Church & Dwight Company, Inc.

Hello everyone. Thank you for joining us and welcome to the Church and Dwight's second quarter 2026 earnings conference call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Mr. Rick Dierker, President and Chief Executive Officer of Church and Dwight. Please go ahead, sir.

Thank you. Good morning, everyone. Thanks for joining the call. We had a strong second quarter and first half, and I want to start by thanking all of our Church and Dwight employees all around the world for executing so well in a challenging environment. I'll begin with some thoughts in the broader environment and then a review of our Q2 results, and then I'll turn the call over to Lee McChesney, our CFO, and when Lee is done, we'll open it up for questions. Starting with the broader environment, conditions remain dynamic. However, our categories are growing ahead of our original expectations, and Church and Dwight is growing even faster. Consumer spending remains resilient. Our teams are executing with excellence, and we remain focused on offering high-quality, solution-oriented products to consumers the right value. Our brands continue to perform exceptionally well, driving a second straight quarter of industry-leading organic sales growth. Turning to the quarter, Net sales increased 1.6%, which was ahead of our outlook, and organic sales grew 5.8%, almost 6, well above our 3% outlook. This growth was broad-based across all three divisions and was primarily driven by volume growth of 4.3% and positive price mix of 1.5%. Adjusted gross margin was 45.4%, up 40 basis points, and adjusted EPS was 89 cents above our 88-cent outlook. Overall, this is a great result, and with the first half of the year behind us, it gives us great confidence to raise our sales, EPS, and cash flow outlook for the full year. In Q2, we also completed the acquisition of the fast-growing Miss Mouth brand, the number one stain remover brand on Amazon. We're encouraged by the strong initial sales results from the brand since the June acquisition. And I'm especially excited about the growth opportunities for Miss Mouth over the next 12 to 18 months. In the second quarter, Miss Mouth's consumption grew over 50%. and gained almost three and a half share points. And we think this is just the beginning as household penetration for the brand is currently just 2.5% compared to the category, which is 50%. Additionally, ACV for Miss Mouth is only 35% compared to 80% for the category, which again indicates plenty of room to run on distribution. Innovation and distribution gains remain a significant competitive advantage for Church and Dwight. They were a major contributor to our industry-leading growth. We're confident that our relentless focus on innovation will continue to drive strong growth, distribution gains at shelf, and market share expansion. New product launches this year are expected to account for about half of our organic growth as we innovate in key categories across the portfolio. Consumption across our largest categories grew at 2.7% in the second quarter, which exceeded our category growth expectations of around 2%. Now I'm going to turn my comments to each of the three divisions. First up is the U.S. business. Domestic organic sales increased 5.1% with sustained growth in both of our household and personal care portfolios. Growth was driven by volume and favorable price mix with strong performance from TheraBreath, Mouthwash, and Toothpaste, Hero, Arm & Hammer Cat Litter, and Zycam. The Arm & Hammer brand had another quarter of growth with laundry maintaining record shares across total laundry. Arm & Hammer laundry detergent consumption and category consumption grew about 1% in the quarter, despite a step up in competitive promotions and a lower level for Arm & Hammer. The value segment of laundry continues to grow. Next up is litter. Continued fantastic results as Arm & Hammer cat litter consumption grew a robust 7.5% and share increased 0.8 points to reach 24.5. While category promotional levels declined slightly, they remain at historically high levels. Arm & Hammer Cat Litter launched dual defense with Microbond Clumping Litter earlier this year, and that launch continues to do very well. Hero and TheraBreath continue to contribute considerably to overall performance. TheraBreath achieved another quarter of record share gains, jumping 4.5 points to a 25.3% share, and further solidified our number two position in total mouthwash. Even with that growth, household penetration remains relatively low at only 14%, compared to the mouthwash category of 65%. Our TheraBreath toothpaste launch continues to perform well, and it's still early in the launch. It's off to a great start with a one-point share in total toothpaste, despite only just fully entering brick and mortar in the last several months. Hero Consumption outpaced the patch category, and with the cleanser launch just starting now, we're confident in Hero continuing to gain share in total acne. Our facial cleansers represent a $650 million category, and accounts for approximately 30% of the total acne category. Lots of runway as Hero has, again, relatively low household penetration at 10% compared to the category of 30%, which gives us confidence in the continued growth of this brand. For TouchLens, sales grew in the second quarter and with back half-weighted innovation, new collaborations and activations, we expect continued sales growth in the second half of the year. Looking forward further, our international expansion, our innovation to new categories, and future distribution opportunities continue to give us confidence in this brand as we look to 2027. Global e-com was once again a strong contributor. Global e-commerce grew 22.7% in the second quarter, and global online sales now represent 25.5% of total consumer. Turning to international, Q2 is another great success, with our international business delivering organic sales growth of 9.1%. and many more. Our great international brands are leading to share gains and growth that outpace local countries' GDP. In addition, our recent U.S. acquisitions are paying dividends across the world in a big way, where brands like Hero and TheraBreath are driving outside growth. Our ability to scale brands to so many countries so quickly is getting better and better. Overall, our international team is executing very well. Our specialty products division also performed well. We're getting sales growth of 2.8% due to a combination of higher volume and higher price and product mix. I'll close by saying that we were very pleased with the great first half. The benefits of our strategic actions in 2025 are enabling greater focus on our growth initiatives. I am especially pleased with the time the entire organization is spending focused here on the future. Momentum is building. The category work surrounding Arm & Hammer, our acceleration plans for oral care behind TheraBreath, and the pipeline for M&A within the international business are just a few examples. I'll provide a detailed update in early 2027, but I will say I'm more optimistic about the future than I've ever been. I'm also very proud of our Church and Dwight team as we continue to execute well in a volatile environment. And with that, I'll turn the call over to Lee for more detail in the quarter.

