Church & Dwight - Q4 2023 & Analyst Day 2024

Transcript

Matthew Farrell (Chairman, President, and CEO)

It's a little bit like the Academy Awards. We're gonna be hearing cutlery and clinking of plates and whatnot. All right, thank you. Welcome, everybody. This is our 2024 Analyst Day, and we got all of our sell-side analyst friends in the room and lots of major shareholders. So, let's begin. We have a safe harbor statement. Encourage everybody to read that after class, and I'm gonna start out with who's with us here today. We have virtually the entire management team, one of the best-looking management teams in CPG. I'm sure you'll agree. And we've got a kind of a packed agenda. I won't read it to you, but got a number of people coming up, who are gonna talk to you today about financials, our new products, digital, and also our international story.

So here's a quick look back to 2023. So we had a great year for reported and also organic growth. I reported 9% and organic 5%, and we had gross margin expansion of 220 basis points. You can hold the applause for a minute. We had all-time high shares in a lot of our major brands, share gains. Marketing spending historically has been around 11%. We almost got all the way back to 10.9%, and we generated $1 billion in cash from operations. Finally, as you know, we've been investing in capacity for laundry, litter, and vitamins, and also adding to the capabilities of the company. And here's our TSR. We show this to you every year, one, three, five, and 10 years.

This is mostly what matters to our shareholders. 2022 was an abysmal year for us, and we've recovered in 2023. We got a lot of confidence going forward, which you should walk out of the room here today thinking this, is that we've got a lot of confidence in our ability to grow in the U.S. You see that we tweaked our Evergreen Model in our press release, so we're expecting 3% growth in the future in the U.S. International, we've tweaked that there to say we expect 8% growth internationally going forward. We have a wonderful lineup of new products in 2024, but we've been consistent in our innovation for many, many years. We're becoming more and more digitally savvy, so one of the markers for that would be, well, what percentage of your sales is online?

The answer is 20% of our sales is purchased online. That's over $1 billion in sales. The new Evergreen Model is very healthy. I'm sure you're gonna leave here today thinking that, and we got really strong fundamentals going forward. Who are we? We're a $6 billion company, largely U.S. You see 78% Domestic and 17% International. Specialty Products is our original business back in the 1840s. Historically, we've talked to you about 14 Power Brands, and those 14 Power Brands account for 85% of our revenues and profits. But today, as you saw in the release, in the future, we're gonna narrow our communication to investors and shareholders and analysts to seven of those 14.

Those seven are ones that are in larger categories, and we also believe they have a lot of potential for our global growth. So those are the seven: TheraBreath, Vitafusion, Hero, of course, ARM & HAMMER, our biggest brand, Waterpik, Batiste, and OxiClean, and they account for 70% of our revenues and profits. So I'm now gonna run through what our winning formula is. First off, we have a very balanced and diversified business. We have low private label exposure, great innovation, as you're gonna see here today, and we are an acquisitive company. You know, for many, many years, we've said the highest and best use of our cash flow is to buy brands. All right, here's the balance. We're pretty much 50/50 between household and personal care. Far as value versus premium, historically, it's been 40/60 between value and premium.

Because of the growth of TheraBreath and Hero, that shifted a little bit, but it's still pretty solidly around 40/60. Low private label exposure, this is on a weighted average basis, it's around 12%, and it's been like that for many, many years. Category-leading innovation, Barry Bruno is gonna take you through a lot of the innovation group, things we're launching in 2024, and we have a long history of acquisitions. So, if you went back to 2004, we had $1.5 billion in sales, and now we almost have $6 billion in sales in 2023. Our acquisition criteria is very specific, so we're very fussy about what we're gonna buy. They have to be number one or number two brands.

They have to be high growth, high margin brands, fast-moving consumables, asset light. We have to be able to bring something to the party and leverage our supply chain or our internal capabilities, and they have to have a long-term, sustainable competitive advantage. All right, so we have seven of those Power Brands today and more to come. And here's our. I'm just gonna wrap it up here, just to remind you. Balanced portfolio, I think, this is really key to the long-term success of this company. Low private label exposure, we don't have nearly the exposure that some of our peers do. Innovation is the reason why our brands are so successful and the reason why our brand equity grows year-after-year. And finally, we're an innovative company, and we do it well. All right, I'm gonna bring up Rick now to take you through the financials.

Rick Dierker (EVP, CFO, and Head of Business Operations)

All right, thanks, Matt. I'm gonna talk to you about the quarter, the full year, which we finished really strongly, and also our outlook and our evolved Evergreen Model. So first, the quarter. Our outlook was 5% from a net sales growth perspective. It was 4% organically. We came in at 6.4 and 5.3, so just better than the top line all around. Gross margin, we just said expansion. We came in at 260 basis points expanding versus a year ago, and then EPS was up, so just green arrows all the way. For the full year, similar story, we had 9% as an outlook for the top line, and 5.0 for organic. We came in at 9.2 and 5.3.

Gross margin, we had expected to be up 210, we were actually up 220, as Matt mentioned. Then EPS reported and adjusted are both better than we expected. Cash flow, $1 billion was our outlook, and we came in at $1.03 billion, so just strong cash flow all the way around. All right, so just, I'm gonna spend some time on the Evergreen Model. For many years, we've been going through, and I begin and end almost all my presentations with the Evergreen Model, cause that is the backdrop for the company. Organic net sales are 3%, gross margin expansion of 25 basis points, flat percentage for marketing, higher dollars, and then we leverage SG&A by 25, and that's how we got to 50, and that led to 8% EPS growth.

That's what we've been saying year-after-year, and we're evolving it today, and we're gonna say 4%. You know, for the last 10 years, if you look back at our history, we've been growing 4%. We're saying we have confidence in the future, and we're gonna continue to grow at 4%. I'll get into that detail in a second. The divisions would be 3% Domestic, 8% International, and 5% for SPD. Gross margin, we also think that this is the time that we are accelerating on productivity. Inflation is starting to moderate, and we have some fast-growing acquisitions that we've done that are helping, that are tailwinds to gross margin. Marketing, same story, flat percentage, but higher dollars.

As we grow faster, that just means we're gonna invest even more dollars in marketing to help gain share and to help grow our brands. SG&A, we're gonna leverage, maybe not as much as in the past, but still leverage, and, and, and in that number, we're now investing largely behind international and largely behind e-com, and we'll get into that detail in a second, too. Operating margin still expands 50 basis points, and industry-leading growth of 8%. That's, that's the new model. Let's just go through the detail a little bit on organic. What gives us confidence? Well, we're in fast-growing categories, and Barry will show you as we talk about those seven. They're, they're extremely fast-growing. We wanna take share, and we do that through marketing, through innovation, and we've done that year-after-year.

TheraBreath and Hero, recent acquisitions, are, are fast-growing, and then international growth is accelerating to 8%. On the gross margin side, again, productivity is outpacing inflation. We have higher-margin acquisitions on the marketing side, and Surabhi's gonna talk about it. We're getting good ROIs in our spend. That transition's helping, and then we have higher dollars as we grow the top line. And then SG&A, we're putting in systems all over the world. We put in a China ERP system. We're putting in an ERP system for our for our GMG business based out of Europe. All these investments are embedded in our numbers. We also are building capabilities around the world, regulatory, back office, to support this fast-growing business called GMG within our international. And then analytics and e-commerce, those are capabilities we want to build. Okay, moving to 2024.

So I just talked through the new Evergreen Model. The outlook is actually a step up from that. The outlook is 4%-5% on the top line. It's 4%-5% organically, excluding Megalac, excluding currency. Gross margin's up 50-75 basis points, so just step up again from our Evergreen Model. SG&A is leveraged. Operating profit expansion is higher than our Evergreen Model, 60-80. Tax rate's a little bit higher, and EPS growth is 7%-9%, and our cash from operations is $1 billion plus. Now, we do have some timing within our EPS outlook, so the first half is essentially flat, and the second half is where all of our EPS growth is coming from. Why is that?

Well, we're purposely moving marketing spend from the second half to the first half because we have one of the biggest new product introductions in major categories in our history, and Barry's gonna walk you through what each and one of those are. But we're excited about that. We're gonna go ahead and spend the money up front to drive trial, drive awareness to do that. And then the second point is, we had a great first half in 2023. The first half of last year is a strong comp to compare against. We had 11% EPS growth last year in the first half. How do you think about, or how do we think about EPS growth? Well, 8%-10%, if we strip out the Megalac. Again, we're not excluding Megalac. It's included. These are the shutdown costs.

These are the stranded costs. So adjusted EPS growth, you know, before Megalac is 8%-10%. Megalac impact is a 1% drag. That's how we get to 7%-9%. If you think about the tax rate, that's also a headwind of about 2% for operating performance. So we're really strong operating performance is what I would wanna leave you with for 2024. Let's look at our track record. 10 years of growth. Last year, net sales growth grew 9.2%, one of our strongest years ever, and we're gonna have 4%-5% growth on top of that growth in 2024.

Organically, long track record, again, of above 4%. So the median for 2024 is 4.5%, or the average... We're gonna. That's better than our 10-year average, better than our new Evergreen Model. So at 4.4%-4.5% or so above the 5.3% is, again, growth on top of growth. It matters where that's coming from. In years past, you know, before all the COVID noise and all the pricing and the inflation, we're a volume-driven company. 100% of our organic growth was really from volume. Many companies right now are talking about the return to volume. We've already returned to volume. The last two quarters consecutively, we have volume growth. We expect that in 2024 as well. About two-thirds of our growth, we expect to be volume-driven growth in 2024.

