Q2 2025 Church & Dwight Co Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to church and Dwight's second 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 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.
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, thank you. Good morning everyone. Thanks for joining the call. I'll begin with a review of Q2 results. I'll speak to the touch them closing, strategic actions, and some thoughts in the macro environment. Then I'll turn the call over to Lee mcchesney. Our CFO. When Lee is done, we'll open the call up for questions.
First, I'll begin with Q2 results, organic sales, grew 0.1%, exceeding, our Outlook of minus 2 to flat.
Adjusted gross margin was down 40 basis points. Also exceeding our Outlook range. Adjusted EPS was 94 cents, which was 9 cents, higher than 85 Cent Outlook.
We will take you through the rest of the numbers shortly. But first, some highlights from the quarter,
When we gave our Outlook back in, may we were seeing category consumption data. That was shown in a deceleration from strong growth early in the year to Turning negative in early April. The good news is that since then things have begun to improve with categories, finishing positive in April and Q2 category consumption for our largest categories finishing around 2 and a half percent.
The macro environment has been volatile and uncertain, with a pair of policies changing frequently. Consumer uncertainty showed up in early Q2, when consumer confidence hit a 12-year low.
since then consumer confidence levels have started to recover as tariff policy appeared to stabilize,
Not surprisingly, given that backdrop, our second quarter sales finished slightly ahead of our Outlook, which gives us confidence in achieving our full year organic Outlook of 0% to 2%.
Our Brands continue to perform well in this Dynamic environment. We continue to drive both dollar and volume share gains across most of our Brands, our balanced portfolio of value, and premium products and our Relentless focus on Innovation continues to position us. Well, for the future International continues to take share across the globe further. We continue to grow the online class of trade, with online sales as a percentage of global sales now reaching 23%.
In July, we closed our most recent acquisition, Touchland.
Touchland is the fastest growing brand in the hand sanitizer category in the US and is the number 2 hand sanitizer in the category.
Touch fun experienced, strong growth in Q2 outpacing the category and gaining share. We're excited to add touchland as our 8th power brand.
And even more. So excited to officially welcome the Texan team to Church & Dwight.
Management team assess each of Our Brands on a regular basis. As a result of these reviews, we often accelerate an increase investments in our strongest Brands and move with speed to address opportunities for Value creation.
That review is what led to the strategic decision to exit Flawless, Spinbrush, and Waterpik shower head business.
Today, we're providing an update on our vitamin business. We remain focused on a revitalization efforts with multiple innovation.
And branding programs underway in 2025.
While it's still too early to fully evaluate results, we can share at this time that we're seeing mixed results.
There are some green shoots. We see our multiple multivitamin business improving week over week, and our innovation is receiving strong consumer reviews. Of course, we remain focused on executing our improvement actions.
In addition, we are undertaking a strategic review of the business, including streamlining, our supply chain to strengthen our Core Business.
Potential JV and partnership opportunities and investiture options.
The gummy vitamin business continues to be a drag on the company's organic growth.
The good news is the gummy vitamin C category grew almost 4%, which is the third consecutive quarter of growth. The bad news is our consumption was down around 25% as our TDPs declined.
Now, I'm going to turn my comments to each of the three businesses and...
The improved results from our teams in the second quarter.
First up is the U.S. consumer business. Organic sales declined 1%, with volume growth being offset by negative price. Mix volume growth was muted by continued retail de-stocking in Q2.
We continue to expect slight impacts moving forward. Consumption was positive in the quarter for the US business with momentum improving. And we grew share in 5 of our 7 power brands.
And we provide a bit of color for a few of our important categories.
First, with laundry detergent, Arm & Hammer liquid laundry detergent consumption grew 3.2%, in contrast to 1.3% category growth.
Arm and Hammer share in the quarter reached 15%.
Moving to litter Arm and Hammer litter consumption grew 3.4% while the category was up 4.1% of promotions.
Next is Batiste Batiste continues to be the global leader in dry shampoo. And while consumption was down, almost 7% in the quarter, were confident in Batiste returned to consumption growth in the future. There are a couple of factors contributing to the consumption decline, such as competitive price increases economic pressure, driving trade down, and we had some supply issues that are now resolved.
This year, we're launching batist light as a leading. Brand our Innovations, continue to attract new users to the category an increased household penetration.
Over the mouthwash category, breath continues to perform extremely well. While the mouthwash category was down in Q2, breath consumption grew 22.5% and continues to be the number 2 mouthwash, with a 21% market share. Remember, we believe there's a lot of runway here. Our household penetration for the breath currently sits around 11%, versus the category average of 65%.
Here are once again outpaced the category with consumption growth of 11.4%. Compared to the acne category growth of 1 and a half percent, and Remains the number 1 brand, in acne care with the 22 share. Equally important is hero continues to gain, share, and acne patches.
Since similar to the the story, We Believe household penetration growth is key for this brand.
It sits at 9% versus the category of 28%.
The Euro continues to launch innovative solutions and patches and is entering the growing body care segment in 2025 with the mighty patch body.
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 momentum.
Especially in several core categories, where we're leading the way.
Now, turning to International SPD, our international business delivered sales growth of 5.3% in the quarter, with an organic increase of 4.8% due to a combination of higher volume, price, and mix growth. This was led by Hero, TheraBreath, and Femfresh, and was broad-based, with all of our subs delivering growth.
We were able to grow share in all of our power brands in the quarter, which is a great achievement.
Finally asbd organic sales increased 0.1% due to a combination of higher price and product mix offset by volume. We continue to be excited about the growth opportunities in this business.
Looking ahead our full year, organic growth Outlook continues to be 0 to 2% while category consumption has improved. There remains uncertainty around the US consumer and global economy.
We expect our Q2 brand share momentum to continue.
Supported by our new product, our distribution gains, and sustained full-year investment in marketing.
