Church & Dwight Co., Inc.
Q4 2020 Earnings Call Transcript

Published: 29 Jan 2021

[Matthew Farrell:]

Thank you all for joining us today. I'm going to begin with the safe harbor statement. I recommend that you read it at your leisure. We have an entire management team on the call today available for Q&A after the formal pitch. We have a lot of slides and several presenters, but I'm going to give you the short story upfront. 2020 was a turbulent year. We emerged from 2020 much stronger as a company. We like to say that we do our best work when we're in a jam. That's true for 2020. We protected our people. We found a way to run the plants and warehouses safely. We set production and shipping records.

[Britta Bomhard:]

Welcome to our biggest business, Consumer Domestic, with over $4 billion in sales. As you have heard from Matt, we plan to deliver another year of growth in 2021 on top of an outstanding performance in 2020 and in line with our evergreen model. There are five distinctive drivers for growth in 2021. Number one, tailwinds on vitamin gummy category growth, accelerated by strong brand VITAFUSION. Second, WATERPIK. Despite dental offices and many retailers being closed for part of the year, we sold slightly more power flosses in 2020 than in 2019. Removing these roadblocks, growth will be even stronger. Three, flawless sales will benefit from new products, a great influencer boost and a rebound of footfall. Four, some brands will rebound where social distancing really impacted sales. With vaccines coming, consumers will socialize more. And five, last, but most importantly, we strengthened our brands and improved our media spend effectiveness. We create brands consumers love. 2020 was a year of dramatic changes how consumers use media, which allowed us many tests and learn experiments, feeding our predictive data models and giving us confidence that our media dollars will be again more effective in 2021. But let's start with tailwinds. We are in the right categories. We saw growth in 12 of our 17 categories, average 9.8% overall. We saw an over 50% growth in vitamins, double-digit growth in baking soda and single-digit in many other categories. The only category of double-digit decline is power flosses and that is in the Nielsen universe. This is important, as Nielsen only measures about one-quarter of power flosses sales, and I will show you numbers from the whole universe later. We have high expectations for category growth in 2021, and I will speak to them in more details. Four categories will stay on elevated levels. Five categories will come down from COVID peaks, but some to higher levels. Five categories will bounce back from COVID impact. Three categories will be steady. The underlying trend for category growth is household penetration. As you can see in this chart, 11 of our 17 categories increased household penetration. This means more consumers are buying this category. It wasn't only consumers buying these categories, they bought our brands in unprecedented numbers. We added 8.6 million households to ARM & HAMMER, More Power To You, 2.4 million to OXICLEAN Stain Figther. And in the second half alone, VITAFUSION added 3 million more households.

[Steve Cugine:]

Church & Dwight has delivered consistent new product innovation year-in and year-out in support of our global growth objectives. 2021 is no different. We have a super lineup of brand-building innovation. So much so, we do not have the time to take you through the fullness. So we have curated a few of our favorites. Every new product is born from a consumer insight. 79% of consumers want germs removed from their laundry, introducing OXICLEAN Laundry & Home Sanitizer. This product kills 99.9% of bacteria and viruses. It also removes germs, odors and stains. Check out this video. Consumers have been hyper-focused on cleaning household surfaces. Introducing OXICLEAN multipurpose disinfecting sprays. This product kills COVID. It is powerful, cleaning and disinfecting without chlorine bleach. Two-thirds of consumers find flossing difficult and only 16% floss daily, introducing WATERPIK Sonic-Fusion 2.0, the most successful new product launch in power flosser history just got better. It has two times the bristle speed, greater flossing power, multiple head sizes and two brush speeds. Here's another consumer insight. Consumers with smaller bathrooms struggle with counter space and outlets. Introducing Waterpik Ion, the same amazing clean, unplugged. This product is 30% smaller than traditional plug-in models, has 90 seconds of water capacity and with the lithium-ion battery that lasts up to four weeks with a single charge. Check out this video. Here's another consumer insight. Men see condoms that fit and feel the best. Introducing TROJAN all the feels, is a selection of our best condoms, with personalized fit and feel, and better feel more usage. Here is a video featuring our ECSTASY condom. One more consumer insight is that consumers are becoming more confident in doing beauty routines at home and they are aware of the cost savings. Introducing finishing touch FLAWLESS facial cleanse and salon nails. And one last consumer insight, 33% of consumer’s plan to purchase more immune support supplements, introducing VITAFUSION Super Immune Support, it is the only gummy to deliver over 100% daily value of the top 3 immune ingredients, Vitamin C, Zinc and Elderberry. It also includes a new ingredient, Manuka honey. This is the first VITAFUSION item in the cough and cold aisle. VITAFUSION has been increasing the amount of new items it has been launching. 2021 will be no different, we have an exciting list of new items coming. I'm also excited to share with you the details of another fabulous quarter and year for the international division. 2020 was like no other year, as we track the coronavirus as it surged across the globe, starting in Asia in Q1. We planned for its impact and pivoted to areas of growth as our international mix is heavily weighted toward personal care versus household products, and therefore, more susceptible to global store closures, particularly in Europe. We finished 2020 posting organic growth of 8.6%, well above our 6% evergreen goal. This is remarkable given the fact that during Q2, at the height of the pandemic, we delivered less than 1% organic growth for the division. Q4 finished up a remarkable 14.9%, behind growth in both our domestic subsidiary markets as well as our GMG business, where our surge in Asia was a key driver of performance. We have now built an international business that's over $800 million and approaching scale in key markets. And we feel that there is not a market that we cannot reach. We've also tripled the historic CAGR of the division from 3% to 9%. Wait a minute, I didn't label this slide a continued effect, it must have come from my friend, Barry Bruno. Well, this seems like a good transition point, from looking at the past performance, to Barry Bruno and his focus on the future. I will be retiring from Church & Dwight in June of this year. Barry Bruno has been promoted to Executive Vice President of the International Consumer Products division. Barry was one of my first hires when I moved into this position almost 8 years ago. He has been the co-architect of the existing international strategy. Barry has led the design and execution of the Global Markets Group and the division-wide global international marketing team. His fingerprints are all over the success of this business in conjunction with the other members of the division leadership team. Barry came to Church & Dwight from Johnson & Johnson, where he worked for 14 years across consumer, pharmaceutical and medical device businesses, where he developed a depth of experience in both U.S. domestic and global markets during his time there. He turned that experience into a great start here at Church & Dwight, and I have confidence in his ability to continue what we've started here in International. Congratulations, Barry, and good luck. In closing, it has been my sincere pleasure to work for this great company for the past 20 years. The culture at Church & Dwight is a place where performance matters, straight talk is encouraged and teamwork is a differentiator. I stayed at Church & Dwight because I felt that I could bring my unique self to work every day, table big ideas that challenges status quo. And when the decision was made, I know I had to support my peers to make it happen. This is as true today as when I joined in 1999. I am confident in the future, as the company and the International team is stronger today than ever before. Thank you. And now over to Barry.