On gross margin, you know, this is a slide to spend some time on. So we had a fantastic gross margin expansion, 200 basis points in 2023. That got us, that got us to 44.1%. Our eyes are on our high of 45.5% back before COVID, the 2019 number. If we hit the middle of our 50-75 basis point outlook, then that means we have 80 basis points remaining to get back to that kind of pre-COVID number. Now, we also have tailwinds from acquisitions that we didn't have back then. But our eyes are firmly on recovering back to 45.5%, and that's also why we have confidence and raised our gross margin outlook for the next few, you know, for the future. Here's the bridge. So this is always the detail that folks want to see. 2023, price volume mix, as expected, very strong tailwind from price.

In 2024, not as much. We have some carryover price, but it's not the driver. Manufacturing costs were a headwind of 240 basis points last year. We expect that to be closer to down 130-down 140, about $85 million. It was about $125 million in 2023. Acquisition is a tailwind in 2023. We don't expect to have acquisitions in 2024 from, you know, carryover impact on gross margin. Productivity programs up 150, that was one of our best years ever. It was our best year ever for our productivity program. And then in 2024, we also expect to have a really strong productivity program.

Gross margin change would then be 220 in 2023, and then 50-75 in 2024. I'll spend a minute on manufacturing costs. Inflation is still there. I would say it's moderating. So, maybe a few months ago, I would've said, inflation, I would say it's moderate inflation. And the nuance in 2024 is a small piece of that is commodity-related. And, whether it's, resin prices or natural gas or sugar, those costs are up. But the bigger part for Church & Dwight is some of the costs and investments we're making in capacity, so the new depreciation on the capital that we've put in. We added a new distribution center. We're outsourcing international supply in some cases until we can bring it in-house.

We have higher third-party manufacturing costs and higher labor costs. So that's the bigger makeup of the pie, largely capacity-driven, as we grow into it. Moving to marketing, so, you know, 11% with 4%-5% net sales growth, this is an investment of $35 million or so. So this is real incremental dollars year-over-year to help drive the top line and share. SG&A, we continue to believe we're going to leverage SG&A, and I walk through, even in the future, Evergreen Model, leverage of 25 basis points to zero. So those investments behind international and e-com are key. And all that leads to great, consistent, strong EPS growth over time. Double-digit, in many cases, or high single-digit, and we have a great outlook in 2024.

Turning to cash flow. Cash flow is what we believe drives value, and our free cash flow conversion, which is free cash flow divided by net income, is industry-leading. For 10 years, our average was 119%. In our recent history, because we're making huge capital investments on CapEx, that number is down, but still, right in line with industry or maybe even a little bit better. But we expect that to continue to inflect positively. Our cash conversion cycle, this has been a track record at Church & Dwight. We've taken our cash conversion cycle from 52 days down into the 20s. We had a spike up this year, largely cause of acquisitions, but again, that's going to work its way back down over time. Strong balance sheet, one of the strongest positions we've ever been in.

So we, we ended this year at 1.8x levered. We expect to end next year closer to 1.6 times. And this chart is updated. So even from a few months ago, back in September, when we presented at Barclays, our financial capacity is about 20% higher. And why, why is that? It's because we're generating even more EBITDA. It's because we're generating and paying down cash at such a rate, we're paying down debt as well. And so those things are just, again, virtuous cycles when we look at doing acquisitions and deals to grow our business. So number one, far and away, for capital allocation is M&A, and we're laser-focused on M&A. Number two is CapEx for organic growth and our Good to Great program. Number three is new products. Number four, debt reduction. And number five, return cash to shareholders.

We're not a capital-intensive company. We've spiked up in 2022, 3% on the way down in 2024, and we believe it will be at 2% of sales back to normal in 2025. And then finally, we announced this morning in the press release, we have a 4% dividend increase right in line with our capital allocation strategy. And I'll turn it over to Barry to talk about the Domestic division and new products. Thank you.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Afternoon, everybody. I think Rick likes when I go right after the dividend slide to remind me I've got an obligation to keep it going, so, 123 years strong and some more good quarters ahead. So I'm Barry Bruno. I'm responsible for our U.S. business. I'm gonna talk a little bit about our categories, the U.S. consumer, and what I think is some really great innovation that we've got in each of our key categories going forward. I'm gonna start with a slide I left you with last year, which was, we've got great confidence in our future. If you look at the categories in which we compete, and I'll show you a look at the old Power Brand and the new Power Brand categories to break them out for you, we're not only leaders in those categories, we're driving growth in those categories.

We thrive in difficult environments. You've seen our value percentage of our portfolio. I'll take you through how on ARM & HAMMER, in particular, we bring consumers in in tough times, we keep them, we trade them up... and then acquisitions have a ton of room to run. Hero and TheraBreath have been absolutely home runs, and they're in the early innings of that story still, and I'll show you what that looks like. So this slide was getting a little complicated, right? This is our old 14 Power Brand portfolio look, 17 categories. As we got into new categories, the chart got longer and longer. You can see which in 2023 were growing. Mid-single-digit growth, high single-digit growth, pretty strong.

When you look at the new look of our seven Power Brands, and these compete in 8 categories, just as a reminder, ARM & HAMMER competes in laundry and litter, of course. Seven brands, eight categories, incredibly strong growth, right? 11% in 2021, 18% in 2022, and then 16.9% on top of that, and we're driving a lot of that growth, and I'll show you that in just a little bit. These are exciting, healthy categories to be in. Matt talked about these a little bit, too, so our portfolio's changed a little over time. We're 63% premium, 37% value, still incredibly valuable to us in tough economic times as we bring consumers in, and low private label exposure of 12%. Then the third reason for confidence is about these new acquisitions, right?

When we've met with you over the last two years, talking about TheraBreath and Hero, it's been about our ability to build distribution, to bring these to more and more consumers, and you can see the success that we're having. TheraBreath up 57% in terms of distribution last year, and lots of room to run to catch up with the big guys. And Hero is another great story as well, up 200% last year, and tons of room to keep growing. And that's just in MULO, that's in measured channels. If you look at it from a Numerator standpoint, mouthwash is in 63% of U.S. households today. TheraBreath's only in seven, and you can see the growth we're making from one to two, to three, to four, to seven.

Great growth, but there's a ton of households where we're not in just yet, and so there's room to run there. Hero's the same story. Hero almost didn't exist five years ago, with 0.2% household penetration, up to 6.4% today, and you can see the rate of growth accelerating. So, whether you measure MULO or you measure Numerator households, tons of room to run on acquisitions. So, let's look at some category and consumer dynamics now. We're gonna start with our largest brand, ARM & HAMMER, and one of our largest categories, fabric care. The look back is a pretty compelling story of growth, from a 5 share to an all-time share high, 14.4% last year, on top of an all-time share high in the prior year.

All of that growth's been driven, as we've talked with you, about being anchored in the value tier of the laundry detergent category. That's about 30% of the category. I'm happy to be talking today about ARM & HAMMER Deep Clean, our most powerful formula, and our first entry into the mid-tier segment. To give you some idea, that's about 27% of the category, the mid-tier. We haven't played there today, and we're thrilled about this new formula that's gonna be launching in Q1 in 2024.

Just to break it out for you so you can see our architecture, we've got our core ARM & HAMMER products. Those are our better products, ARM & HAMMER plus OxiClean. ARM & HAMMER's good, ARM & HAMMER plus OxiClean, better, and now with Deep Clean, our best formula and the best anchor in our architecture. We are telling consumers about this new formula starting very soon, and I'll play one of the spots. We call it Dig Deep, to show you how we're bringing awareness to the category and the brand.

Speaker 17

Laundry call! Let's dig deep, people. Stench drenched. Soaked through. Caked on deep. Everyday dirt and stink lingers deeper than you think. Now clean deep with new ARM & HAMMER Deep Clean Laundry Detergent. Our most powerful formula yet penetrates deep into fibers and gets to the bottom of odor and mess. ARM & HAMMER Deep Clean, more power to you.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

So that's just one way we're spending some of the incremental marketing that Rick talked about earlier. But fabric care is so important to us, we're not done with Deep Clean. We're also happy to be talking about ARM & HAMMER Power Sheets, laundry sheets, not dryer sheets. We're the first mainstream brand to bring this form, new form of unit dose to market. We launched it in Q4 of last year online. We quickly grew to the number two detergent sheet on Amazon, and we're expanding it into brick and mortar this year. It's a great new form of unit dose, and there's a lot of education that needs to take place when you've got a new form. So let us show you how we're using one of our army of influencers to educate consumers about this great new form of unit dose. Let's play the spot.

Speaker 17

As a family of five, the amount of laundry we create is intense. I've partnered with ARM & HAMMER to share their brand-new Power Sheets that have been a total game changer in our laundry room. When I say Power Sheets, I'm not talking about dryer sheets, people. These are laundry detergent sheets. That's right. It's a brand-new form of laundry detergent from ARM & HAMMER, and it's made with the same type of powerful cleaning ingredients as ARM & HAMMER Liquid Laundry Detergent. The sheets fully and rapidly dissolve and leave your clothes smelling incredible with a fresh linen scent. ARM & HAMMER Power Sheets are super convenient to use.