Acquisition the cost of the product recall and the wind down of the 3, exit businesses.
I'll close by saying that category consumption is looking a bit better than 3 months ago, and our brands are strong. They're doing well, we're gaining both dollar and volume share across much of the portfolio.
We have a healthy mix of value and premium offerings. We're well-equipped to navigate the current environment.
The Strategic actions we're taking 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 the church and Dwight employees for executing well and a volatile environment and now I'll hand it over to lead for more details on the quarter.
Thank you, Rick. And good day to everyone. Well, as Rick just mentioned, we've just concluded a very productive quarter from our teams across the globe.
As we share during our first quarter, call, we remain focused on what we control in the second quarter. And this position is position positions, as well as we look forward to the second half of 2025.
Let's dive into the second quarter and our Outlook.
We'll start with EPS second quarter, adjusted, EPS just 94 cents up 1% from the prior year.
The 94 cents was better than our 85 Cent Outlook driven by a stronger sales performance and some good resiliency with gross margin.
Reporter Revenue was down 0.3% and organic sales are up. 0.1%, the organic sales were on the high side of our May 1st Outlook and it reflects the improvements we saw in category growth and the strength of Our Brands.
Our second quarter adjusted. Gross margin was 45.0% of 40 basis. Point decrease from a year ago
Productivity and higher-margin acquisition business mix drove 170 basis points of margin growth.
And offset a negative 140 basis points from inflation and tariffs.
40 basis points from the combination of volume price to mix and 30 basis points from the Zicam oral swab recall.
I'd also note that a portion of our original tariff estimate, about 20 to 30 basis points, shifted from the second quarter to the third quarter as the tariff rates and the shipment timing evolved.
Moving to marketing, our marketing expense as a percentage of sales was 10.4%, or 30 basis points higher than Q2 of last year. For the year, we continue to target 11% of net sales, in line with our Evergreen model.
We are encouraged with our share results, in the first half of the year.
For sgna Q2 adjusted sgna decreased 80 basis points, year-over-year.
And other expenses decreased by $5.2 million due to higher interest income. And we now expect...
Other expenses for the full year are expected to be approximately $65 million on an adjusted basis, reflecting a lower investment income following the Touchland acquisition.
in 2q, our effective tax rate was 23.8% compared to 24% in Q2 of 2024, the 20 basis point year-over-year, decrease
The expected adjust effective tax rate for the full year, continues to be 23%.
And now to cash for the first six months of 2025. Cash from operating activities was $416.5 million, a decrease of $83 million versus last year, due to working capital timing and lower cash earnings.
Capital expenditures for the first 6 months totaled $939 million, a $37.6 million decrease from the prior year.
And we continue to expect capex of approximately 130 million as we return to historical levels of 2% of sales in 2025.
And in the second quarter of the company, executed a 300 million share of purchase via open market transactions, through an accelerated share repurchase program.
Okay, let's now spend a few minutes on our outlook for the full year. We expect reported sales growth of approximately 0% to 2%, which includes the addition of the Touch acquisition and the impact of lower sales from the businesses where we're exiting.
To quantify that for you, that's about 70 to 80 million dollars, of touch and coming in and 78 million going out for the businesses being exited.
We continue to expect organic Revenue growth of approximately 0 to 2%.
The sales Outlook reflects our brand and category growth momentum and reflects a balance macro view around the uncertainty in the US and Global economies.
We continue to expect for your gross margin to contract 60 basis points versus 2024, due to elevated input costs and tariffs. The recall expense and unfavorable price-to-mix will outpace incremental productivity and higher-margin acquisition impacts.
And looking forward, touch is margin rate positive. But for this year, the business exits mitigate that, that benefit
The wind down to the 3 business exits and the cost of the product recall.
And for, for 3Q, we expect to report an organic sales growth of approximately 1 to 2%.
Adjusted gross margin contraction of approximately 100 basis points, primarily from inflation and tariff costs, and the lower margins from the exit of businesses.
Marketing will be higher sequentially compared to last year.
As a result, we expected the EPS to be $0.72 per share, which is a decrease of 9% versus last year. Adjusted EPS.
Cash flow from operations for the full year. Remains 1.05 billion in July. We also expanded our revolver facility from 1.5 billion to 2 billion.
In a combination of this cash flow and the expanded credit facilities provides us. Excellent flexibility.
Our M&A team accordingly continues to pursue creative acquisitions that meet our strict criteria, with an emphasis on fast-moving consumer products, similar to our recent acquisitions.
To conclude back on May 1st, we communicated, our proactive set of actions to navigate 2025 and as Rick and as I just highlighted, we've made great progress and we're focused on sustained execution for the remainder of the year.
So with that, we're happy to take your questions, so Eric will turn it to you.
Ladies and gentlemen, at this time, I'd like to remind everyone in order to ask a question. Please press star. Followed by the number 1 on your telephone keypad.
Your first question comes from the line of Chris carry with Wells Fargo.
Please go ahead.
Hey, good morning, guys. Morning, morning.
Can I start on vitamins?
Um and and the the Strategic review you're undergoing, can you just give a bit of context on what might push you 1 way versus the other? That could be feasibility of of outcomes. Obviously you need a partner on the other side of the equation, um but that could also be the potential dilution of a of an outright diver vesture. And and perhaps how you think about touch land given the fast growth and margin accretion as a potential offset to to such a, you know, an outright dilutive divestiture. So can you just give us a little bit more insight on uh, you know where you how those different
Decisions could come out and and kind of The netting out impact if we were to look out 12 to 18 months kind of follow up. Yeah, sure. Chris look, we, we were pretty clear in the in the release that we put 3 different, um, options out there and and uh, there's some, you know, option in no particular order. Uh,
Would be a Devastator, that's probably the cleanest option. Uh, the second 1 would be a joint venture partnership with a a partner. Um,
We've seen that happen in industry a few times as well. And the third one is, uh, to radically shrink that business and make it, uh, even more profitable. And that would have...