[Barry Bruno:]

Thanks, Steve. It's been an honor to work alongside you these last seven-plus years here in International, and I can assure you that the Cugine-effect is felt far beyond just us here in International and your work over 20-plus years has impacted the entire Church & Dwight organization. You will be missed by so many, Steve, but I think, most of all, by me. As you saw, under Steve's leadership, we've built International into an $820 million business that's growing faster than ever. And as a reminder to this audience, we think about our international business in two buckets

[Matthew Farrell:]

Thanks, Barry. I'm going to run you through the animal productivity story right now. You heard me speak earlier about what our evergreen model is. It's 3% annual organic growth, 2% from the U.S., 6% from international and 5% from specialty products. Our Specialty Products business is a $300 million business. Two-thirds is animal productivity and one-third is specialty chemicals. If you look at the animal productivity piece, you'll see it's split between animal dairy and animal nondairy. Historically, dairy has been the biggest part of the business. The three types of products we produce are prebiotics, probiotics and nutritional supplements. Now why is that important? It's because the consumer is moving away from wanting to consume food that is produced with antibiotics. The dairy business has been cyclical. As I said before, it's been the biggest part of the business. If you look at this chart, in 2011, 2014, 2017, those were up years. So typically, it's a three-year cycle. The expectation was that 2020 was going to be a big up year. It didn't happen. Why? Because of the pandemic. So we expect a strong year from the dairy business in 2021. Now if you look at dairy versus nondairy, we were monolithic back in 2015. Less than 1% of our sales were from nondairy. In 2021, we expect it to cross 30%. So just wrapping up here, we have a trusted brand. All of those products I described are ARM & HAMMER products. We're aligned with the consumer trend to move away from antibiotics to prebiotics and probiotics. We've moved from dairy to other species, catalyst wine and poultry, and we have a lot of runway internationally. Now I'm going to talk about how we run the company. It's pretty simple. We have five operating principles

[Rick Dierker:]

Okay. Thanks, Matt. I'm going to go through 4 items today. First off, is the evergreen model like we always do? Number two is 2020 results, both for the quarter and the full year. The third thing will be the 2021 outlook. And then the fourth will be the capital allocation discussion. So first off is the evergreen model, and our shareholders know that we've been talking about this for a very long time. 3% top line, 8% bottom line. And we have a detailed model to go through as well. So 3% for net sales growth, 25 basis points for gross margin expansion; flat marketing as a percentage of sales, which is typically higher dollars as we grow the top line; and then we leverage SG&A by 25 basis points. That gets us to 50 basis points of operating margin expansion and about 8% EPS growth. Now moving to 2020. So we ended the year in a fantastic way. Q4 2020 was 10.8% organic sales growth, 11% domestic organic sales growth, 14.9% for international and minus 1.2% for SPD. Gross margin was down 280 basis points, but in line with what our expectations were. Remember, our outlook was down 250 basis points for the quarter. Now that 280 included a 40 basis point drag because we recognized some of our supply chain workers as the pandemic spiked again in Q4. And then marketing change was up 140 basis points in the quarter as we invested behind our brands to enter 2021 with momentum. SG&A was leveraged by 70 basis points. Despite higher amortization and investments, the top line helped us leverage SG&A in a big way. And then EPS was $0.53. Our outlook was $0.50 to $0.52. So we beat the midpoint of the range by $0.02. Moving to the full year 2020, organic was 9.5%; domestic was 10.7%; international, 8.6%; and SPD was 0.4%. So just really a strong year to have a 10% organic full year number. Gross margin was 45.2%, or down 30 basis points, really driven because of COVID and incremental tariffs, but we'll get into the detail in a minute. Marketing was 12.1%, or higher by 30, basis points. That's very significant. It was a huge investment behind our brands. You'll hear in the outlook that we're going to return to pre pandemic levels for marketing support. Adjusted SG&A is 14.1%, or down 10 basis points. So we did leverage SG&A. And so EPS was up 15% or $2.83. And then cash was up to $990 million, a full $100 million above our $890 million estimate a year ago. And then, finally, that translates into 125% free cash flow conversion. We do a great job converting net income into cash flow. And now turning to the detail on gross margin. Here's the bridge. So for Q4, we had positive price/volume mix, similar to the way we've had it all year long, plus 130 basis points. Then inflation was a drag of 310 basis points, but that included a few items