Thank you, Rick, and good day, everyone. We appreciate you joining the call. As we now enter the second half of the year, we are encouraged of the results fueled by innovation and share growth, which provides us the momentum to deliver strong Church and Dwight Evergreen model results. The second quarter demonstrates the strength of our portfolio of categories, our leading levels of innovation, and the execution capabilities of our teams around the globe. Similar to Rick, I also want to recognize our teams across the globe for their focus and execution this past quarter. Very well done. Let's get into the details. We'll start with EPS. Second quarter EPS, adjusted EPS was 89 cents, exceeding our outlook of 88 cents. Stronger than expected, sales and continued gross margin improvement fueled our results and enabled increased investments in our brands. Organic sales in the second quarter grew 5.8%, well above our outlook of approximately 3%. And growth was broad-based across the business and primarily volume-driven. with volume growth of 4.3% and positive pricing and mix of 1.5%. Our power brands once again gained share fueled by well-received innovation and a robust distribution wins with our commercial partners. Strong organic growth and the contributions from our acquisitions more than offset the impact of our 2025 business exits and led to reported net sales growth of a positive 1.6% in the quarter ahead of our expectations. Let's now turn to gross margin. Our second quarter adjusted gross margin was 45.4%, an increase of 40 basis points versus last year. Our results were driven by 150 basis points from productivity programs, 110 basis points from our higher margin acquisitions combined with the impact of our successful portfolio actions, and 180 basis points from the combination of volume, price, and mix. These factors offset the headwinds from inflation, tariffs, and transportation of 400 basis points. We continued to invest in our brands in the second quarter as the marketing expense was $165 million, up 8.2 million or 40 basis points versus last year. And similar to our strategy in past quarters, when our sales and gross margin results exceeded our original expectations, we will utilize those opportunities to invest in our brands. Adjusted SG&A was $241.4 million or 15.8% of net sales, a 220 basis point increase versus the prior year. As we've noted in our 2026 outlooks, SG&A in the first half of the year is primarily growing to the inclusion of Touchlands SG&A in amortization expense. Adjusted other expense increased by $9.2 million due to the lower interest income compared to last year. Let's now turn to cash flow. Cash flow remains a significant strength of the company, and for the first six months of 2026, cash from operations was $462 million, an increase of 10.8% versus the prior year as we delivered improved cash earnings and executed disciplined working capital results. Capital expenditures were $61.8 million in the first half, and we continue to expect full-year capital expenditures of approximately $130 million or roughly 2% of sales. Let's now turn our outlook to the outlook for 2026. And as detailed in our press release this morning, we are increasing our sales, earnings per share, and cash flow outlook despite the challenging macro environment. This improvement reflects the strength of our operating fundamentals, which is led by volume-based organic growth, steady market share gains, and management's focus on gross margin expansion. Our outlook continues to reflect the impact of transitory cost pressures that developed over the past 100 days. Our latest outlook of approximately $30 million reflects raw materials, transportation costs, and various premiums resulting from the conflict in the Middle East. and this outlook assumes a crude oil price of approximately $90 a barrel. Our teams have acted to fully mitigate this headwind this year through increased productivity. And separately, on a positive note, we expect to receive approximately $15 million of Phase II tariff refund benefits during the second half of 2026. We will invest these proceeds in primarily consumer-facing business activities. We are raising our full year organic sales outlook to approximately 4% to 5%, up from the prior outlook of 3% to 4%. The improved outlook reflects the strong first half execution and the continued momentum across the portfolio during the second half of 2026. And we now expect to adjust gross margin expansion of approximately 100 to 120 basis points for the year. And marketing investments is now expected to be at or above 11% of sales as we invest behind our brands and continue supporting our growth initiatives. We are raising our adjusted EPS outlook to a growth rate of 6% to 8% versus our prior expectation of 5% to 8%. And we also now expect cash from operations of approximately $1.175 billion up from $1.15 billion. And turning to the third quarter, we expect organic sales growth of approximately 3% and an adjusted EPS of approximately 89 cents per share, representing approximately 10% growth versus the prior year, while we also invested at approximately 12% rate of marketing as a percentage of sales. So to conclude, we are very pleased with our first half performance and are confident in our ability to deliver our improved outlook for the balance of 2026. Our portfolio remains strong, our brands continue to gain share, and our teams are executing well in a dynamic environment. Operator, we are now ready for questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your headset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question from the line of Rupesh Parikh with Oppenheimer. Your line is open. Please go ahead.