You know, supply chain reorganization, that would have, uh, kind of the way, we manage that business implications, uh, to to enable speed and, um, even faster decision making, uh, because I think everyone sees it, but it's not just church. And Dwight, it's the vitamin businesses that were put into all these cpg companies. Uh, these businesses need to be run and managed a little bit differently. And I think, you know, we have the ability to do that. It just has to change the organization around it and the structure we would have. So
Uh, we need a few months to go through that. I think uh the the good news is some of the activity steps that we're have started on are working. I was kind of clear about that in the green shoot comment. Uh you know for example we've been putting a lot of focus on multivites, on innovation.
And, you know, we've been stair, stepping up and Improvement. We were probably on average down 24/25 for April and, and May and as we look at June, we're we're down, um, you know, in the teens and then the last couple of weeks we're down single digits, and for the first time ever, our units were actually positive. So
You know, urgency type of mindset.
Growth in the back half. I'm incrementally, even more positive today than I talked, 90 days ago, uh, category growth, improving our share gains are working uh, a lot of confidence in the 2 and a half percent, uh, back half number. And uh, even you know, July I would say came in uh, above that number. So um, a lot of a lot of good work and efforts across many of our brands with with laundry. It's, you know, you want to have the right um, the sizing strategy, right. A lot of consumers are are trading up to larger size.
Uh, make sure the price points on those sizes are correct. So you can promote them correctly at times and uh, and then you know, laundry and litter are very similar. They're um,
It's a, a pricing sizing value equation that we're really good at and we can move quickly on. Uh, so that's we've been successful across many of our brands for that reason.
Okay. Thanks. Rick.
Your next question comes from the line of your cash per week with Oppenheimer.
Please go ahead. Good. Good morning and thanks for taking my question. Uh yeah, I guess just going back to retail or destocking. Comment, is there a way to quantify the magnitude of that headwind? And then whether it was broad-based across retailers and categories and then I have 1, follow-up question.
Yeah, we're pass. It's Rick, you know, we, we, we talked in q1 that it was around a 300 basis, point drag, uh, to, to our net sales versus the, the consumption numbers. I think we would ballpark it to be around 100 basis points in Q2, you know. And in my comments, I said, maybe it's slightly there in Q3 and Q4 as we go forward. But inventory levels are pretty good. The only impact and you, you heard this from other competitors is, as sales grow faster at club or online or at Mass. Um, it does have a little bit of a mix component to it. That, uh, there's just not as much inventory needed in the system. And as you would expect, when Khan category growth is a little bit lower than historical averages, you don't need as much inventory either. And so I think it's just a it's a, it's kind of a, a slight impact. Uh, but I I wouldn't call it a material impact going forward.
Great. And then my follow-up question. Just just on touchland. Now, that the acquisition is closed would be just curious on what you see. As you know, I guess a bigger priority is for the balance of the year for, for that business.
Yeah, yeah, we're super excited about about touchland. I think, um,
Again, like you can't track that business as well because it's sold largely at Sephora and Ulta and Amazon, but when we look at our kind of numerator data, or even the Amazon data, you know, it's driving category growth. Like half of all category growth coming from touchland, uh, new users household penetration is still a great story. A lot of Runway there. Um, you know, 6% household penetration for touchline versus the category at 37%.
There they, they have uh incremental kind of near-term innovation on different fragrances and whatnot for hand sanitizer. The body misses still off to a good start going International is off to a good start. Um,
More, more to come later on, you know, other categories and innovation, but it is.
It is just a, a pleasant surprise is what I would say in the, in the, the team's energized, uh, the connections that we're making within church and Dwight and touchland are helping enable them, move with speed as they go after New Opportunities, uh, whether it's a different class of trade or, uh, a different distributor, or or whatnot. So, um, really happy with with, uh, with that growth rate.
Great. Thank you a possible.
Next question comes from the line of Peter grow with UBS.
Please go ahead.
Thanks operator and good morning, guys. Um, I I kind of wanted to, to follow up on the organic sales Outlook, but just in the context,
Of what you're seeing from a category standpoint you you touched on it to to Chris's question. The consumption is improved and we can see that in the data but I I guess the commentary seems to be at odds with a lot of what your HP. HPC peers are kind of discussing here in the last 12 hours or so. Um so I I know everyone is different some categories and regions but can you just talk about what you're seeing and you know, maybe why it could be different and and how you see that evolving through the balance of the year?
Yeah, and you got to remember, I think we were kind of early like we normally do.
The last quarter. And I think some of our peers called that kind of this quarter, um
um,
And and so we were calling category growth at like 1 or 1 and a half percent was our kind of our Outlook uh embedded.
When we were discussing it, and then as we, you know, time goes by.
The, the category growth for our largest category is not all of our categories, but the largest categories was closer to 2 and a half percent, uh, for the third quarter. And
And we've talked about this before as well. Just the, the odds of that was happening, you know, the the University of Michigan consumer confidence, uh, all the, the turmoil in the world on tariffs and that bred uncertainty. Well as some of that
Some of that has been mitigated. There's been a little bit more confidence, I think and category growth has we think is going to be closer to 1 and a half to 2%. Uh, as we move forward for for the year, it matters, what categories you're in. Um, I think that's the the the most concrete answer, I can give you, you know, some, some of our, uh, competitors are in different categories than we are, they have other risk to private label. They have other pricing risks but for us, uh, we see that more often than not, our categories are growing 3% over a long period of time, they're growing slower than that this year but better than what we expected, maybe,
90 days ago and meanwhile, our our, our tactics and strategies on Innovation and and pricing and promotion. And uh all those things are helping in our marketing spend is helping to gain share.