Just toss a sheet in your washer, and you're off. No drips, no spills, no measuring. Give yourself the trusted and fresh clean of ARM & HAMMER with the new Power Sheets. Shop now with the link in my bio. As a family of five, the amount of laundry-

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

I think once is enough. You can tell she's excited about it. We are, too. I just dropped my son off at college a few weeks ago, and laundry sheets were one of the first things that I made sure to pack for him. Far more convenient than unit dose, for sure, than a liquid, for sure. So staying with ARM & HAMMER, moving over to cat litter now, another important multibillion-dollar category for us. You can see that the category is healthy, right? It was up 11% last year. It's been a consistent grower for a long time. During COVID, there were increased pet adoptions, then there were multiple rounds of price increases, 11.7% growth. ARM & HAMMER contributing to that growth, up 11.8% last year.

When you're growing faster than category, you're gaining share, of course. We're up to a 24.8 share, almost a 25 share of the category, and you can see we've been a consistent grow over time, from 23.6 up to 24.8. One way that we're keeping that growth going is through new products. ARM & HAMMER Hardball is what we're talking about today, where we're changing the lightweight litter experience. We think it's lightweight perfected, ultra-compact, strong clumps, 60% lighter than our base product today, plant-based, and it was one of the strongest performing litter new product launches at Walmart last year, so we're expanding it nationally this year. Why are we so excited about lightweight? Well, today we've just got a 4 share in the lightweight sub-segment versus our 25 share overall.

Getting our fair share equals $100 million opportunity in retail sales, so we're squarely focused on growing and gaining share in this important sub-segment of the category. We'll share how we're doing that via a piece of advertising right now, which is cats watching humans on the internet, so a little bit of a different play. Let's play this spot.

Speaker 17

ARM & HAMMER Hardball Litter. How hard is it? Crazy hard! No mess scoops. Shane, you gotta check this out. Amazing. I'm obsessed with humans on the internet. It's the virtually indestructible clump, Hardball Lightweight Litter.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

I swear, we test all of our advertising, and our cat-obsessed consumers love it, so it's helping to bring awareness to this, this great new product. All right, switching gears to something slightly different, dry shampoo. Batiste Dry Shampoo has been on an absolute tear. The category is healthy, up 15.6% last year. As the leader in the category, we were up 16%. A combination of new products and advertising has absolutely driven continued growth for us, and you can see the share story is the same here, whether we're talking about litter or Fabric Care or Batiste, we're hitting all-time share highs. We had a 46.3% last year. We're up 9 share points in the last few years, so incredibly strong growth continues here, and again, the theme is the same. We're keeping it going with new products that we're supporting by advertising.

Now we're talking about Batiste Sweat and Touch Activated, our newest innovation in dry shampoo. They use bursting bead technology that have been in skincare before, but never in dry shampoo, so they offer a burst of fragrance with every touch or drop of sweat for up to 24 hours of freshness. Those are launching, starting now in Q1, both forms, and we think they're pretty futuristic, so we've engaged some help from the future to tell the story about this new product. Let's play the spot.

Speaker 17

Gee whiz! What's the future like? Well, people live on Mars. I'm dating an alien. And your hair, it's Batiste Touch and Sweat Activated Dry Shampoo. It keeps hair fresh all day long. It's the best invention ever. Better than sliced bread? Hop in, Betty. Wow, this is better than sliced bread! Batiste, the future of hair care is here.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Having a lot of fun with Batiste as we approach a 50% share in the category and keep innovating and investing. Vitafusion. So a slightly different story when we talk about Vitafusion and vitamins. So what once made Vitafusion unique, our gummy form, our great taste, our wide assortment, has now become really prevalent in the VMS category. There are over 60 vitamin players in the gummy form right now, and that's just in bricks and mortar. There are over 100 if you were to look at online players. So, ultimately, there's been a shared decline that you've seen. It's gone from 23.9% down to 12%. The category, the gummy category, has just about doubled during that time, and you see a real inflection back in Q4 of 2019 and Q1 of 2020 during COVID.

But obviously, the share decline's gotta stop, and we're making the investments required to do just that because our consumers and our customers depend on us to do that. We're the number one gummy player still at Amazon, at Walmart, at Walgreens, and all the players you see listed here, and we've got the highest household penetration in the gummy form, but we've got to turn it around, and so we're investing in new product upgrades to our base formulas, to new packaging that pop better at shelf. We're taking that new packaging into new displays to get off-shelf display. We've got new advertising to support it, and we're launching in new forms beyond gummies in 2024, with the whole goal of stabilizing the business, stopping that share decline, and getting back to growth in 2025. Now, I'm gonna close out talking about just a few acquisitions.

So I'll start with TheraBreath, and I think the TheraBreath story is pretty well known. 85% growth last year, right? Incredible growth, driving category growth of 12.8%. So healthy category, again, driven by TheraBreath, where we're now category leaders, and you can see the share growth is absolutely playing out. This is in the total mouthwash category. We've gone from a 2% share to a 13% share. In the alcohol-free portion of the category, where we play, 26% share, category leader, and actually, a fun fact, in January, alcohol-free, for the first time, is larger than the alcohol segment of the mouthwash category. So we are continuing to gain share and grow dramatically here, and it's a similar story where we've got a great new product.

Introducing TheraBreath Deep Clean, our first alcohol-free antiseptic rinse, and antiseptic's 30% of the category today. We don't play there at all. Deep Clean's our first foray there. Kills 99% of germs with no burn because there's no alcohol, and it's dentist-formulated, launching in Q1. I don't have any great advertising to share with you here cause the team just got back from L.A. last night, but we'll have it for those of you who are gonna be at CAGNY, as it supports our launch in Q1. And last, but definitely not least, is a little brand called Hero, and it's not so little anymore. You can see that it's absolutely driving category growth. We're up 72% last year, driving category growth of 20%, and when I say little, it was a 0.2 share five years ago.

Right now, it's an 18% share, all-time category high and category leader in acne care, and we're absolutely keeping it going with innovation in both our patch form, we're a leader with over a 50% share today, and in acne-adjacent skincare, where we're launching Dissolve Away, our daily cleansing balm. So patch innovation combined with skincare innovation equals lots of good growth yet to come. So let's talk about patches for just one more second because the form is still not all that well known in the U.S. We've got our the first national campaign called Pimple, Meet Your Mighty Patch, bringing awareness to this great new form. Let's play that spot.

Speaker 17

I see you looking at me. Ooh. Your zit? Mm, no, don't do it. You can't ignore me, but you know what you can do? Pop me! Ah! Come on. Pop me. It's a perfect solution, and you would definitely not regret it. Pop me! Pop me. Pop me. Just do it. Pop me. Don't pop it, patch it. Mighty Patch pimple patches reveal clear-looking skin overnight. Pimple, meet your Mighty Patch.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Again, the form is new, so we're pioneering in the industry, launching the first new advertising nationally to bring awareness to this form. So the summary is great momentum, right? You heard about all-time share highs in laundry and cat litter, on Batiste, in mouthwash, and in acne care. We've got great new products. We're supporting with more advertising, and ultimately, that brings us back to the algorithm that we were talking about earlier.

You see, we've raised our target to 3% for the U.S., and we're absolutely confident we can achieve that. Seven out of the last 10 years, our U.S. business has been growing faster than 3%, and we're absolutely committed to continuing to do that going forward. One way we're doing that is via digital and e-commerce, and so Surabhi Pokhriyal is gonna come up now to talk about how we're gonna keep that great growth going. Thanks.

Surabhi Pokhriyal (EVP and Chief Digital Growth Officer)

I'm Surabhi Pokhriyal. I'm the Chief Digital Growth Officer here at Church & Dwight. [crosstalk] Sorry. So quick context setting, because I know all of us are consumer goods users, but not always fancy. You know, some geeky things might happen here, so, you know, keep me honest as I present to you. I want to say that we are not in the business of getting consumers to shop online. We are simply in the business of being where the consumer shops, and that happens to be online more often than not.

With that said, 70% of purchases in the U.S. specifically are digitally influenced. What that means is, every time you pick up that 6-inch device out of your pocket, look up your iPad, you are making purchase decisions not just to buy online, but walk to the store, look up a review online, and that make that purchase. That's what digitally influenced means.

Also, we are in the era of channel-less commerce, so the consumer is very fluid between buying in brick-and-mortar store, buying online, or making that 2 A.M. order to get the product delivered to the door, maybe a laundry sheet. So it's important to segregate how the physical shelf is very different from the digital shelf. The physical shelf is set once a year, maybe twice a year, and it is set it, forget it. The digital shelf, like this time-lapse video shows you, changes by the second. So our tactics really have to cater to the online world in a very different manner. Let's talk some numbers, and Matt broke the thunder for me. We go from two to 20 in under seven years, right? That's the kind of e-commerce penetration we are seeing for our categories.

