasnt gone as well as maybe what you would've hoped relatives here go implants. Thanks, so much yes.
Rick Dierker: Thanks. Yep, fair question. I think right now we're kind of in that a little bit of a that circle where you have negative consumption that leads to lower TDP growth. Lower TDP growth distribution points leads to lower consumption. What we're laser-focused on is the innovation, the best-tasting reformulation, change in marketing to reach the right consumer, and to do some couponing to go drive trial. Loyalty rate is actually very low in the vitamin category. I think it was like 8 or 9 percent. So if we can go... Now, get those consumers to retry our best-tasting formulas, and again, the new innovation is Power Plus, our most powerful vitamins, and I think we have a good chance to have some green shoots and inflection points in that business.
Speaker Change: Yes Fair question I think right now we're kind of in that.
Speaker Change: <unk>.
Speaker Change: That circle, where you have negative consumption.
Speaker Change: That leads to lower TDP growth.
Speaker Change: Lower TDP TTP growth distribution points leads to lower consumption.
Speaker Change: What we're laser focused on is the innovation the best tasting reformulation.
The change in marketing to reach the right consumer.
Speaker Change: And do some couponing to go drive trial.
Speaker Change: Loyalty rates actually very low in the vitamin category I think it was like eight or 9%. So if we can go.
Speaker Change: Now get those consumers to retry our best tasting.
Speaker Change: And again, the new innovation is power plus our most powerful.
Speaker Change: Vitamins and I think we have a good chance to have some green shoots in inflection points in that business.
Rick Dierker: That business is not meeting expectations. We said last call that we needed from April through July to see if this innovation turnaround and investment is working. So that's why in my prepared remarks I said we'll talk more about that after. Thanks.
Speaker Change: Business is not meeting expectations, we said last call that we needed from April through July to see if this innovation.
Speaker Change: Turnaround in investment is working so that's why in my prepared remarks I said.
Speaker Change: We'll talk more about that.
Speaker Change: After Q2.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Okay. Thanks.
Andrea Teixeira: The next question comes from the line of Andrea Teixeira, JP Morgan. Please go ahead.
Speaker Change: The next question comes from the line of Andrea Teixeira.
Speaker Change: J P. Morgan. Please go ahead.
Rick Dierker: Thank you, operator, and good morning, everyone, and welcome, Lee, to the call. I wanted to just go back. You called out, in terms of consumption, you called out the 300 basis points reduction in consumer domestic for the inventory, the stocking. But if you can comment also on Hero, it was a big motor of growth. And I understand all the actions you're taking and, you know, and the brand continues to be strong. But I'm assuming it is hitting a very tough comp. And as you said, like for Vitamins, it's obviously a completely different story between them, between Hero and the Vitamins side.
Speaker Change: Thank you operator, and good morning, everyone and welcome Lee.
Speaker Change: Carl.
Speaker Change: I wanted to just go back.
Speaker Change: Hold out in terms of consumption I called out the 300 basis points reduction in customer domestic for for the inventory Destocking.
Speaker Change: But if you can comment also on hero it was a big motor of growth and I understand all the actions you are taking and the brand continues to be strong, but im assuming is hitting a very tough comp.
Speaker Change: As you said like four.
Speaker Change: For vitamins is obviously at a completely different story between them between zero and if item inside but talk about the distribution points and how we can think about that brand.
Rick Dierker: But talk about the distribution points and how we can think about that brand continue to grow as you as you lap the growth. And then on the commentary, just on that clarification on the promo side, I understand the depth and, you know, and how the percentages are still on promo. But if you can comment on the depth of the promotions, if there is a, to your point, some of these categories later and in laundry, perhaps, you know, having a little bit more depth and for how long you think that's going to normalize.
Speaker Change: To grow as you as you lap the Gulf.
Speaker Change: And then.
Speaker Change: On the commentary you just said that clarification on the promo side I understand that.
Speaker Change: And how the percentages are sold.
Speaker Change: So don't promo, but if you can comment on the depth of the promotion.
Speaker Change: To your point some of these categories leader and in laundry, perhaps having a little bit more of that.
Speaker Change: And for how long do you think that's going to normalize. Thank you.
Rick Dierker: Thank you. Yeah, thanks for that question, Andrea. I would say for Hero, we are still really pleased with consumption. You know, it's double digit consumption up 13% in a quarter. I think the nuance that's happening in Hero is remember, it's overexposed to a few retailers, you know, it started at a few that are having foot traffic issues. And so it's doing great growth, almost everywhere, apples to apples. But foot traffic declines at a few different retailers, kind of over indexes to Hero. But overall, you know, with that said, double digit consumption is fantastic. We still think we have TDP growth.
Yeah. Thanks for that question Andrea I would say for hero, we are still really pleased with what the consumption is double digit consumption up 13% in the quarter I think the nuance is happening and hero is remember it's overexposed to a few retailers you know it started at.
Speaker Change: A few that are having foot traffic.
Speaker Change: Issues and so it's doing great growth almost everywhere apples to apples.
Speaker Change: Foot traffic declines at a few different retailers.
Speaker Change: It kind of over indexes to hero.
Speaker Change: But overall with that said.
Speaker Change: All digit consumption is fantastic, we still think we have TV TDP growth we.
Rick Dierker: We believe we, you know, with our share of market, we're under indexed as shelf in many places. So not only just going to new retailers and new distribution, but just being able to spread out on shelf, you know, it still happens that by Sunday or Monday, the shelf could be empty. And I think we gave the example at a few of our conferences that had a few retailers at times particularly at temple events, but at times the number the top three units or dollar sales at any retailer is water, paper towels and hero. So it's doing really, really well and it still is and we have some great distribution gains ahead of us.
Speaker Change: We believe we with our share of market, we're under indexed as shelf in many places.
Speaker Change: So not only just go into new retailers and new distribution, but just being able to spread out on shelf it still happens that.
Speaker Change: Bye Bye Sunday or Monday, the shelf could be empty and I think we gave the example at a few of our conferences that.