Hey Peter. All I would add is it's your point to Rick's point? We tried to lay out for the rest of the year here, back in back, in May 1st. And here today, there are steps to our Improvement and, uh, you know, the second quarter, you know, really hit those marks, actually a bit higher. And then, obviously, for the back half, we got 2 and a half percent organic complied. And, you know, we have steps to that and 3 q and 4 q. We feel very comfortable with the back half, just based on everything we see today.
Makes sense and I guess just the point of clarification Rick I mean on that 2 and a half percent, I think you mentioned to before that it's running ahead of that in July. So I just wanted to to clarify that that's a total company, organic comment. And I guess if that's the case, is there any sort of reason why you would anticipate?
Organic growth kind of decelerating to the, the 1, to 2% guidance, that you frame for the quarter.
Well, there there's always a comp, uh, you know, and I would, I would just say that our month of July it was the is the easiest comp that we had. As you look at the, the quarter, but it just gives us confidence because, uh, you have 1 month behind us and and it and it and it had a great had a great month. So, um,
You know, maybe it's conservative, but it it's what we think the environment is right now. It's so volatile that, uh, there's no reason to to take take the full year off after another 3 months. So, um, we'll see how the next, uh, 90 days go and I'm just trying to convey that we're off to a strong start.
Makes a lot of sense. Thank you so much. I'll pass it on.
Next question comes from the line of Anna Lisle with Bank of America.
Please go ahead.
Hi, good morning. Thank you so much for the question.
I was wondering if I could follow up on Peter's question here, just for hearing from peers in the space who expect an acceleration in the second half. While you don't have meaningfully different comps in the back half, I was wondering how you're looking at the consumer environment and your expectations for improvement or maybe lack thereof here. We're also seeing a variety of strategic actions from peers as well, including increased promotional spend and marketing support. I was wondering if you could further comment on your initiatives there. Thank you.
Sure. So, you know, on the consumer, my answer is pretty much what I, what I gave Peter, you know, just a lot, a lot of confidence in in our growth and it's not just the categories story for us. It's also a Share story, right? And we're, we're driving, uh, growth and mouthwash, even when the categories, uh, growing slower than that, uh, we're we're taking share same thing with acne and acne patches, uh, same thing with touch,
Um, many of our, Our Brands, not just 1 or 2 of them, are are getting sure over time. So that's why again we have we
If you look back at our long track record, ten years plus, we tend to gain share in about two-thirds of the time periods we're looking at.
Uh, so that's on the consumer.
In terms of, uh, I think your other question was just what initiatives we have and strategic, uh, initiatives. Look, we are.
That's part of the reason that even when we came out in the first quarter and lowered our earnings for the year, pretty early, uh, we said that we are going to protect that marketing spend. And in Q3 is actually the highest, um, quarter of the year, uh, you know, between 12 and a half and 13%. So that's a, uh, we're investing behind the business. We're investing behind the brands, we're investing behind Innovation, there's some Innovations launching in the back, half that we're really proud of as well. That that'll be supported. Uh, we'll talk more about that next quarter.
um,
so that's kind of where we're at. We're investing behind marketing, we're investing behind, uh, you know, price pack architecture where we need to. Um,
And we feel like we're in a good spot to continue to gain share over time.
Okay, great. Thanks so much.
Your next question comes from the line of Da mo mo mo with Morgan Stanley. Please go ahead.
Hey, thanks.
Um, maybe extending the last couple questions a bit as as we look Beyond 25, just any thoughts, Rick on your ability to return to the Evergreen OSG targets after this year. Are you looking at this year as more of an aberration, understanding a lot of the weakness earlier in the year, things getting better sequentially? But you know, not being all the way back to Evergreen yet. So just, I know there's a lot of volatility. There's a lot going on, but how do you think about, uh, organic sales growth as you look?
Look Beyond this year, particularly with an easy comp in theory with the inventory Cuts this year.
It is to hit our Evergreen model each and every year, year after year, and we've been a model of consistency in doing that. I think this year is an aberration. When you have categories, like we said before, that all of a sudden for the last ten years have grown around 3%, it started out growing.
In q1 1 and a half percent. And then the first couple weeks of April negative that gave us pause. Uh, I think with the volatility in the world today and and the pressure on the consumer.
Um, and the odds of the tariff situation that just moved categories in a bigger way.
Uh, so I do think it's a bit of an aberration. I have a lot of confidence in the Evergreen model for not just one year or two years, but that is what we are supposed to do each and every year. We have some brands that are growing faster than the Evergreen model, and we have made some portfolio decisions on other brands that are growing at a lower rate than the Evergreen model. I think that does nothing but strengthen the portfolio in the company over the long term.
Great that's helpful. And then just on Batiste, it's been a great growth brand in recent years, slowdown in Q2 you sell more optimistic in the back half you touched on it a bit. But can you just give us a bit more detail on what what's happened here in the last few months? And sort of a plan for the back half and the optimism? You have their thanks.
Sure, well, it's, uh, it's never 1 thing. It's always multiple things. That's what how life, and how business is so. Um, part partly, we had some supply chain challenges that were back, uh, in recovered on so that's a piece of it.
uh,
We are introducing some innovation, right? And we have to make sure the advertising and the trial generation activities for that are lined up appropriately. And so that's still early days.
Uh,
we also had a competitor, take a massive price increase and introduce different sizes as well. And so when you, when you have that kind of changes and disrupts the category from a pricing size and perspective, so we're taking a look at that.
Um but meanwhile you know we have to make sure we're really clear. Batiste is the leader in the category. It's brought Innovation, not for 1 year, but for for decades and uh consumers Delight in in Batiste um
We have led that category with innovation. We've led it with, uh, you know, kind of a value as we traded people up to larger sizes. Uh, but we're in a difficult economic environment right now, so we have to make sure we have.
Size of the appeal to all all price points. And so that's what the teams working on. Uh, and some of those things will be dealt with immediately. And some of them are kind of medium-term, but I have a lot of confidence. We're going to get back uh to share gains and Batiste uh in the in the in the medium-term future.