Good morning, and thanks for taking my question. Also, congrats on a nice quarter. So just going back to the organic sales growth delivery for the quarter, just curious, you know, at a high level, what are some of the areas that drove the significant upside that we saw on that line item?

Yeah, thanks, Rupesh. You know, the good news is it was – Pretty broad base, but as we said in the release, I think air breath, cat litter, I'd say Arm & Hammer laundry was kind of flattish. Anything else you would add, Lee?

I think, as Rick said, it's pretty broad base, home care, personal care, across the globe, and really good to see international at 9%. as well, and that was pretty broad-based across both Europe and Asia and Latin America as well.

Okay, great. And then my follow-up question, just on the Miss Mouth acquisition, it sounds like very strong consumption that you guys are seeing right now, but as we look out the next couple of years, I know you guys talked about this business growing double digits, but is there any more granularity you can give in terms of the types of growth rates you expect for the business?

Yeah, I think it's a little early to do that. I mean, we just bought it in June, early June. I would say a lot of work is going on to integrate and then accelerate this business. And I don't think we've been more excited about an acquisition in a long time. There's, you know, five individuals that came over. They've talked right into our Fabricure business. We know Fabricure really, really well. and retailers, our internal sales force are clamoring for this brand. And so it's already at a 13 share at a major retailer and it's only been in there for a few months as one example. But I just go back to Household Penetrations 3, it's 50 for the category. Probably the right time to talk about our North Star on Growth Ambitions is probably early 2027, but we think there's a lot of enthusiasm around this month.

Great. Thank you, Apostolong.

Your next question comes from the line of Anna Lazul with Bank of America. Your line is open. Please go ahead.

Hi. Good morning. Thank you so much for the question. I was wondering if you could comment on the success you're seeing across Arm & Hammer Laundry. Wanted to follow up on the fact that you mentioned in the beginning of this year where you surpassed Tide Original on wash load volumes. And where are you seeing now the share gains for Arm & Hammer across the value mid-tier and premium tiers? And then on the premium side for the brand, you touched on Touchland earlier in the call and the expansion to toothpaste with the rollout. wanted to see how you're thinking about this expansion as we move forward this year. Thank you.

Yeah, and on your second one, are you talking about TheraBreath or are you talking about Touchline?

Oh, sorry, TheraBreath. You're right.

Okay. Well, on laundry, look, laundry in general, the good news, or really the great news, is despite a significant increase in promotion. I'd say we're back to historical levels of promotion in laundry. The category was up 200 basis points. Hankel was up 1100 basis points and Proctor was up almost 200 basis points as well. Church and Dwight was down 300 basis points on promotion. And so despite that, the value segment grew and we maintained our share. So just the world we live in these days, Arm & Hammer is just so well positioned for growth. There's a lot of couponing that happens off channel as well, and our competitors are spending on couponing, of course, as well. So Arm & Hammer to hold share in an environment like that is fantastic. We, over time, will make sure that we're at historical levels of promotion as well. So a lot of optimism on Arm & Hammer Laundry, especially behind our innovations. Like we have a good, better, best strategy, and I'd say each of those tiers within Laundry are doing well. Even our sheets, you know, as Tide Evo launches and takes shelf space and money behind it, you know, we're the number two player in the sheet space. So our sheets are up 30% as well, and we're going along for the ride, which is great. So that's on Arm & Hammer Laundry. On TheraBreath, I would say, again, number two, mouthwash, lots of runway. Consumption grew 20% plus. We grew 4.5 share points to 25%. We're less than 1,000 basis points from the market leader, who's Listerine. Our household penetration is still relatively low at 14 compared to the category at 65. That is enabling us to go into other parts of oral care like toothpaste. We never deserved the space that we got for TheraBreath toothpaste, but because of the success of the mouthwash, we got some premium, great shelf space. And as a result, we have a great brand with a great value proposition on fresh breath and cleaning, and it's doing extremely well, and it's already at one share point. So I couldn't be more optimistic about our oral care franchise behind TheraBreath.