[A - Matthew Farrell:]

Okay. Morning, everybody. Thanks for joining us today. We have all the EVPs on the line with us. Many questions were submitted during the rolling of the tape. So Rick is going to read the questions, and we'll take them one by one.

[Rick Dierker:]

Okay. Thanks, Matt. First question is from Olivia. Is the new OxiClean sanitizer product getting incremental shelf space? What do you think about the opportunity in FLAWLESS and which brands got more shelf space in 2020?

[Matthew Farrell:]

Okay. All right. Hey, that's a great question. We've got a lot of confidence in 2021. I'm going to dish that to Paul Wood, who is our EVP of Sales.

[Paul Wood:]

Appreciate it. Thanks, Olivia, for the question. Yes. Let me start with Oxy sanitizer, right? I think, as Steve mentioned, the right product, right time, right place and definitely lends itself to the incrementality question that you're asking. So one of the strongest launches will have on the acceptance front, and so feel very good there. In terms of the other categories, great question, too, because while the headlines are supply and demand, some incredible work by the sales and the commercial team in other categories to strengthen the foundation and some great wins from shelving and placement and brand positioning on condoms, vitamins, BATISTE, laundry and laundry additives throughout the year as well. So we've been busy at work to strengthen the foundation and really excited about some of the things that have already hit market and some yet to come. So it's been a strong year on those elements, Olivia.

[Rick Dierker:]

Okay. The next question comes from Rupesh on gummy vitamin. What have you seen lately on the competitive front? And also from the supply chain, have you now fully caught up with demand?

[Matthew Farrell:]

Okay. Yes. Well, gummies has been a big winner for us in 2020. if you look at the – both the category and our performance in the fourth quarter, the category was up 50% and our brands were up about 56%. In fact, if you roll forward into January, you see that we're – our consumption is up still in the 40s. So very strong performance. Both of our brands gained share in Q4, both VITAFUSION and L'IL CRITTERS. And keep in mind that we've been capacity-constrained during that time. I can imagine if we were not. With respect to capacity, you probably heard us talk on the last call that we have a new third-party that came online in the fourth quarter. And our view long term is that we will have both internal capacity expanding as well as treat this third-party as a long-term partner. So it's not an episodic relationship. Anything to add to that, Rick?

[Rick Dierker:]

No. It's a good summary. Next question is from Joe Altobello. Well, Steve, because you need to be moving to Naples to hang out with Lou Tursi. Congrats, Steve.

[Matthew Farrell:]

Okay. Well, we have Steve on the line this morning, I want to caution Steve, that I suspect Lou Tursi is also listening in. So take it away, Steve.

[Steven Cugine:]

Yes. Well, certainly, I would say that – I don't have any specific plans to move to Naples in the short term, but I'm sitting here in the Northeast and it's pretty cold. So I'm longing for some warmer weather. So you never know. But no plans as of this moment. And – but when I do get to Naples, I'd certainly hang out with Lou for at least a cocktail or dinner. Thanks.

[Matthew Farrell:]

Okay. Thank you, Joe Altobello, for keeping it light today. All right. What's the next question, Rick?

[Rick Dierker:]

Here's a question from Bill Chappel. Is there a target for percent of sales from international over the next five years?

[Matthew Farrell:]

Yes. Well, you know our evergreen target is 3% for the company, 2% for the U.S., 6% international and 5% for specialty products. So you're probably asking, Bill, because we've exceeded the 6% year after year for many years, but we're very confident that 6% or better is intact for years to come. And anything to add to that, Barry?

[Barry Bruno:]

No. Matt, I'd just say we aspire certainly to beat that 6% target. But no, there's not a specific percentage of sales that we are shooting for right now.

[Matthew Farrell:]

Okay.

[Rick Dierker:]

Yes. The only thing I'd add to that, Bill, is probably -- hey, 17% of sales is international today, and we have a good problem, right? Our domestic business continues to grow very strong. And so that percent of sales, plus a lot of the M& A we've done has been more U.S. focused. So over time, even though we've had great growth internationally, the percentages stayed relatively stable. Next question is from Andrea. It's really about what's the backdrop for commodities and inflation and transportation for Church & Dwight in the outlook? So I'll take that one. In general, we expect commodities to be up next year. It's really first half, second half story. If we look at some of the big drivers, even in the quarter, HDPE and polypro were up close to 20% and ethylene was up 5% in the quarter. In the first half of the year, we expect those commodities to be up around 20% to 30%. But in the back half, it's pretty flat because we're experiencing that as early as Q3 of 2020. As for the transportation market, we do expect it to be at mid-single digits, but I'll flip this to Rick Spann to add any other color commentary.

