Church & Dwight Company, Inc.

among other things, the company's financial objectives and forecasts. These statements are subject to risk and uncertainties and other factors that are described in detail in the company's SEC filings. I would now like to introduce your host for today's call, Mr. Rick Durker, President and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

All right. Thank you. Good morning, everyone. Thanks for joining the call. I'll begin with a review of Q2 results. I'll speak to the touchdown closing, strategic actions, and some thoughts on the macro environment. Then I'll turn the call over to Lee McChesney, our CFO. When Lee is done, we'll open the call up for questions. First, I'll begin with Q2 results. Organic sales grew 0.1%, exceeding our outlook of minus two to flat. Adjusted gross margin was down 40 basis points, also exceeding our outlook range. Adjusted EPS was 94 cents, which was 9 cents higher than our 85-cent outlook. Lee will take you through the rest of the numbers shortly, but first some highlights from the quarter. When we gave our outlook back in May, we were seeing category consumption data that was showing a deceleration from strong growth early in the year to turning negative in early April. The good news is that since then, things have begun to improve with categories finishing positive in April and Q2 category consumption for our largest categories finishing around 2.5%. The macro environment has been volatile and uncertain with tariff policies changing frequently. The consumer uncertainty showed up in early Q2 when consumer confidence hit a 12-year low. Since then, consumer confidence levels have started to recover as tariff policy appeared to stabilize. Not surprisingly, given that backdrop, our second quarter sales finished slightly ahead of our outlook, which gives us confidence in achieving our full year organic outlook of 0% to 2%. Our brands continue to perform well in this dynamic environment. We continue to drive both dollar and volume share gains across most of our brands. Our balanced portfolio of value and premium products and our relentless focus on innovation continues to position us well for the future. International continues to take share across the globe. Further, we continue to grow the online class of trade with online sales as a percentage of global sales now reaching 23%. In July, we closed our most recent acquisition, Touchland. Touchland is the fastest growing brand in the hand sanitizer category in the U.S. and is the number two hand sanitizer in the category. Touchland experienced strong growth in Q2, outpacing the category and gaining share. We're excited to add Touchland as our eighth power brand. and even more so, excited to officially welcome the Touchstone team to Church and Dwight. Now let's discuss the strategic actions we outlined last quarter. To drive shareholder value, management team assessed each of our brands on a regular basis. As a result of these reviews, we often accelerate and increase investments in our strongest brands and move with speed to address opportunities for value creation. That review is what led to the strategic decision to exit Flawless, Spin Brush, and Waterpik, a showerhead business. Today, we're providing an update on our vitamin business. We remain focused on our revitalization efforts with multiple innovation and branding programs underway in 2025. While it's still too early to fully evaluate results, we can share at this time that we're seeing mixed results. There are some green shoots. We see our multivitamin business improving week over week, and our innovation is seeing strong consumer reviews. And of course, we remain focused on executing our improvement actions. In addition, we are undertaking a strategic review of the business, including streamlining our supply chain to strengthen our core business, potential JV and partnership opportunities, and investiture options. The gummy vitamin business continues to be a drag on the company's organic growth. The good news is the gummy vitamin category grew almost 4%, which is the third consecutive quarter of growth. The bad news is our consumption was down around 25% as our TDPs declined. Now I'm going to turn my comments to each of the three businesses and the improved results from our teams in the second quarter. First up is the U.S. consumer business. Organic sales declined 1%, with volume growth being offset by negative price mix. Volume growth was muted by continued retail destocking in Q2. We continue to expect slight impacts moving forward. Consumption was positive in the quarter for the U.S. business, with momentum improving, and we grew share in five of our seven power brands. me provide a bit of color for a few of our important categories first with water detergent arm and hammer liquid laundry detergent consumption grew 3.2 percent in contrast to 1.3 percent category growth arm and hammer share in the quarter reached 15 percent moving to litter arm and hammer litter consumption grew 3.4 percent while the category was up 4.1 as we saw heightened competitive promotions next is batiste batiste continues to be the global leader in dry shampoo and while consumption was down Almost 7% in the quarter were confident in Batiste's return to consumption growth in the future. There are a couple of factors contributing to consumption decline, such as competitive price increases, economic pressure driving trade down, and we had some supply issues that are now resolved. This year, we're launching Batiste Lite. As a leading brand, our innovations continue to attract new users to the category and increase household penetration. Over in mouthwash, TheraBreath continues to perform extremely well. While the mouthwash category was down in Q2, TheraBreath consumption grew 22.5% and continues to be the number two mouthwash with a 21% share. Remember, we believe there's a lot of runway here. Our household penetration for TheraBreath currently sits around 11% versus the category of 65%. Here I once again outpaced the category with consumption growth of 11.4% compared to the acne category growth of 1.5%. and remains the number one brand in acne care with a 22 share. Equally important is Hero continues to gain share in acne patches. And similar to the TheraBreath story, we believe household penetration growth is key for this brand. It sits at 9% versus the category of 28%. Hero continues to launch innovative solutions and patches and is entering the growing body care segment in 2025 with the Mighty Patch Body. Looking ahead, we're excited about our pipeline of new products, which remain a key driver of our success. In 2025, we expect continued innovation to power our growth and build on momentum, especially in several core categories where we're leading the way. Now turning to international SBD, our international business delivered sales growth of 5.3% in the quarter. Organic increased 4.8% due to a combination of higher volume, price, and mix. Growth was led by Hero, TheraBreath, and FemFresh and was broad-based with all of our subs delivering growth. We were able to grow share in all of our power brands in the quarter, which is a great achievement. Finally, SBD organic sales increased 0.1% due to a combination of higher price and product mix offset by volume. We continue to be excited about the growth opportunities in this business. Looking ahead, our full year organic growth outlook continues to be 0 to 2%. While category consumption has improved, there remains uncertainty around the US consumer and global economy. We expect our Q2 brand share momentum to continue, supported by our new product launches, our distribution gains, and sustained full-year investment in marketing. Adjusted EPS, we continue to expect 0% to 2% growth, which includes the touchline acquisition, the cost of the product recall, and the wind down of the three exited businesses. I'll close by saying that category consumption is looking a bit better than three months ago, and our brands are strong. They're doing well. We're gaining both dollar and volume share across much of the portfolio. We have a healthy mix of value and premium offerings, and we're well-equipped to navigate the current environment. The strategic actions we're taking will position the company well for the future, and we continue to be on the hunt for the right acquisitions. I'd like to thank all the Church & Dwight employees for executing well in a volatile environment, and now I'll hand it over to Lee for more detail on the quarter.