Great. Thank you so much. Very helpful.

Your next question comes from the line of Chris Carey with Wells Fargo Securities. Your line is open. Please go ahead.

Chris, you might be on mute.

Oh, there you go. Can you hear me? Can you hear me? How about now?

We can hear you.

Okay, great. Sorry about that. So I wanted to start with the oral care portfolio and specifically the TheraBreath rollout. You said that you're getting more than your fair share out of the gates. I was wondering how you think you're tracking relative to the ambitions that you outlined at the investor day. I think it was an incremental half billion dollars. Do you feel like you're starting out stronger than expected? And was that shipment for that launch a bit stronger in the quarter than perhaps what you anticipated? I was surprised you didn't call out some of the key drivers of organic sales. Is that something that we should be mindful for going forward, given the quite robust personal care implied organic sales number this quarter? And I have a follow-up.

Yeah, I know TheraBreath Pace is off to a good start, is what I would say. And it's meeting or slightly beating our expectations. I think there's a lot of great conversations in the works with additional retailers to get behind it, which is fantastic. Those conversations are easier when you have a TheraBreath mouthwash brand and business that's just, again, growing so fantastically well. So, yep, I mean, for the quarter, TheraBreath Pace was a contributor to net sales for sure. Did it overdeliver a little bit? Maybe some. What was the other part of the question, Chris?

I think that was about it. It started stronger than you expected. It's early days, and it was a bit of a contributor, a bit more than expected in Q2, if I heard all that correctly. Just interrupt me if...

Andy, you really had asked in terms of the growth initiatives. It's kind of early to talk about how it's doing for the growth initiatives, but laying the groundwork is what I would say, not just in oral care, but all the arm and hammer stuff too. That groundwork and the momentum that we're starting to build is fantastic.

Okay. The second question is, I think this is one of the highest inflation numbers that we've seen over the past four years or so. How quickly did that develop for you? You know, was that freight and logistics inflation that happened, you know, quicker than you anticipated? And should we be expecting about, you know, that kind of number as we go through the rest of the year? Or was that Q2 more of an anomaly? And I'm also, you know, struck just by a bit stronger price mix contributions to both top line and gross margin. Is there a bit of a You know, that change in thinking about how you're going to be covering inflation this year with pricing, or is there a bit of, you know, mixed dynamic in that number as well? Thank you.

Yeah. Good morning, Chris. So keep in mind, when we talked about the the 25 to 30 million dollars of, you know, kind of Middle East derived inflation, you know, our outlook in 2Q, you know, said it was going to be higher in 2Q. You know, there is some We have this outlook of 100 to 120 basis points gross margin improvement. You can see where we are halfway through the year. That implies that the gross margin will expand over 100 basis points in the back half of the year. On the price-volume mix, that's a good number. Obviously, we always say never overreact to one quarter. The first quarter is just slightly negative. Our mindset is to drive volume growth, and we do drive positive mix. That's part of our algorithm. And a reminder, this year we do have the benefit of the portfolio actions that help as well. And that will be a benefit all year.

Yeah, and I'd probably say in the quarter, you know, when we don't spend as much on promotion on laundry, that helps year over year a little bit on the price side of it too.

Okay, great. Thank you.

Your next question comes from the line of Bonnie Herzog with Goldman Sachs. Your line is open. Please go ahead.

All right, thank you and good morning, everyone. I just had a question on your improved outlook for the year. You took up your top line growth guidance by a point and now expect higher gross margins. And while you did raise the lower end of your EPS growth guidance, you kept the high end of the range. So wanted to understand the drivers of that and maybe how much further you plan to step up reinvestments to drive sustainable top line growth ahead. Also, if you could provide some examples of these investments and any changes you might be making to your strategy given the pressured macro environment would be helpful. Thanks.

Yeah, thanks, Bonnie. It's a good question. I would say look back at our track record over the last 1, 3, 5, 10 years. What do we do when we feel like we're over delivering and performing well against our expectations and against the industry as we tend to to spend back. We could, in theory, beat earnings and EPS in any one year, but we choose to spend more on marketing or we spend more on investments. And so we want to make sure that fly the wheel is going, that virtuous cycle happens, and we keep getting share and shelf space and support the innovations that we're launching. So beyond marketing, we've also started to spend money behind AI. And there's some initiatives we have in place where We're going to pull some of those forward as an example so that we can scale faster. You know, one of our core competencies and I think competitive advantages is really our speed and agility. And so we're going to go try to adopt and adapt faster than most people.