[Rick Spann:]

Yes. And thanks, Rick. Yes, the transportation market is very tight. Spot market rates have increased by more than 30%. In fact, this is the second highest market – the second tightest market that we've seen in the last 8 years. And of course, that's having an impact on our transportation cost. And just a bit more color on commodities. Commodities were pretty flat on the first half of last year. But as Rick mentioned, we see headwinds on our major commodities right now. But not only on our major commodities, but some of the smaller purchases of raw and packing materials that we use across the rest of our business. Fortunately, we have a robust productivity program to offset some of these headwinds.

[Rick Dierker:]

Okay. Next question is from Steve Powers. Is there a specific data that gives you confidence in vitamin usage as a sustainable trend as opposed to something that is correlated with elevated health awareness due to COVID and more time spent at home?

[Matthew Farrell:]

Okay. It's good question, Steve. I'll just say a few words and then I'll dish it to Britta. But you heard in Britta's remarks, the longer a new behavior lasts, the more likely that it's going to continue. And that is our expectation for next year. We think the wellness trend is certainly in our favor. And we don't think that people are going to fall back to their old ways. Britt, anything to add to that?

[Britta Bomhard:]

Yes. We do have specific data. So we know that 20% more households bought vitamins. And we also know that 57% of people are using it now daily. So we know that those behaviors have changed and there's more households. We also know that the households currently are buying more than they used to.

[Matthew Farrell:]

Right. And of course, the trend from pills to capsules, we expect that's going to continue, not just in '21, but in future years.

[Rick Dierker:]

Okay. Next question is from Lauren Lieberman. 3-part question; first one on the outlook for inflation. To what degree are hedges helping in 2021? And any contracts for logistics? I'll go ahead and jump in and answer that one. In general, we're about 65% hedged for 2021. So pretty well protected overall for incremental commodity volatility. And then, number two, contracts for logistics. Remember, part of our part of our freight is picked up by customers and some of it is also on dedicated lanes. And so, really about a-third of it is subject to more extreme volatility and we have to use brokerage and whatnot for that. So we are well protected there as well. Second question from Lauren is -- the next two are on FLAWLESS. To what degree are new products expect to drive FLAWLESS growth this year?

[Matthew Farrell:]

Yes.

[Rick Dierker:]

And maybe it's a -- part and parcel is her second one. FLAWLESS is historically a hair removal brand. What are you seeing that gives you confidence in the brand expanding into other areas like skincare or facial cleansers?

[Matthew Farrell:]

Yes. No, it's a good question. Yes, we bought the FLAWLESS brand in 2018. It was largely a face and brow product and, frankly, a little known brand. And over the past couple of years, we've been working on, not only brand awareness, but also to build out the brand. So we'd reach far more consumers with other products. And that's the reason why we've introduced this year the mani-pedi product, the body cleanser and also the face cleanser. So we think with respect to 2021, we think FLAWLESS will be up well in excess of 20% from a sales perspective. And the three reasons for that, one, would be the new products, which we talked about during the presentation. Also, the influencers that we've also had to join the brand this year. And finally, the at-home grooming trend, we think, is still an opportunity for us.

[Rick Dierker:]

Okay. Great. Kevin Grundy is up next. He has a few part question. First is, some housekeeping, some questions on investors, mine would be modest lower 6% to 8% EPS growth outlook for 2021 versus the comment on the third quarter call that you'd deliver against 8% evergreen outlook in 2021. You mentioned the tax rate being higher, but that presumably would have been anticipated a few months ago. Please comment on a more conservative outlook. And let's pause and answer that question first.

[Matthew Farrell:]

Yes. Okay. That's a good question, Kevin. So we -- look, we feel really good about 2021. We have a lot of confidence with respect to the categories, because we think we have been really thoughtful about them, as well as the logic with respect to which ones are going to go up and are going to go down. As you know, as Rick described, there's -- our expectation is 3% top line, but the math is more like a 4% top line, because we have a 1% drag from the second year effects of exiting private label vitamins and also we're exiting XTRA in Canada. As far as the EPS goes, yes, we're coming off of a little higher base than we thought we were going to be at when we were in October, so we had a range of 50 to 52, we came in at 53. So we're $0.02 better than our midpoint. So we did leave ourselves some room with a range of 6% had 8%. As you know, we’ve had 8% or better for many, many years. So we don't expect to -- for it to end that streak in 2021. As far as the year goes, there's obviously pluses and minuses. There's probably more pluses than minuses than when you look at the 2021. We have a potential for lower COVID costs, could get some help from currency, as well as promotional levels staying down a little bit longer. Anything to add to that, Rick?