Thank you, Rick, and good day to everyone. Well, as Rick just mentioned, we've just concluded a very productive quarter from our teams across the globe. As we shared during our first quarter call, we remain focused on what we control in the second quarter, and this positions us well as we look forward to the second half of 2025. Let's dive into the second quarter and our outlook. We'll start with EPS. Second quarter adjusted EPS is 94 cents, up 1% from the prior year. The 94 cents was better than our 85 cent outlook, driven by a stronger sales performance and some good resiliency with gross margin. Reporter revenue was down 0.3%, and organic sales were up 0.1%. The organic sales were on the high side of our May 1st outlook, and it reflects the improvements we saw in category growth and the strength of our brands. Our second quarter adjusted gross margin was 45.0%, a 40 basis point decrease from a year ago. Productivity and higher margin acquisition business mix drove 170 basis points of margin growth, and offset a negative 140 basis points from inflation and tariffs, 40 basis points from the combination of volume, price, and mix, and 30 basis points from the Zycam or JL swab recall. I'd also note that a portion of our original tariff estimate, about 20 to 30 basis points we expected in the second quarter, shifted to the third quarter as the tariff rates and the shipment timing evolved. Moving to marketing. Our marketing expense as a percentage of sales was 10.4%, or 30 basis points higher than 2Q of last year. And for the year, we continue to target 11% of net sales in line with our evergreen model. We are encouraged with our share results in the first half of the year. For SG&A, Q2 adjusted SG&A decreased 80 basis points year over year. And other expense decreased by 5.2 million due to higher interest income. And we now expect Other expense for the full year to be approximately $65 million on an adjusted basis, reflecting a lower investment income following the Touchland acquisition. In 2Q, our effective tax rate was 23.8% compared to 24% in Q2 of 2024, a 20 basis point year-over-year decrease. The expected adjusted effective tax rate for the full year continues to be 23%. And now to cash. For the first six months of 2025, cash from operating activities was $416.5 million, a decrease of $83 million versus last year due to working capital timing and lower cash earnings. Capital expenditures for the first six months were $39 million, a $37.6 million decrease from the prior year. And we continue to expect capex of approximately $130 million as we return to historical levels of 2% of sales in 2025. And in the second quarter, the company executed a $300 million share repurchase via open market transactions through an accelerated share repurchase program. Okay, let's now spend a few minutes on our outlook. For the full year, we expect reported sales growth of approximately 0% to 2%, which includes the addition of a touchline acquisition and the impact of lower sales from the businesses we are exiting. And to quantify that for you, that's about $70 to $80 million of touchline coming in, and $78 million going out for the businesses being exited. We continue to expect organic revenue growth of approximately 0% to 2%. The sales outlook reflects our brand and category growth momentum and reflects a balanced macro view around the uncertainty in the US and global economies. We continue to expect four-year gross margin to contract 60 basis points versus 2024 from elevated input costs and tariffs, the recall expense, unfavorable price and mix, to outpace incremental productivity, and higher margin acquisition impacts. And looking forward, Touchstone is margin rate positive, but for this year, the business exits mitigate that benefit. And we're maintaining our adjusted EPS outlook for 2025. We expect full year adjusted EPS to be 0% to 2%, which includes the key elements we highlighted after the first quarter, but also includes the Touchstone, which is neutral EPS for 2025, the wind down of the free business exits, and the cost of the product recall. And for 3Q, we expect reported organic sales growth of approximately 1% to 2%, adjusted gross margin contraction of approximately 100 basis points, primarily from inflation and tariff costs and the lower margins of the exited businesses. Marketing will be higher sequentially compared to last year. And as a result, we expect adjusted EPS of $0.72 per share, which is a decrease of 9% versus last year adjusted EPS. Cash flow from operations for the full year remains $1.05 billion. In July, we also expanded our revolver facility from $1.5 billion to $2 billion. And the combination of this cash flow and the expanded credit facilities provides us excellent flexibility. Our M&A team accordingly continues to pursue accretive acquisitions that meet our strict criteria with an emphasis on fast-moving consumer products similar to our recent acquisitions. To conclude, Back on May 1st, we communicated our proactive set of actions to navigate 2025. And as Rick and I just highlighted, we've made great progress and we're focused on sustained execution for the remainder of the year. So with that, we're happy to take your questions. So Eric, we'll turn it to you.

Ladies and gentlemen, at this time, I'd like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. The first question comes from the line of Chris Carey with Wells Fargo. Please go ahead.