Speaker Change: <unk> had a few retailers.
Speaker Change: <unk>.
Speaker Change: Especially at Tentpole events, but at times.
Speaker Change: Never the top three units or dollar sales at any retailer is water paper towels and hero.
Speaker Change: No.
Speaker Change: And really really well and it still is and we have some great distribution gains are ahead of us.
Rick Dierker: Moving to sold-on promo, you're right, the percentages kind of tell you the frequency. Depth is a different story. You know, most of the, I would say it's a little opaque out there, but different concentration moves and different pricing moves and some of it's being spent back on promotion. And I would say right now we view that as transitory because of... Size Changes and View Changes and whatnot. If that extends for a period of time, we'll talk more about that. For now, I would say, pretty much in line with what we were. Thank you.
Speaker Change: Moving to sold on promo Youre right. The percentages kind of tell you the frequency depth is a different story.
Speaker Change: Most of the I would say, it's a little opaque out there, but different concentration moves in different pricing moves and some of it's being spent back on promotion and.
Speaker Change: I would say right now we view that as transitory.
Speaker Change: As of.
Speaker Change: You know size changes and SKU changes and and whatnot if that.
Speaker Change: Stands for a period of time, and we'll talk more about that in Q2, but for now I would say.
Speaker Change: Pretty much in line with what we were expecting.
Speaker Change: Thank you.
Steve Powers: Your next question comes from the line of Steve Powers with Deutsche Bank. Please go ahead.
Speaker Change: Your next question comes from the line of Steve powers with Deutsche Bank.
Speaker Change: Please go ahead.
Speaker Change: Yeah.
Rick Dierker: Good morning, and welcome, Lee, as well. I guess, Rick, the guidance implies, I think your expectations are explicit about back half improvement in organic growth. And I'm just juxtaposing that against your expectation that you're not really expecting consumption to improve, and we've seen this step down in April. So, acknowledging that the de-stocking in 1Q probably doesn't continue as a base case, just what's the bridge to back half improvement? Yeah, I think it's a fair question. I think positive category growth, I think it is kind of unique for us to have I went through in the release, but I'll say it in my script, but I'll say it again, right?
Speaker Change: Good morning, and welcome Lee as well.
Rick.
Speaker Change: The guidance implies I think your expectations were explicit about about back half improvement and organic growth.
Speaker Change: And then just juxtaposing that against your exploration Youre not really expecting.
Speaker Change: Consumption to improve and we've seen a step down in April.
Speaker Change: Acknowledging that the Destocking in <unk>.
Speaker Change: You'll probably doesn't continue with the base case, just what's the bridge to back half improvement.
Yes, I think it's a fair question I think positive category growth I think it is kind of unique for us to have a.
Speaker Change: I went through in the release, but I'll say it in my script, but I'll say it again right.
Rick Dierker: Two and a half percent growth in the back half of 2024, one and a half percent growth in the quarter, March was flat, April was down 1%. It is extremely odd for these categories to be negative. That is just not something that we have seen, and we don't expect that to continue. For a very long period of time, they tend to grow around 3%. I get that we're in a volatile environment, weak consumer confidence, a more volatile world than ever, but these categories over time, we still expect to return to growth. And then we have distribution gains happening in the back half.
Speaker Change: 5%.
Speaker Change: Growth in the back half of 2020 for one 5% growth in the quarter March was flat April was down 1%. It is extremely odd for these categories to be negative.
Speaker Change: <unk>.
That is just not something that we have seen and we don't expect that to continue.
Speaker Change: For for very long period of time, they tend to grow around 3% I get that we're in a volatile environment weak consumer confidence.
Speaker Change: More volatile world than ever.
Speaker Change: But these categories over time, we still expect to return to growth and then we have distribution gains happening in the back half we have innovation, even even incremental innovation that we didn't necessarily share it in New York.
Rick Dierker: We have innovation, even incremental innovation that we didn't necessarily share in New York. We have strong marketing. We're going to keep our marketing where it's at. The long-term strength of the business is to drive share over time. We did that well in Q1. We expect that to happen throughout the year.
Speaker Change: We have strong marketing, we're going to keep our marketing where it's at.
Speaker Change: Long term strength of the business is to drive share over time, we did that well in Q1, we expect that to happen throughout the year.
Unknown Executive: Okay, fair enough.
Speaker Change: Okay fair enough.
Rick Dierker: And then, you know, just back to your commentary on vitamins, and, and, you know, the initiatives you're putting in place between now and, and July, how, as we, as we, as we follow along from the outside, what does success look like in terms of, you know, monitoring things as we go? And then ultimately, what, what is the, you know, what is the, I mean, the expectation, or the ambition is to be, is to be winning and growing? But what's the expectation, as you think about the initiatives we're putting in place and the returns you're likely to get, you know, in the back half and into, you know, as we exit 25th?
Speaker Change: And then.
Speaker Change: Just back to your commentary on vitamins.
Speaker Change: The initiatives Youre, putting in place between now and in July.
Speaker Change: Yeah.
Speaker Change: As we as we as we follow along from the outside.
Speaker Change: What does success look like in terms of.
Speaker Change: Monitoring things as we go and then ultimately what is the.
Speaker Change: What is the.
Speaker Change: The expectation for the ambition is to be used to be winning and growing but what's the expectation as you think about the.
Speaker Change: The initiatives, we're putting in place and the returns youre likely to get in the back half and then as we exit 'twenty five.
Rick Dierker: Yeah, so, look, the green shoots or the inflection points that we want to see are things like And they're going to be very obvious, like part of it's going to be our weekly POS on our multivite business, right? And given all the reformulation work and the advertising and the trial that we're pushing, we need to see the trends inflect higher. Now, I would say customer and consumer reviews are a big deal. Like, are we taking a step up and are we hitting the mark on what the consumer needs and wants? That's a big deal. Are we?
Speaker Change: Yeah. So look the green shoots are the inflection points that we want to see are things like.