It's important to say here that we have seen a sustained post-COVID momentum in almost all of our categories, where the consumer, once who has decided and chosen convenience, doesn't want to give it back. Think about getting your litter subscribed and showing up, that up every month on your door versus having to lug it from the store. Of course, we are incessant about all-time share highs, like Barry was speaking. In the online world also, we have new metrics where we say we aspire to be in online share, at least equal or higher versus brick-and-mortar. We have had some fantastic success, as you see here. six out of our new seven Power Brands have grown in the share in 2023, and these are some all-time high share names: ARM & HAMMER, both laundry and litter, TheraBreath, Nair, and Spinbrush. It's important to understand...

Now, these were the results, like the what. Now, I will speak a little bit to the how. As Rick was mentioning, a lot of our media spend in the last couple of years has pivoted to digital, right? Simply as the consumer has gotten on to more digital consumption, which is 80% today. But more beautiful than that is, as we have more tactics to measure the efficacy of our media, we are having more and more ROI on every dollar that we put. So we get maximum stretch out of our dollar so that we don't just meet the consumer at that moment of truth, we get better returns on that dollar spent. So broadly, right, I'm gonna speak about the consumer connection in that zero moment of truth, whether the consumer meets us in an out-of-home advertising, on a YouTube video, or an Instagram influencer.

But we add to it the incessant and the hallmark of Church & Dwight, that is beautiful executional excellence. So I'll share with you some examples of how we execute. These are some digital plus out-of-home advertising. What you will note here is each of them you might have seen in your own feeds. Sorry, go back. Each of these you might have seen in your own feeds. What we try to do is we want to make content that is authentic to the platform. So when you see a YouTube advertisement or a Pinterest or a TikTok advertisement, it doesn't feel like an ad creative. It feels like a creative that was meant for that platform, and that's why it generates more thumb-stopping connection with the consumer. Interestingly, I'm sure you know AI is a buzzword all of, all over the place.

One thing that we are noting is there are some use cases of AI, especially in MarTech, where the creative that you see on the left from our brand, Nair, usually we might have storyboarded and created that, you know, creative over five-six days. With the help of technology and with the right human oversight, these kind of creatives can now be created in under five hours or so. And we try to scale those creatives, and what you see on the right, in a very large surround sound mode. So like I was mentioning, we have fit for platform, TV creative, social creative, retail media creative, as a consumer buys online, and search. All of that comes in a surround sound, cohesive manner, so that your MarTech-enabled creative goes farthest right to the point of purchase.

You know, social, social is, you know, what I call, as the consumers engage in doom scroll, the endless scrolling. These are some creatives which are truly, I believe, authentic, thumb-stopping. They are snacky content. We are no longer in the era where we would make a 60-second TV commercial, cut it down to 6 seconds. We want to, and we do make commercials that are fit for platform, six seconds, and, you know, like we say on TikTok, we don't make ads, we make TikToks. So that's the kind of creative we have. All of this creative is amazing, but as we get the consumer from inspiration to purchase, we have to make sure we have one click to cart... because we know every time the consumer has to click more times, we use, we lose 90% of that traffic.

So from inspiration to purchase, it has to be a single click, and that's what drives a lot of our online revenue. Another interesting pivot we have seen, especially in the last two years, usually we would do go-to-market and go brick-and-mortar first and go large. We have slightly changed that model, especially for some launches like ARM & HAMMER Power Sheets and Hardball, where we would launch online first, get initial category and consumer insight, all that rich data, all the ratings and reviews Barry was mentioning, do audience testing on the different social platforms, A/B test the product detail page, the content that you see, and once we are satisfied by making it good online, we make it big in brick-and-mortar. That's exactly what we did with Hardball. That's what we are doing with ARM & HAMMER Sheets.

We noticed that on Sheets, the consumer is looking for not just a sustainability message of good for you and good for the planet, they're looking for the clean that they trust in ARM & HAMMER, and that's what we learned online, and then we take it to brick-and-mortar in a large way. So in summary, in terms of metrics and aspirations, like I said, we are not in the business of getting consumers to shop online, but we are where the consumer is, and online is a lot of growth for us, so we will be very passionate about growing online sales and share growth. To clarify on share, we don't just look at pure play, that is Amazon and Chewy. Online share is measured across Amazon, Chewy, Walmart.com, Target.com, Kroger.com, because that's the universe of where e-commerce happens in the country and globally.

We are also more tech-powered and human-guided, relative to the MarTech and AdTech investments that we are making. The next step, the 2.0 in online for us, is we are gonna be more focused on efficiency and profitability ongoing to make fit-for-channel kind of products that make sense for us in the online world. So I just want to say, you know, in ending, we have come a long way from digital being a capability builder for Church & Dwight to digital now being a true business and growth driver for the company. On the topic of growth driver, I'll give it to Mike Read, because International is also a huge growth driver for us. Thank you.

Michael Read (EVP, International & Specialty Products Division)

Good afternoon. My name is Michael Read. I lead our International and our SPD business. So let me just start with the International story. As Rick mentioned earlier, we have upgraded our Evergreen Model. So what used to be 6% organic growth, we've now moved to 8% organic each year. So exciting step for the division. If I break that down a bit, we're about $1 billion in size. There's kind of two parts to it. We have six subsidiary markets that go direct to retail. It's about 63% of our total business, Canada, U.K., Mexico, Australia, France, and Germany. The remaining 37% is through our Global Markets Group. So we operate in about 100 different countries.

We partner with, you know, 400 valued partner distributor partners around the world. So our global markets business has been our fastest growing over the last few years and will continue to do so. And just to make that kind of point, if you go back to 2009, the International business tripled in size, and during that time, the global markets group has doubled in importance, and we see that trend continuing. While we've had strong growth in our subs, we do expect GMG to continue to outpace that. If I just give a summary of 2023, a very strong year.

We had a breakout quarter in Q1, almost 12% growth, followed by 6.1% in Q2, 7.3% in Q3, and we finished strongly with 9.0% in Q4, so a full year organic of 8.5%. We had strong growth across all our subsidiary markets and double-digit growth across our GMG region as well, so across the board, really strong results. And that just sort of shows the 6%-8% Evergreen Model change. If you look back in over a number of years, other than the sort of setback from last year, we've had pretty consistent growth across a number of years, and we're pitching above 8% in 2023, at 8.5%.

I think the good news is, relative to our peers, we're still very much underdeveloped. So, we have about 17% of our sales as a company comes from International. We are very much in growth mode. Many of our peers are in the 59%-60% range, so a long runway ahead. But what's most encouraging about that runway is we've got a portfolio that travels extremely well, as do our acquisitions. So, we've got a combination of U.S. Power Brands, like ARM & HAMMER, OxiClean, Vitafusion, that travel very well, and that's complemented with a strong, personal care and OTC portfolio headlined by, you know, Batiste, Sterimar, and Femfresh. So, brands that aren't necessarily commercialized in the U.S. that are playing important roles for the International division.

I think most notably, though, is acquisition has been a really big part of the growth story within International. If you go back to a few years back, with the acquisition of Waterpik, that's one of our biggest brands internationally, and we're thrilled with the addition of, TheraBreath and Hero. So, just rolling both those brands out globally, both are on track and actually, making a big splash already with lots to come, so we're really excited about adding those two pieces to the portfolio.

If I just sort of summarize three key things to think about from an international perspective, Rick talked about some of the investments that we're making, particularly in our GMG group, but we are putting a lot of infrastructure, process, IT, to just shore up and be able to support the growth that's coming from our global markets group. We've also added a lot of capabilities around portfolio strategy, revenue growth management, and as Surabhi mentioned, just really upskilling our digital e-commerce capability. And certainly, the acquisition additions and just getting on the front foot on both those acquisitions are the focus areas for International. All right, so over to Specialty Products.

So, the Specialty Products division, we are holding our Evergreen Model at 5% growth. If you just break that into kind of two main parts, we have an animal nutrition business, which is about two-thirds of the business. You see sort of the impact of Megalac there. The rest is Specialty Chemicals, about a $320 million business. If you kind of unpack that a little bit, a tough year in 2023, we're down -8%. Most of that is Megalac driven. So, if you take Megalac out, we're actually in positive growth, and the animal nutrition business was in stronger growth than that.

Most importantly is we're still very focused on building out our portfolio and supporting prebiotics, probiotics, and nutritional supplements across a wide range of species: dairy, cattle, swine, poultry. So nothing really changes. Megalac's coming out, but the rest of the portfolio is strong. We have high growth ambitions for it, and most notably, we're focused on international, similar to the consumer side. So if you go back to kinda 2015, we were less than 6%. We're now at 17%, which is in parallel with our consumer business. Last year, we grew 25%, so really strong growth internationally as well. So with that, I'll pass back to Matt Farrell.

Matthew Farrell (Chairman, President, and CEO)

Okay. All right. Thanks.You know, people who are long-term shareholders have a pretty good handle on this. You understand the brands and the growth rates and the margins and all that kind of good stuff. But the long-term shareholders have, I think, a better understanding of the importance of the culture in the company. And the culture of Church & Dwight is described in our annual report, and it's. You can read it. It says, we're a blue-collar organization. That doesn't mean... That's not a dress code thing. This is we're just gritty people. A lot of high aptitude people. There's a lot of people that join our company that come from big CPG and get kind of tired of the big company thing and want to go small, and we consider ourselves small.

