Church & Dwight Company, Inc.

to Church and White's third quarter 2025 earnings conference call. Before we begin, I have been asked to remind you that on this call, the company's management may make forward-looking statements regarding, among other things, the company's financial objectives and forecasts. These statements are subject to risks 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 and Blight. Please go ahead, sir.

All right. Thank you. Good morning, everyone. Thanks for joining the call. I'll begin with some thoughts on the macro environment and then review of our great Q3 results. Then I'll turn the call over to Lee McChesney, our CFO, and then when Lee is done, we'll open it up for questions. Starting with the broader environment, conditions remain volatile and the consumer backdrop remains mixed. Promotional intensity is elevated in some categories and household finances are stretched as high borrowing costs and delinquencies weigh on discretionary spending, including big ticket items like cars and housing. However, there is relatively low unemployment and higher price personal care categories continue to do well. Against that mixed backdrop, our categories are growing at around 2%, which was pretty consistent with what happened in Q2 as well. We're performing better than that because of our great brands. Our portfolio, with its balance of value and premium offerings, continue to gain both dollar and volume share. Our innovation is performing well, and all in all, our brands are made for environments like this. On to the Q3 results. We had a fantastic quarter in a tough environment. Organic sales grew 3.4%, exceeding our outlook of 1% to 2%. Adjusted gross margin was up 10 basis points, also exceeding our outlook. Adjusted EPS was $0.81, which was $0.09 higher than our $0.72 outlook. Lee will take you through the rest of the numbers shortly. But first, some highlights about our brands. In July, we closed our most recent acquisition, Touchland. Touchland is the fastest growing brand in the hand sanitizer category in the US. It's the number two hand sanitizer in the category with household penetration just under 7% and the category at 42%, indicating a lot of runway for growth. Touchland experienced strong growth in Q3 with consumption growing double digits and results exceeded our initial expectations. I'm even more optimistic about Touchland today than even a few months ago. A small but mighty team doing great things. Now I'm going to turn my comments to each of the three divisions. First up is the U.S. consumer business. Organic sales increased 2.3% with volume growth of 3.7%, being partially offset by 1.4% of price mix. Growth was led by TheraBreath mouthwash, acne products, Arm & Hammer cat litter, and Trojan condoms, partially offset by declines in the vitamin business and water flossers. We grew share in four of our eight power brands, specifically Arm & Hammer, TheraBreath, Hero, and Touchland. Let me provide a bit of color for a few of our important categories. I'd like to start off with the Arm & Hammer brand in general. Consumers today want stability and brands they can trust. Our new campaign, Give It the Whole Darn Arm, reinforces the brand's strength and reliability. This is driving growth across the portfolio. Five of the six categories we compete in with Arm & Hammer are growing share on a year-to-date basis. Turning to laundry detergent, Arm & Hammer liquid laundry detergent consumption grew 1.9% in contrast to a flat category. Arm & Hammer share in the quarter reached 15%. Beyond share, and more importantly, household penetration for the long term continues to matter. And in the quarter, Arm & Hammer Laundry expanded household penetration 0.7 points to an all-time high of 30%. In fact, the only tier of laundry detergent that was positive consumption in the quarter was the value tier. This is a sign of the times, as value was flat to declining in the previous eight quarters. This is especially impressive as our actual promotional spending for laundry was lower year over year. Moving to litter, Arm & Hammer litter consumption grew 5.3% while the category was up five. We saw heightened competitive promotions, especially in the lightweight segment by one competitor. Over to mouthwash, TheraBreath continues to perform extremely well. While the mouthwash category was down in Q3, TheraBreath consumption grew 17% and continues to be the number two mouthwash with a 21.8% share. Remember, we believe there's a lot of runway here. Our household penetration for TheraBreath currently sits at 11% versus the category of 65%. Here, once again, outpaced the category with consumption growth of 5.2% compared to a flat acne category and remains the number one brand in acne care with a 23.6% share. And like the TheraBreath story, we believe household penetration growth is key for this brand. It sits at 9% versus the category of 28%. Looking ahead, we're excited about our pipeline of new products. We even announced a few today. They're a key driver of our success. TheraBreath is introducing a new line of toothpaste. We launched online with three variants in August, and they target key consumer needs of healthy gums, deep cleaning, and whitening, all combined with long-lasting fresh breath. The brand's loyal users value its effective cleaning, its distinctive fresh but not overpowering taste, and we have a retail launch set for January 2026. We're very encouraged with the high-quality consumer reviews we're seeing. Meanwhile, Trojan, the number one condom brand in the US, launched Trojan Goat, greatest of all Trojan, which is a non-latex condom featuring patent-pending ultra-flex material that's soft, flexible, odorless, and colorless, designed to enhance body heat transfer to deliver next-level intimacy. Turning to international, our international business delivered sales growth of 8.4% in the quarter. Organic increased 7.7% to the combination of higher volume, price, and mix. Growth was led by the Hero, TheraBreath, and Batiste brands and was broad-based across many of our international markets. I was just in Argentina two weeks ago with our global markets group and distributor partners, and there is a lot of excitement for the future. Finally, SBD organic sales increased 4.2% due to a combination of higher price and product mix and volume. We continue to be excited about the growth opportunities in this business. As noted previously, we're undertaking a strategic review of our vitamin business, including streamlining our supply chain to strengthen the core business, new JV partnership opportunities, and divestiture options. We're seeing improved velocities in the core and line reviews are receiving positive retailer feedback on new products and long-term brand strategy. We continue to expect to reach a conclusion from this review by the end of 2025. Looking ahead, our full-year organic growth outlook is 1%, the midpoint of our prior range. We expect full-year adjusted EPS growth for 2025 to now be $3.49 or two cents higher than our previous outlook to the higher sales and improved margins, including higher marketing spend. As in past years, when we have stronger than expected business performance, we invest for the future. So we now expect marketing as a percentage of sales to exceed 11%, and these investments will continue our momentum into 2026. I'll close by saying that category consumption remains stable, and our brands remain in a position of strength. We're gaining dollar and volume share across key segments of the portfolio, supported by a balanced mix of value and premium offerings. We're well positioned to navigate the current environment, The strategic actions we're executing will set us up for sustained success. Our go-forward portfolio has never been stronger. At the same time, we remain active in evaluating the right acquisition opportunities to further build our business. I'm excited to speak at Investor Day in January about some of the growth initiatives we have in development. With that, I'd like to close by thanking all of the Church & Dwight employees for executing well in a volatile environment, and now I'll hand the call over to Lee for more detail on the quarter.

