The operator introduces the Church & Dwight Third Quarter 2023 Earnings Conference Call and reminds listeners of potential forward-looking statements. CEO Matt Farrell reviews the company's Q3 results, including a 10.5% increase in reported revenue and 4.8% organic revenue growth. Gross margin expanded and marketing expenses increased. Adjusted EPS was higher than expected due to strong sales growth. Positive volume growth was seen for the first time in eight quarters and online sales continue to grow. The CEO also briefly mentions the economy.

The U.S. and major international markets have low unemployment rates, but household balance sheets are stretched due to lower savings and higher debt. Higher interest rates and oil prices may lead to a trade down in consumer spending. The U.S. consumer business saw strong organic sales growth, driven by volume and market share gains for seven of their 14 power brands. Private label market share in their categories remains stable. In the laundry category, ARM & HAMMER saw consumption growth and held market share, while their extreme value offering, XTRA, also saw an increase in market share.

The company has launched a new unit dose form of detergent called ARM & HAMMER Power Sheets, which has been well-received and was the top-selling laundry detergent during Amazon's September Prime Day event. ARM & HAMMER Litter also continues to perform well, with steady demand for their premium offerings and growth in market share. In the personal care category, BATISTE dry shampoo and HERO acne treatment have both seen strong growth and have room for further expansion in retail distribution.

Church & Dwight is experiencing growth potential with their HERO brand and THERABREATH, which recently acquired. THERABREATH has taken over the number one share position in the non-alcohol segment and is expected to be a long-term grower for the company. WATERPIK and gummy vitamins have stabilized and are working on regaining lost distribution and consumers. International sales have increased by 7.3%, driven by STERIMAR and OXICLEAN. The only decrease in sales was due to one product line, MEGALAC, which is facing competition from inexpensive imports. The company expects positive volume growth in Q4 and has raised their sales outlook while maintaining their full year EPS outlook.

In the fourth quarter, Church & Dwight is planning to invest in the business to continue its long-standing practice of reinvestment. The company's business model is working well, with both value and premium offerings performing strongly and new products contributing to growth. Acquisitions are on track and the company's strong cash generation allows for the addition of new brands to its portfolio. In the third quarter, adjusted EPS was $0.74, higher than the expected $0.56, thanks to strong sales growth and gross margin expansion. Net sales were up 10.5% and organic sales were up 4.8%, with over half of the growth driven by volume. Gross margin increased by 270 basis points primarily due to improved pricing, volume, productivity, and the impact of the HERO acquisition. Marketing expenses also increased in the third quarter.

In the third quarter, SG&A increased due to higher incentive comp, improved business performance, and acquisition-related expenses. Other expenses also increased due to higher interest rates. The effective tax rate for the quarter was higher than the previous year due to a non-recurring state tax benefit. Cash from operating activities increased due to higher cash earnings and improvements in working capital. The company expects full year sales growth and gross margin expansion to be higher than previously forecasted. Inflation is expected to result in $120 million of higher manufacturing costs for the year. Marketing and SG&A expenses are expected to be higher compared to the previous year.

The company's SG&A is expected to be higher than previously anticipated due to increased investments in R&D, incentive compensation, and a bad debt reserve. The company plans to continue investing for future growth through higher marketing and R&D spending, as well as efficiency improvements. The company expects a 6% growth in adjusted EPS for the full year and approximately $1 billion in cash flow from operations. Q4 is expected to have a 5% reported sales growth and 4% organic growth, with a focus on HERO, Litter, and THERABREATH. Gross margin is expected to expand, and there will be a significant increase in both marketing and SG&A expenses. Adjusted EPS is expected to increase by 2% compared to last year. The company is focused on building momentum for future growth.