Hey, good morning, guys.

Morning.

Morning. Can I start on vitamins and the strategic review you're undergoing? Can you just give a bit of context on what might push you one way versus the other? That could be feasibility of outcomes, obviously. You need a partner on the other side of the equation. but that could also be the potential dilution of an outright divestiture and perhaps how you think about touch land given the fast growth and margin accretion as a potential offset to such an outright dilutive divestiture. So can you just give us a little bit more insight on how those different decisions could come out and and kind of the netting out impact if we were to look out 12 to 18 months?

Yeah, sure, Chris. Look, we were pretty clear in the release that we put three different options out there, and there's some option in no particular order would be a divestiture. That's probably the cleanest option. The second one would be a joint venture partnership with a partner. We've seen that happen in the industry a few times as well. And the third one is to radically shrink that business and make it even more profitable. And that would have, you know, supply chain reorganization. That would have kind of the way we manage that business implications to enable speed and even faster decision-making. Because I think everyone sees it, but it's not just Church and Dwight. It's the vitamin... businesses that were put into all these CPG companies, these businesses need to be run and managed a little bit differently. And I think we have the ability to do that. It just has to change the organization around it and the structure we would have. So we need a few months to go through that. I think the good news is some of the activity steps that we have started on are working. I was kind of clear about that in the green shoot comment. For example, we've been putting a lot of focus on multivites, on innovation, and we've been stair stepping up in improvement. We were probably on average down 24-25% for April and May and as we look at June we're we're down You know in the teens and then the last couple weeks were down single digits and for the first time ever our units were actually positive so there are things that are working it's just a speed and You know urgency type of mindset and

Okay, fair enough. And then just from a category perspective, we've seen good consumption trends in your laundry business. Can you just expand on what's going right and then some of the strategies that you're implementing to put up some nice market share performance? Thanks so much.

No, thanks. There's great market share performance. Five of seven of our brands, power brands, gain share in the quarter. We continue to do well. July also looks good. I would say... A lot of confidence in our growth in the back half. I'm incrementally even more positive today than I talked 90 days ago. Category growth is improving. Our share gains are working. A lot of confidence in the 2.5% back half number. And even July, I would say, came in above that number. So a lot of good work and efforts across many of our brands. With laundry, you want to have the right The sizing strategy, right? A lot of consumers are trading up into larger sizes. Make sure the price points on those sizes are correct so you can promote them correctly at times. And then laundry and litter are very similar. It's a price and sizing value equation that we're really good at and we can move quickly on. So we've been successful across many of our brands for that reason.

Okay. Thanks, Rick.

Your next question comes from the line of Rupesh Parikh with Oppenheimer.

Please go ahead. Good morning, and thanks for taking my question. I guess just going back to a retailer destocking comment, is there a way to quantify the magnitude of that headwind and then whether it was broad based across retailers and categories? And then I have one follow up question.

Yeah, Rupesh, it's Rick. You know, we talked in Q1 that it was around a 300 basis point drag. to our net sales versus the consumption numbers. I think we would ballpark it to be around 100 basis points in Q2. And in my comments, I said maybe it's slightly there in Q3 and Q4 as we go forward. But inventory levels are pretty good. The only impact, and you heard this from other competitors, is as sales grow faster at club or online or at mass, it does have a little bit of a mixed component to it. that there's just not as much inventory needed in the system. And as you would expect, when category growth is a little bit lower than historical averages, you don't need as much inventory either. And so I think it's kind of a slight impact, but I wouldn't call it a material impact going forward.

Great. And then my final question, just on Touchland, now that the acquisition is closed, we'd be just curious on what you see as, I guess, the bigger priorities for the balance of the year for that business.

Yeah. Yeah. We're super excited about, about touchland. I think, um, uh, again, like you can't track that business as well because it's sold largely at Sephora and Ulta and Amazon. But when we look at our kind of numerator data or even the Amazon data, you know, it's driving category growth, like half of all category growth coming from touchland, uh, new users, household penetration is still a great story. A lot of runway there, you know, 6% household penetration for touchland versus the category at 37%. They have incremental kind of near-term innovation on different fragrances and whatnot for hand sanitizer. The body mist is still off to a good start. Going international is off to a good start. More to come later on in other categories of innovation, but it is... It is just a pleasant surprise is what I would say. And the team's energized. The connections that we're making within Church and Dwight and Touchland are helping enable them move with speed as they go after new opportunities, whether it's a different class of trade or a different distributor or whatnot. So really happy with that growth rate.

Great. Thank you, Apostle Long.

The next question comes from the line of Peter Grom with UBS. Please go ahead.

Thanks, Operator, and good morning, guys. I kind of wanted to follow up on the organic sales outlook, but just in the context of what you're seeing from a category standpoint, you touched on it to Chris's question, the consumption has improved, and we can see that in the data. But I guess the commentary seems to be at odds with a lot of what your HPC peers are kind of discussing here in the last 12 hours or so. So I know everyone is different in some categories and regions, but can you just talk about what you're seeing and maybe why it could be different and how you see that evolving through the balance of the year?