Speaker Change: They're going to be very obvious part of it is going to be our weekly Pos on our multi device business right and.
Speaker Change: Given all of the reformulation work and in the advertising and the trial that were pushing we need to see the trends inflect higher.
Speaker Change: I would say customer and consumer reviews are a big deal like are we are we've taken a step up and are we hitting the mark and what the consumer needs and wants.
Speaker Change: That's a big deal.
Speaker Change: Are we.
Rick Dierker: Are we getting, have we stopped the decline in TDPs because the retailers believe in the story of our innovation? Because we're not just launching a new multivite, we're doing a reformulation across the entire lineup. We're doing a new Power Plus vitamin, we're doing sugar-free variants, we're doing a GLP offering. So it's a holistic innovation and is that enough to give it a shot on shelf? So those are some of the tactical things that we're going to be looking for over the next few months. I would say... I would say probably the most important one for me is, are we growing from here?
Speaker Change: Are we getting have we stopped the decline in tdp's because the retailers believe in the story of our innovation because we're not just launching a new multi site, we're doing a reformulation across the entire lineup.
Speaker Change: We're doing a new power plus.
Speaker Change: Vitamin we're doing.
Speaker Change: Sugar free variance, we're doing a DLP offering so it's a holistic innovation and is that enough to give it a shot on shelf. So those are some of the tactical things that we're gonna be looking for over the next few months.
Speaker Change: I would say.
Speaker Change:
Speaker Change: I would say probably the most important one for me is are we growing from here like we have made and are making some strategic decisions that we don't need to be in all classes of trade, we don't need to be in every subsegment of vitamins, we want to make sure. We're retrenched a bet, but we can grow and are confident of growth.
Rick Dierker: Like, we've made and are making some strategic decisions that we don't need to be in all classes of trade. We don't need to be in every subsegment of vitamins. We want to make sure we're retrenched a bit, but we can grow and are confident of growth from here. And so that's what, again, over the next three months, we're going to make that commitment.
Speaker Change: From from here and so Thats again over the next three months, we're going to make that call.
Unknown Executive: Okay, perfect.
Unknown Executive: Thanks for the conference. Appreciate it.
Speaker Change: Okay perfect. Thanks for the context I appreciate it.
Speaker Change: Yep.
Olivia Tong: Your next question comes from the line of Olivia Tong with Raymond James. Please go ahead. Great, thanks. And welcome, Lee. You guys mentioned the potential for pricing, realizing it will be very surgical, but given the macros and declining categories, how do you layer in price? And what's your view on a promotional environment going forward? And then given this backdrop, how do you think you can continue?
Speaker Change: Your next question comes from the line of Olivia Tong with Raymond James. Please go ahead.
Olivia Tong: Great. Thanks, Dan Welcome Lee.
Speaker Change: You guys mentioned the potential for pricing realizing it will be very surgical but given the macros in declining categories. How do you layer in price and what's your view on the promotional environment going forward and then given this backdrop. How do you think you can continue.
Rick Dierker: Could you talk about how you continue to drive penetration in your newer categories, like Euro and thoroughbred, so that they can continue to contribute in the outsized way that they have? Thank Yeah, good questions, Olivia. You know, on pricing, I'm actually really pleased with, again, the commercial organization here at Church & Dwight. And we're handling this just like we did COVID, really, the first few weeks. We have stand up meetings every week, sometimes multiple times a day. And we're doing all types of actions. Because in this environment, you're exactly right. The last thing you want to do, when categories are flattened down is try to go take price.
Speaker Change: Could you talk about how you continue to drive penetration in your newer categories like your own entire breast. So that they can continue to contribute any outsize way that they have.
Speaker Change: Yes, good question Olivia.
Speaker Change: Now on pricing I am actually.
Speaker Change: Really pleased with again.
The commercial organization here at Church, <unk> Dwight and were handled on this just like we did COVID-19 really the first few weeks, we have standup meetings every week, sometimes multiple times a day.
Speaker Change: And we're doing all types of of actions because in this environment Youre exactly right. The last thing you want to do between categories are flat to down is tried to take price and that's not good for the consumer is not good for the brand.
Rick Dierker: And it's not good for the consumer, it's not good for the brand. And so we've worked really hard to mitigate 80% in the short term and probably more than that over the medium term. And so that's going to enable us not to take price. There might be a couple examples where we do, and again, that's going to evolve based on how the external environment evolves, because things change from Thursday to next Tuesday. So I'm just happy and pleased with the culture of this company and how quickly we can move when we need to. But I would say overall, so far, we've been able to not have to lean in and take price.
Speaker Change: And so we've worked really hard to mitigate it.
Speaker Change: 80% in the short term and probably more than that over the medium term and so that's going to enable us not to take price there might be a couple of examples where we do and again, that's going to kind of evolve based on how the external environment evolves because things change from Thursday to next Tuesday.
Speaker Change: So I'm just happy and pleased with the culture of this company and how quickly we can move when we need to but I would say overall, so far we've been able to not have to lean in to take pricing.
Rick Dierker: The second one was on penetration, especially for some of our new businesses like Hero and TheraBreath, and that is the story in my mind. We are so under-indexed still on household penetration, and I think I gave you the numbers in the prepared comments, but around 9% for Hero and 25% for TheraBreath. Acme. TheraBreath is a much bigger opportunity, for sure. That means, in an environment like this, we should be doing a couple of things. One, we're reallocating media where needed to higher and best use. And those two brands have a higher and best use, for sure.
Speaker Change: The second one was on penetration, especially for our some of our new businesses like hero and thorough breath and that is the story in my mind. We're we're so under indexed still on household penetration and I think I gave you the numbers and in the.
Speaker Change: In the prepared comments, but like around 9% for hero and 25% for.
Speaker Change: Acne and their breath much bigger opportunity for sure.
Speaker Change: So.
Speaker Change: That means in an environment like this we should be doing a couple of things one we're reallocating media.
Speaker Change: Where needed.