In this paragraph, Rupesh Parikh asks a question about the specialty product segment and its performance in the coming quarters. Matt Farrell and Rick Dierker respond by stating that there will likely be weakness in the segment for at least one more quarter and possibly even in the first quarter of the next year. They also mention that the company has been investing in promotions and customer profitability, which may have limited organic sales growth for the full year. They cannot quantify the impact of not running certain promotions until the end of the quarter. The next question is from Bill Chappell.

In the paragraph, Matt Farrell and Rick Dierker discuss the distribution and demand for HERO and THERABREATH products in the upcoming year. They mention that while the comps may be tougher, they expect to see full year benefits from distribution gains for HERO and increased shelf space for THERABREATH. They also mention an accelerated spend in 4Q, potentially in SG&A, to keep EPS guidance in check.

In response to a question about investments in 2024, Rick Dierker explains that most of the investments will be in SG&A and that they are mainly focused on expanding into new countries. In a follow-up question, Chris Carey asks about recent promotions in laundry and whether they will continue. Matt Farrell clarifies that the promotions occurred in Q4 of 2022 and were not repeated due to their low payback. When asked about high-level thoughts for 2024, the company states they will provide guidance next quarter but mentions positive volume, gross margin, and productivity momentum, as well as easing inflation. They also mention that they have rebased investment spending for the current year.

Matt Farrell, speaking on behalf of the company, expresses confidence in their recent business performance, with a 5.8% organic growth in the consumer business in Q3 and an expected 4% growth in Q4. They also anticipate a consecutive quarter of volume growth and expect to continue this trend for the next four or five quarters. While their gross margin may fall short of their high watermark from 2019, they anticipate expansion next year. They are also pleased that they were able to bring marketing expenses back to pre-pandemic levels. Additionally, they have a strong new product pipeline for 2024. A question from Steve Powers about the fourth quarter guidance reveals that the company may need to achieve a higher earnings per share than previously thought. There is also a question about the expected gross margin expansion of a couple hundred basis points.

In a recent conference call, Matt Farrell, CEO of the company, addressed questions about the company's EPS and gross margin expansion in the fourth quarter. He explained that the difference in EPS can be attributed to the company's decision to not repurchase shares in 2021, while they may do so in 2023 for 2024. As for the gross margin, Farrell stated that there will be a big tailwind from price and volume mix, but a slight decrease in productivity and an increase in manufacturing costs due to inflation. He also mentioned that the company's original plan for 2021 and 2022 was to consider all options, but they may repurchase shares in 2023 to offset share creep.

The speaker discusses the impact of COVID on the company's earnings and plans for the future. They mention three specific issues that affected them in 2022 and the steps they are taking to stabilize and grow their business in 2023 and beyond. They also mention the decline in their VITAFUSION business due to distribution losses and their plans to regain shelf space and return to growth in 2024.

The company's focus is on winning back shelf space in 2024 and they have seen success with their gummy vitamins on Amazon. They are investing in marketing and packaging to drive awareness and regain momentum. They are also well positioned for consumer trade down, as seen in their shares in the litter category. In laundry, they have been seeing trade down since the middle of 2022 and have seen growth in their deep value detergent.

The speaker believes that their company's portfolio is well positioned for a difficult economic environment as long as unemployment stays low. They also mention that liquid laundry, unit dose, litter, and vitamins have all seen an increase in sales on deal in the past few quarters. The speaker then responds to a question about their company's expansion into the beauty market, stating that they have focused on acne-related categories with their product HERO in the past, but are now considering expanding into retinol, eye cream, and balms. They are generally positive about the company's potential in the beauty market.

Matt Farrell, CEO of the company, discusses their main objective of winning in the acne category and their plans to launch in many countries in 2024 with their brand HERO. They have a strong focus on acne patches and want to avoid getting too distracted by other categories. The recent move of HERO into the organic market is not expected to have a significant impact on Q4 sales growth, and the company remains confident in their strong sales momentum.