Yeah, and you got to remember, I think we were kind of early, like we normally are, about calling what was happening last quarter. And I think some of our peers called that kind of this quarter. Back when I talked in May, I was a little bit more cautious because we were seeing negative category growth for those first few weeks of April. And so we were calling category growth at like 1% or 1.5% was kind of our outlook embedded when we were discussing it. And then as time goes by, The category growth for our largest categories, not all of our categories, but the largest categories was closer to 2.5% for the third quarter. And we've talked about this before as well, just the agita that was happening, the University of Michigan, consumer confidence, all the turmoil in the world on tariffs, and that bred uncertainty. Well, some of that has been mitigated. There's been a little bit more confidence, I think, and category growth has we think is going to be closer to 1.5% to 2% as we move forward for the year. It matters what categories you're in. I think that's the most concrete answer I can give you. Some of our competitors are in different categories than we are. They have other risks to private label. They have other pricing risks. But for us, we see that more often than not, our categories are growing 3% over a long period of time. slower than that this year, but better than what we expected maybe 90 days ago. And meanwhile, our tactics and strategies on innovation and pricing and promotion and all those things are helping, and our marketing spend is helping to gain share.

Hey, Peter, all I would add is it's your point. To Rick's point, we tried to lay out for the rest of the year back in May 1st and here today, there were steps to our improvement. And, you know, the second quarter, you know, really hit those marks actually a bit higher. And then obviously for the back half, we got two and a half percent organic implied. And, you know, we have steps to that in 3Q and 4Q. We feel very comfortable with the back half just based on everything we see today.

Makes sense. And I guess just a point of clarification, Rick, I mean, on that two and a half percent, I think you mentioned before that it's running ahead of that in July. So I just wanted to clarify that that's a total company organic comment. And I guess If that's the case, is there any sort of reason why you would anticipate organic growth kind of decelerating to the 1% to 2% guidance that you frame for the quarter?

Well, there's always a comp. And I would just say that our month of July is the easiest comp that we had if you look at the quarter. But it just gives us confidence because You have one month behind us, and it had a great month. So maybe it's conservative, but what we think the environment is right now, it's so volatile that there's no reason to take the full year up after another three months. So we'll see how the next 90 days go, and I'm just trying to convey that we're off to a strong start.

Makes a lot of sense. Thank you so much. I'll pass it on.

The next question comes from the line of Anna Lizell with Bank of America. Please go ahead.

Hi, good morning. Thank you so much for the question. I was wondering if I could follow up on Peter's question here. Just we're hearing from peers in this space who expect an acceleration in the second half. And while you don't have meaningfully different comps in the back half, I was wondering how you're looking at the consumer environment, and your expectations for improvement or maybe lack thereof here. And we're also seeing a variety of strategic actions from peers as well, including increased promotional spend and marketing support. I was wondering if you can further comment on your initiatives there. Thank you.

Sure. So, you know, on the consumer, my answer is pretty much what I gave Peter. You know, there's a lot of confidence in our growth, and it's not just a category story for us. It's also a share story, right? And we're driving... growth in mouthwash, even when the category is growing slower than that, we're taking share. Same thing with acne and acne patches. Same thing with TouchLint. Many of our brands, not just one or two of them, are gaining share over time. So that's why, again, we have, if you look back at our long track record, 10 years plus, we tend to gain share in about two-thirds of the time periods we're looking at. So that's on the consumer. In terms of, I think your other question was just what initiatives we have and strategic initiatives. Look, we are crystal clear that we're going to be spending the marketing that we kind of always spend with our evergreen model. We think this is the right time, that's the right amount, 11% or so. And we're protecting that. And that's part of the reason that even when we came out in the first quarter and lowered our earnings for the year pretty early, We said that we are going to protect that marketing spend. Q3 is actually the highest quarter of the year, between 12.5% and 13%. We're investing behind the business. We're investing behind the brands. We're investing behind innovation. There's some innovations launching in the back half that we're really proud of as well that will be supported. We'll talk more about that next quarter. So that's kind of where we're at. We're investing behind marketing, we're investing behind price pack architecture where we need to, and we feel like we're in a good spot to continue to gain share over time.

Okay, great. Thanks so much.

The next question comes from the line of Dara Mozenian with Morgan Stanley. Please go ahead.

Hey, thanks. Maybe extending the last couple of questions a bit as we look beyond 25, just any thoughts, Rick, on your ability to return to the evergreen OSG targets after this year? Are you looking at this year as more of an aberration, understanding a lot of weakness earlier in the year, things getting better sequentially, but not being all the way back to evergreen yet? I know there's a lot of volatility, there's a lot going on, but how do you think about organic sales growth as you look beyond this year, particularly with an easy comp in theory with the inventory cuts this year?

Yeah, thanks for the question, Darragh. Look, it's called an evergreen model for a reason. Our goal is to hit our evergreen model each and every year, year after year, and we've got a model of consistency in doing that. I think this year is an aberration. When you have categories like we said before, that all of a sudden for the last 10 years have grown around 3%. It started out growing in Q1 1.5%, and in the first couple weeks of April, negative. That gave us pause. I think with the volatility in the world today and the pressure on the consumer and the agita around the tariff situation, that just moved categories in a bigger way. So I do think it's a bit of an aberration. I have a lot of confidence in the Evergreen model for not just one year or two years, but that is what we are supposed to do each and every year. And we have some brands that are growing faster than the Evergreen model, and we have made some portfolio decisions on other brands that were growing at a lower rate than the Evergreen model. So I think that does nothing but strengthen the portfolio and the company over the long term.

Great. That's helpful. And then just on Batiste, It's been a great growth brand in recent years. Slow down in Q2. You sound more optimistic in the back half. You touched on it a bit, but can you just give us a bit more detail on what's happened here in the last few months and sort of the plans for the back half and the optimism you have there?