Speaker Change: Higher and best use in those two brands have a higher and best use for sure.
Rick Dierker: We're committed to spending at the 11% of marketing clip, even in an environment like this, because we want to go drive awareness and household penetration. And that's the name of the game. And that means these two businesses have years of growth ahead of them. So combined with the marketing investment, we're going to continue to innovate with those two businesses. We have global expansion for those two businesses. We're thrilled with kind of the growth curve. Got it, thanks.
Speaker Change: We're committed to spending at the 11% of marketing clip even in an environment like this because we want to drive awareness and household penetration and that's the name of the game and this.
Speaker Change: That means these two businesses have years of growth ahead of them.
Speaker Change: So combined with.
Speaker Change: The marketing investment we're going to continue.
Speaker Change: To innovate with those two businesses, we have global expansion for those two businesses and we're thrilled with kind of the growth curve that's happening.
Speaker Change: Got it thanks and then.
Lee McChesney: And then just following up, can you talk about the drivers for the 85 basis point change in the gross margin guide to down 60? How much of that is deleveraged, potentially some negative mix you talked about, potential for more trade down as the year progresses versus what you've met in terms of tariffs? It seems like it's mostly tariffs, but just the flexibility within the rest of the P&L or within the operating guide, if if you do start to see more trade down and that impacts the gross margin line.
Speaker Change: Just following up can you talk about the drivers for the.
Speaker Change: Basis point change in okay.
Speaker Change: Gross margin guide down 60, how much of that is.
Speaker Change: Deleverage potentially some negative mix you talked about potential for more trade down as senior progressive versus what's embedded in terms of tariffs. It seems like it's mostly tariffs, but just.
Speaker Change: The flexibility.
Speaker Change: The rest of the P&L or within the operating guide.
Speaker Change: If you do start to see more trade down and that impacts the.
Speaker Change: Gross margin line.
Lee McChesney: Yeah, so I'll jump in there. So again, good morning. Thanks for the welcome. So, you know, I think similar to what you saw in the first quarter, right? We're down 60 basis points and we're saying, actually, that's the view for the year as well. So, you know, behind that, obviously, we talked about the, you know, kind of inflation and operations costs being mitigated by productivity, you know, a little bit of price mix and then benefit from the mix into acquisition, a higher margin. As you think about from a full-year perspective, you know, productivity is still strong.
Speaker Change: Yes, so I'll jump in there. So again good morning. Thanks for the welcome. So I think similar to what you saw in the first quarter were down 60 basis points and we're seeing actually that's the view for the year as well so.
Speaker Change: Behind that obviously, we talked about the kind of inflation operations costs being mitigated by productivity.
Speaker Change: A bit of price mix, and then benefit from the mix into acquisition higher margins as you think about from a full year perspective.
Speaker Change: Productivity is still a strong or frankly driving incremental productivity.
Lee McChesney: We're, frankly, driving incremental productivity. There's a bit more, you know, inflation is still holding in. There's even a little bit more coming in the marketplace versus four months ago, which is, you know, weird to think about in this macro environment, but that's the case. And then to your point, the big driver, though, just difference-wise, is tariffs. And you know, we talked about a little bit earlier, you know, the holistic 12-month number and just what we think will settle in into this year. And obviously, as we work through our different actions, there's obviously different timing events to those as well, but that's the primary driver.
Speaker Change: There's a bit more inflation still hold and then there is even a little bit more come in the marketplace versus four months ago, which is weird to think about in this macro environment, but thats the case.
Speaker Change: And then to your point the Big driver, though just difference wise is tariffs.
Speaker Change: We talked about a little bit earlier.
Speaker Change: Our holistic 12 month number and just what we think will will settle in into this year and obviously as you as we work through our different actions, there's obviously different timing of events to those as well, but that's the primary driver.
Unknown Executive: Great, thank you.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Peter Grom: Your next question comes from the line of Peter Grom with UBS. Please go ahead. Great, thanks, operator. Good morning, everyone.
Speaker Change: Your next question comes from the line of Peter <unk> with UBS.
Speaker Change: Please go ahead.
Speaker Change: Great. Thanks, operator, and good morning, everyone welcome Lee as well.
Lee McChesney: Welcome, Lee, as well. Lee, maybe just a quick question for you. I mean, I think you mentioned that 2Q US or domestic sales would be similar to 1Q. Can you just unpack that a bit? I think the guidance assumes market share gains. And I think Rick mentioned that category growth would be down kind of one. So I guess I'm just curious how you kind of get to that minus three. Yeah, no, it's a good question. I mean, to your point, we noted what happened the first quarter with the inventory impact. And we certainly don't expect that much impact in the second quarter, but there's still a bit more.
Speaker Change: Maybe just a quick question for you I mean, I think you mentioned that QQ.
Speaker Change: U S or domestic sales will be similar to <unk> can you just unpack that a bit I think the guidance assumes market share gains and I think Rick mentioned the category growth would be down kind of one.
Speaker Change: I guess I'm, just curious how you kind of get to that minus three yeah. No. It's a good question I mean to your point, we noted what happened in the first quarter with the inventory impact and certainly we certainly don't expect that much impact in the second quarter, but there is still a bit more.
Lee McChesney: And then as Rick talked about, the category, the consumption levels have continued to slow down. And so, yeah, one should be less of a negative, and then one's going to be a new negative for us to manage. So that's what we're seeing here in April. Again, it's all about us driving share, but the macro is just a bit softer. Got it. That makes sense.
Speaker Change: And then as Rick talked about the category the consumption levels have continued to slow down and so yes, <unk> should be less of a negative and then one is going to be a new negative for us to manage so that's.
Speaker Change: That's what we're seeing here in April.
Speaker Change: Again, it's all about us driving share, but the macro is just a bit softer.
Speaker Change: So.
Speaker Change: Got it that makes sense and then Rick just a question for you I think you.