Thank you.
Your next question comes from the line of Bonnie Herzog with Goldman Sachs.
Good morning. I actually wanted to Circle back with a question on the promotional environment. You know, we've seen increased couponing activity, across broader HPC, and then scanner data is suggesting that sales on promotions have been rising. So just curious to hear what you've been seeing in your categories and if you expect the promotional landscape to get even more aggressive in the back half of the year. And I guess in that Vein Rick, you know, how should we think about net price realization going forward especially within your consumer domestic segment?
Yep. Hey, Bonnie. Good question. I
Think is laundry and litter. That's the predominant amount of, of promotion. I would say it's kind of, uh, a Divergent story litter. Actually, that category has spiked up, uh, above historical averages. If you look back at a long time, uh many many quarters, it could go anywhere between 15 and 18 over years. It's about to to 21 in in the quarter. We were actually down a little bit. Um,
Uh, Nestle was up dramatically and as they are promoting their their lightweight litter in a big way. Um, so that was litter. Uh, laundry actually is very consistent with the previous few quarters. Um,
Laundry detergents, typically in the low 30s. And uh, for the last 12 months, it continues to be in the low 30s. So, uh, we were, we were up a little bit, but we're still in the low 30s. I think, uh, in general, uh, laundry has been pretty rational
Uh, litter has been elevated, and then, vitamins to some degree, uh, is always a promotional category, but that's, again, a little bit smaller business than the other two for us.
Okay helpful. And then maybe just a quick question about your gross margin guidance for the year you know with end market trends you know sequentially getting better and you know your guidance suggesting top lines going to accelerate in the back half. Um could you just maybe touch on the the puts and takes including tariffs on the expected declines on Gross margins especially in Q3. Thanks. Yep. So good morning Bonnie. Um yeah. So as we talked about you know, we say number 1 here at gross margin is still in the 60 basis point Zone. But you know, obviously there's some moving pieces that have happened. Um, as we noted, you know, tariffs have not materially changed. Um, for the year though, the, the 12 month number is gone up a bit, but there has been a bit a bit of a timing piece so there's a bit more in the back half than we initially. Um, estimated that certainly shows up in 3 Q in particular, um, you know, still driving, uh, productivity, um, and, you know, overall that you still keeps us in that same Zone.
Home, as we just talked about, you know, we did have a little bit of a negative price in the second quarter. Now, the majority of that was tied to our recall. Um, certainly is, you know, a little bit of discounting going on like a more normal environment; you have that in there. But, um, you know, that's the balance again. The biggest piece is just the tariff inflation. Inflation is still staying sticky. We keep driving productivity. And, you know, I think it probably be a good time to reiterate, you know, we've done a really nice job managing the tariff topic, and it's, you know, really that number is just a timing change for us. The absolute value for the year hasn't changed. We've been very proactive at managing it. The 12-month number has gone up, but again, if we hadn't done all the actions we had taken, you know, we'd have a much bigger headwind. And we're just focused on driving that through productivity and probably some strategic pricing as we look forward. Yeah, I'm actually really pleased with uh,
Kept 60.
Points of a decline as our outlook, and we absorbed a lower.
Gross margin number from these discontinued businesses as they ramp down right as you, take inventory, reserves for them. As you as you, uh, do the proper run out of those businesses. And uh, we had a recall that happened for, as I came in Orange up business, that impacted us. And despite all that, we were able to maintain margin
All right. Thank you.
Your next question comes from the line of Steve Powers with Deutsche Bank.
Please go ahead.
Uh, great, thank you. Um, first just real quick circling back on um on VMS and and um, thinking about different strategic options. Just, you know, if you were to separate that business, can you talk a little bit about? Um, just how compartmentalized that that business is and how easily, you know, separable, you know, it is relative to any kind of stranded overhead considerations that you'd have to work through and then we should be thinking about
uh, so that business, you know, we
Is.
Has separate manufacturing uh facilities in Vancouver Washington. It's in our uh also in our York Pennsylvania uh manufacturing facility, but it's within its own 4 Walls. It's like a plant within a plant, uh, within that facility. And then
Uh, as you would think, you know, R&D and, uh,
Supply chain and marketing. All those functional supports tend to be a little bit separate because it's its own largely SBU.
There are support structures within the corporation. Uh, and so there are some allocated costs, and if we did go down the route of selling, we'd have to address the strainer costs. And uh, that's normal with any business. We just did that with the uh, the Spin Brush, Flawless, and Water Pick shower head. Um,
You know, rundowns, I think the big thing for us is.
You know, at the same time, we're also adding growth, right? We're also adding, um, touchland and so that helps offset some of those leverage fixed costs as well.
Yeah. Okay perfect, thank you. And then Rick, you know, um,
I was setting aside the work that's being done in HPC, you know, on portfolio rethinking, you know, across a lot of companies. We're also seeing, you know, companies um,
You know, kind of Double Down uh on productivity announced new new restructuring. Um, and on the back end of that, you know, theoretically sizes will be stepping up investments in technology and Innovation go to market capabilities, Etc. Um, so do you think about your business? You know, again, notwithstanding the the portfolio work. You've done. Just how do you think about, um, your spending levels and your capabilities? How do you Benchmark them against peers both today and and where you think kind of the puck may be going? Um, and is there any, you know, you know, contemplation of having to um, do something similar from a restructuring in and accelerator reinvestment program. Thank you.
Yeah. Steve, you've been following this company for so long as well. We've never really done a restructuring program. We're more of a pay as you go type mentality. I mean, I think the only time we've ever called out anything was when we did a re-implementation of sap.
And that was kind of a 1-off. But um what we what we tend to do.
Is.
