Church & Dwight Company, Inc.

All right. Thank you. Welcome, everybody. This is our 2024 Analyst Day. And we've got all of our Southside Analyst friends in the room and lots of major shareholders. So let's begin. We have a safe harbor statement. I encourage everybody to read that after class. And I'm going to start out with who's with us here today. We have virtually the entire management team, one of the best-looking management teams in CPG. I'm sure you'll agree. And we've got kind of a packed agenda. I won't read it to you, but we've got a number of people coming up. We're going to talk to you today about financials, our new products, digital, and also our international story. So here's a quick look back to 2023. So we had a great year for reported and also organic growth. I reported 9% and organic 5%. And we had gross margin expansion of 220 basis points. You can hold the applause for a minute. We had all-time high shares in a lot of our major brands. Share gains, marketing spending historically has been around 11%. We almost got all the way back to 10.9%. And we generated a billion dollars in cash from operations. And finally, as you know, we've been investing in capacity for laundry, litter, and vitamins, and also adding to the capabilities of the company. And here's our TSR. We show this to you every year, 1, 3, 5, and 10 years. This is what matters to our shareholders. 2022 was an abysmal year for us, and we've recovered in 2023. And we've got a lot of confidence going forward, which we're going to walk out of the room here today thinking this, is that we've got a lot of confidence in our ability to grow in the U.S., You see that we tweaked our evergreen model in our press release, so we're expecting 3% growth in the future in the U.S. International, we've tweaked that there to say we expect 8% growth internationally going forward. We have a wonderful lineup of new products in 2024, but we've been consistent in our innovation for many, many years. We're becoming more and more digitally savvy. So one of the markers for that would be, well, what percentage of your sales is online? And the answer is 20% of our sales is a purchase online. That's over a billion dollars in sales. The new evergreen model is very healthy. I'm sure you're going to leave here today thinking that. And we've got really strong fundamentals going forward. So who are we? We're at a $6 billion company. Largely U.S., we see 78% domestic and 17% international. Specialty Products is our original business from back in the 1840s. Historically, we've talked to you about 14 power brands, and those 14 power brands account for 85% of our revenues and profits. But today, as you saw in the release, in the future, we're going to narrow our communication to investors and shareholders and analysts to seven of those 14. And those seven are ones that are in larger categories. And we also believe they have a lot of potential for global growth. So those are the seven. Thoroughbreath. VitaFusion Hero, of course, Arm & Hammer, our biggest brand, Waterpik, Batiste, and OxiClean. And they account for 70% of our revenues and profits. So I'm going to run through what our winning formula is. First off is we have a very balanced and diversified business. We have low private label exposure, great innovation, as you're going to see here today, and we are an acquisitive company. For many, many years, we've said the highest and best use of our cash flow is to buy brands. All right, here's the balance. We're pretty much 50-50 between household and personal care. As far as value versus premium, historically it's been 40-60 between value and premium because of the growth of Thoroughbreath and Hero that shifted a little bit, but it's still a pretty solidly around 40-60. Low private label exposure, this is on a weighted average basis, it's around 12%, and it's been like that for many, many years. category leading innovation barry bruno is going to take you through a lot of the innovation group things we're launching in 2024 and we have a long history of acquisitions so if you went back to 2004 we had 1.5 billion in sales and now we almost have six billion dollars in sales in uh in 2023 And our acquisition criteria is very specific. So we're very fussy about what we're going to buy. They have to be number one or number two brands. They have to be high growth, high margin brands, fast moving consumables, asset light. We have to be able to bring something to the party and leverage our supply chain or our internal capabilities. And they have to have a long term sustainable competitive advantage. All right. So we have seven of those power brands today and more to come. And here's our, I'm just gonna wrap it up here just to remind you, balanced portfolio. I think it's really key to the long-term success of this company. Low private label exposure. We don't have nearly the exposure that some of our peers do. Innovation is the reason why our brands are so successful and the reason why our brand equity grows year after year. And finally, we're an acquisitive company and we do it well. All right, I'm gonna bring up Rick now to take you through the financials.