Rick Dierker: And then, Rick, just a question for you. I think you... You said it's odd what you're seeing in terms of category growth. You know, I'd just be curious, why do you think this is ultimately happening? Why is it happening as quickly as it is? And then just on the April commentary, I get, you know, different categories, geographic exposure, but it is a bit different from what we've heard from some of your peers so far. So what do you think is causing the difference in terms of your April performance or what you're seeing versus maybe what some of your peers are saying?
Speaker Change: You said, it's on what Youre seeing in terms of category growth.
Speaker Change: I'm curious why do you think this is ultimately happening.
Speaker Change: I think as quickly as it is and then just on the April commentary I guess, you have different categories geographic exposure, but it is a bit different from what we've heard from some of your peers. So as far as what do you think is causing the difference in terms of your April performance of what Youre seeing versus maybe what some of your peers are saying.
Yeah, no, Peter, it's a fair question. You know, I would just say usually our categories are a good bellwether because we're going across so many different categories. Like, you know, we play in 18 categories, and this represents most of those categories. I would just say it goes back to the core consumer feeling pressed. And I think even before tariffs, you know, we were seeing signs of the core consumer being pressed. And we talked, I think, even back in January, maybe at the end of the year, that our categories were growing four and a half percent.
Speaker Change: Yeah, Peter It's a fair question.
Peter: No I would just say usually our categories are a good bellwether because we're going across so many different categories like playing 18 categories.
Speaker Change: This represents most of those categories.
Peter: And.
Peter:
Peter: I would just say it goes back to the core consumer feeling pressure and I think even before tariffs, we're seeing signs that the core consumer be impressed and we've talked I think even back in January maybe at the end of the year.
Peter: Our categories, we are growing four 5%.
Peter:
Peter: Maybe 4% or so in the first half of 2024, and then they were a decelerate into two 5% and we had called that out and maybe it was at Barclays and everyone thought that we were.
Peter: Being a bit of.
Peter: An alarmist I would say at the time, but we're just trying to be as transparent as we can and we set up. This is what we're saying. This is this is a kind of a curve of what the consumer is doing and that started going down a little bit further in Q1.
Peter:
And then.
Peter: And then the whole tariff.
Peter: Noise started happening and I think that uncertainty exacerbated what was already going on.
Peter: And when that uncertainty happens, it's going across many different categories ours included but I also think it's that type of feelings transitory as this environment hopefully is.
Peter:
Peter: And while I think we have a.
Peter: Malaise with the consumer for a period of time maybe.
Peter: You know a year or 18 months whatever whatever it is.
Peter: I think right now it's exacerbated.
Peter: And this volatility is causing.
Peter: People to take a step back and so that's what we're seeing that's what the consumer that's this isn't us just as our categories.
Peter: And I think.
Peter: More of our peers will start saying that if they haven't already.
Speaker Change: Got it thanks, so much I'll pass it on.
Speaker Change: The next question comes from the line of Lauren Lieberman with Barclays. Please go ahead.
Lauren Lieberman: Thanks, Good morning.
Speaker Change: Sort of boring housekeeping I'll admit.
Speaker Change: But in the release you talked about that as at April 1st I'll exclude the.
Speaker Change: The business is it that youre going to be divesting or exiting are excluded from results. I was just curious how we should handle that as the model like are we putting it in the structural line or is it in net sales or just completely gone and will you be restating the base.
Speaker Change: I don't know how to how to model.
Speaker Change: Yes. This is.
Speaker Change: We're trying to it's a complicated situation. So we're trying to keep it as clean as possible our organic outlook.
Speaker Change: Excludes the impact from April one to December 31, two of those three businesses and our adjusted earnings will exclude the.
The profit from those businesses from April one to December 31st.
Speaker Change: The other lines of the P&L, because it's the reported and adjusted P&L. They will have it in there.
Speaker Change: So we're going to do our best to be as clear as we can but those are the two lines that I think really matter.
Speaker Change: And that's how we've laid it out.
Speaker Change: Okay. So we should think about it but adjusted EPS.
So those businesses are still a headwind from the Etfs.
Speaker Change: The absence of those businesses.
Speaker Change: We're going to put the.
Speaker Change: And that one time charge.
Speaker Change: Will be mostly the noncash charges and as we run out those businesses there will be a lower sales and profit impact to those businesses net sales would be.
Speaker Change: Down reported.
Speaker Change: And.
Speaker Change: We will also have a charge partially in Q2, but for those businesses in Q3 and Q4 that represents the profit for those so we'll try to delineate that for you.
Speaker Change: Okay, Alright, thank you alright, thank you.
Speaker Change: And that was not a boring question.
Speaker Change: [laughter] alright.
Speaker Change: Alright, thank you.
Speaker Change: Alright.
Speaker Change: The next question comes from the line of Korean Wolf Meyer with Piper Sandler. Please go ahead.
Speaker Change: Hey, good morning, and thank you for taking the question I just wanted to go back to the retailer Destocking comment.
Speaker Change: Kind of what's changed between now and a couple of months ago. When you were anticipating that those orders to kind of come back over the year progresses.
Speaker Change: Obviously, a lot has changed with the tariff situation and consumers pulling back but why do you think that retailers have restocked that consumption is still it's still there.
Speaker Change: And then separately just any updated thinking around the M&A environment I know you've been talking a little bit more about maybe looking at some international assets as the portfolio any change in thinking.
Speaker Change: The current macro situations going on thank you.
Karen: Thanks, Karen.
Speaker Change: Say you hit it on the head.
Karen: The pullback in the consumer.
Karen: The agila around them.
Karen: Tariffs.
Karen: Think that's what's going on and that's why categories. Even in the month of April so far negative and Thats why in March they were flattish for us.
Karen:
So retail inventory.
Karen: Even if a few months ago, we thought would recover because it's exactly that our consumption, whereas it was running ahead of our shipments and so we said okay well, that's just a matter of timing, we've seen that play before and no problem.
Karen: But the longer it has gone on in the more uncertainty that's out there. It just feels like everyone's retrenching a bit is what I would say.
