Church & Dwight Company, Inc.

Thank you all for dialing in to join us today. I'm going to begin with the Safe Harbor Statement. I recommend you read it at your leisure. We have our entire management team on the call today. We are all available for Q&A after the formal pitch. We have a lot of slides and several presenters. I'm going to give you the short story up front. 2021 was the year of supply chain disruption, inflation, and high consumer demand. We acted quickly in response. We raised price, and we added a significant number of co-packers and suppliers to our network. Consumer demand drove significant sales growth, which enabled us to offset some of the inflation. Because of the demand, we are now planning to significantly expand our capacity for vitamins, litter, and laundry in the next two years. During the past year, we kept our focus on being digitally savvy as our online sales grew to 15% of our global sales. We posted full-year 2021 organic sales of 4%, which was broad-based across all our businesses, U.S., international, and specialty products. Our full year 2021 EPS growth of 7% is down the middle of the 6% to 8% EPS outlook that we announced 12 months ago. We feel very good about hitting our EPS range given all that happened in 2021. Looking ahead to 2022, we expect strong growth in both our U.S. and international businesses driven by consumer demand, which we expect to stay elevated for most of the year. Regarding inflation, we expect an incremental $155 million of cost inflation in 2022, some of which has already been priced. But we expect to take more pricing actions this year. As always, we have innovative new products to announce today, and I'm especially proud of some sustainability news that we will share in a few minutes. On the M&A front, we are quickly integrating our recent acquisition, TheraBreath, which is our 14th power brand, and we are hunting for number 15. As you saw in the press release, we expect 3% to 6% organic sales growth and 4% to 8% EPS growth. The top end of the sales and EPS ranges are dependent upon our ability to improve our fill rates. As supply improves, our shares are also expected to increase as well. Long term, we believe our evergreen model is alive and well. Now let's jump into the formal part of the program. Let's start with our performance over time. Just about any period you would pick, you would conclude Church and Dwight is a stellar performer within the CPG space. And we are known for our consistency. 2021 was another year with 17.9% total shareholder return. We have an evergreen business model, which calls for 3% organic sales growth and 8% EPS growth. If you said, how's that evergreen model working out for you? Well, let's take a look. We've averaged 4.3% organic sales growth for over 10 years. And if we take a look at EPS, we've averaged over 10% EPS growth over the same period. The sources of our 3% organic growth are 2% U.S., 6% international, and 5% specialty products. We have 14 power brands, and they drive more than 80% of our revenues and profits. We have a well-balanced portfolio with a pretty even split between household and personal care. Specialty products rounds out the portfolio, representing 6% of sales. Our business has been known to perform well in virtually any economic environment because we have a balance of 60% premium products and 40% value. We are well positioned for good times and bad times. About three quarters of our business is in the U.S., which means we have a lot of room to grow internationally. We believe one of our competitive advantages is we can move fast and adapt to a changing market. That quality was clearly demonstrated over the past 18 months, given all the obstacles we have overcome. We have experienced significant headwinds in 2021, which will continue in 2022. You may have heard me say that it feels like we have been chasing a ball downhill. Well, that illustration you see was drawn by Scott Druker, the head of our animal productivity business. Obviously, we're very frugal here at Church & Dwight. Regarding the inflation headwinds, we will have raised price on 80% of our portfolio by February, and we are not done. We are planning for more price increases in 2022. And later on in the presentation, Rick Spahn, our supply chain leader, will discuss our actions to address supply shortages. We have a long history of growth through acquisitions. Since 2004, we have completed an acquisition in almost every year as we have grown from a $1.5 billion company to over $5 billion today. Later on, Barry Bruno, our Chief Marketing Officer, will take us through our most recent acquisition, TheraBreath. Back in the year 2000, we had only one power brand, and that was Arm & Hammer. Today, we have 14 power brands that are leaders in each of their categories. We've become a digitally savvy company. Only 1% of our sales were online in 2015. Today, it's 15%. This is another example of our ability to adapt. We have a low exposure to private label. The weighted average private label share in our categories is 12%. Actually, only five of our 17 categories have meaningful private label exposure. In general, private label has not been a significant factor in our categories over the past year. Now I'll turn the mic over to Barry Bruno, our Chief Marketing Officer.