All right. Thank you for that. I'll pass it on.

Your next question comes from the line of Peter Grom with UBS. Your line is open. Please go ahead.

Great. Thank you. Good morning, everyone. So you mentioned that consumption in your largest category, I think, grew 2.7% in the quarter above your expectation for 2%. So, you know, obviously a lot of moving pieces within the quarter itself. So kind of curious if you could speak to what you saw throughout the quarter, maybe more specifically the exit rate. And just kind of as you think about the back half of the year, what are you embedding in terms of categories?

Yeah, I mean, the short answer is we're still assuming around 2% for category growth. We continue to do better than that, as you saw in the last couple of quarters. I think that's a good, in general, walking around number for a while. Our monthly consumption numbers in Q2 were fantastic. was also good with the exception of laundry, as we didn't repeat some promotions in laundry. Sometimes we choose to do that. We also had a club promotion that we didn't do in the quarter as well. So I would say we did that fantastic growth without really, with flattish impact from one of our larger businesses. So I'm just, again, Consumption is going really well. Shares are doing really well. It's broad based to my first answer to kind of question early on. So there are a lot of things that are that are going right. So this is the right time for us as a company, especially because we're not distracted with some of those businesses that we've sold, Peter. We have the time to focus on the future. And so we're laying the groundwork for those three growth initiatives that we've talked about again and again and again. So a lot of internal time is being spent on the future right now.

That makes sense. And then, you know, Rick, you mentioned we're going to get some more color at a later date, but you did say that you were more optimistic than ever. And I guess just looking at the guidance and the 4Q implied exit rate would suggest some pretty nice momentum heading into next year. So maybe, you know, putting that all together, can you maybe just discuss why you are as optimistic as you've ever been and maybe what that means as it pertains to top and bottom line growth?

Yeah, I don't know if I'll go to top and bottom line growth yet, but I'll tell you, like, we're doing all this category work at Arm & Hammer. We're getting real consumer feedback. We're getting real good buy-in from some retailers on the ideas. We're making great progress on and many more. It's obvious why we're happy about TheraBreath and its success. Meanwhile, internationally, that brand, along with Hero, is really developing into a business of tens of millions of dollars. There's good global expansion going on. The third growth initiative was was really international growth. And a piece of that is international M&A. And we've been talking a lot over the past few years about, hey, we have people here now. We have a process here now. But it's starting to go from theoretical to practical. And we've filtered through 100 deals over the last six to 12 months now internationally. And so we're being as picky and as fussy as we always would be with any deal. But now we're starting to see and the deal flow, which is great. So those are some examples.

Great. Thank you so much. I'll pass it on.

Your next question comes from the line of Olivia Tong with Raymond James.

Great. Thanks. Good morning. Regarding the competitive backdrop, you mentioned the promotional environment. Everyone's obviously talking about their various investments in affordability. I realize this isn't new to you, though. Perhaps there are more tools out there now, whether it's leveraging retail relationships, AI, and other tools. So to the extent that your competitors continue to invest in some of the affordability initiatives that they're pushing, can you provide a little bit more in terms of how you think about combating those, particularly if they start to continue to increase?

Yeah, I think it's a fair question, Olivia. I would just tell you, though, like, look at our track record over the last not one or five, but decade or two of how we compete in household, right? And we have a great ability to do that. And sometimes it's trade promotion, hopefully, usually it's innovation, hitting the right price, the right price pack architecture and sizing. You want to deliver, like I said in my remarks, a great high quality at a value price for the consumer. And it just so happens that our brands are the intersection of that naturally. And so they have to, competitors have to compete a lot harder than we do because we naturally fall in those intersections.

Got it. And then on mixed mouth, sort of similar to Heroes, Air Breath, Touchland. I know it's early days, but what do you think Miss Mouth can bring to you in terms of discussions with new retailers, new categories, geographic opportunities as you sort of assess the ability to grow that business beyond where it sits right now?

Yeah, it has the ability to do all that. When really You have a brand that's driving category growth. It's driving usage occasions. It's driving new consumers and young consumers into the category. It has a magic moment. It's actually not even the same consumer as OxyClean. OxyClean is a little bit more broader base, but Miss Mouth is really higher end and just a great See something, do something in terms of the stain. It is, I don't want to get into too much detail. I would just say it is additive for every retail conversation that we have and we're working hard to not just do current capacity, but also what the future of that brand and where it has the right, where consumers say it has the right to go. because it's going to continue to broaden on forms and maybe even adjacencies.

Understood. Thank you.