Karen: And then on international M&A International M&A is.
Karen: Is that still a strategy we've got to find the right. One we're looking at different countries. In many cases, we would love to do what we did in in Japan with graphical is you create really.
Karen: Our subsidy infrastructure and you can bring your brands there in an easier way.
Karen: So we're always on the lookout for those kind of bolt on acquisitions and Meanwhile.
Karen: The team is spending that leadership team spent an awful lot of their time looking for the right acquisition and now we've had a bit of a of a of a dry spell, but we still believe the number one use of cash and capital allocation as does the board is M&A and so this management team.
Karen: There's a large percentage of time looking for the right acquisition, both here in the U S and outside the U S.
Karen: Great. Thanks, so much.
Speaker Change: Your next question comes from the line of co mill.
Karen: Waller.
Speaker Change: With Jefferies.
Karen: Please go ahead.
Hey, guys.
Speaker Change: Good morning, maybe a follow up on the inventory levels at retail I guess, what gives you the.
Karen: Confidence.
Karen: Net inventory student bounce back or that there should be a restock is there is there something youre seeing in the market is it channel mix, maybe you were high on inventories towards the end of 'twenty four.
Karen: But the idea of sort of.
Karen: Consumption.
Karen: Being ahead of inventories and staying that way.
Karen: All of the years.
Speaker Change: Feels like something that maybe we don't see that frequently so I'm just curious what might have changed or what gives you that confidence that hey, This was a one time step downs right.
Karen: B.
Speaker Change: Yes, it's a fair question.
Karen: I would say it's probably.
Karen: The expectation that Q2 looks a lot like Q1, given what we see in in.
Karen: And orders.
Karen: That theres not a bounce back coming I think when you have negative or flat consumption across many categories.
Karen: The retailer it doesn't.
Karen:
Karen: Maybe want to lean back in.
Karen: To get to what we think is the right level and we have heard other retailers continue to talk about taken down weeks of supply now do I think theres, an incremental risk for retail inventory I, absolutely do not overall.
Karen: Because there's only a certain level that the businesses can be run effectively with so I don't really feel like it's an incremental risk.
Karen: It's a little bit of conservatism.
Karen: Maybe it will be proven wrong, we just think there is.
Karen: Hum.
Karen: Flat to slowing.
Karen: Consumption and.
Karen: In the near term and we said for the back half, we think its closer to one 5%, which is lower than our our 3% typically so.
Karen: Yes, so just the inflection point a little bit is what's driving our thinking there.
Karen: Okay got it.
Karen: I guess in the context of everything you mentioned on the consumer.
Karen: You talked to.
Karen: About promo activity being rational but.
Karen: Maybe how do you feel like where it's going to play out over the course of the year, if the consumer stays in a certain condition that they might be and would you expect promotional activity to tick up or.
Karen: Is it not a pricing thing thats, just something else going on.
Karen: No I think we've seen this play out before back in <unk> nine and if categories are flat for an extended period of time competitors tend to go after share in a bigger way and if you look at all the transcripts everyone's talking about how they're going to gain share while not everybody can gain share we've proven in an environment like this that we do 10.
Karen: To gain share because we have the right promotional strategy the right marketing spend we have the right products and value offering innovation and so we are usually set up better than most but promotional levels do tend to go up.
Karen: Categories are flat for a period of time.
Karen: But what I just said is why we believe that we tend to take share.
Karen: Your next question comes from the line of Javier.
Karen: Galanti.
Karen: With Evercore.
Karen: Please go ahead.
Karen: Hi, good morning, everyone.
Speaker Change: I managed to still have a question on the <unk>.
Karen: Sort of issue.
Karen: So if you could help us if there is anything to learn about.
Speaker Change: The categories and the type of retailers, where you're seeing greater lag in terms of reorders.
Speaker Change: Specifically thinking about the drugstore is very important for Brian.
Speaker Change: Which is a category that is increasingly going online.
Javier: Yes sure Javier.
Javier: And the drug class of trade are very very promotional and you walk in and you see a whole aisle full of yellow tags, which are tend to tend to be a buy one get one free as we're looking to retrench, we're making decisions on what class of trade, we want to play in and I would say the sales.
Javier: And profits are not as.
Javier: Appealing in that class of trade typically so we're kind of retrenching on what skus what offerings.
Javier: What from a promotion depth that we're willing to go to in that class of trade and there is a slight traffic.
Javier: Yeah.
Javier: Our concern in drug and the drug class of trade. There is also one of the retailers is is.
Javier:
Javier: That is financially stable.
Javier: As some others so.
Javier: There is a lot of noise I guess going on in the drug class of trade.
Javier: But.
Javier: Again, we retrench to where we have strength and we grow from there for vitamins, but the online class of trade as interesting online class of trade is actually half of all vitamins and.
Javier: So we've got to make sure that we're hitting the innovation and.
Javier: And advertising, but really also focused on the online class of trade and so specifically.
Javier: <unk>.
Javier: And it's very fragmented, but half the category. So we are we are looking hard at what the right innovation strategy is in the short term innovation strategy is to make sure that we're going after those sub segments appropriately online because that's where the growth is that's where the focus needs to be.
Javier: So.
There was a.
Javier: Read in April I believe he's the guy in Germany. So if you can own pack a little bit.
Javier: You mentioned it but it was very briefly that there is a lot of moving pieces, but if you can unpack what is happening.
Javier: In the <unk> in the context of.
Javier: Youre push with deep clean and its way down into mid tier that would be very helpful. Thank you.
Javier: Okay.
Javier: Look the.
Javier: But laundry business is healthy.
Javier: In Q1.
Javier: We had three 4% consumption growth for Harman Hammer.
Javier: I think we had 26% to 27% growth for for unit dose even for scent boosters, we had 8% plus growth and Xtra had positive growth as well so.
Javier: Largely for US we continue to gain share in all of those sub segments and so we think we're doing and executing really well.