Thanks, Matt. And hello, everyone. I'm Barry Bruno. And for the last several years, you've been hearing from me about our international business. But in October, I took over as our Chief Marketing Officer. So while I still love our international business and team, you're going to be hearing from me now about our U.S. domestic business. And that business, which, as you heard earlier, represents over 75% of total Church & Dwight sales, is in a great place and is well positioned for future growth. And I can say that with confidence because, first and foremost, we compete in healthy, growing categories in which we often hold the number one or two market share position. Second, there are a number of macro trends, some of which are established and some of which are just emerging, which provide huge tailwinds to our brands going forward. And finally, our two most recent acquisitions have, for different reasons which I'll get into shortly, huge room to run ahead of them. To my first point about healthy growing categories, here you can see the top 17 categories in which we compete and whether they've grown in green or contracted in red in each calendar year. And what you'll see overwhelmingly is a lot more growth and contraction And if you look more closely at 2021 performance, you'll see sequential aggregate weighted growth across all categories of plus 6.1% in 2021, which was on top of exceptional plus 12.5% growth in 2020. And if we drill one level deeper on 2021 performance, here you can see which categories drove that growth with gummy vitamins, dry shampoo, power water flossers, and pregnancy test kits leading the way, and more than offsetting softness in baking soda, electric grooming, and cold shortening, which was driven down by an almost non-existent flu season in 2021. Despite excellent growth, our market share suffered in 2021 as persistent supply challenges and related in-stock levels left us with demand we just couldn't fulfill. This was especially impactful on our fabric care, VMS, and cat litter businesses. As supply improves throughout 2022, we see a corresponding tailwind and expect market shares to improve accordingly. My second reason for confidence in the future is that multiple trends, both established and emerging, point to long-term future growth. The first trend centers around pricing, where you heard Matt confirm earlier that we've taken price on 80% of our portfolio. And we think pricing is a muscle we're going to continue building as we expect a prolonged inflationary environment and see future price increases as likely. The second trend is an elevated and we believe permanent consumer focus on maintaining a cleaner and healthier home. The third is a belief that from a health standpoint, both mental and physical, prevention is the best medicine. The fourth is that self-care has gone beyond just an occasional splurge and has become an essential and permanent part of so many more consumers' daily routines. And finally, that a gradual return to normalcy, despite what we've seen in the past few weeks, is inevitable. And when consumers are ready to return to their pre-COVID social routines, we're ready for them. So let's dive deeper into each. On pricing, we took price on laundry and litter in mid-year 2021, and we're taking price in VMS and across multiple personal care categories right now. We'll have a full year benefit in 2022 on the majority of those increases. And the early read is that competition has followed or is following in all key categories. Prices are sticking and elasticities are better than our initial forecasts. And should we move into a recessionary environment, our value brands, which make up 40% of our portfolio, are well positioned for a consumer who's looking for deeper value. In terms of consumers who are spending more time at home today and we think will continue to spend increased time at home in the future and will therefore be even more focused on a clean and healthy home, we see great inroads with 3 million incremental households now using Arm & Hammer and OxyClean each versus pre-pandemic levels in 2019. We don't see this going backwards and in fact see household penetration continuing to build year over year. In the spirit of consumers looking to stay healthy, both mentally and physically, we see a continuing trend where consumers are looking to vitamins to help out, and not just any vitamins, but the gummy form in particular, which is where consumers are migrating to from pills and capsules, is up seven points since 2019. Equally important is that we're well positioned in the category, with offerings that match up nicely to all of the consumer need states that are growing, including sleep, stress, mood, among the others you can see here, and all of that translates to an incremental 5.7 million households buying VitaFusion in 2021 than were buying in 2019. Likewise, brand awareness continues to grow, and our aided brand awareness is up an incredible 53 points since 2012. The fourth trend we see as not so much emerging, but is already established, is the belief that self-care is not just an occasional splurge, but is an increasing part of daily routines. A few statistics that bear this out include that 87% of consumers now claim to actively practice self-care, while 70% have established specific self-care goals, and 59 are practicing self-care more in 2021 than in 2020. A group of some of our most important brands, including Waterpik, Spinbrush, Vitafusion, Viviscal, and TheraBreath, are benefiting from this trend already and stand to benefit even more in the future. Waterpik in particular has a lot of runway ahead since the household penetration for water flossers is 23% compared to power toothbrushes at approximately 40%. Finally, we're as eager as our consumers and each of you for a return to normal, and we're starting to see a reestablishment of social interaction, which is driving categories like skin and nail care, dry shampoo, hair growth, and depilatories to high single-digit or even double-digit growth. And we see that continuing. One interesting statistic to make this runway real is that Batiste, which is one of our fastest growers in 2021, still has years of runway ahead as US household penetration for dry shampoo is only 4.5% compared to the UK, where the brand was born, where household penetration is 8%. Finally, one category that continues to lag is condoms, but we don't believe sex is over with just yet. So we're ready with America's