[Rick Dierker:]

Yes. The only thing I'd add is, maybe when you look at the two-year stack, just how strong the EPS growth really is, 15% in 2020 and then 6% to 8%. So, 21% to 23% EPS growth. If you look at that versus the peers, peers are closer to 7% or 8% on a stack basis. So, just feel really good about the strength on top of strength. Okay. The second question that came ahead was really international-related. There's still the areas of biggest areas of opportunity. He imagines that executed in China is certainly one of those and emerging markets. And then comment on margin improvement, firstly, and then where you see in investing for larger, faster growth.

[Matthew Farrell:]

Okay. I'm pretty confident that Barry Bruno is very eager to take a swing at that question with respect to prospects for growth in international. So Barry, jump in.

[Barry Bruno:]

Yes, happy to give it a shot. So, yes, clearly, emerging markets are the biggest opportunity, right? There's increasing household income. Our brands are new in a lot of these markets, specifically China, North Asia, Southeast Asia, all very exciting to us. We just opened an office in India as well to help us start to get a toehold in that important market. And our business in Latin America, even amid a lot of economic turmoil, is really, really booming. So, definitely, emerging markets are a disproportionate area of focus. In terms of margin improvement, we're working on understanding pricing opportunities better. We've got dedicated resources now looking at pricing around the globe. We're working on improving COGS by local manufacturing as opposed to exporting product. And we've got a host of other areas of improvement that will allow us to keep delivering at least that 50 bps annually that we've committed to.

[Matthew Farrell:]

Okay. Thanks, Barry. Next up.

[Rick Dierker:]

The next question is from Chris from Wells Fargo. I thought your comments around returning promotions in the first half 2021 back to pre-COVID levels were interesting. That's a bit more intentional than what we've heard from some of your peers. What wiggle room do you have there, i.e., do you wait and see how things play out with competitors, or do you lead on returning promotional levels? Longer term, what do you think about commercial needs in your categories?

[Matthew Farrell:]

Okay. Let's -- when we talk about sold on deal, we're essentially talking about household categories. So, if you look -- it's laundry and litter. So, the trend year-over-year for laundry sold on deals, like if you looked at Q2, Q3, and Q4, sold on deal for the category was down 1,700 basis points in Q2 and in Q3 and Q4 was down 800 and then 750. So, it's still muted and, frankly, low -- pretty low. In our fourth quarter, you may recall, we said we were going to spend behind some new products, and that would be clean and simple and ABSORBx. But that's largely behind us now as we go into the New Year. Q2 year-over-year will absolutely be higher simply because it was so low in Q1 of 2020. So, everybody pulled their promotion. So, there will be a year-over-year increase for about everybody in Q2. So, it will be up in Q2 because Q2 2020 was the low water mark. Anything to add to that, Rick?

[Rick Dierker:]

And I think the commentary is true. We have in Q3, Q4 of 2020, it was largely behind new products, and we're past that. And then in Q1, Q2 of next year, we're not saying it's going to be maybe at pre-pandemic levels, that normality, which is going to be above the very, very depressed level that it was in 2020.

[Matthew Farrell:]

Yes. One thing I didn't point out was that I talked about laundry, but if you look at litter, so litter, the trend was, if you went in Q2, Q3, Q4, litter was down 800 basis points sold on deal in Q2 and Q3, Q4 down to 70. So the category was a little bit more heated up in Q4, but still down almost 300 basis points year-over-year.

[Rick Dierker:]

Okay. Next question is from Steve Powers . A lot of investment spending in 2020 clearly. Can you drill down and talk about where that investment spending has been prioritized, whether in terms of specific brands or capabilities or channel development and whether or not that prioritization changes and at all in 2021?

[Matthew Farrell:]

Yeah. We wouldn't get into specific brands, but we did -- we have talked about where we spent the money. We spent things on automation of non-plant processes as well as in the factories, new product tests and learns. We had some projects in IT and R&D analytics projects, some consumer research we wanted to get after. So there's pretty broad investment in the second half.

[Rick Dierker:]

Yeah. And some of that was really transitory, right? We always have investments, but we were just doing so well in 2020 that we fast forwarded it and made incremental investment. And that's some of the things that I just talked about.

[Matthew Farrell:]

But the fair amount of those investments were largely nonrecurring.

[Rick Dierker:]

Bill Chappell had a similar question on trade promotion. Why do you expect trade promotion to normalize in 2021? It appears that some of your major competitors are comfortable with lower levels remaining. And did you see a meaningful pickup in competitive activity in Q4?

[Matthew Farrell:]

I think we already handled that question with respect to the trend for Q2, Q3 and Q4. Now I would say we expect it to continue to be muted. Just in Q2, we do think it's going to be -- year-over-year, you're going to see a pop, but we're certainly comfortable with lower promotional levels in 2021.

[Rick Dierker:]

Okay. And then Steve Powers , the new disinfecting products you're rolling out on Oxi seem different. Given that the demand for disinfectant solutions right now seems global, do you see any potential to use those innovations as a way to push the Oxi brand further outside the U.S. market, or is it too early to have that discussion?

[Matthew Farrell:]

Yeah. I'll just say a couple of words. Steve and Barry have had some success moving the Oxi brand outside of the U.S. over the past couple of years. And we've had great success in a couple of markets. I'll let Barry take a swing at where we see some opportunity.