As we say, we're blue collar, we're high aptitude, and we're underdogs. There's a lot of the people we compete with are much bigger than we are. But beyond that, for the last five years, we've been getting into predictive analytics. So, you know, we go, you sit in meetings with Church & Dwight, everybody wants to know, what are the facts? Get the facts. The next thing is Surabhi described is we're becoming digitally savvy. We've embraced that, and it's throughout the company. And one of the things we said in our release and today is that, "Hey, we're gonna be putting more money into this," that we're gonna spend more money in e-commerce, both with people, but also technology. Just to kind of round out, you know, what our culture is like, we do embrace diversity.

That's super important, and teamwork is super important. And finally, we're risk takers. Because as companies get bigger, they often want to pull back, and you make decisions in groups and consensus, and that slows things down, and often you don't make the best decisions. I think that's the element you're never gonna read about in a sell-side analyst report. You might get it privately, but you aren't gonna read it in a note. But that's one of the things that you're investing in, and that's one of the things that makes the company go. And if you think about 2022, you know, we pancaked in 2022, right? Minus EPS. Hadn't happened in 20 years. But the company is just so creative, clever, and resilient that we said, "Hey, that's-- we're gonna turn that around in 2023," and we have.

There are a few more things about how we run the place. First, I'll just-- I won't read them all to you, but I'll kind of bomb through them. Leverage brands, we've talked about the brands already. Now, friend of the environment, that's important to us, as people and just as human beings, but it's also important to the consumers. So if you talk to younger consumers, they're really interested in, brands that wanna be sustainable. So we've embraced that. And if you look at the laundry sheets, that is the most sustainable form of unit dose. Comes in a cardboard box, there's no plastic.

And this is a little bit corny, but if you go back to the nineteenth century, all the way on the left part of this slide, we were putting pictures of birds in baking soda boxes. Not baseball players, but birds, and the card said, "Save the birds, save the planet." So this company was into the environment before anybody could spell sustainability. Then more recently, in 2021, we've made a commitment to science-based targets, and in 2023, we started investing in those. So we're putting our money where our mouth is in capital programs. And those capital programs, they're focused on removing, putting less CO2 into the atmosphere. 'Cause up until recently, what we've been investing in is trees that take the CO2 out of the atmosphere, but now we're gonna reduce the amount that we actually pump out of our plants. And we're getting recognized for that.

There are lots of rating agencies around the league that rate companies, but you can see we've been recognized triple B, and now we're double A for the last couple of years. Number three is the people. So I gave you a little bit thumbnail with respect to the culture of the company, but we're, like, super productive, and I think this is a really underappreciated metric. So we generate over $1 million per employee in the company, and generally, you're gonna see that with startups. But we were very proud of this.

Like I said, if you talk to anybody that's coming up on this stage today, they'll all say we don't have enough people. We do that deliberately, because when you have fewer people, fewer really good people, you prioritize, so you only work on the stuff that matters. And again, that's part of the culture. Got a really simple compensation structure, familiar net revenue, gross margin, EPS, cash flow, but also strategic initiatives. We wanna make sure that on an annual basis, we're also looking to the future. And the types of strategic initiatives we have are with respect to the environment, DE&I, how well we're integrating acquisitions. Also, are we investing in international and also our e-commerce area? So there's five components to the strategic initiatives.

Gross margin expansion, you saw we changed our Evergreen Model. So now we're saying we're gonna expand faster in the future, and that rains money. Excuse me. Then you can spend that money back on marketing and back on SG&A, and again, international and e-commerce. And when that's part of your incentive comp, if you're an employee, you're asking yourself: "Okay, how can I get it? How can I participate?" And here are some of the ways that we run after it. One is Good to Great, which is the name of our continuous improvement program. I always like to joke that that's the book that everybody's heard about, but nobody's read. The next one is supply chain optimization, and this is just investing in our plants, automation, et cetera.

New products, you wanna launch new products that have a higher gross margin than the gross margin of the products that they're replacing. And then finally, acquisition synergies. When we buy businesses, that's one of the levers we have to improve the businesses that we buy, so our procurement, supply chain, et cetera. But also, it's helping our Gross Margin going forward because of the mix. All right, number four is leverage assets. This is something else we pay a lot of very close attention to.

So this is kind of a pretty slide, and we say 2% of our sales is generally what we think is our sweet spot for investing in CapEx, but we pay close attention to the relationship of our cash earnings to our property plant equipment and working capital, 'cause we believe that every company is a machine. In a machine, you need to invest in assets, both property, plant, equipment, net working capital, and a relationship with the cash earnings, so that matters. Okay, and finally, if you do those first four really well, you're gonna have a good company. You're gonna have good returns. But if you put on top of that, a good acquisitions, and that is the skill of this company.

If you look at all these acquisitions we've done over so many years, almost one per year. We whiffed in 2023. We did look at four deals this past year, but we're very fussy about what we're gonna buy. So we've gone from $1.5 million-$5.9 million, and a lot of that was through acquisitions. And I went through these before. We're very fussy. We stick to these, and you know, we have seven big ones today, with the opportunity to be even bigger, but more to come in the future. And just to kind of wrap up here, strong organic growth in 2023. Strong organic growth in 2024, we're seeing 4%-5%. Gross margin expansion again, back to back.

This new product pipeline is the best in my 17 years with the company, and then International is the future for us. You saw we're only 17% of our sales, and most of our competitors are 4%-40% or higher. That's the future. And then e-commerce, if 20% of our sales are ordered online today, we believe by the end of the decade, it'll be 30%, so we gotta get ready for that. And then finally, we generate lots and lots of cash, so we're always on the hunt for new brands. And we're gonna bring the whole crowd up here now, so we can play stump the band. All right. Steve Powers, you're up.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Front and center. He's behind you. He's hiding in the center.

Steve Powers (Managing Director and Lead U.S. Consumer Packaged Goods Analyst)

Yeah, Steve Powers from Deutsche Bank. Thank you. Two questions on laundry. The first one is just when we look at track data, market shares have been under some pressure across all formats for Church & Dwight of late. Looks like both sort of at the high end, P&G, and as well as the private label, just some perspective on what you see going on there, if that's emblematic of all channels or it's just sort of what we see in the track data. And then, looking into 2024, specifically with Deep Clean, a little bit more details on the rollout there. Do you expect it to be incremental in terms of facings for the ARM & HAMMER brand, you know, on the shelf, et cetera? Thank you.

Matthew Farrell (Chairman, President, and CEO)

Okay. Your first question is probably with respect to the weakness in the fourth quarter, with respect to ARM & HAMMER laundry. If you recall back on when we did our Q3 call. By the way, this sounds a little weird right now. Does this sound okay? If you think back to our Q3 call, we said, "Hey, we had, because of revenue growth management, we identified a lot of promotions that we had in Q4 of 2022, that we're not gonna repeat in Q4 of 2023." So that cost us, so we lost some share, but it was the right thing to do. And if you look at the most recent four weeks, ended, say, mid-January, the same is true.

So we cut back as well, so we had very low sold on deal the first couple of weeks of January. So it's not unexpected from inside out. Your second question is with respect to Deep Clean. So Deep Clean is, we're entering into the, into the high tier. There's something going on with this thing. We're entering into mid-tier, where historically, we've played in value. And yeah, we are gonna be getting incremental shelving there, and we do think it's gonna contribute to our share growth in 2024. But, Barry, if you'd like to add anything?

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Yeah, sure. No, Matt, I think you, you covered it largely, right? So we're, we're gonna support the launch of Deep Clean, as you'd expect, as well as fabric sheets. Part of that's gonna be part of the share growth story that you're gonna see in the months and weeks ahead. And if you look at the last week of track data, share's up in just the last week if you're bored.

Matthew Farrell (Chairman, President, and CEO)

Carlen, you want to pile on at all?

Carlen Hooker (EVP of Sales and Chief Commercial Officer)

Yeah, I can just say a little more too, Steve. I mean, in terms of reception from the retailers has been incredibly positive, and you asked about incremental facings and incremental space, and that is... We're very encouraged by the response from the retailers on that.

Matthew Farrell (Chairman, President, and CEO)

We probably need a mic up here, too, for person in the crowd. Okay, Dara?

Dara Mohsenian (Managing Director and Senior Equity Analyst)

Dara Mohsenian from Morgan Stanley. So Matt, if you go back over time, there's a number of examples in the CPG industry of companies raising long-term top-line guidance and then sort of disappointing, kind of analogous to the SI cover jinx. You get confident, unexpected things happen. So maybe in that vein, just obviously numerically, you've answered the divisions, International higher growth, Domestic a bit higher growth numerically. But what gives you the confidence behind raising the evergreen long-term top-line growth target at this point? Maybe give us a little bit of detail within those divisions, what's giving you the confidence? And then also, Rick, margins didn't change in the evergreen target. Top line went up; earnings didn't go up. Is that just rounding? Do you have sort of more confidence in the earnings growth in evergreen? But just that specific question would be helpful.

Matthew Farrell (Chairman, President, and CEO)

Well, we're all familiar with the phrase, "Past is prologue." So, we had a slide up here that showed if you looked over the last 10 years, so what's been our organic growth rate average? It's been 4%, and almost every year it's above 4%. And it-- and often at these meetings, we get the question: How come it's 3%? So, we finally fessed up and said, "Yeah, you know what? Going forward, it's gonna be 4%." I mean, it's as simple as that. Now, why would we have confidence there? Because we did, we did change how we're gonna get to 4%, right? So, we said 3% U.S., 8% International, 5% Specialty Products. Like, International is gonna be a juggernaut for us. You know, it's 8% growth.