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

Hey, great. Good morning, guys. To start, I think year-to-date, Rick, the consumption that you've put, I mean, the results you put up round to 5% volumetric shipments, both for the total company and I think even in the consumer domestic business, I guess. How does that compare to your views on consumption year-to-date and how does that inform your back half thinking and I guess juxtaposed against that, it sounds like you've made some choices this quarter that benefited the price mix line that seem kind of unique to the quarter. So I guess as I think forward, do we see sort of a return to more full promotional stance in the back half as well?

Yeah, I would say consumption and are organic. There is no real disconnect. It's around 5% or so on both. So there's great momentum that we experienced in the first half. In the second half, we expect a lot of that to continue. I think we pulled the data on a two-year stack as an example. The two-year stack for organic growth is 5% in the first half and 6% in the second half. Again, just really broad-based, more than just one thing going on as a tailwind for the company. You're right. I referenced a little bit, maybe a bit of a pullback in promotion that we had I wouldn't even say a pullback. I'd say we were at a certain level and there was an acceleration by other competitors. So I don't know about a much year-over-year change from a price mix perspective, but a little bit from help from Laundrie. But there are other things happening in the portfolio. As we have these higher margin products like a TheraBreath or like a Hero or even like a Mistmouth, as they continue to grow, that's going to be a favorable flow on mix. Lee, anything you would

I think Rick said it well. We focus on volume growth. If you look at our history on price mix, it's neutral to positive. It's just a little bit slightly higher in the second quarter. That's a little bit of year over year. As you look forward, that's going to be the equation. It's going to be volume driven. We'll benefit from the things Rick talked about. The way we're positioned, we will do what we do on discounting, but we don't have to do as much as the others do.

Perfect, perfect. And then, Rick, I was hoping you could talk a little bit more about international M&A. As you said, you've been talking about it for a while. It seems from the way you're talking about it now, the excitement is building, anticipation is building. But I guess, have you learned anything in terms of, I mean, the opportunity has been there on paper for a long time, but it's also, you know, it's taken a little while to manifest in a transaction. Have you learned anything in terms of where it's harder just or not, just any perspective on kind of the opportunities you see it today versus when you set out to focus on this initiative.

Yeah, I know. I think we were busting our pick on it for a little while and it was all about people and structure. It wasn't a bad approach, but we we initially we added M&A people and a person in Europe, for example, and and I would say it was a little bit disconnected from the management teams and it was almost like a center of excellence on M&A. We changed that approach about six to eight months ago and we said the management teams are responsible and the M&A person supports that and so all of a sudden the international management teams The country director and his or her staff, Australia, the same thing, and Southeast Asia, the same thing, and Latin America, the same thing. You have a right to go and an obligation to go look at not just what you hear from the bankers or for our M&A contact, but where do you want, what brands would you like to go and look at? And that has, when we made it, I guess, their objective, and they owned it. I'd say that was the unlock for us. And of course, our M&A team is enabling and helping. But I think we went into like, you know, right from first to third gear since we did that.

Okay, perfect. Thanks so much. Pass it on.

Your next question comes from the line of Lauren Lieberman with Barclays. Your line is open. Please go ahead. Great, thanks.

So I had two questions. First was, at the risk of being redundant, because I got a little bit confused on the way, on Chris's question and the answer, which is the gross margin this quarter, I know you gave the bridge, but in total, it did come in below your expectations, and there wasn't a huge change on the inflation guide, as you guys pointed out. So just curious on the slight shortfall on gross margins this quarter. and then my second question was just about how Tuckland is trending and can slide into organic sales going forward from here. So just wanted to get an update on that brand.

Thanks. All right, so I'll take the first question. Yeah, just to answer the question, we had just slightly higher transportation costs in the second quarter, even a little bit higher than we thought, but as we talked about for the year, you know, we're still at $30 million. So same type of

And then on Touchland, I think my comments were really, we had sales growth in the second quarter. We have a lot of back half weighted innovation, new collaborations with other brands and some activations up and down the channel. We expect sales growth in the second half of the year. and then we have a lot of work going on in innovation into, as we've said before, another category or two and some other distribution opportunities, plus international expansion. I think that's a muscle that we've built really well with some of these brands now. It takes a little bit of regulatory perspective, but that's going to start hitting in 2027 as well. So that should be a tailwind. Okay, we'll take the next question.

Your next question comes from the line of Javier Escalante with Evercore ISI. Your line is open. Please go ahead.

Hi, good morning. I guess the punchline in laundry is that Aaron Hammer is holding share without I don't know whether I heard this correctly because it sounded like a big number, but did you say that Henkel increased promotional activity by how much? Okay, so that's high. So what does it mean right now given how the oil is trending? Have you seen any change? Given that the category is so slow, so if you can clarify that a little bit.