[Barry Bruno:]

Yeah. We've had great success with the brand outside of the U.S. Japan, in particular, has been a real star for us, and we're continuing to invest there. We do have other market launches planned for next year, but I'm not going to get into them specifically, so we don't tip off any competition. But yeah, there are other markets that launch into next year. The brand is strong and definitely relevant internationally.

[Matthew Farrell:]

Thanks, Barry.

[Rick Dierker:]

Next one is from Kaumil . Any changes in the pressure from retailers as they regroup after a year of demand spikes, and things through managing the incremental cost of expanding into the omni-channel?

[Matthew Farrell:]

Yeah. I think that's a perennial question that we get is because every year, the concern is that retailers are asking for more and more from the suppliers. We often say that because our power brands are number one or two in their categories, we're in a much better position to have those conversations with the retailers than if we're in either a three, four, five, or six brand. But Paul, if you have anything to add to that, just go ahead and jump in.

[Paul Wood:]

Yeah, I think the only thing I’d add onto that would be the retailers are under tremendous pressures, right? A lot of them were going down an e-commerce journey, some further along on that than others, but they all having to play catch-up and, whether they're using third parties like Instacart and ship, it certainly pulled their labor in other places, and it's more expensive for them. At the same time, reaching the consumer through digital means and loyalty card programs, while it's effective, has added costs as well. So there's no question that retailers are under tremendous profitable pressures as they try and get back to normal as well. So those are all challenges, perennial question and perennial answer, probably just heightened a little bit more because the e-commerce and the shifts that we're going through as we speak.

[Rick Dierker:]

Okay. Okay. Next question is from Jon Andersen. With all the new consumer trial your brands experienced in 2020, what are you doing to try and retain those customers as we move toward a post pandemic environment?

[Matthew Farrell:]

And is that brand-specific, that question?

[Rick Dierker:]

So it's likely about all the household penetration we had and all the new consumers that we gain in the different brands. How do we retain those consumers over the long term?

[Matthew Farrell:]

Okay. Well, you heard Britta talked about the household penetration that we had in ARM & HAMMER, but I think the household penetration has been even broader than that. I think we have a very robust marketing program, both online, which is now approaching two-thirds of our spend. But I'll let Britt take a swing about why we're going to hang on to those new consumers.

[Britta Bomhard:]

Yes. So I would cite two very distinct facts. So the first one is, you have trial and repeat. And all our brands, our repeat rates are very strong, which today indicate that consumers are happy with the product performance. So that gives us confidence. In some areas like BATISTE, we have, by far, the best repeated loyalty rates. So that's number one, just based on product performances. The second one is we also have a lot of programs where we invite people to join our communities or our e-mail lists or other areas of staying connected and we are actually using that to reach out again and make sure that they feel that brand loves continuing in 2021.

[Matthew Farrell:]

Okay. Thanks, Britta. That's a good add.

[Rick Dierker:]

Next question is from Steve Bowers. Do you have data on the longevity of WATERPIK use following dental recommendations? The correlation with dental office openings makes good sense, but I'm wondering about the stickiness of device use as distance in time from that initial visit and recommendation increase.

[Matthew Farrell:]

Yes. I don't know if we have that – the statistic that you're asking for, Steve. But Britta, I don't – could you weigh in? Do we know if we have those kind of stat?

[Britta Bomhard:]

So we don't have necessarily the statistics and such. But what we do have, and I think that's a very, very interesting data, is when people buy a WATERPIK, they can register with us. So let's assume these are the more serious users who are registering. And we've seen those rates increased more than fourfold in 2021. We also know that for some of our products where we have repeat purchases, be it Sonic Fusion, where we have the dental brushes, or for some of the others to tip, we can clearly see that those repeat rates are increasing.

[Rick Dierker:]

Okay. Thanks, Britta. Next question from Lauren Lieberman. Market shares are up in only about 50% of your categories. What do you see as the idea would be?

[Matthew Farrell:]

Yes. It's a good question. Historically, what we shoot for is two-thirds. So we think it's a great day. Now we have Zicam, but we had 12 power brands. We'd be shooting for eight out of 12 to be – to gain share or hold or gain share in their categories. In some of our categories, some of the brands that lost share somewhat related to our – we're out of stocks during the year. So that did hurt a few of our brands. But all in, we feel really good about where our brands stand with consumers going into 2021. Britta, anything you want to add to that?

[Britta Bomhard:]

No, I think the only one I can add is, and we do brand equity measurement, so we know that we strengthened brand equities for our significant – for some of-- for the ones we measure. So a very clear indication of consumer being vetted to our brands and loving our brands.

[Matthew Farrell:]

Yes. And you saw we spent a fair amount of marketing in the second half to help drive that brand equity.

[Britta Bomhard:]

I know you were going to throw back at us. So that was very productive spend. As we talked about, the users, the households we won and lots of the programs we ran were exactly tapping into the current situation and emotion. So some of you might have seen, we did have some, but we people in COVID times are looking for brands to step up and do more than just sell products. We have the VITAFUSION so we had on each of our brands significant emotional connections with consumers.