And one big component of that is Global Markets Group, and that's been doubling every five years. So we have such great brands, and what we're doing is what our competitors did, you know, 30, 40 years ago, is take your products on the road. So I think we've got a lot of faith in the International, and we're and just International and U.S. are gonna benefit from our two most recent acquisitions, which is TheraBreath and Hero, and we're gonna be launching Hero in 40 countries in 2024. And so we just got so much runway there. So I have total confidence in our ability to grow the top line 4%.

Yeah, I guess, you know, you can't rest on your laurels since you did 4% for the last 10 years, but given where I stand today and the kind of innovation that we have, I think it's in the bag. Yeah, and then in terms of gross margin, well, really, you're talking about operating margin, right? 50 basis points didn't change from the prior Evergreen Model to the current Evergreen Model. Gross margin, we're raising a lot of confidence.

Well, you know, we talked about productivity is offsetting moderate inflation, best productivity program that we've ever had. When Rick came in, our sights were too low on productivity, and so we've made a turn, and the ship has turned, and so that's a great place to be in. Inflation is moderating, so good confidence there. But we're gonna go spend some of that money back on SG&A for those growth investments to cement this higher Evergreen Model into the future. So that's why operating margin doesn't change, but it helps give us more degrees of flexibility, which is great.

Dara Mohsenian (Managing Director and Senior Equity Analyst)

Can I just,

Matthew Farrell (Chairman, President, and CEO)

Sure. We're good, Dara.

Dara Mohsenian (Managing Director and Senior Equity Analyst)

Give one follow-up there? Sorry. So Hero and TheraBreath, obviously, huge growth. Last year, you mentioned in your answer the acquisition contribution. Can you just give us a sense of your thought process, in terms of growth for those two brands in 2024, maybe the distribution opportunity in the U.S. and how big International is as you think about the growth opportunity for those two brands?

Matthew Farrell (Chairman, President, and CEO)

Okay, well, I'm gonna throw it to Mike to talk about International and let Carlen have a crack at how we're thinking about it in the U.S.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah, why don't we give some good details on what the growth drivers are, but we don't get into what percentage growth that we're expecting.

Michael Read (EVP, International & Specialty Products Division)

Yeah, I can take that first from an International perspective. The-

Matthew Farrell (Chairman, President, and CEO)

Hang on, boys.

Michael Read (EVP, International & Specialty Products Division)

I've got, I've got a mic. Double up.

Matthew Farrell (Chairman, President, and CEO)

Double mic.

Michael Read (EVP, International & Specialty Products Division)

Double up.

Matthew Farrell (Chairman, President, and CEO)

It's even louder. I hear you now.

Michael Read (EVP, International & Specialty Products Division)

Yeah. No, from a TheraBreath first perspective, I think anytime you've got a great success story and a category grower, that you can take that story internationally, that holds well, and I think we've got a lot of proof points to that within our portfolio. I think what's also encouraging on TheraBreath specifically is we have a very similar type of penetration success in South Korea, where the brand is equally developed. And so being able to take not only a great U.S. story, but be able to take another market internationally and be able to take that story to the trade has been really positive. And Hero are the same thing. It's been such a clear winner for the business. It's a very simple thing to get.

Retailers around the world are really excited about it. So both those brands provide scale and fairly easy entry points into global markets. There's a real demand for it, so we're pretty excited about it.

Carlen Hooker (EVP of Sales and Chief Commercial Officer)

And then I'll, I'll talk to the U.S. You know, I would say similar story. I mean, retailers are incredibly excited about both Hero and TheraBreath. We've seen tremendous growth and distribution gains this past year. Obviously, based on the results, you saw that there's a lot of runway to go on both of those brands in terms of... I mean, it's nice to have a brand where retailers are actually calling you, asking. So, we really see a tremendous potential for both Hero and TheraBreath across all channels, I would say, agnostic of channels.

Matthew Farrell (Chairman, President, and CEO)

Yeah, and, and, obviously, we know the resets and what the planograms are gonna look like.

Carlen Hooker (EVP of Sales and Chief Commercial Officer)

Yeah, we do have, you know-

Rick Dierker (EVP, CFO, and Head of Business Operations)

Plus new products.

Carlen Hooker (EVP of Sales and Chief Commercial Officer)

-information on what we're seeing in terms of the resets, and, you know, what you'll see are substantial improvements in placement as well as additional facings. So a lot of space coming from, from both those brands.

Matthew Farrell (Chairman, President, and CEO)

Yeah. Okay, Rupesh, you're up, and then Chris.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Bring your own microphone.

Rupesh Parikh (Managing Director and Senior Analyst)

Rupesh Parikh, Oppenheimer. So just, Rick, a question on guidance: Does your guidance incorporate any benefits, benefits from share buybacks or debt paydown? And then I have a follow-up question.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah, no, good question, Rupesh. You know, we got ahead of our 2024 expectations for buyback. We did $300 million in Q4 of this year, and if cash continues to build on the balance sheet for an extended period of time, we would do a larger buyback at some point. In terms of debt paydown, I think at year-end, we had maybe $200 million on the revolver. We've already paid down another $100 million, so that's kind of embedded in our outlook.

Rupesh Parikh (Managing Director and Senior Analyst)

Okay. And then maybe two questions just on innovation. So Matt, you said it's the best lineup, I think, in your 17 years. How do we think about the contribution? Because I think previously you said it's typically a 1-1.5-point contribution from new products. And then the Power Sheets, any sense whether you're bringing new customers into the franchise or whether you're sourcing from existing ARM & HAMMER users?

Matthew Farrell (Chairman, President, and CEO)

Yeah, we'll take that one first. So I'm going to toss that one to Barry and Surabhi as far as what we're seeing for Amazon online.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Yeah, sure. Power Sheets still in early days, you know, we're three or four months into launch, but absolutely new users coming in and incremental usage going on. You might use it when you're traveling, you might use it at a vacation home, et cetera. So still three or four months in, we don't have the full analysis of exactly where, but yeah, absolutely new. Would you add anything to that?

Surabhi Pokhriyal (EVP and Chief Digital Growth Officer)

Yeah. Yep, it's four months in the market, Rupesh. Got, got around 6,000 reviews and 4.5-star rating. The reviews are super positive. It's a mix of people who want sustainability and care for the planet and do want to do good, but people who truly like the clean are coming out of it because efficacy was really, really important for us, and we didn't want to do just greenwashing. But I think more to come on the analysis of how many are shifting versus new. A lot of them seem to be incremental.

Matthew Farrell (Chairman, President, and CEO)

Yeah, and Rupesh, you are accurate that historically we've said that, if you look at our organic growth at 1%-1.5% is going to come from a new product. So our expectation is we're going to exceed 1.5% in 2024.

Rupesh Parikh (Managing Director and Senior Analyst)

Thank you.

Matthew Farrell (Chairman, President, and CEO)

Get ready, Andrea. You're next after Chris.

Chris Carey (Head of Consumer Staples Research and Senior Equity Analyst)

Hey, Chris Carey, Wells Fargo. Just on the, the guidance and the phasing, so, more of a back half-weighted guide, totally makes sense with the front half investment. How much of that back half-weighted guidance, or if any, depends on success of the innovation? Basically, what's your visibility on the ability to accelerate? And, and are, are you anchoring to anything that you're rolling out this year in order to hit that back half number? And then, you know, just connected to this, can you maybe give us a sense of what your expectations are for, VMS this year? Obviously, you know, some interesting, packaging and, you know, advertising behind, you know, the product going into 2024. Do you expect that business to flatten out? And maybe you could also comment on your expectations for Waterpik as well.

Matthew Farrell (Chairman, President, and CEO)

Yeah, I'll take a swing at the VMS, and you guys can prepare for the other-

Chris Carey (Head of Consumer Staples Research and Senior Equity Analyst)

Sure

Matthew Farrell (Chairman, President, and CEO)

-pieces. So, if you look at the category, the category's really struggled this past year. If you look at the first three quarters, it was down in first quarter, up like a point in the second quarter, down in Q3, and down 4% in Q4. So the category is still recovering from the COVID success, where the category just rocketed. We were down even more in 2023. So we've as you heard today, we're making a lot of changes there. We'd be happy with a flat year in for our vitamin business in 2024. So that's not... We're not banking on a big recovery in the VMS business in order to hit our numbers for 2024. And... Okay.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah, in terms of, I guess, cadence and reliance on new products to kind of hit our outlook on revenue, I would say we give revenue ranges for a reason, and there's lots of things in play there, you know, whether it's how fast our recent acquisitions grow, how fast our categories grow, you know, competition. We've mixed all that together, and we're very confident in hitting the 4%-5%.

Chris Carey (Head of Consumer Staples Research and Senior Equity Analyst)

Just one quick one as well. Just with the balance sheet going to where it is, your capacity to do deals has accelerated. 2023 is the first time in 20 years you haven't done a deal. Can you just talk about the tension of not doing a deal, cash burning a hole in your pocket? What do you do about it? Would you just rest on that cash and make money because it's a, well, it's a high interest rate environment, it's low. I don't know where, you know, but in 6 months from now, we don't have a deal. Are you starting to get anxious about that? Or just how are you thinking about that in the context of, you know, shareholder returns are number 5 on your TSR accretive M&A, you know, priorities?