And any 1 year, we could extremely, we could, we could go past our, uh, outlook on earnings growth, for example, but we tend not to do that. We tend to, to make investments for the long term and though and we've been doing that for years. And so we make investments in some of the analytics, uh, we put a center of excellence in place, you know, we would have we put a price in group in place we we, um,
we're looking at, um,
I know, we've added infrastructure to our international team in a, in a big way. We have Senator centers of excellence over in Europe for the for the really the export business. Uh we're looking at you know, more local Innovation, more local manufacturing but all those things, we tend to embed in our Evergreen model and that we kind of pay as you go.
Very clear. Thank you very much.
Your next question comes from the line of Andrea Tara with JP Morgan. Please go ahead.
Thank you. Uh, I want to go back Rick to your comment about, um, how to, um, how to think about this categories as you were discussing. And also in general, as you step back, uh, in terms of Acquisitions like keeping, um, Innovations for, um, uh, be it batist or be it. Um, now hero you have the
The body patch. Um, how are you going to be able to continue to innovate, and how are you seeing percentage of sales coming from that? Innovation accelerating in the second half? I know you might be pumping some of the laundry. Um, the laundry innovation that you had, as you enter 2026. So how should we be thinking of that? And then, conversely, I think you have always said about 20% of your revenues come from value. Are you gaining share in that segment of your portfolio, or are you seeing that stable? Thank you.
Came in our lanera, who's our head of R&D? He really changed the way. We, we innovate, and we went through this at analyst day a little bit, but we have so many different vectors. Now, of innovation. And so, for the last few years about half of our organic growth is coming from Innovation, which is just, I think industry-leading and it's, and it's fantastic. Um, so if
if uh,
If innovation.
Last year was um close to 2. It's probably closer to uh our Outlook was probably closer to 1 and a half as we started the year. It's probably around 1.2 or 1.3 just as still phenomenal. But uh, in type in in times like this, uh, when the consumer is pressed, sometimes they don't reach for the Innovative new product initially. So, um, we're still really happy with a lot of innovation. We're putting our, you know, programs in place for sampling and for trial uh but across the board like, if you think but take a step back, you know, deep clean Innovation on laundry has been driving category growth and and category expansion and and share gains for us. Uh, lightweight litter has been growing category growth. Um, our brand to grow and share gains for us. Uh, Batiste light hero, uh, Thera breath incremental, sizes and and and flavors. So Innovation is alive and well and really a growth driver.
Uh, on value share, I think you're right. I know part of our portfolio is...
Premium part of it is value. Um, more recently as hero and the breath have outsized. Growth are the premium kind of mix of our business has grown faster. Uh, but the value portfolio continues to do really well even if you look at Orange Box and litter, I mean Orange Box and litter is, is growing around 4%. Uh, there's not this massive trade down or trade up happening, but, um, orange box and litter is doing well. I'd say, Arm and Hammer the brand and laundry is doing fantastically well. Uh, we have a good better best strategy there it's, it's, um,
Probably the the better and the best tears are growing faster than the good tears and and Armand, Hammer laundry, but those good and I mean um, better and best tears are still a great value to the higher end premium large laundry detergents. So that's 2 of your questions. What was the third first question? Kind of a categories, right?
Yeah, no, the the carrier. Yeah. Thank you Lee. Uh, the categories. Um, as you as you think about the exits that you're making, right? And and I think now, you correct me if I'm wrong, it seems like you're saying, well, perhaps we are going to do JVS and and, and, and think about, uh, being creative on how we're going to look at this life after churches. So, just to um, to think perhaps, if it's going to be just an exit. Or uh or perhaps, you can still be hopeful to
To sell them.
Oh, well yeah. On the vitamin business, right? It's the cleanest scenario. Is there's a, uh, a sale if you do a JV, it's because either your partner doesn't have all the capabilities that they would need to run it. And so there's, there's a transition period over time, most likely and we've seen that in other other categories, other Industries. Uh, and then the third 1 is, how do you write size it and grow more profitable and kind of take it out of its, um, of of the cpg framework of operating in a little bit more of the vitamin, um, um, Paradigm and operating the business. So, those are the 3 scenarios. And, um, and like I said, we need a few months to, to work through the, the optimal path and we'll report back by the end of the year.
And if I can squeeze 1 1 on the margin, are you implying and and sorry if I missed that that you going to be taking pricing because a lot of your competitors are saying we're taking pricing even in the US. Um can you comment on any pricing? Um that is not uh, list pricing. That is not coming from Innovation. Yeah, I think we we kind of mentioned it in the
In the release or in the transcript, but really, um,
Look, we're going to do our best to offset the tariffs as needed, and
Uh, where we can't do that, and where we believe. Um,
It's needed; we'll take some targeted pricing. So, um, that's the plan.
It's going to be a cross support portfolio but it will be targeted in specific where where uh, we get hit the hardest with tariffs that we and we can't. After we've done all we can do to offset uh that's what that's what the next PATH forward would be.
Okay, thank you.
Okay, next question comes from the line of Lauren Lieberman with Berkeley's. Please go ahead.
A little bit earlier, um, but I wanted to just kind of revisit that a bit. I know on laundry, the um, you know, the hovers around this kind of 30% rate, generally speaking, over time. Um, we've seen some kind of more elevated activity from Church & Dwight and Arm & Hammer in certain retailers more recently. And I know there's like, it just happens, you know, what day you're in, what store? So it's a matter of luck of the draw.
Um, I just wanted to get your perspective on, you know, further leveraging promotion in liquid laundry. Um, particularly we've got this time with the consumer under more pressure. The way to kind of bring forward the message on the, you know, the value of the brand, etc., and just kind of thoughts on promotion from here. Thanks.
Yeah, I would just rant if that's my comments. Like, if you look back a couple of years, uh, with history, and I have it right in front of me, like, we've averaged anywhere between, you know, 31 to 33 amount sold on deals for Arm and Hammer laundry detergent. Um, this is in IRA or Nelson, and in Q1 we were at 31 and Q2 we were at 33.