All right. Thanks, Matt. I'm going to talk to you about the quarter, the full year, which we finished really strongly, and also our outlook and our evolved Evergreen model. So first, the quarter. Our outlook was 5% from a net sales growth perspective. It was 4% organically. We came in at 6.4 and 5.3. So just better than the top line all around. Gross margin, we just said expansion. We came in at 260 basis points expanding versus a year ago. And then EPS was up. So just green arrows all the way. For the full year, similar story. We had 9% as an outlook for the top line and five for organic. We came in at 9.2 and 5.3. Gross margin, we had expected to be up 210. We were actually up 220, as Matt mentioned. And then EPS reported and adjusted are both better than we expected. Cash flow, a billion was our outlook and we came in at a billion 30. So just strong cash flow all the way around. All right, so I'm going to spend some time on the Evergreen model. So for many, many years, we've been going through, and I begin and end almost all my presentations with the Evergreen model, because that is the backdrop for the company. Organic sales of 3%, gross margin expansion of 25 basis points, flat percentage for marketing, higher dollars, and then we leveraged SG&A by 25, and that's how we got to 50, and that led to 8% EPS growth. And that's what we've been saying year after year after year. And we're evolving it today. We're going to say 4%. You know, for the last 10 years, if you look back at our history, we've been growing 4%. But we're saying we have confidence in the future. We're going to continue to grow at 4%. I'll get into that detail in a second. But the divisions would be 3% domestic, 8% international, and 5% for SBD. Gross margin, we also think that this is the time that we are accelerating on productivity. Inflation is starting to moderate, and we have some fast-growing acquisitions that we've done that are helping, that are tailwinds to gross margin. Marketing, same story, flat percentage, but higher dollars. And as we grow faster, that just means we're going to invest even more dollars in marketing to help gain share and to help grow our brands. SG&A, we're going to leverage, maybe not as much as in the past, but still leverage. And in that number, we're now investing largely behind international. and largely behind e-comm, and we'll get into that detail in a second too. So operating margin still expands 50 basis points and industry-leading growth of 8%. That's the new model. So let's just go through the detail a little bit on organic. What gives us confidence? Well, we're in fast-growing categories, and Barry will show you as we talk about those seven. They're extremely fast-growing. We want to take share, and we do that through marketing, through innovation, and we've done that year after year after year. They're a breath and hero. Recent acquisitions are fast-growing, and then international growth is accelerating to 8%. On the gross margin side, again, productivity is outpacing inflation. We have higher margin acquisitions on the marketing side, and Sergey's going to talk about it. We're getting good ROIs in our spend. That transition is helping, and then we have higher dollars as we grow the top line. And then SG&A, we're putting in systems all over the world. We put in a China ERP system. We're putting in an ERP system for our GMG business based out of Europe. All these investments are embedded in our numbers. We also are building capabilities around the world, regulatory, back office, to support this fast-growing business called GMG within our international business. And then analytics and e-commerce. Those are capabilities we want to build. Okay, moving to 2024. So I just talked to the new evergreen model. The outlook is actually a step up from that. The outlook is 4% to 5% on the top line. It's 4% to 5% organically, excluding mega-lack, excluding currency. Gross margins up 50 to 75 basis points. So just step up again from our evergreen model. SG&A is leveraged. Operating profit expansion is higher than our evergreen model, 60 to 80. Tax rate's a little bit higher. And EPS growth is 7 to 9%. And our cash from operations is a billion plus. Now we do have some timing within our EPS outlook. So the first half is essentially flat and the second half is where all of our EPS growth is coming from. Why is that? Well, we're purposely moving marketing spend from the second half to the first half. Because we have one of the biggest new product introductions in major categories in our history. And Barry's gonna walk you through what each one of those are. But we're excited about that. We're gonna go ahead and spend the money up front to drive trial, drive awareness to do that. And then the second point is we had a great first half in 2023. The first half of last year is a strong comp to compare against. We had 11% EPS growth last year in the first half. How do you think about, or how do we think about EPS growth? Well, 8% to 10% if we strip out the MEGALAC. Again, we're not excluding MEGALAC. It's included. These are the shutdown costs. These are the stranded costs. So adjusted EPS growth before MEGALAC is 8% to 10%. MEGALAC impact is a 1% drag. That's how we get to 7% to 9%. If you think about the tax rate, that's also a headwind of about 2% for operating performance. So we're really strong operating performance is what I want to leave you with for 2024. Let's look at our track record, 10 years of growth. Last year, net sales growth grew 9.2%, one of our strongest years ever. And we're going to have 4% to 5% growth on top of that growth in 2024. Organically, long track record, again, of above 4%. So the median for 2024 is 4.5%, or the average. And we're going to, that's better than our 10-year average, better than our new evergreen model. So 4.5% or so above the 5.3 is, again, growth on top of growth. And it matters where that's coming from. In years past, before all the COVID noise and all the pricing and the inflation, we were a volume-driven company. 