Thanks. Yep, sure. Well, it's never one thing. It's always multiple things. That's how life and how business is. So partly we had some supply chain challenges that were back and recovered on. So that's a piece of it. We are introducing some innovation, right? And we have to make sure the advertising and the trial generation activities for that line up appropriately. And so that's still early days. Uh, we also had a competitor take a massive price increase and introduce different sizes as well. And so when you, when you have that, it kind of changes and disrupts the category from a pricing size and perspective. So we're taking a look at that. Um, but meanwhile, you know, we have to make sure we're really clear. Batiste is the leader in the category. It's brought innovation, not for one year, but for, for decades and, uh, consumers Delight in in Batiste. We have led that category with innovation. We've let it with with kind of a value as we traded people up to larger sizes, but we're in a difficult economic environment right now, so we have to make sure we have sizes that appeal to all all price points. And so that's what the teams working on and some of those things will be dealt with immediately and some of them are kind of medium term, but I have a lot of confidence we're going to get back to share gains in Batiste.

uh in the in the in the medium term future thank you your next question comes from the line of bonnie herzog with goldman sachs please go ahead all right all right thank you good morning actually wanted to circle back with a question on the promotional environment you know we've seen increased couponing activity across broader HPC and then scanner data is suggesting that sales on promotions have been rising. So just curious to hear what you've been seeing in your categories and if you expect the promotional landscape to get even more aggressive in the back half of the year. And I guess in that vein, Rick, you know, how should we think about net price realization going forward, especially within your consumer domestic segment?

Yeah. Hey Bonnie, good question. I think, um, Look, whenever we talk about promotion, where we focus is really our household business, laundry and litter. That's the predominant amount of promotion. I would say it's kind of a divergent story. Litter, actually, that category has spiked up above historical averages. If you look back at a long time, many, many quarters, it could go anywhere between 15 and 18 over years. It spiked up to 21 in the quarter. We were actually down a little bit. Nestle was up dramatically as they are promoting their lightweight litter in a big way. So that was litter. Laundry actually is very consistent with the previous few quarters. Laundry detergent is typically in the low 30s. And for the last 12 months, it continues to be in the low 30s. We were up a little bit, but we're still in the low 30s. I think in general, laundry has been pretty rational. Litter has been elevated. And then vitamins, to some degree, is always a promotional category. But that's, again, a little bit of smaller business than the other two for us.

Okay, helpful. And then maybe just a quick question about your gross margin guidance for the year. You know, with end market trends, you know, sequentially getting better and you know, your guidance suggesting top line is going to accelerate in the back half. Could you just maybe touch on the puts and takes, including tariffs on the expected declines on gross margins, especially in Q3? Thanks.

Yep. Good morning, Bonnie. Yeah, so as we talked about, you know, we say, number one, here, gross margin is still in the 60 basis point zone, but, you know, obviously there's some moving pieces that have happened. As we noted, you know, tariffs are have not materially changed for the year, though the 12-month number's gone up a bit, but there has been a bit of a timing piece, so there's a bit more in the back half than we initially estimated. That certainly shows up in 3Q in particular. Still driving productivity, and overall, it still keeps us in that same zone. As Rick just talked about, we did have a little bit of a negative price in the second quarter. Now, the majority of that was tied to our recall. There certainly is a little bit of discount going on, like a more normal environment. You have that in there. But, you know, that's the balance. Again, biggest piece is just the tariffs inflation. Inflation is still staying sticky. We keep driving productivity. And, you know, I think probably a good time to reiterate, you know, we've done a really nice job to manage the tariff topic. And, you know, really that number is just a timing change for us. The absolute value for the year hasn't changed. We've been very proactive at managing it. The 12-month number has gone up, but again, if we hadn't done all the actions we had taken, we'd have a much bigger headwind, and we're just focused on driving that through productivity and probably some strategic pricing as we look forward.

Yeah, I'm actually really pleased with – we kept 60 basis points of a decline as our outlook, and we absorbed a lower – gross margin number from these discontinued businesses as they ramp down, right, as you take inventory reserves for them, as you do the proper run out of those businesses. And we had a recall that happened for our Zycam and Origel business that impacted us. And despite all that, we were able to maintain margin.

All right. Thank you.

Your next question comes from the line of Steve Powers with Deutsche Bank. Please go ahead.

Great. Thank you. First, just real quick, circling back on VMS and thinking about different strategic options, if you were to separate that business, can you talk a little bit about just how compartmentalized that business is and how easily separatable it is relative to any kind of stranded overhead considerations that you'd have to work through and that we should be thinking about?

Sure. So that business, you know, has separate manufacturing facilities in Vancouver, Washington. It's embedded also in our York, Pennsylvania manufacturing facility, but it's within its own four walls. It's like a plant within a plant within that facility. And then, as you would think, you know, R&D and supply chain and marketing, all those functional supports tend to be a little bit separate because it's its own largely SBU. There are support structures within the corporation, and so there are some allocated costs. And if we did go down the route of selling, we'd have to go address the strain of costs. And that's normal with any business. We just did that with the spin brush, flawless, and water-fixed showerhead. you know, rundowns. I think the big thing for us is at the same time, we're also adding growth, right? We're also adding touchline. And so that helps offset some of those leverage fixed costs as well.

Yeah. Okay. Perfect. Thank you. And then, Rick, you know, setting aside the work that's being done in HPC, you know, on on kind of portfolio rethinking across a lot of companies. We're also seeing companies kind of double down on productivity, announce new restructuring. And on the back end of that, theoretically, size will be stuffing up investments in technology and innovation, go-to-market capabilities, et cetera. So if you think about your business, again, notwithstanding the portfolio work you've done, just how do you think about your spending levels and your capabilities? How do you benchmark them against peers both today and where you think kind of the puck may be going? And is there any contemplation of having to do something similar from a restructuring and accelerated reinvestment program? Thank you.