Any context there would be helpful.

Matthew Farrell (Chairman, President, and CEO)

Yeah. It's only been 12 months, though, you know? You know, we did have, early on, we had a bit of a drought. I think in 2008, we acquired Orajel, and in 2011, we acquired, Batiste. So, and then we had some small deals in there, but businesses we don't talk about. They're very small brands. So as far as, you know, decent-sized transactions, we've had seen a drought, in the past. And, yeah, I, I get the whole, "It's a burn, a hole in your pocket," and it's, it's, "What do you do with the cash?" We, we did a large buyback. I can't remember what year it was. It was, it's quite a while ago, pre-COVID, where we had a lot of cash building up the balance sheet.

We hadn't done a sizable deal in a while, and we wound up, increasing our authorization to buy back, and we bought back, more shares. So that's always available, to us. But like I said, we, you know, we looked at four deals this past year, and, you know, they, some of them had pretty good economics, but we just didn't think long term that they were going to be able to be sustainable. So no, we, we don't ever get deal momentum, in the company. So we're, like I said, we're, we're really fussy, but we do recognize the fact that we have a, an unlevered balance sheet, and it's pristine, and we, we could be building up a lot of cash if we don't do that. So if this time next year we haven't done a deal, obviously, we'd be looking a lot harder at buybacks.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah, the only thing I would add is, you know, we're in a great position. Like, we are never chasing after a deal just to do a deal, and we say no a lot. We have a lot of rigor around that. This team on the stage spends a lot of their time doing due diligence, and Brian leads that in a big way. So when you have a great performing business, you're never forced to reach for a deal, and so we, again, just the rigor around that. So we'll let the cash build, as he said, if it builds for a period of time, then we'll look at doing buybacks. But meanwhile, at 5% or 6% interest, it's fine to be on the balance sheet.

Matthew Farrell (Chairman, President, and CEO)

You know, you might be encouraged by the fact that we've doubled the size of our M&A team. So I joined in 2006, and Brian joined in 2006, and in 2023, we added another person, so-

Rick Dierker (EVP, CFO, and Head of Business Operations)

We're very lean.

Matthew Farrell (Chairman, President, and CEO)

Now, yeah.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah. Hey, Matt, Matt, you might want to one-up that. We're tripling it in 2024 with our European,

Matthew Farrell (Chairman, President, and CEO)

Yeah

Rick Dierker (EVP, CFO, and Head of Business Operations)

Footprint.

Matthew Farrell (Chairman, President, and CEO)

No, that's true. We're in the hunt to hire somebody in Europe and also in Singapore or in Asia Pacific, so we get a deal flow outside the U.S., because historically, it's more U.S. centric, our focus, but it is true. And this is, by the way, the team that goes to the diligence meetings. All the gray beards, you know, all the people with the veteran experience, and so Brian's very grateful. Okay, I think I said Andrew was going to be next, then Peter.

Andrea Teixeira (Managing Director and Senior Equity Research Analyst)

Thank you, Andrea Teixeira from JP Morgan. So my question, Mike, I have a question on the organic growth into 2024, and then one on a follow-up on M&A. First, on the organic growth for 2024, I understood you mentioned, Rick, two-thirds coming for volume, so if my math is correct, it's about 3% volume growth for 2024. And so kind of like with your cadence of EPS being zero the first half, and the first half is the easiest comp for volume, can you walk us through number one, point A of that question, getting Hero and TheraBreath and all of those with more ACV, and then having the easy comps for VMS, and then the launches of Laundry, how we should be thinking of that cadence for organic volume?

And then the follow-up on M&A is that, like, what are the categories that you believe you should better buy growth over greenfield? Thank you.

Matthew Farrell (Chairman, President, and CEO)

I'll do the M&A one. So is your question about what categories we'd be focused on?

Andrea Teixeira (Managing Director and Senior Equity Research Analyst)

Yeah.

Matthew Farrell (Chairman, President, and CEO)

Yeah, well, I mean, look. You can only buy what's for sale. And, you know, we, we venture into lots of different categories. We will not venture into devices, but we look at household or personal care. Again, it has to be how good is the brand? How good is the brand equity? Economics obviously matter, but what do we bring to the table? Are we a good owner? So we have a pretty wide lens of the types of brands and products that we'll look at, but again, it's got to be a fast-moving consumable. But we don't target. It's one thing we don't do.

So Brian doesn't spend all day long looking at categories and say: "Wouldn't it be wonderful to own that brand?" Yeah, but they're not for sale. So we don't spend any time on those PowerPoints, but we want to make sure is that we're in the deal flow, that anything that's for sale, we know about, so we can look at it. That's, that's most important. Who's-

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah, in terms of, of cadence for organic, it's pretty, our expectation is pretty consistent throughout the year, right? Our outlook is four to five percent, our Q1 number is four, but in general, it's pretty consistent throughout the year. There's lots of things underneath that, whether it's comping round two of concentration in laundry and when that happened, whether it's vitamin category and assumptions, and, so there's a lot of puts and takes, but I'd say in general, it's a pretty consistent growth throughout the year.

Matthew Farrell (Chairman, President, and CEO)

Okay, Peter, you're next.

Peter Grom (Executive Director and Senior Equity Research Analyst)

Rick, I got-

Matthew Farrell (Chairman, President, and CEO)

Let's keep it at that table, so we'll have to-

Peter Grom (Executive Director and Senior Equity Research Analyst)

Sorry.

Maybe just following up on the phasing, but more on the gross margin side. So 50-75, you know, still above your new evergreen target, but just in the context of, you know, exiting the year with 200 basis points plus, can you maybe just give us a sense for how we should be thinking about gross margin expansion kind of through the year? Is it more front-half weighted versus back half? Just, you know, any color there. And then, you know, last year, you know, you delivered, you know, upside, like sales came in better, gross margin came in better, but you chose to reinvest some of that back into marketing. You know, if that were to play out again this year, how should we think about the balance of reinvestment versus dropping more of that to the bottom line?

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah. Okay, so the first one's on gross margin cadence, 50-75 for the year. We do expect gross margin in the first half to be a little bit better. Why? Because we have pricing carryover that's happening a bit still in the first half of the year that wasn't there. So gross margin a little bit better in the front half than the back half. And then your second question was on-

Peter Grom (Executive Director and Senior Equity Research Analyst)

Just like the balance, like, yeah.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Oh, yeah, on marketing investment and stuff like that. Okay. Well, look, the scorecard. Last year was kind of a unique, right? We wanted to build back the war chest on marketing because it got too low during the COVID because we were outside of, you know, we were out of stock, we didn't have the supply, all those reasons. And so we did that a year ahead of time. We really initially said: "We're going to go to 10.5, and then 11 this year." And we fast-forwarded it, put it back to 11. We think 11% is the right number. But with that said, share matters. Share is the scorecard to tell you if you're the right number. Right now, we're getting share in about 60% of our sales.

That is a good metric and good scorecard. Right now, we believe that number is the right number.

Matthew Farrell (Chairman, President, and CEO)

Yeah, and the other thing, Peter, I'm sure Barry Bruno put his hand up for spending more marketing money to the extent that we're...

Rick Dierker (EVP, CFO, and Head of Business Operations)

I've got a lot of new products to support here.

Matthew Farrell (Chairman, President, and CEO)

Right there.

Rick Dierker (EVP, CFO, and Head of Business Operations)

So, yes.

Matthew Farrell (Chairman, President, and CEO)

But look, when you got all these new products launching, you know, it's a target-rich environment. There's lots of places we could spend money. Look, we've got the sheets thing we just came out with, you know, that there is an awareness about that. You've got to spend some dough in order to blow that out. But, yeah, there's lots of opportunity. Here you go.

Anna Lizzul (VP of Equity Research)

Hi. Thank you. Anna Lizzul from Bank of America. I was wondering, in your Evergreen Model with the recent revision today, how much is that driven by the success of your more recent acquisitions, like Hero and TheraBreath, versus the growth of the remainder of the portfolio?

Matthew Farrell (Chairman, President, and CEO)

Look, everybody's aware of the fact that we've got two fast-growing brands, but this is not just a one-year look. It's because we've grown 4% for 10 years in a row, and, you know, the stable of your portfolio can change over time, and obviously, we got two fast-moving ones. We'll have other ones in the future. So we used to see it, it's sustainable and clearly sustainable for the next couple of years because of those two.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah, the-

Matthew Farrell (Chairman, President, and CEO)

It's not a cause-effect thing.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah. I would also add that in 2023, the rest of the portfolio, you know, ex-TheraBreath, ex-Hero, did hit or exceed our Evergreen Model, so we feel great about-

Matthew Farrell (Chairman, President, and CEO)

Yeah

Rick Dierker (EVP, CFO, and Head of Business Operations)

-the strength of the portfolio.

Matthew Farrell (Chairman, President, and CEO)

Yeah, that's a good point. So if you think back to 5% growth and 5.3% growth in 2023, yeah, more than half of that came from the business ex-TheraBreath and Hero. That tells you that the base business is strong. Okay, let's move over to the far table now.