Yeah, that's a good question, Javier. And look, I think I said last quarter, like when commodities are high and they stay high for a while, what tends to happen? Promotion tends to kind of dial back a bit. That is not what happened this past quarter. My belief is a lot of people got tariff refunds and they're spending it back and trying to drive volume. The good news for us is Again, Arm & Hammer is at that intersection of value and just quality. And we don't need to promote as much in order to hit that kind of price point. And so we held share, which is fantastic. And as we increase promotion a little bit at historical levels, of course, I tend to think that we're going to continue to do what we've done for the last 15, 20 years is gain share in Arm & Hammer year after year.

Thank you. And my second one is in cat litter, you know, continue doing really well. You mentioned in Q1 that you got the strongest TDP growth in the in HPC and we are seeing it. So any heading into back to school, any change in distribution, particularly in this business, if you can comment on that. Thank you.

Yeah, I would say litter is doing extremely well. to have 7.5% consumption growth and almost a full share point gained is great. And we're doing that the right way. We're doing that the way we've always done it, which is innovation. Arm & Hammer Cat Letter is just known for innovation. Our new one this year on dual defense with microband is a great example of that. And some competitors are spending a lot. We're within historical Thank you. Your next question comes from the line of Robert Moscow with TD Cowen. Your line is open. Please go ahead.

Thank you. One of the many positive surprises here is there's no mention of retailers reducing inventory in your categories. So my first question is, how do you think you dodged that bullet? Do you think it's because of the categories, or do you think it's just because you in particular have the right inventory levels? And then I had another question on Touchland. You mentioned that it grew, but there's not a lot of commentary on how much it grew. Is the pace of growth decelerating compared to first quarter? Can you be more specific for us? Thanks.

Yeah. So let's see. The first question is on retail inventory. Look, if you look back at all of our transcripts, probably for the last 10 or 15 years, we've talked about retail inventory maybe two or three times, and two of those times were earlier in 2025. There's all these dynamics that are happening with retail inventory, but we never believe they are impactful enough for us to comment on or something that we can't overcome. So there's, I would say, some movement, but overall immaterial. The second one is on Touchland. I would say the business is growing and our outlook for that is probably high single digits these days. But again, we're really comforted by the fact that we have this great innovation lineup. We have this great Collab lineup coming. A lot of the support that we have in the back half with displays from these retailers. So, yeah, so Touchland continue to be optimistic about it.

Okay, thanks.

Your next question comes from the line of Filippo Filorni with Citi. Your line is open. Please go ahead.

Hi, good morning, everyone. I want to talk about the international business, solid performance there. It's now like continuing to deliver on pretty tougher comparisons. Maybe can you give us a sense of what regions are driving the growth there, where are you seeing the strength? And then the second part of the question, as you think about the opportunity for some of the recent acquisitions like Tera Bread, Hero, Touchland, How much more opportunity do you see for expansion of those brands internationally? Thank you.

Yeah, I'll take the brand one and then I'll let Lee talk about kind of the countries and the regions. But we are still in early innings for a baseball analogy for TheraBreath and Hero and very early for Touchland. I think we're hitting number one share positions in many, many countries all over the world. We have great retailer discussions about how we're growing the acne category with Hero. Of course, the mouthwash rollout is a little bit slower than the acne rollout, but they're both doing extremely well. Once they get in market, these brands, because they're a problem solution, because consumers can see them working, because they're premium brands for retail, they're driving category growth. Once they're in market, it starts to become kind of a virtuous cycle.

And I'll just pick up from there. Certainly, you know, Hero, Therabreath, Batiste was a great driver in the quarter for us. And then, you know, if you think about that, you know, taking those, we're taking those across the globe. That's what we do really well. So, you know, you ask, like, you know, which part's doing well? Quite frankly, very broadly, you know, You know, Europe, for example. Europe, as the economy wants to be slower, you know, we're growing at the levels you see at the total level here, doing really well in Asia and Latin America as well. So you said this in the first quarter. First quarter had a little bit of impact in the Middle East. You take it out, it was growing towards mid to high single digits. The outlook for the business is to be high single digits. That's what it is in the evergreen model. And it was great to see another strong quarter from that.

Great. Thank you, guys.

Your next question comes from the line of Andrea Teixeira with JP Morgan. Your line is open. Please go ahead.

Thank you, operator. Hi, everyone. I just wanted to go back to what you mentioned about TDPs, Rick, in one of the categories. But I was hoping to see if you can explore a little bit of the TDPs on the laundry side and how we're cycling that. And you just say that you're not engaging your promo levels are below. Just curious and you're still getting share. Just curious to see the volume. If you think about like volume share, if you can talk about that and as well as like how to think about TDPs for laundry and in general in the U.S. for the remainder of the year. And when you're cycling that, you see that cycling Thank you. Yeah, so thanks, Andrea.