Yeah, Steve, you've been following this company for so long as well. We've never really done a restructuring program. We're more of a pay-as-you-go type mentality. I mean, I think the only time we've ever called out anything was when we did a re-implementation of SAP, and that was kind of a one-off. But what we tend to do is in any one year, we could go past our outlook on earnings growth, for example. But we tend not to do that. We tend to make investments for the long term. And we've been doing that for years. And so we make investments in some of the analytics. We put a center of excellence in place. We put a pricing group in place. We're looking at we've added infrastructure to our international team in a big way. We have centers of excellence over in Europe for really the export business. We're looking at more local innovation, more local manufacturing. But all those things we tend to embed in our evergreen model and that we kind of pay as you go.

Very clear. Thank you very much.

The next question comes from the line of Andrea Texera with J.P. Morgan. Please go ahead.

Thank you. I want to go back, Rick, to your comment about how to think about these categories as you were digesting. And also, in general, as you step back in terms of acquisitions, like keeping innovation for be it Batiste or be it now Hero, you have the body patch. How are you going to be able to continue to innovate and how you're seeing... percentage of sales coming from that innovation accelerating the second half. I know you might be comping some of the laundry innovation that you had as you entered 2026. So how we should be thinking of that? And then conversely, I think you always have said about 20% of your revenues come from value. Are you gaining share in that segment of your portfolio or you're seeing that stable? Thank you.

I think I got two of the three, but you can remind me what the third one was. On innovation, you're right. Innovation for us has been a bedrock. When Carlos came in, who's our head of R&D, he really changed the way we innovate. We went through this at Analyst Day a little bit, but we have so many different vectors now of innovation. the last few years, about half of our organic growth is coming from innovation, which is just, I think, industry leading, and it's fantastic. So if innovation last year was closer to two, it's probably closer to, our outlook was probably closer to one and a half as we started the year. It's probably around 1.2, 1.3, just as Still phenomenal, but in times like this, when the consumer is pressed, sometimes they don't reach for the innovative new product initially. So we're still really happy with a lot of innovation. We're putting our programs in place for sampling and for trial. But across the board, if you take a step back, deep clean innovation on laundry has been driving category growth and category expansion and share gains for us. Lightweight Litter has been growing category growth, our brand to grow and share gains for us. Batiste, Light, Hero, TheraBreath, incremental sizes and flavors. So innovation is alive and well and really a growth driver. On value share, I think you're right. Part of our portfolio is Premium, part of it is value. More recently, as Hero and TheraBreath have outsized growth, the premium kind of mix of our business has grown faster. But the value portfolio continues to do really well, even if you look at Orange Box and Litter. I mean, Orange Box and Litter is growing around 4%. There's not this massive trade down or trade up happening, but Orange Box and Litter is doing well. I'd say Arm & Hammer, the brand in laundry, is doing fantastically well. We have a good, better, best strategy there. It's probably the better and the best tiers are growing faster than the good tiers in Arm & Hammer laundry. But those good, I mean, better and best tiers are still a great value to the higher-end premium laundry detergents. So that's two of your questions. What was the third?

First question, categories, right? Yeah.

Yeah, thank you, Lee. The categories, as you think about the exits that you're making, right, and I think now, correct me if I'm wrong, it seems like you're saying, well, perhaps we're going to do JVs and think about being creative on how we're going to look at these divestitures. So just to think perhaps if it's going to be just an exit or perhaps you can still be hopeful to sell them.

Oh, well, yeah, on the vitamin business, right, the cleanest scenario is there's a sale. If you do a JV, it's because either your partner doesn't have all the capabilities that they would need to run it, and so there's a transition period over time, most likely, and we've seen that in other categories, other industries. And then the third one is how do you right-size it and grow more profitable and kind of take it out of its – of the CPG framework of operating in a little bit more of the vitamin paradigm and operating the business. So those are the three scenarios. And like I said, we need a few months to work through the optimal path, and we'll report back by the end of the year.

And if I can squeeze one on the margin, are you implying, and sorry if I missed that, that you're going to be taking pricing because a lot of your competitors are saying we're taking pricing even in the U.S. Can you comment on any pricing that is not list pricing, that is not coming from innovation?

Yeah, I think we kind of mentioned it in the release or in the transcript, but really, look, we're going to do our best to offset the tariffs as needed, and where we can't do that And where we believe it's needed, we'll take some targeted pricing. So that's the plan. And it's not going to be across the portfolio, but it will be targeted and specific where we get hit the hardest with tariffs. And we can't, after we've done all we can do to offset, that's what the next path forward would be.

Okay. Thank you.

Your next question comes from the line of Lauren Lieberman with Barclays. Please go ahead.