Javier: I kind of alluded to it there is some noise going on in the category. One competitor is catching up on some of the concentration of activities that happened a.
Javier: A year or two a year or two a year or two ago.
Javier: One competitor is taking price at the top end and spending a bit more.
Javier: I guess in the low and mid mid tiers.
Javier: And then and then one major retailer introduced private label at the premium and so there's a lot of moving pieces and I would say, we're better positioned than ever.
Javier: In this type of environment, what tends to happen in a recessionary like environment and that's why I would start to call that.
Javier: This environment that we're in a consumer confidence as we look forward, it's at a 12 year low.
Javier: <unk>.
Javier: Turmoil.
Javier: Tends to happen is folks trade down to value and even deep clean while it to mid tier to us that the consumer doesn't know what mid tier or premium or value really mean, they just know that it's a 20% discount to premium.
Javier: The premium tier laundry, they know that it's more expensive than our most basic offering but we have a good better best strategy. So that base arm <unk> hammer can do well arm <unk> hammer, a hock can do well and now deeply and does as well so we're well positioned to wherever the consumer trade up or down too.
Javier: Thank you very much.
Speaker Change: Your next question comes from the line of Dara most Simeon.
Javier: With Morgan Stanley. Please.
Speaker Change: Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: I just wanted to.
Javier: I'll touch on U S share.
Speaker Change: You guys mentioned, you still expect to gain share in the U S. Despite the category weakness, but the track channel data does look like it's decelerated in terms of your share so far in April.
Speaker Change: And I would assume the Q2 corporate org sales guidance when you back out international which is robust as well as presumed growth in SPD.
Speaker Change: Youre, assuming share loss, probably implicitly in that Q2 guidance.
Speaker Change: Can you just shed some light on maybe overall share trends in the U S. As you look at April your thoughts in the balance of the year here on a go forward basis also thanks.
Speaker Change: Good question Derek.
Speaker Change: Never assuming share loss is what I would tell you I believe.
Speaker Change: I talked earlier because of our portfolio because of our brands because of the advertising and the innovation and the promotional.
Speaker Change: A program we have in place.
Speaker Change: We have a long track record of growing faster than the category and I fully expect that to happen now and as we have.
Speaker Change: Our stretch consumer our brands are made for this time as well and so all of that's going to help and lead to share gains April.
Speaker Change: Or youre, right, where I think I said the category is down 1%.
Speaker Change: We gained share in Q1, I expect to gain share in Q2, sometimes it's just promotional timing to some degree.
Speaker Change: But.
Speaker Change: That's the short answer to the question.
Speaker Change: Okay. That's helpful and then obviously the external environments changed.
Speaker Change: Changed fairly significantly in recent months.
Speaker Change: Taking decisive actions on portfolio structure I was just hoping you could review capital allocation from here given your strong balance sheet.
Speaker Change: Like share repurchases.
Speaker Change: Later priority, perhaps there is more M&A opportunities from an external environment standpoint, given the difficult environment and just how you think about those two pieces. Thanks.
Speaker Change: Yes, we talked about it a lot.
Speaker Change: And even though we haven't done a deal in a couple of years. It doesn't mean, that's not number one on the capital allocation priorities. So I joked at previous conferences that M&A is number 1234 on the list and that's still true. We believe that we have a competency in it than a fire in acquiring integrating and growing.
Speaker Change: <unk> and there's no better value creator.
Speaker Change: For the company than just that so we have a huge amount of firepower. The math that we showed at academy was around $6 billion.
Speaker Change: We could do.
Speaker Change: A couple of deals in the organization.
Speaker Change: Tend to do a couple of deals even sequentially. So that's the number one capital allocation and focus and if you look back at our history. If we go a long period of time without doing acquisitions, then we tend to look at buybacks and in some cases given this type of.
Speaker Change: Low leverage we could probably due to both but number one I want to keep the powder dry for M&A.
Speaker Change: And so if we don't do M&A for a while we'll look at and talk more about doing maybe any buybacks.
Lee: Lee anything to add to that yes, I would just add number one when reasons I can't marry completely believe in this capital allocation methodology.
Speaker Change: Whole history of doing M&A.
Speaker Change: Sure you have a discipline in doing M&A and we've shown that we find the right acquisitions and we drive value value enhancing <unk> and then obviously, that's one two or three I guess, we'll do behind that is we're continuing to invest in the business even in this environment, whether it's we talked about the marketing side the innovation side.
Speaker Change: And then obviously you know things like that and shares.
Speaker Change: Rick talked about would be unwise to but.
Speaker Change: Every day, we're focused on number one number two number three which again, you'll find out that right deal for them to bring to the portfolio, but we will remain very disciplined.
Speaker Change: Your next question comes from the line of simple pardon.
Speaker Change: <unk> with Citi.
Speaker Change: Please go ahead.
Speaker Change: Hey, good morning, everyone.
Speaker Change: I had two quick clarification on the guidance first within the organic sales guidance of zero to two can you give us a sense of what you're assuming for the full year for volume and price.
Speaker Change: You mentioned price increases some certainly some price increases maybe can you give us some sense of timing and some magnitude there.
Speaker Change: Yeah, I mean, I would tell you we talked about.
Speaker Change: Pretty pretty clear position, we talked about price quite a bit I mean price has been positive.
Speaker Change: Yes.
Speaker Change: <unk> <unk> two and <unk>.
Speaker Change: We'll just say, it's going to be flattish for the rest of the year.
Speaker Change: Our outlook is all about volume growth.
Speaker Change: So yes.
Speaker Change: The price increases that we're talking about.
Speaker Change: That is over time, if we cannot offset tariffs in my mind, we're going to work like heck to.
Speaker Change: Do just that and we believe that'll be a competitive advantage versus other folks.
Speaker Change: Got it that makes sense and then on the tariff front you mentioned the 30 million that.
Speaker Change: Tariff impact after the mitigation is that what is embedded in the gross margin and EPS guidance. So should we think about somewhere around 50 basis points of negative hit on gross margin and then somewhere around like nine cents on EPS.