Kaumil Gajrawala (Managing Director and Senior Equity Research Analyst)

Hey, Kaumil Gajrawala, Jefferies. It makes a lot of logical sense why you've narrowed it down to seven focus brands with the most growth. Does that open up the door for divestitures in some of your other categories?

Matthew Farrell (Chairman, President, and CEO)

I had that question in the past, and we evaluate all of our brands regularly, because everything's got to pull their weight. But I wouldn't say that that signals anything. You see that Megalac is one that we've looked at that for a while. You know, it had good years and bad years, but considering that's become commoditized, we think we should move it out. But yeah, it's a regular analysis that we do as a company.

Kaumil Gajrawala (Managing Director and Senior Equity Research Analyst)

Got it. And the second question on Hero, I think 40 countries, that sounds like a lot. Can you maybe just walk through the process why you feel comfortable there's that much demand in that many different places? Do you have the supply? How will you balance the marketing? Maybe just going over that a little more.

Matthew Farrell (Chairman, President, and CEO)

Okay, let's start with supply. So Rick it's time, take a swing. Do you think you can supply 40 countries?

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah, sure. So we have a third-party manufacturer-

Matthew Farrell (Chairman, President, and CEO)

Hang on, Rick.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Hold on.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yep, okay.

Matthew Farrell (Chairman, President, and CEO)

It's such a good story I want.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Make sure everybody can hear it.

Rick Dierker (EVP, CFO, and Head of Business Operations)

We have a third-party manufacturer in South Korea who has a lot of room to grow right now, and they have a lot of property, and they have committed to us that they will put up more buildings and put more lines in place and keep up with our demand. So we have no issues on supply at all. And in fact, you know, if you look at the growth that we've supported last year, we didn't see all of that coming, and they were able to respond and meet that very high demand that we had.

Maybe, maybe, Mike, you want to comment on the 40 countries, maybe even tell the U.K. story a little bit.

Matthew Farrell (Chairman, President, and CEO)

Yeah. Can we spring for another one of these up here?

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

He's got a mic. He's got a mic.

Matthew Farrell (Chairman, President, and CEO)

Okay. I'm gonna have him... Oh, you're mic'd. Okay.

Michael Read (EVP, International & Specialty Products Division)

Yeah, what I'd say is just generally across the portfolio, we've had really balanced growth across our five GMG regions, and our subs are really healthy. And with doing that, we're able to add more brands to our business with strong appetite from our distributor partners and then on to retail. So Hero's not the only one. We actually have other opportunities to expand multiple brands across multiple countries. But I think just the success story of Hero, not only in the U.S., but now as we've gone into commercializing into most of our subs already, they're already taking number one positions. They have really strong consumption really early. So we've only been in for two months-three months, and we're already well established as a brand.

So the playbook that clearly played out in the U.S. is playing out beautifully already in the markets that we're in, and that just becomes the story that we take to those 40 countries. But we are well poised with our distributor partners around the globe to make it a big success globally.

Matthew Farrell (Chairman, President, and CEO)

Then you can tick off, like four or five countries we've already launched with success.

Michael Read (EVP, International & Specialty Products Division)

Yeah. So, just in terms of our registration getting into market, so we've, we've launched in Canada, we've launched in the U.K., we've launched in Germany, France, Australia, all with really strong positions, great retail partnerships, doing well online. So everything that we were hoping for, it's then that and a little bit more. So it's the success is there, and every time we have that repeatable success in the playbook, it just adds more momentum for those, for those new partners that we're trying to bring on.

Matthew Farrell (Chairman, President, and CEO)

Okay.

Filippo Falorni (Director of Equity Research)

Thank you. Filippo Falorni, Citi. I wanted to ask you about the promotional environment in your categories. You talked about, Matt, the stepping back on boundary a bit. What about the other categories? Like, do you see any need to step up more promotional activity and what you're seeing from your competitors? Thank you.

Matthew Farrell (Chairman, President, and CEO)

Yeah. Well, look, when you're talking about the promotional environment, you're generally talking about household. So household is where you have by far the most promotions, couponing, et cetera, et cetera. So if you look at, say, liquid laundry detergent, unit dose, scent boosters sequentially, Q3-Q4, actually, the sold on deal was declined. Now, went the other way with cat litter. So cat litter was up 70 basis points sequentially from Q3-Q4. But if you look at the numbers historically, the litter is around 15% sold on deal today. If you went back, it was 2019 or 2018, it was 20%. So it's nowhere near where you have historical levels. The same is true for, say, liquid laundry detergent. It's 33% in Q4....

But you'd have to go back again, quite a few years, and I think the high watermark was 40% quite a while ago. But then you ask, this is quite a while ago, so you have to say to yourself, "Hey, all the suppliers have absorbed these huge cost increases, had to raise price. Is it sensible to think that this is gonna be dealt back?" So I think if you look at the trend, you'd say probably not. Just looking at the trend line. Yep. Okay. Get mic over, microphone over here.

Javier Escalante (Research Analyst)

Javier Escalante, Evercore. If we can talk again a little bit, the opposite to M&A, the two acquisitions that you made seems to have more extendability into adjacencies. Waterpik doesn't come across that way, but Hero, TheraBreath, there seem to be adjacencies. Have you— Can you talk about that, whether that inform also the 4%, that probably is 5%, if you then you target internally, if you can talk about that?

Matthew Farrell (Chairman, President, and CEO)

Yeah, when it— What, what was the last part of that? The four is actually-

Javier Escalante (Research Analyst)

You mentioned that you first thought that you thought it was four, and you were promising three. Perhaps now you think that it's five, and you're promising four.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Give an inch.

Rick Dierker (EVP, CFO, and Head of Business Operations)

That's one way to think about it, but we wouldn't really comment on what our internal expectations are.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Yeah.

Rick Dierker (EVP, CFO, and Head of Business Operations)

But why, why don't we answer how extendable is Hero and TheraBreath and other-

Matthew Farrell (Chairman, President, and CEO)

Yeah. I'll start off, and then, Barry, you pile on.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Sure.

Matthew Farrell (Chairman, President, and CEO)

So, we bought a business that disrupted a category. So, the category was a $500 million category in the U.S., say, four or five years ago, and then this new form comes along. Now it's a $1 billion category and still growing. So, we said: Hey, what you really wanna do is you don't wanna get distracted. You wanna really do a great job with household penetration of patches in the United States and also taking it globally. So that's where our focus is, but there are opportunities to go elsewhere.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Yeah, for sure. Both of them are extendable, there's no question about it, right? Oral care and skin care are two giant categories, depending on how you define them. Both brands are so strong that they're absolutely expandable. It's a balancing act of doing the right job at the right time and not getting over your skis too fast. So, I would say it's not a question of if, it's when, and we've got an absolute plan about adjacencies to move into for each brand. They're super strong brands. Consumers are asking for more and more from us. It's tempting to go faster. We just want to support them in the right way, especially their foundation products.

Matthew Farrell (Chairman, President, and CEO)

I'll be getting emails from people in marketing and new products tomorrow because you're on their team. We should be going into adjacent categories more quickly, but I think the slow roll is gonna pay off long term.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Great.

Matthew Farrell (Chairman, President, and CEO)

Okay, I think that might be it.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Olivia, no.

Matthew Farrell (Chairman, President, and CEO)

Anybody else? Did I miss-

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Olivia's been waiting.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah, Olivia's been-

Matthew Farrell (Chairman, President, and CEO)

Oh! Olivia, so sorry. Dead center.

Olivia Tong (Senior Equity Research Analyst)

Thank you. I just wanted to ask you, Rick, about the SG&A target, coming in a little bit, and if you could give a little bit more color behind that. Does it reflect incremental investment in certain areas in terms of operations, or is it more a function of, lower leverage, even though the organic sales target is going up? And then just on the sort of narrowing and consolidation of Power Brands, what does that... Does that suggest anything in terms of the ones that aren't part of the seven? I imagine that they are, there's no change in terms of resourcing. It's just a function of how you're calling it but just wanted to make sure that I clarify that. Thank you.

Rick Dierker (EVP, CFO, and Head of Business Operations)

Yeah. So the second one first, we've been managing the business with classifying our brands in a certain way for a very long time, and we resource those brands in a certain way depending on that classification, and that is not changing. Right? That's our internal... This is to help simplify when we talk outside what those brands represent and narrow the conversation, 'cause those are what are driving kind of whether the top line moves or margin expands or earnings. So that's kind of the purpose. Your first question on SG&A, I think you're talking about the outlook, really, the Evergreen Model. Yeah. Yeah, dollars are higher in general. We're getting leverage for two reasons, really, primarily because of we're growing faster on the top line, is what we're doing.

We're also spending money, as we've been talking about for a long time, on investments in analytics, automation. You know, we're trying to take hundreds of thousands of hours out over the next three to five years, and we're not gonna reduce people. We're gonna not add people when we scale, right? We're making these system investments in ERP systems, not so that we can, you know, have a workforce that's reduced. It's because as we grow from $6 billion-$7 billion-$8 billion, the ERP system can handle that type of growth. So that's a short answer.

Matthew Farrell (Chairman, President, and CEO)

Okay. I think we're good. Hey, thanks, everybody, for joining us.

Barry Bruno (EVP, CMO, and President of Consumer Domestic)

Thank you.