100% of our organic growth was really from volume. Many companies right now are talking about the return to volume. We've already returned to volume. The last two quarters consecutively, we have volume growth. We expect that in 2024 as well. About two-thirds of our growth we expect to be volume-driven growth in 2024. On gross margin, this is a slide to spend some time on. So we had a fantastic gross margin expansion, 220 basis points in 2023. That got us to 44.1%. Our eyes are on our high of 45.5 back before COVID, the 2019 number. If we hit the middle of our 50 to 75 basis point outlook, then that means we have 80 bps remaining to get back to that kind of pre-COVID number. Now, we also have tailwinds from acquisitions that we didn't have back then. But our eyes are firmly on recovering back to 45.5. And that's also why we have confidence and raised our gross margin outlook for the next few, for the future. Here's the bridge. So this is always the detail that folks want to see. 2023, price volume mix as expected. Very strong tailwind from price. In 2024, not as much. We have some carryover price, but it's not the driver. Manufacturing costs were a headwind of 240 basis points last year. We expect that to be closer to down 130, down 140, about $85 million. It was about 125 in 2023. Acquisition is a tailwind in 2023. We don't expect to have acquisitions in 2024 from carryover impact on gross margin. Productivity programs up 150. That was one of our best years ever. It was our best year ever for our productivity program. And then in 2024, we also expect to have a really strong productivity program. Gross margin change would then be 220 in 2023 and then 50 to 75 in 2024. I'll spend a minute on manufacturing costs. Inflation is still there. I would say it's moderating. So maybe a few months ago I would have said inflation. I would say it's moderate inflation. And the nuance in 2024 is a small piece of that is commodity related. And whether it's resin prices or natural gas or sugar, those costs are up. But the bigger part for Church and Dwight is some of the costs and investments we're making in capacity. So the new depreciation on the capital that we've put in. We added a new distribution center. We're outsourcing international supply in some cases until we can bring it in-house. We have higher third-party manufacturing costs and higher labor costs. So that's the bigger makeup of the pie, largely capacity-driven as we grow into it. Moving to marketing, so 11% with 4 to 5% net sales growth. This is an investment of 35 or so million dollars. So this is real incremental dollars year over year to help drive the top line in share. SG&A, we continue to believe we're gonna leverage SG&A. And I walk through, even in the future Evergreen model, leverage of 25 basis points to zero. So those investments behind international and e-comm are key. And all that leads to great, consistent, strong EPS growth over time. Double digit in many cases or high single digit. And we have a great outlook in 2024. Turning to cash flow. So cash flow is what we believe drives value. And our free cash flow conversion, which is free cash flow divided by net income is industry leading. So for 10 years, our average was 119%. In our recent history, because we're making huge capital investments on CapEx, that number is down, but still right in line with industry, or maybe even a little bit better. But we expect that to continue to inflect positively. Our cash conversion cycle, this has been a track record at Church and Dwight. We've taken our cash conversion cycle from 52 days down into the 20s. We had a spike up this year, largely because of acquisitions, but again, that's going to work its way back down over time. Strong balance sheet, one of the strongest positions we've ever been in. So we ended this year 1.8 times levered. We expect to end next year closer to 1.6 times. And this chart is updated. So even from a few months ago, back in September, when we presented at Barclays, our financial capacity is about 20% higher. And why is that? It's because we're generating even more EBITDA. It's because we're generating and paying down cash at such a rate, we're paying down debt as well. And so those things are just, again, virtuous cycles when we look at doing acquisitions and deals to grow our business. So number one far and away for capital allocation is M&A, and we're laser focused on M&A. Number two is CapEx for organic growth and our good to great program. Number three is new products. Number four, debt reduction. And number five, return cash to shareholders. We're not a capital intensive company. We spiked up in 2022, three, on the way down in 2024, and we believe we'll be at 2% of sales back to normal in 2025. And then finally, we announced this morning in the press release we have a 4% dividend increase right in line with our capital allocation strategy. And I'll turn it over to Barry to talk about the domestic division in new products. Thank you.