So, I think we're right where, um,
Is considered as historical. Uh, we didn't take. Remember I said last quarter, a couple other competitors, uh, had compacted a couple. Other competitors has had taken price. Um, we we didn't do that. I mean, we had done the compaction, maybe 18 months ago. So they, they were, they were kind of catching up. Uh, so I feel like we're right in the realm of normality. And I think, the category,
This.
Too. Okay, and just as a follow-up, just the depth, so not just the frequency, but just anything on depth of promotion.
I mean the depth of promotion. Uh, it's a good question. I would say our depth of promotion has not changed. Um,
At all, like, um, okay, we, uh, sometimes we line price certain SKUs in order to make sure that they can all hit the promotion. Uh, price and sizing matters a lot, um, in this type of environment. You know what your opening price points are and what your, your kind of your pricing curves up to the large sizes. But I would say depth hasn't changed either. Yeah. And Lauren, if you look at the second quarter, as you see a little bit of negative price, but again, you know, majority of that was related to our recall. So to your point, it's a nominal amount so far.
It's right in line with Rick's comments.
Okay, perfect. Thanks so much.
Your next question comes from the line of Olivia Tong with Raymond James.
Please go ahead.
Great. Thanks, good morning. Um, I'm going to start with a bit of a short-term question, question, but you had mentioned that July, you had a particularly easy comp. And, uh, so a good growth off of that. Can you talk about the comps for August and September? If there are any call outs that there and then across your categories, peers have obviously talked about trade down both within their portfolio and then out of their portfolio. So, to what extent is trade down, a factor for you both, in terms of you,
The negative of trade down from black to orange and litter versus factors that are a tailwind to you, like laundry. Thanks.
This is a benefit for us. And I think we've said this a few times, but there needs to be, I think, more recessionary type,
Behavior and discussion before trade-down really happens. I mean, the consumer is still resilient.
Even though they've faced all this inflation and and whatnot over these past few years, but typically, when recessionary behavior and and economics are happening, that's when extra starts to grow by Leaps and Bounds, that's when Orange Box outpaces Black Box, uh, a lot. So right now we're doing well in my mind I mean you see that with all of our shares scorecards we are um our value brands are growing share uh as as consumers are tight. But our premium brands that our problem solution Brands continue
Continue to gain, share as well, and that's the, their breath, that's the hero, uh, Nars doing really well. Um, so I know absent. The recall stuff Origins I was doing well. Um, so again, it's, it's a cross section. Um,
And then your first question months, you know, oh, the months, I I we're not going to make a new practice of talking about months, I'm sorry. Like I just wanted to give give a sense, um, that there's a high degree of confidence 2 and a half percent in the back half. That's, that's my point. And and all I would add is to your point. You got that confidence in 2 and a half. And we obviously talked about the category growth and the US performance and probably, you know, should be noted also just the international team consist consistently performing again despite some of their macro challenges as well. So I mean that's all embedded into that outlook for the back half.
All right, got it. And then, um, just thinking about the portfolio overall, you know,
Vitamin strategic on the alternatives. What have you? What's your view on some of the other underperformance, particularly in personal care? As you think about positioning the company for faster growth and freeing up some resources to drive that.
Yeah, I feel like, um, look, uh...
Portfolio decisions.
Aren't done lightly. And um,
and I feel like we've been
Very agnostic on where to go and, uh, kind of where to play and how to win. Like it. We're taking, uh,
A white piece of paper, and going through that with the board on here are the brands that we think, um,
Have a reason for being for decades, and you saw kind of the output as we fast-forwarded. Those decisions, once tariff implications happened, if those were already underway and under discussion.
And so that was really a portfolio. You know, part 1, uh, vitamins—that discussion, you know, we've done our best to turn that around; some green shoots. But, uh, that's why we're talking about strategic alternatives today about vitamins.
Uh, there are no further plans in the shorter medium term to go through any other portfolio. These brands, uh, are great brands; they have roles. Some of them might be cash cows versus the primary growth drivers of the company, but they all have a role to play, and uh, we're happy with the brands we have.
All right. Thank you.
Your next question comes from the line of Philippo Balori with City.
Please go ahead.
Hey, good morning everyone. Um, I wanted to ask on the Tariff first um, within the 30 million uh that you got it for the year which is unchanged. What are really the countries that are getting impacted within the 30 million? I thought there was some China left still very impact there. So just curious there and then outside of tariffs, um, in terms of Commodities, what is your expectation in terms of your input cost basket or maybe you can walk us through some of the major, the major swings there? Thank you? Yeah, good question. So I'll start off with the the just the broader in inflation. It's interesting you know it's still still holding in there. So if you think about what we talked about for the you know normal amounts of inflation we're seeing that you know as we laid laid out for this year it it crept up a little bit earlier earlier in this second quarter just going to come back to still and know you know still a slightly elevated level.
You know, the tariffs, you know, I'll I'll State this number 1, very, very proactive. So obviously we've done all the things to, to manage through China. So after that, you get into Korea, Thailand Vietnam, Europe, those are kind of our top. They make up about 73% of what left, um, even the change is just overnight actually even, um, you know, net, net makes that number, you know, even a little bit, a little bit better. Um, so, either good thing is, you know, we're down to, you know, whether we look at it by by country, look at it by product line, it's kind of 3 or 4 and we get to a large portion of, you know, what we're facing here. So, um, you know, again this proactive nature says, hey, we're not talking about a change this quarter. We're just talking about how we're going to manage it. Uh, going forward here. And again majority will be through our productivity programs and then we'll, you know, we'll look at some some pricing as well, and some targeted areas. Yeah. And just to reemphasize, it changes all the time, right? I mean, even in the release, we put, we put 60 million dollars for our run rate for for 12 months.