Great, thanks. I know you touched on promotion a little bit earlier, but I wanted to just kind of revisit that a bit. I know on laundry, you know, it hovers around this kind of 30% rate, generally speaking, over time. We've seen some kind of more elevated activity. from Church and Dwight from Arm & Hammer in certain retailers more recently. And I know there's like, it just happens, you know, what day you're in what store. So it's a matter of luck of the draw. But just wanted to get your perspective on, you know, further leveraging promotion in liquid laundry, particularly we've got this time with the consumer under more pressure, a way to kind of bring forward the message on the, you know, the value of the brand, et cetera. Just kind of thoughts on promotion from here. Thanks.

yeah i would just re-emphasize my comments like if you if you look back a couple of years uh with history and i have it right in front of me like we've averaged anywhere between you know 31 33 uh amount sold on deal for armen hammer laundry detergent um this is an iri or nelson and in q1 we were 31 and q2 we were 33. so i think we're right where um is considered historical. We didn't take, remember I said last quarter, a couple other competitors had compacted, a couple other competitors had taken price. We didn't do that. I mean, we had done the compaction maybe 18 months ago. So they were kind of catching up. So I feel like we're right in the realm of normalcy, and I think the category is too.

Okay. And just as a follow-up, just the depth, so not just the frequency, but just anything on depth of promotion?

Yeah, I mean, depth of promotion, it's a good question. I would say our depth of promotion has not changed at all. Sometimes we line price certain SKUs in order to make sure that they can all hit the promotion. Price and sizing matters a lot in this type of environment. I know what your opening price points are and what your your kind of your pricing curves up to the large sizes. But I would say depth hasn't changed either.

And Lauren, if you look at the second quarter, yes, you see a little bit of negative price. But again, the majority of that was related to our recall. So to your point, it's this nominal amount so far, just right in line with Rick's comments.

OK, perfect. Thanks so much.

The next question comes from the line of Olivia Tong with Raymond James. Please go ahead.

Great. Thanks. Good morning. I'm going to start with a bit of a short-term question, but you had mentioned that July you had a particularly easy comp and saw good growth off of that. Can you talk about the comps for August and September, if there are any call-outs there? And then across your categories, Peirce have obviously talked about trade down both within their portfolio and then out of their portfolio. So to what extent is trade down a factor for you, both in terms of, you know, the negative of trade down from black to orange and litter, versus factors that are tailwind to you like laundry. Thanks.

Yeah, I'll take the second one first, Olivia. I think trade down overall is a benefit for us. And I think we've said this a few times, but there needs to be, I think, more recessionary type behavior and discussion before trade down really happens. I mean, the consumer still is resilient, even though they've faced all this inflation and whatnot over these past few years. But typically when recessionary behavior and economics are happening, that's when extra starts to grow by leaps and bounds. That's when orange box outpaces black box a lot. So right now we're doing well in my mind. I mean, you see that with all of our share scorecards. We are our value brands are growing share as consumers are tight, but our premium brands that are problem solution brands continue continue to gain share as well. And that's the TheraBreath. That's the Hero. Nair is doing really well. So, you know, absent the recall stuff, Origil is doing well. So, again, it's a cross-section. And then your first question.

The months.

Oh, the months. We're not going to make a new practice of talking about months. I'm sorry. Like, I just wanted to give a sense that there's a high degree of confidence, 2.5% in the back half. That's my point.

And all I would add is to your point, you've got that confidence in the two and a half, and we obviously talked about the category growth and the U.S. performance, and probably should be noted also just the international team consistently performing again, despite some of their macro challenges as well. So that's all embedded into that outlook for the back half.

All right, got it. And then just thinking about the portfolio overall, vitamin, strategic alternatives, what have you, What's your view on some of the other underperformers, particularly in personal care, as you think about positioning the company for faster growth and freeing up some resources to drive that?

Yeah, I feel like, look, portfolio decisions aren't done lightly. And I feel like we've been very agnostic on where to go and where to play and how to win like it's we're taking a white piece of paper and going through that with the board on here are the brands that we think have a reason for being for decades and you saw kind of the output as we fast forwarded those decisions once tariff implications happened, those were already underway and under discussion. And so that was really the portfolio, you know, part one. Vitamins, that discussion, you know, we've done our best to turn that around. Some green shoots, but that's why we're talking about strategic alternatives today about vitamins. No further plans in the short or medium term to go through any other portfolio. These brands are great brands. They have roles. Some of them might be cash cows versus the primary growth drivers of the company, but they all have a role to play, and we're happy with the brands we have.

All right. Thank you.

The next question comes from the line of Filippo Falorni with Citi. Please go ahead. Hey, good morning, everyone.

I wanted to ask on the tariff first. Within the $30 million that you got for the year, which is unchanged, what are really the countries that are getting impacted within the $30 million? I thought there was some China leftover impact there, so just curious there. And then outside of tariffs, Um, in terms of commodities, what is your expectation in terms of your input cost basket? And maybe you can walk us through some of the major, the major swings there. Thank you.

Good question. So I'll start off with the, the, just the broader inflation. It's interesting. It, you know, it's still, still holding in there. So you think about what we talked about for the, you know, normal amounts of inflation. We're seeing that, you know, as we laid it laid out for this year, it crept up a little bit earlier, earlier in the second quarter is going to come back to still, you know, still a slightly elevated level. You know, the tariffs, you know, I'll, I'll state this number one, very, very proactive. So obviously we've done all the things to, to manage through China. So after that you get into Korea, Thailand, Vietnam, Europe, those are kind of our top, they make up about 73% of what's left. Um, even the changes just overnight, actually even, um, you know, net net makes that numbers, you know, even a little bit, a little bit better. Um, so the good thing is, you know, we're down to, you know, whether we look at it by, by country, look at it by product line. It's kind of three or four and we get to a large portion of what we're facing here. So again, this proactive nature says, hey, we're not talking about a change this quarter. We're just talking about how we're going to manage it going forward here. And again, majority will be through our productivity programs. And then we'll look at some pricing as well in some targeted areas.