number one condom brand when the category inevitably bounces back. And if that's not enough, we still have huge runway ahead on our two most recent acquisitions. With regard to Zycam, we haven't had a normal cold and flu season since COVID struck. As we emerge from COVID and consumers are increasingly social, experts predict there's an inevitable return of the flu, and those peak seasons that we see in Q1 and Q4 will provide material growth that we haven't experienced since acquiring the brand. And now that we're launching Zycam in a new gummy form, which I'll talk about more in a bit, there's even more reason to believe. Finally, TheraBreath was a great holiday president when the deal closed on December 24th. And when we combine significant new distribution opportunities with our great Waterpik dental hygienist detailing force, we see significant room for growth ahead. Speaking of thoroughbreath, just about everyone suffers from morning breath, and over 2.5 billion people worldwide, or almost 30% of the world's population, suffer from some sort of chronic bad breath. And that bad breath starts most of the time in the mouth, throat, and tonsils, driven by sulfur-producing bacteria that lingers there. Dr. Katz, who we bought the brand from, realized this not only as a dentist himself, but as the father of a daughter who was struggling with chronic bad breath. So Dr. Katz invented this alcohol-free mouthwash designed to specifically target sulfur-producing bacteria. It was a home run with his daughter, and you can see here that it's been a home run with consumers everywhere as it has been materially outpacing total mouthwash category growth and the alcohol-free category subset every year since launch. Better yet, there's still huge room to run ahead of us. This slide captures total retail points of distribution for our top competitors and for TheraBreath. And what you'll quickly see is that even though TheraBreath is driving category growth, as you saw in the last slide, we're way behind in total points of distribution with ample room to launch new variants, new sizes, and expand into new channels ahead. So in summary, we participate in great, healthy, growing categories. Multiple key trends are our friend, and our most recent acquisitions have tremendous room to run, all of which give us confidence in our future, and we haven't even talked about new products yet. Okay, now let's move over to new products where we have a long history of launching new product innovation across our portfolio of power brands and 2022 will be no exception. So let's dive into a sampling of some of our 2022 new products. The new VMS consumer who entered during the pandemic is more likely to purchase gummies, seeks products with multiple benefits and is a more immune conscious consumer. And as the category continues to shift to gummies, VitaFusion set out to expand the relevance of gummies in order to continue to win its shelf. Introducing VitaFusion bi-layer gummies. These two-in-one gummies provide two benefits, two flavors, and two colors to deliver multiple benefits in a fun and visually appealing way. This multi-plus platform clearly articulates product benefits to ease shopability, and researchers told us that the platform is expected to grow the VMS retail market basket as nearly 30% of respondents said they would take these in addition to their current multivitamin. The Immune SKU is a multivitamin plus zinc and vitamin C. The Beauty SKU is a multivitamin plus biotin and retinol, and we're looking forward to both driving great continued growth. Now, moving over to our specialty hair care franchise, you heard me say earlier that over the past several years, there has been a shift in consumer priorities towards self-care, and during COVID, this trend has been magnified as consumers are spending much more time at home. One example of the desire to pamper and treat oneself can be seen in 23% growth in hair treatments, and within that segment, 72% growth specifically in hair masks. Hair masks represent an opportunity to care for the health and condition of hair. However, they typically take around 10 minutes to work and need to be rinsed off in the shower. Introducing Batiste Leave-In Hair Masks, which deliver self-care on her terms. These lightweight conditioning formulas are infused with plant-derived proteins and vitamin E and allow her to nourish hair and seal in moisture between washes with no rinsing required. Now over to health and well-being, where two-thirds of consumers believe that products sold in the cough, cold, and flu aisle are more effective than those sold in the VMS aisle. And the Zycam consumer is already buying over $40 worth of competitive immune products sold in the cough, cold, and flu aisle. So we're losing out on potential sales by not having any immune products in that aisle. So now I'm pleased to share that Zycam is launching its first immune supplement gummies. The formula features Zycam zinc and also has 100% daily value of the top three immune ingredients. The line includes a regular formula and a nighttime version with melatonin as Immune Plus Sleep is one of the fastest growing sub-segments in VMS. Both products were also designed to provide a terrific value versus the competition. Now over to fabric care where the baby detergent segment is currently a $136 million category and is the second fastest growing segment in liquid laundry detergent. However, Arm & Hammer doesn't have a product here today to meet mom's needs where we know she's looking for a hardworking product at a reasonable price so she doesn't have to compromise on what's best for her baby. Introducing our first Arm & Hammer baby launch detergent, which is designed to help families do what's best for their babies with zero compromises. Specially created with our Arm & Hammer babies in mind, it's gentle enough for baby skin, tested by pediatricians, and offers a hypoallergenic formula that has zero preservatives, no phosphates, and no dyes, and it's even EPA certified as a safer choice. We're very excited about this launch because a baby liquid laundry detergent also helps us down age the Arm & Hammer brand, increasing the lifetime value of each consumer. Let's take a look at some videos that bring this new offer from Arm & Hammer to life. Co-sleep or crib?

Usually crib. Sometimes co-sleep. I mean, he's just so adorable. Make one decision easy. New Arm & Hammer Baby Detergent. Tough on baby stains. Gentle on skin.