And even with the decisions overnight now it's closer to 50 million dollars. So it's it's going to keep doing that. We have to the good thing about our company is we can move with speed and and uh
And agility, and that's what we have done. That's what we're going to continue to do.
Great. Thank you guys.
Your next question comes from the line of Robert Moscow with TD Colin.
Please go ahead.
Hey, thanks. I just want to know if you could touch on, um, a little more detail on the international business. You know, it continues to outpace the rest of the portfolio. And um, I remember a key strategy of this was to expand us Brands into these markets either who export markets or or where you operate your own businesses. Uh, can you give us update on how that's doing? Like, how is hero doing? How is thorough breath doing. And in a slower Market, is it, is it getting harder to uh, introduce them and and gain, uh, attention, thanks.
Yeah, great question, Robert. I, you know, I'm so pleased with how International is doing—International growth. Uh,
You know, Miss single digits, sometimes high single digits.
as we as we have local Brands, like, stemar even batise kind of growing all over the world, but as we also have these recent acquisitions, like their breath or hero,
And we've talked about it before, but Hero was in 50 countries within 12 months. I mean, that's fantastic for us to be able to get all the regulatory work done to do that. And we're benefiting from that in a big way. There's a strong demand for Hero in therapy all over the world. Many of these countries that we talked about.
They're having the same economic malaise that that the US is and so uh, when categories are are zero to maybe negative in many of these countries, some of our competition. If you look at it is actually declining in many of these countries. Uh we're growing and we're growing mid single digits more often than not. Um,
Because of some of the acquisitions and new brands for new retailers that are driving growth for categories and the story we have here.
Uh, and so we have I, I guess the answer is. Yes, we're we're doing, uh, brands are continue to to grow existing Brands and, and other countries all over the world. Uh, the new acquisitions are doing really well. Uh, and I think we have, we're an early early Innings. There, there's more momentum to come. And, and then finally, um,
You know, we continue to look at.
um,
acquisitions.
Independently, both in Europe and China, I think that team is ready for it. We just need to find the right fit.
uh,
and um,
And we look at what countries we should become a subsidiary in the future. Like, there are a whole—there are like 4 or 5 pieces of growth for international, but they're doing a great job.
Thank you.
Your last question comes from the line of Kevin Gundy with BNP paros.
Please go ahead.
Great. Uh, thanks morning. Everyone. Uh, thanks for the question. 2 2, quick ones. At least I hope they're quick to follow up on. Lawrence question, Rick, you guys sound fairly benign on the promotional environment? You know, I asked this in the context, there's there's competing narratives. You guys sound fairly benign, your key competitors, suggesting that things are ramping. The Nielson data would suggest things are ramping, particularly around Arm and Hammer. So with that context, what do you have embedded in the back? Half of the year for promotion levels, particularly for households, which is where you see most of the promotion.
And if the answer is like, we expect more the same, which your, your characterization was relatively flat. How much cushion do you have to respond? Because it seems like your competitor will and then I have a follow-up. Thank you.
yeah, I mean look uh, you guys um
I can ask all about promotions. I kind of gave you the answer. Q1 and Q2 are within historical norms and laundry.
There's not much more to go there. I mean, some of our competitors, uh, were lower on promotion, in Q2 2025. Uh, but you got to remember it's all about the net price point and they took price as well. So sometimes when uh, you look at promotion, you got to make sure your factoring with the net. Net price is
so, I would say,
Promotion for us is consistent with uh, the last 3 or 4 quarters, uh, maybe even 4 or 5 quarters and in the back half, uh, you know, promotions are already set for the back half. They've they've been sold in for a while now. So,
um,
In this environment, we saw, and maybe it's because we saw it.
Further a field than most. But, you know, 6 months ago, uh, 9 months ago, we were seeing how some of the promotional volumes weren't as effective because everyone, you know, category was there, everyone's everyone's promoting, um, across many different categories. And so we made sure we put the plans in place even, you know, late last year, early this year, for the whole promotional calendar. So I have a lot of confidence in in our laundry business, our laundry business in the month of um, June and July is it continues to gain share, uh, continues to do well and I think part of that's promotional but I think part of that is is innovation and deep clean continues to do well, hit hurdles and and drive category growth. So,
long answer, but
The facts that I look at.
Um and and and minimizing the potential risk. That there's another leg down in the business because you don't, I, I think just intuitively when these sort of announcements are made, it shows sort of a decommitment to the asset to retailers and the business is struggling. And so from investors perspective, you know if this goes 2 3 4 quarters like how do you protect against another leg down? Um, so your your comments there would uh would be helpful as well. Thank you very much. Yeah, look, we're running this business like we're going to own it forever and, and that means that the, the, the amount of time and energy, we spend on Innovation doesn't change the amount of time we spend on On promotional and pricing and programming doesn't change. Um,
That's how we have to run it and then if there's a strategic choice to do something different, then that's what we do. But that's what our communication will be with the retailer. Um, it's just they want to, they want to they want, but a fusion and a little curves to be successful too. That's a big brand. Um, and so we're going to continue to show them the Innovation and continue to show them. Um,
you know why we believe it can grow uh categories after we get through this kind of TDP down cycle. Um,
but at the end of the day it's um they're they're good brands and uh I think for us we're spending an inordinate amount of time for what's relatively a small business and so that weighs into my thinking on how much time the organization spends on
Um, supporting a business of that size, uh, versus the benefit, and that's part of the kind of strategic decision too.
Okay, very good. Thank you guys.
No, like to turn the call back over to Rick dierker for closing remarks, please go ahead.
Okay. Well, uh, thank you everyone, uh, like likely. And I said, um, a lot of confidence as we look forward. The company is doing extremely well, uh, in a tough environment and uh, we'll talk more at the end of October on our next call. Thank you.
ladies and gentlemen, this concludes today's call uh we thank you all for joining and you may now disconnect