The company has discontinued some promotions, which was unexpected for some people. They are confident in their Q4 numbers and are accused of being conservative. They take a long-term view and are confident in their future. There has been higher marketing and investment spend, and the company is investing in various areas, such as litter sales and advertising.

The speaker discusses the company's plans for the fourth quarter, including new product launches and increased focus on sampling. They also mention potential clinical trials and supporting both struggling and successful businesses. The speaker clarifies that the expected volume decline in Q4 is not as significant as previously stated and attributes it to reduced promotions. They also address the length of time this strategy may continue.

The speakers discussed the promotions and strategies for Q4 and the impact on the company's portfolio. They also talked about the consumer trend of trading down and its effect on the company's growth. The topic of shelf resets for vitamins was also brought up, with the company expecting it to take 12 months to get back to their desired shelf position.

The speaker addresses a question about trade down and explains that the company's portfolio performs well in both good and bad times, with some brands doing exceptionally well. They also mention that consumers have a choice and can trade down, giving an example of ARM & HAMMER Laundry. They urge everyone to keep their questions brief and to the point.

The company experienced a marketing shift out of Q3 and Q4 due to high demand for their laundry sheets, resulting in a shift of marketing efforts to Q4. The company's laundry portfolio includes a range of products from extreme value to mid-tier, with plans to expand into the pod market with their sustainable sheets. This may cannibalize some of their existing products, but they believe it will attract new customers. The next question from an analyst is about gross margins.

The speaker asks the CEO, Matt Farrell, about the company's progress and their target for 45.5% growth. Farrell responds that they will discuss details in January or February, but they expect gross margin expansion due to productivity outpacing inflation. He also mentions that pre-COVID margins should be higher due to new personal care products, but it will take two to three years to reach their target. The speaker then asks about the M&A environment and potential assets that may be of interest.

Matt Farrell, CEO of a company, is discussing their promotional strategy and potential acquisitions. They have a strong balance sheet and are actively looking for new brands to acquire. Interest rates may affect their decisions, but they are focused on long-term growth. They have also been implementing revenue growth management, starting with their international business, and are discussing tactics to improve revenue.

The company's US business has reorganized to adopt successful practices from its international subsidiaries, and revenue growth management is being implemented to make decisions about unprofitable promotions. In response to a question about inflation, the company's representative stated that they expect inflation to be higher than average next year due to increases in oil and resin-based commodities, but productivity will help offset some of the cost headwinds. The representative also mentioned that pricing may not play a major role in this environment, as other companies may be experiencing decreases in other commodities.

The company has recently faced deflation in some commodity categories due to increased costs. They have rolled out a price increase on one product, but do not have plans for further increases. The company also faces competition in a low-profit product line, but they are looking at restructuring options to minimize the impact on profits. Revenue has decreased, but the impact on profits is minimal.

The speaker, Matt Farrell, is unable to answer a question about the company's new product lineup for 2024 as it is too early to comment. He also mentions that the WATERPIK business has been struggling due to the impact of COVID and competition from knockoffs and private label products. However, he believes that the business will recover in the future as it has been successful for many years.

The speaker discusses the company's upcoming innovation for their WATERPIK brand and their strategy to maintain the brand's equity as the premier water flosser. They also mention that the comp in Q4 was impacted by higher comps for HERO and discreet laundry promotions. In terms of volumes, the company saw consumption growth in 12 of their 17 categories in October and expect a 1% or better growth in Q4. The speaker also mentions that there has not been a pullback in actual usage or purchase frequency, as volume growth suggests consumers are migrating to their products.

Filippo Falorni from Citi asks about the company's marketing expense as a percentage of sales, wondering if the current level of 11% is the new normal or if it may increase to 12%. Matt Farrell responds that they had previously planned for a gradual increase to 11% by 2024, but they have already reached that level and believe it is a sustainable amount for growing their brands. The operator then concludes the call, thanking everyone for participating and reminding them to disconnect their lines.

This summary was generated with AI and may contain some inaccuracies.