Speaker Change: Got it and just in the 40 to 50 basis points, obviously give exact timing will play out depending on actions and mitigation and things like that that's a good number.
Speaker Change: Okay got it. Thank you so much guys.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Kevin Grundy with BNP Paribas.
Speaker Change: Please go ahead.
Kevin Grundy: Great. Thanks, good morning, everyone.
Speaker Change: Hey, Kevin coupled.
Speaker Change: Rick a couple for me.
Speaker Change: Rick just getting back to the decisions around the portfolio pruning. So the business lines that you're exiting certainly makes sense not hugely impactful at about 2% of sales I think there might've been some sense among some in the market that the divestitures or exits could have been larger is this pencils down for the year given its annual review process.
Speaker Change: Or would you consider further divestitures in the future I'm curious, what's your commitment to a business like vitamins, presumably you'd want to exit from a position of strength. So maybe that's the reason that that is perhaps on hold for now.
Speaker Change: Review, maybe just on the criteria at a high level for hold versus an exit.
And then I have a question for Lee Thanks.
Speaker Change: Yeah, well look we did go through a portfolio of products.
Speaker Change: Strategy review every year like I said before we value each and every brand.
Speaker Change: There's a handful that are always on the list and we then we turn to a few of them and say can we internally improve those businesses and some of those things are underway and so it doesn't mean that if those.
Speaker Change: Businesses don't do.
Speaker Change: Do and accomplish those kpis that we want that we couldn't wake up and say yep.
Speaker Change: That's on our list to do something with so just because we have an annual review it doesn't mean that there aren't other things in motion that we're always working on vitamins, we want to inflect that business and in turn that positive.
Speaker Change: For all the reasons I gave earlier and we'll talk more after Q2 on how we're doing with that and so I think that's a better question to ask after after that quarter.
Speaker Change: Okay fair enough.
Lee Welcome quick question for you you mentioned, the M&A dynamic and the appeal of that.
Speaker Change: Terms of coming onboard.
Speaker Change: What are your early impressions more broadly any potential areas, where you think your background.
Speaker Change: Potentially enhance weight churches doing things, whether this is around productivity, whether it's around revenue growth management and capital structure.
Speaker Change: Et cetera, we'd love to get your early impressions and thoughts. Thanks, I appreciate yes, youre asking that question so number one.
Speaker Change: Very impressed with the CACI team I mean, obviously the borrowing.
Speaker Change: Borrowing from the outside and the track record speaks for itself.
Speaker Change: Inside the building to meet the people and the culture the mindset to execute I mean, I think if my first five weeks everything we're showing here you know the tariff situation continued to be a bigger challenge and look at the plan. We've laid out here and just no less than two months as everyone's dealing with that.
Speaker Change: The team is very focused on our love, where I swear I see what's going on innovation.
Speaker Change: Certainly the continued focus on brand development winning share those are all things I fundamentally believe in.
Speaker Change: This business my focus right now is to learn this business. This business has been successful.
Speaker Change: And I want to understand that when you obviously get more time to get out and meet people and understand what goes on across the globe at our different manufacturing sites and my mindset is just to contribute my experience to what we have focused here I believe in the evergreen model as I went through the process and you've got to spend time with Rick and other.
Speaker Change: As a leadership team we.
Speaker Change: We have very similar thoughts and very focused on.
Speaker Change: Driving share always making decisions with that in mind, but at the same token follow the facts.
Speaker Change: Find that right balance to protect gross margin.
Speaker Change: This efficiency with how we run the business to drive overall high level of cash return those are all things that frankly, just match with me.
Speaker Change: One of the reasons why I'm here. So I can just say with now six weeks in.
It's everything I thought it would be in more so I'm optimistic as we look forward here.
Speaker Change: He is being humble as well he is a great pedigree experience on M&A right decades of experience with M&A.
Speaker Change: Acquiring integrating.
Speaker Change: He has decades of experience not just the CFO, but as a president of different businesses. So to have somebody in the seat. That's an operating CFO is exactly the culture of this place and and we're gonna be better off for it.
Speaker Change: Okay very good. Thank you good luck.
Speaker Change: Thank you.
Speaker Change: Our last question comes from the line of Robert Moskow.
TD Cohen: TD Cohen.
Speaker Change: Please go ahead.
TD Cohen: Hi, Thanks.
TD Cohen: Rick.
Speaker Change: You've talked about having the right advertising the right promo.
TD Cohen: The right spend.
TD Cohen: <unk>.
TD Cohen: But the world's changing quite a bit in the last four months so other than vitamins.
Speaker Change: Are there any categories, where you had to shift your tactics, maybe lean in a little more from a promotional standpoint or because your market share is good you feel like hey, we can just keep executing the plan as it stands.
TD Cohen: Yes, that's not for me.
Speaker Change: <unk> perspective really.
Speaker Change: I will tell you we are pivoting a little bit on our advertising.
Speaker Change: Just walk the board through it, but Stacy as our CMO she's doing a great job in sheet.
Laid out how we are shifting.
Speaker Change: Our messaging.
Speaker Change: More towards value in this environment right some big steps in doing that reminding people.
Speaker Change: <unk> the arm <unk> Hammer brand that we are a value but across our other brands too and I think that messaging is going to be important in times like this and so that's kind of one one pivot, we're making and we're pivoting a little bit on what brands, we allocate media to and where we over indexed or under indexed.
Speaker Change: Okay alright, thank you.
Speaker Change: I will now turn the call back over to.
Rick Dierker: Rick Dierker.
Speaker Change: For closing remarks.
Please go ahead.
Speaker Change: Great well. Thank you for your time today I would just tell you that the company is laser focused on growing share launching our innovation to delight the consumer.
Speaker Change: We're a stronger company for these portfolio actions and look forward to talking to everybody next quarter. Thanks very much.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen, this concludes today's call. Thank you all for joining and you may now disconnect.
Speaker Change: Yeah.