You know, really remember last quarter, we kind of talked about our industry leading TDP growth, and it was, I want to say around 11 or 12%, and most of the industry average was at 5 or 6%. So we were double what most people were getting. And at the time when we talked about TDP growth, I said it was very broad based. It was across brands and across channels. And that was entirely true. So I think laundry, I don't have it in front of me, but I would guess it was high single digits for Arm & Hammer. So that all was kind of towards the front part of the year. So it takes a while for that to reset. But so that's, you know, in the next year is what I would say all those TDP results help with. Okay, we'll go to the next question.

Your next question comes from the line of Edward Lewis with Brookshire. Your line is open. Please go ahead.

Thanks very much. Yeah, just a couple from me, please, Rick and Lee. Just on Batiste, I guess one of your power brands is a bit of a tricky 25 for you in the US, and you call that strength in the international, but I just wondered how things are going in in the U.S. for Batiste. Is it a category challenge you're facing there or is it more of a brand challenge? And then I think you went live on the ERP, didn't you, in April. I'm looking back at what sort of you talked about or on the Investor Day talked about it being an engine of growth in the future, at least Ray did there, who are implementing it. And I just wonder, Rick, is the clear optimism you feel about the output for the business, how much does this new sort of upgraded ERP sort of feed into that optimism?

Yeah, thanks Ed. So for Batiste, we've talked about this. It's really a tale of two cities. Batiste internationally is doing phenomenally well. It's growing double digits. It's one of the main drivers of growth behind TheraBreath and Hero, behind innovation, the right pricing strategy. Our international Batiste business is doing extremely well. Batiste in the US is growing. We're growing a little short of the category. Category grew 5.5%. We grew closer to 2% from consumption. So we lost a little bit of share, 1.4%. That was closer to four or five share points in prior quarters. We were making great headway on Batiste. I've seen the inflection. I'm not worried about Batiste. We have a great set of actions that are already in market or lined up for market in late this year, early next year on sizes and offerings and price-packed architecture. So we have some great innovation queued up and just a lot of confidence in the Batiste brand. So that's not something I really worry about long term. The ERP system, I think it's an underappreciated fact that we have a North American ERP system. And so as we do acquisitions, it is one of the things that enables us to do acquisitions so flawlessly and seamlessly. And just to give you a real-life example, we closed on Miss Mouth, I think around June 1st or so, and we're going to be fully integrated by end of August. That is lightning fast, even for us. And so that capability is, I think, again, just a great advantage for us. Next question, please.

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

Great. Thanks, everyone. Two questions for me, Rick, related to the pricing environment, where it would certainly seem like the cost environment and cost inflation we're seeing would justify additional pricing. So a lot of discussion about branch strength broadly from Church and from some of your peers, but it doesn't seem like in certain cases that the industry is looking at pricing as a lever to offset The cost inflation, where there's a clear justification for that. Like for Procter, it's a more premium portfolio than you. Clorox, sort of well-documented what's going on from a market share perspective. So I'm just trying to square some of the brand strength discussion and what would certainly appear to be a clear cost justification for additional pricing in this backdrop of a softer consumer environment, particularly in household products. and some of the decisions not to take additional price and what's different in the current environment versus past where the industry seems more inclined to move on price. So just your thoughts there, Rick, on retailers openness for additional price in your portfolio, how you're thinking about it for church and what you've included in your outlook. Thank you.

Yeah, thanks, Kevin. My answer doesn't really change a lot from what I talked about last quarter. I think in this environment, consumers are pressed. And we see that. When you see stuff go on promotion, I would say elasticity is higher than they normally would be. So consumers are pressed. And so our job is to help offset that as best we can. And we said last quarter we were going to do that with productivity. We've said that if we couldn't do that and this inflationary environment stays higher for longer, then we would look at pricing eventually. And that's still true. We believe, we hope, that this higher inflation environment isn't permanent. But meanwhile, we're fighting it with productivity. We're fighting it with trade and promotional optimization. and so far we're winning. I mean, look at our gross margin expansion as an example. I think a lot of our peer groups are going backwards on margin. So for a long time, typically what you see is when inflation happens, Thank you.

There are no further questions at this time. I will now turn the call back to Mr. Rick Dierker for closing remarks.

Okay, thanks everyone. Looking forward to talking again in the third quarter, and meanwhile, have a great rest of the summer. Bye.

This concludes today's call. Thank you for attending. You may now disconnect.