[Rick Dierker:]

Okay. A couple of questions from Bill Chappell. What is the cadence of CapEx spend this year? Have you already started on the expansion project? I'll take that one. Cadence is very consistent with what many years of spend. It's typically back-end loaded, Bill. And have you started on expansion projects? There's a whole list of capacity projects. We mentioned just laundry, litter vitamins, distribution, warehousing and technology stuff. So it's a mixed bag. Some have already started. Some are underway. And some are to be starting. Second question from Bill, can you talk more about tariff remediation for the second half? Can you quantify the impact? Well, we've been very vocal about the impact of tariffs on WATERPIK. And with enough lead time, we always believe that we can do things to impact the supply chain. And that's what we did over the last 6 to 12 months. And in 2021, in the back half, we're going to start to see a benefit of a few million dollars and the full year run rate of that is, is even better. So we're just really happy with that team and the progress we've made there. Next question is Joe Altobello. Which categories are you most concerned about in 2021 with respect to pantry loading or consumption declines?

[Matthew Farrell:]

Well, I'll let Britta comment on the categories because we did bucket all 4 of them. So as far as the ones we might be most concerned with – Joe, we -- the way we bucketed them, we did say which ones we plan on staying elevated, which ones we think are going to fall back. The ones we said we're going to fall back are categories like, like baking soda, for example. The declines were going to be baking soda, toothache, carpet and pregnancy kits. So pretty confident they're going to fall back. The question is, how far would they fully fall back? And then far as the ones that are going to recover would be condoms and dry shampoo. That's more of a back half view as more and more people get vaccinated and consumer mobility expands. But anything to add to that, Britta?

[Britta Bomhard:]

No, I think you captured it. I think the ones we are concerned is where we – where there's COVID uncertainty, right, which has to do with whether the vaccines and whether that will bring people back. But for the majority of our categories, let's remember, they are continuous household consumption categories. So people are washing their clothes, cleaning their houses, having their cats and as I mentioned, having more cats. So for the big majority, we know that we actually have stronger performance.

[Rick Dierker:]

Okay. Next question from Kevin Grundy. You kind of build on that, on market share, specifically, only seven of 13 power brands gained this year in 2020 and it was a bit unique in 2020. This is due to our confidence to improve market share momentum in 2021.

[Rick Dierker:]

Yes. Well, normally, we kind of pick on the ones that didn't grow, I should say, it's seven out of 13. One of the five that didn't grow is because we're using Nielsen data. And so WATERPIK would be one that you would say, well, we lost some share in 2020. Yes, that's a business we expect to grow mid to high single digits in 2021. XTRA lost some share in 2020? No. Why is that? Well, it's because both XTRA, Sun and Purex, all the deep value brands lost share in 2020. And the benefit, obviously, went to the mid-tier and the higher premium brands. If you look at ARM & HAMMER liquid laundry detergent in the fourth quarter, we had an all-time high, 14% market share. So there are reasons why some of those brands declined or -- and with respect to Nielsen data, lost share in 2020. But we do expect -- we're targeting two-third of our 13 power brands will gain share in 2021. Anything to add to that, Britta?

[Britta Bomhard:]

No, I think you said it really well. And we've seen a couple of our brands, particularly in the last quarter or last month, actually regaining market share, which we see as the positive momentum you've mentioned.

[Matthew Farrell:]

Okay. You’re up.

[Rick Dierker:]

Okay. Rupesh had a couple of questions. One was on online penetration. Do you expect to see further increases in online penetration this year, or could it level off or step back? And how are you thinking about the stickiness of 2020 gains?

[Matthew Farrell:]

Yes, hey, it's a good question. Online, for us, the history, Rupesh, so in 2015 was 1%. 2019 was 8% and 2020 was 13%. In fact, the fourth quarter, we were at 14%. Our expectation is that for 2021, that 15% of our global sales will be online. So we'll go from 13% this current year to 15% next year. So we do think that's going to remain sticky, as you say. And, you know what, if you think about some of the categories that did expand online, to be like vitamins, WATERPIK, litter, those were the big growers. But we do think it's going to stick and we think it's going to continue to expand. We think a lot of people that discovered ordering online, like we said with vitamins, is a new habit. So we don't see a fall back in 2021.

[Rick Dierker:]

And then the second question is more about modeling. Just remind us about what do you have baked in for FX? And remind us how to think about ZICAM seasonality. I'll take the FX question. If rates stay where they're at, that will be, as Matt mentioned before, maybe one of the tailwinds that we have in 2012. And then, Matt, do you want do ZICAM?

[Matthew Farrell:]

Yes. As far as ZICAM goes, 2021 is really dependent upon the end of the year flu season. Historically, the ZICAM business has 50% of its net sales in the fourth quarter. So that's all ahead of us, Rupesh.

[Rick Dierker:]

Okay. Next question is from Mark. Please tell us -- please talk about why specialty product still makes sense as part of Church & Dwight, because it has underperformed longer-term expectations in these recent years. How much time does management spend on that segment? And under what circumstances would you consider it non-core?

[Matthew Farrell:]

Okay. Well, specialty products has historically been a cyclical business. You saw in our presentation that 2014 was an up year, 2017 was an up year and the next up year would have been 2020 if not for the pandemic. So, we think that 2021 is going to be a good year for specialty products. We have been trying to flatten that business out over time by moving into other species. It is an asset-light business. The products are branded ARM & HAMMER. And if you think about the business, one-third of the business is bulk sodium bicarbonate, which is labeled ARM & HAMMER, which is our legacy business and, frankly, is the soul of the company. The -- as far as the metrics that, that business throws off; it throws off plenty of cash in relation to the assets that we own. So, we do think this is a business we're going to own long-term. It is -- as you point out, it is a small part of the company. It's only 6% of our revenues, but it doesn't require a disproportionate amount of management's time.

