CHURCH & DWIGHT CO INC /DE/ Q3 FY2024 earnings call

Management Statement and Operational Highlights:

• Q3 was a solid quarter with reported sales growth 3.8%, organic sales 4.3%, adjusted gross margin expanded 60 basis points, adjusted EPS $0.79. Online sales as % of global sales at ~21%.
• U.S. business: 3.3% organic sales growth, fifth consecutive quarter of volume growth, five power brands gained market share. Highlighted new product launches in laundry, litter, personal care.
• International and Specialty Products: International business organic growth 8.1%, Specialty Products confident of 5% growth.
• Promotional Levels: Liquid laundry and unit dose stable in low 30s for sold-on promotion, litter promotions increased due to competitor.

Segment Performance:

• U.S. business: Organic sales growth of 3.3%, volume growth 2.6%, with five of seven power brands gaining market share. Key categories like laundry detergent saw growth, with new products like ARM & HAMMER Deep Clean and Power Sheets performing well. Litter category was flat, but new lightweight Clumping Litter outperforming. Personal care gummy vitamins business was a drag, but innovation planned for 2025. BATISTE saw strong growth, THERABREATH performed well in mouthwash, and HERO in acne care.
• International business: Delivered organic growth of 8.1% in Q3, driven by strong growth in all subsidiaries and global markets group.
• Specialty Products: Organic sales increased 7.5%, confident of achieving 5% organic sales growth for the year.

Guidance:

• Full year outlook: Expect organic revenue ~4%, reported sales growth ~3.5%, adjusted EPS ~8%, gross margin expansion ~110 basis points, marketing as % of sales above 11%.
• Q4: Cautious on U.S. consumer and category growth rates, expecting Q4 organic revenue and sales growth in line with previous cautious outlooks.

Risks:

• Competitive Pressures: Clorox stepping up promotions in litter, impacting share.
• Macroeconomic Factors: Impact of hurricane, port strike, and general economic conditions on category growth.
• Vitamin Business: Challenges in gummy vitamins, slower than expected stabilization, leading to $357 million write-down of assets.

Q: Chris Carey asked about Q4 outlook and inventory timing dynamics.

A: Rick Dierker said no significant inventory impact, Matt Farrell noted category consumption growth rates show deceleration.

Q: Rupesh Parikh asked about vitamin business stabilization and green shoots.

A: Matt Farrell and Rick Dierker discussed innovation, reformulations, and some green shoots like L'IL CRITTERS gaining share.

Q: Bonnie Herzog asked about marketing investments.

A: Rick Dierker and Matt Farrell discussed increased marketing spend, focus on innovation, and share gain as the scorecard.

Q: Steve Powers asked about perception of Church & Dwight's position.

A: Matt Farrell and Rick Dierker responded on optimism in legacy businesses like laundry and litter, and growth potential in THERABREATH and HERO.

Q: Dara Mohsenian asked about category growth and HERO/THERABREATH international expansion.

A: Matt Farrell and Rick Dierker discussed category growth being in line with history, and international expansion plans for HERO and THERABREATH.

Q: Peter Grom asked about Q4 category growth assumptions.

A: Matt Farrell said Q4 category growth expected to be in line with previous cautious outlooks.

Q: Anna Lizzul asked about gross margin and commodity costs.

A: Rick Dierker discussed gross margin expectations, commodity inflation, and productivity efforts.

Q: Lauren Lieberman asked about laundry innovation and sheets vs Deep Clean.

A: Matt Farrell discussed the good, better, best strategy in laundry and potential of sheets as a new form.

Q: Kevin Grundy asked about litter promotional environment.

A: Rick Dierker and Matt Farrell discussed not chasing share on a race to the bottom, focusing on innovation in lightweight litter.

Q: Andrea Teixeira asked about gross margin and M&A.

A: Rick Dierker discussed gross margin and productivity, Matt Farrell discussed M&A criteria and ongoing search.

Q: Filippo Falorni asked about innovation and China tariffs.

A: Matt Farrell discussed innovation contribution and mitigation of China tariff impact.

Q: Bill Chappell asked about vitamins business and impairment charge.

A: Rick Dierker and Matt Farrell discussed impairment charge reason and green shoots in vitamins business.

Q: Olivia Tong asked about premium innovation and mix.

A: Matt Farrell and Rick Dierker discussed premium innovations' success and mix impact.

Q: Javier Escalante asked about international business and Deep Clean success.

A: Matt Farrell and Rick Dierker discussed international spend opportunism and reasons for Deep Clean's success.

Q: Korinne Wolfmeyer asked about R&D spend and SG&A.

A: Rick Dierker discussed R&D and SG&A plans, including SAP project upgrade.