Yeah, and just to reemphasize, it changes all the time, right? I mean, even in the release, we put $60 million for our run rate for 12 months. And even with the decisions overnight, now it's closer to $50 million. So it's going to keep doing that. The good thing about our company is we can move with speed and agility. And that's what we have done. That's what we're going to continue to do.

Great. Thank you, guys.

Your next question comes from the line of Robert Moscow with TD Cowan. Please go ahead.

Hey, thanks. I just want to know if you could touch on, um, a little more detail on the international business, you know, it continues to outpace the rest of the portfolio. And, um, I remember a key strategy of this was to expand us brands into these markets, either through export markets or, or where you operate your own businesses. Can you give us an update on how that's doing? How is Hero doing? How is Thoroughbreath doing? And in a slower market, is it getting harder to introduce them and gain attention? Thanks.

Yeah, great question, Robert. I'm so pleased with how international is doing. International growth, mid-single digits, sometimes high-single digits, really largely behind two or three factors. as we have local brands like Sterimar, even Batiste kind of growing all over the world, but as we also have these recent acquisitions like TheraBreath or Hero. And we've talked about it before, but Hero was in 50 countries within 12 months. I mean, that's fantastic for us to be able to get all the regulatory work done to do that. And we're benefiting from that in a big way. There is a strong demand for Hero and TheraBreath all over the world. Many of these countries that we talk about, they're having the same economic malaise that the U.S. is. And so when categories are zero to maybe negative in many of these countries, some of our competition, if you look at it, is actually declining in many of these countries. We're growing, and we're growing mid-single digits more often than not because of some of the acquisitions and new brands for new retailers are driving growth for categories, same story we have here. And so I guess the answer is yes, we're doing, brands are continuing to grow, existing brands in other countries all over the world. The new acquisitions are doing really well. And I think we're in early innings there. There's more momentum to come. And then finally, we continue to look at acquisitions independently in Europe and China. That team is ready for it. We just need to find the right fit. And we look at what countries we should become a sub in the future. So there's a whole, there's like four or five pieces of growth for international, but they're doing a great job. Thank you.

The last question comes from the line of Kevin Grundy with BNP Paribas. Please go ahead.

Great. Thanks. Morning, everyone. Thanks for the question. Two quick ones, at least I hope they're quick. To follow up on Lauren's question, Rick, you guys sound fairly benign on the promotional environment. I ask this in the context, there's competing narratives. You guys sound fairly benign. Your key competitors suggesting that things are ramping. The Nielsen data would suggest things are ramping, particularly around Arm & Hammer. So with that context, what do you have embedded in the back half of the year for promotion levels, particularly for household, which is where you see most of the promotion? And if the answer is like we expect more of the same, which your characterization was relatively flat, how much question do you have to respond? Because it seems like your competitor will. And then I have a follow up. Thank you.

Yeah, I mean, look, you guys. Can ask all about promotions kind of gave me the answer. Q1 and Q2 are within historical norms and laundry and. There's not much more to go there. I mean some of our competitors were lower on promotion in Q2 2025, but you gotta remember it's all about the net price point and they took price as well. So sometimes when. You look at promotion. You got to make sure you're factoring within that net prices Okay, I would say Promotion for us is consistent with the last three or four quarters maybe even four or five quarters and in the back half You know promotions are already set for the back half. They've all they've been sold in for a while now. So In this environment we saw and maybe it's because we saw it further afield than most but you know six months ago uh nine months ago we were seeing how some of the promotional volumes weren't as effective because everyone you know category was there everyone's everyone's promoting across many different categories and so we made sure we put the plans in place even you know late last year early this year for the whole promotional So I have a lot of confidence in our laundry business. Our laundry business in the month of June and July continues to gain share, continues to do well. And I think part of that's promotional, but I think part of that is innovation. And deep clean continues to do well, hit hurdles, and drive category growth. So long answer, but that's the facts that I look at.

Okay, very good. Thank you, Rick. And one quick follow-up because I know the call is going long here. Just on the vitamin business to come back to that, can you talk about how you balance the timeliness to get something done and naturally getting the best value you can for it and minimizing the potential risk that there's another leg down in the business? Because I think just intuitively when these sort of announcements are made, it shows sort of a decommitment to the asset to retailers and the business is struggling. And so from an investor's perspective, if this goes two, three, four quarters, how do you protect against another leg down? So your comments there would be helpful as well. Thank you very much.

Yeah. Look, we're running this business like we're going to own it forever. And that means that the amount of time and energy we spend on innovation doesn't change. The amount of time we spend on promotional and pricing and programming doesn't change. That's how we have to run it. And then if there's a strategic choice to do something different, then that's what we do. But that's what our communication will be with the retailer. They want Vitifusion and Little Critters to be successful, too. It's a big brand. And so we're going to continue to show them the innovation, continue to show them why we believe it can grow categories after we get through this kind of TDP down cycle. But at the end of the day, they're good brands. And I think for us, we're spending an inordinate amount of time for what's relatively a small business. And so that weighs into my thinking on how much time the organization spends on supporting a business of that size versus the benefit. And that's part of the kind of strategic decision, too.

Okay. Very good. Thank you, guys.

I would now like to turn the call back over to Rick Dirker for closing remarks. Please go ahead.

Okay. Well, thank you, everyone. Like Lee and I said, a lot of confidence as we look forward. The company is doing extremely well in a tough environment, and we'll talk more at the end of October on our next call. Thank you.

Ladies and gentlemen, this concludes today's call. We thank you all for joining, and you may now disconnect.