[Rick Dierker:]

Okay. Next question is from Bill. He just wanted to say best of luck to Steve, enjoyed working with you. And a modeling question, what is the underlying share count for 2021 implied in your outlook? And that is 252 million, Bill. Next question from John . On international, in 2020, the lower markets growth far outpace that is the sub-market. Do you expect that trend to continue? And what are the key drivers of the outsized GMG growth?

[Matthew Farrell:]

Well, one thing to keep in mind is that if you look at the percentage of our sales of Church & Dwight sales, that's international, comparison to peers, it's very low. When I joined the company, the international was 17% of our global sales. It's still 17% of our global sales today in spite of the phenomenal growth internationally. I'll have Barry give you a couple of stats, contrasting Church & Dwight with our peers and why we think we have such a great runway going forward.

[Barry Bruno:]

Yes, absolutely. Thanks Matt. So, a couple of thoughts. Most of our peers have over 50% of their sales generated from international, while Church & Dwight has just 17%. So, you can see the runway there. To drill down another level deeper, in terms of emerging markets, we only get about 7% of our sales there, while the average CPG company gets about 27% of their sales from emerging markets. So, definitely a runway there. Why do we have confidence in it continuing? We're opening offices closest to where the consumers are, right? So, now we have offices in Singapore, Shanghai and Mumbai, in Panama. That's a lot more resources on the ground that are going to keep GMG growing at an accelerated rate in the future. On the subs, I want to complement them as well. So, you saw they've been growing at a 5%, 6%. Pretty significant for western developed market. So, they're doing pretty well as well. The combination of the two gets us to that evergreen target and hopefully even above that.

[Matthew Farrell:]

Thanks, Barry.

[Rick Dierker:]

Okay. We have two questions left. Next question is from Kevin Grundy on unit dose. Years ago, we always talked about getting your fair share in the category. How are share gains in pods have been hard to come by for ARM & HAMMER and P&G still is the leader with 80% share. Please provide some updated thoughts on your outlook for unit dose.

[Matthew Farrell:]

It's a good question. It is a relevant question, too, Kevin. We did lose share, and we lost 40 basis points of share in the second half. You may have heard us say on previous calls that we did have some internal issues with respect to supply. Rick has described the fact that we've been building capacity and bringing it in-house. So we expect to turn that around. But long term, we need to -- we -- our ambition is to get our fair share, and that means we would have over a double-digit percentage share of the unit dosing. And today, it's less than 4%.

[Rick Dierker:]

Okay. And then the final question is from John Andersen on e-commerce. Now that it's 14% of sales, what's your market share position and profit margin online versus off-line? And then are you seeing more growth through buy online, pick up curb side or pure-play e-commerce like Amazon? I'll take the first one. Our market shares in general are at or above our bricks and mortar. There's no great measuring stick to use to do that. But our growth is at/or above category averages online. Our profit margin online, we've been very clear about that, in general it's at parity to brick and mortar, but part of that is because we have personal care still growing faster than our household business in general online. And so that's a margin tailwind. As our household business grows faster, we will need to get into more solutions for delivery, et cetera. So the second question maybe is a good one for Paul. Are you seeing more growth through buy online and pick up curbside or the pure plays like Amazon?

[Paul Wood:]

Yeah, it's a great question. And the frustration I think we all have is very limited data is what's being shared out maybe from the retailers and some of these third parties as they're just trying to catch up. So I think we're all triangulating on that, but yet, by and large, we're seeing a ton of buy online, pick up in store, but that's also blending with same-day delivery expectations, so that last mile piece. It's almost dividing that world into send it in the mail or what's considered old, two to five days. So seeing a heavy propensity towards that buy online pickup today, but also, like I said, that today delivery, tomorrow expectation. Certainly watching it, the pure plays are certainly blending into brick-and-mortar and the brick-and-mortar, don't have to repeat it, we all know what's going on there. But to say that it's an active conversation and very fluid with a lot of different ways of work in and expectations by the customer, different -- how your product shows up online, you can imagine and all the analytics that go along with it moving very quickly. So I'm excited about the opportunities ahead, regardless whether it's the traditional brick or the pure plays. I think there's a lot of good momentum for us, particularly Church & Dwight.

[Matthew Farrell:]

Okay. That was the last question. Just to wrap up. Everybody knows there's a lot of uncertainty in 2021. I don't have to enumerate those for you today. So consequently, we went -- we were pretty painstaking with respect to our press release and the information that we shared today, category-by-category. So we've taken a hard look at it. We feel real good about 2021, both top line and bottom line. And as I said before, we expect to continue our streak of 8%, but we did leave ourselves a little bit of room when we said 6% to 8%. And we're looking forward to seeing -- well, we won't see you, but we'll talk to some of you again at late February at CAGNY. And if not, we'll talk to everybody again in April. So thanks for joining today.