Thank you, Rick, and good day to everyone on this Halloween Friday. Our Church and Dwight team members across the globe delivered a quarter to be proud of that highlights once again the many strengths of our portfolio and our team's capabilities. Let's jump into third quarter and our outlook. We'll start with EPS. Third quarter adjusted EPS was $0.81, up 2.5% from the prior year. $0.81 was better than our $0.72 outlook, driven by higher volume and gross margin results favorable to our outlook. Reported revenue was up 5%, and organic sales were up 3.4%. The organic sales was broad-based across the globe with volume growth of 4%, partially offset by negative pricing and mix of 0.6%. And beyond organic results, we were delighted with the encouraging start of Touchland as sales exceeded our initial projections. Our third quarter adjusted gross margin was 45.1%, a 10 basis point increase from a year ago, and 110 basis points better than our outlook. Our results versus last year were driven by 170 basis points from productivity programs, 20 basis points from higher margin acquisitions, 10 basis points from FX, and 10 basis points from the combination of volume, price, and mix. These factors offset 200 basis points of inflation and tariff costs. Moving to marketing, our marketing expenses and percentage of sales was 12.8%, or 50 basis points higher than the third quarter of last year. And for the year, we are now targeting to exceed 11% of net sales as we leverage our improved sales growth to invest for the future. Q3 adjusted SG&A increased 20 basis points year-over-year. Adjusted other expense increased by $3.9 million due to the lower interest income compared to last year. And we continue to expect other expense for the full year to be approximately $65 million on an adjusted basis, reflecting the lower interest income following the touchline acquisition. In 3Q, our adjusted tax rate was 21.6% compared to 23.3 in Q3 of 24, 170 basis point year-over-year decrease. And the expected adjusted effective tax rate for the year is now 22.5%. And now to cash. We delivered strong cash results in the quarter as cash flow from operations increased 19.6% versus last year to $435.5 million. Capital expenditures for the first nine months were $67.2 million, a $58 million decrease from the prior year due to return to normalized capital spending in 2025. And finally, in the third quarter, the company repurchased an additional $300 million of shares, which brings our year-to-date share repurchases up to $600 million for our shareholders. Certainly a third quarter full of accomplishments. Let's now turn to our outlook. Broadly, we continue to navigate well in an environment of economic uncertainty, and as a result, have improved our outlook in several areas. For the year, we now expect reported sales growth of approximately 1.5% versus a prior year midpoint view of 1.0, as we expect Touchstone's momentum to continue in the fourth quarter. We also remain on track to deliver 2025 organic growth of approximately 1%, the midpoint of our previous outlook, And we now expect four-year gross margin to contract only 40 basis points versus 2024 based on the progress our teams are delivering from productivity programs to counter inflation and tariff headwinds. And as I noted earlier, the combination of a stronger sales and gross margin outlook allows us to increase our marketing investments beyond our prior outlook in 2025. For the year, we now expect an adjusted EPS of $3.49, which exceeds the midpoint of our prior outlook. And specifically for 4Q, we now expect reported sales growth of approximately 3.5% and an organic sales growth of approximately 1.5%. In 4Q, I note that our reported sales outlook includes a larger decline in sales from our discontinued businesses as these product lines run out of inventory. And for some context, we expect $30 million of lower sales or 200 basis points of drag in the fourth quarter versus last year from these discontinued businesses. And also note, And our organic growth for 4Q is impacted by the prior year port strike and the negative consumption trends in our BMS business. In 4Q, our adjusted gross margin will contract approximately 50 basis points, primarily from inflation and tariff costs. Marketing will be lower compared to last year. We expect an adjusted EPS 83 cents per share, which is an increase of 8% versus last year's adjusted EPS. In my final 25 comment, The outlook really covers cash flow from operations. As noted in our press release, we've increased our outlook from $1.1 billion to $1.2 billion in consideration of our progress on several fronts. As our teams look forward, we are optimistic. Our teams across the globe have delivered significant accomplishments. We continue to fuel share gains. We've made strategic choices to exit brands in our portfolio. We've acquired Touchland, which is off to a great start. and we've returned $600 million to our shareholders through share purchases. A big thank you to our employees across the globe for leaning forward and executing through the first three quarters of the year. Very well done. Eric, let's move to Q&A.