Afternoon, everybody. I think Rick likes when I go right after the dividend slide to remind me I've got an obligation to keep it going. So 123 years strong and some more good quarters ahead. So I'm Barry Bruno. I'm responsible for our U.S. business. I'm going to talk a little bit about our categories, the U.S. consumer, and what I think is some really great innovation that we've got in each of our key categories going forward. I'm going to start with a slide I left you with last year, which was we've got great confidence in our future. If you look at the categories in which we compete, and I'll show you a look at the old power brand and the new power brand categories to break them out for you, we're not only leaders in those categories, we're driving growth in those categories. We thrive in difficult environments. You've seen our value percentage of our portfolio. I'll take you through how on Arm & Hammer in particular, we bring consumers in in tough times, we keep them, we trade them up. And then acquisitions have a ton of room to run. Hero and TheraBreath have been absolutely home runs, and they're in the early innings of that story still, and I'll show you what that looks like. So this slide was getting a little complicated, right? This is our old 14 power brand prior look, 17 categories. As we got into new categories, the chart got longer and longer. You can see which in 23 were growing. Mid single digit growth, high single digit growth, pretty strong. But when you look at the new look of our seven power brands, and these compete in eight categories, just as a reminder, Arm & Hammer competes in laundry and litter, of course. Seven brands, eight categories. incredibly strong growth, right? 11% in 21, 18% in 22, and then 16.9% on top of that. And we're driving a lot of that growth, and I'll show you that in just a little bit. But these are exciting, healthy categories to be in. Matt talked about these a little bit too. So our portfolio has changed a little over time. So we're 63% premium, 37% value, still incredibly valuable to us in tough economic times as we bring consumers in and low private label exposure of 12%. And then the third reason for confidence is about these new acquisitions, right? When we've met with you over the last two years, talking about TheraBreath and Hero, It's been about our ability to build distribution to bring these to more and more consumers. And you can see the success that we're having. TheraBreath up 57% in terms of distribution last year and lots of room to run to catch up with the big guys. And Hero is another great story as well, up 200% last year and tons of room to keep growing. And that's just in MULO. That's in measured channels. If you look at it from a numerator standpoint, mouthwash is in 63% of U.S. households today. TheraBreath's only in seven. And you can see the growth we're making from one to two to three to four to seven, great growth. But there's a ton of households where we're not in just yet. And so there's room to run there. And Hero's the same story. Hero almost didn't exist five years ago with a 0.2% household penetration up to 6.4% today. And you can see the rate of growth accelerating. So whether you measure MULO or you measure numerator households, tons of room to run on acquisitions. So let's look at some category and consumer dynamics now. We're gonna start with our largest brand, Arm & Hammer, and one of our largest categories, Fabricare. And the look back is a pretty compelling story of growth, from a five share to an all-time share high, 14.4% last year, on top of an all-time share high in the prior year. And all of that growth's been driven, as we've talked with you, about being anchored in the value tier of the laundry detergent category. That's about 30% of the category. But I'm happy to be talking today about Arm & Hammer Deep Clean, our most powerful formula, And our first entry into the mid-tier segment, to give you some idea, that's about 27% of the category, the mid-tier. We haven't played there today. And we're thrilled about this new formula that's going to be launching in Q1 in 2024. And just to break it out for you so you can see our architecture, we've got our core Arm & Hammer products. Those are our better products. Arm & Hammer plus OxyClean. Sorry, Arm & Hammer's good. Arm & Hammer plus OxyClean, better. And now with DeepClean, our best formula and the best anchor in our architecture. And we are telling consumers about this new formula starting very soon. And I'll play one of the spots. We call it Dig Deep to show you how we're bringing awareness to the category and the brand. Laundry call.