Church & Dwight Co., Inc. (CHD) Earnings Call Transcript & Summary

All right. Good evening, and good afternoon, everybody. I'm Steve Powers. I'm the Head of Deutsche Bank's U.S. Consumer Goods Research, and I'm thrilled today to welcome back Church & Dwight to the conference. Joining us today from Church & Dwight are Matt Farrell, Chairman and Chief Executive Officer; Rick Dierker, Chief Financial Officer; and Barry Bruno, Executive Vice President of International. Matt, Rick, Barry, thanks to each of you for joining us. Before we begin, just a logistical point for those listening in. If you are joining via the conference portal, you should see the ability to submit some questions in the window in front of you. Please feel free to make use of that at any time, and I'll do my best to integrate your questions into the conversation as we go.

So with that, thank you all for joining us. And Matt, maybe we'll just -- we'll open the meeting just to get us going and just have you reflect a bit on the last 12 to 18 months. Maybe summarize with some hindsight for those meaningful ways in which the pandemic has impacted your business. And I say that with acknowledging -- acknowledgment that we're still not through it. But I'm curious just to see how you think your business will progress from here, contrasting some of the businesses and brands that saw demand tailwinds over the past year, things like Gummy Vitamins and baking soda versus those that have been facing more headwinds like power flossing and condoms and dry shampoo.

Yes. Okay. All right. That's a big question. If you look back over the past 1.5 years, almost, many operational changes were made. So we pulled back on promotions, focused on the online class of trade. We did things like we narrowed the VMS assortment, so we didn't make the shorter-run SKUs in order to increase our capacity last year. That's behind us now. We did prioritize ARM & HAMMER liquid laundry over XTRA because we really couldn't meet the demand for both, particularly in the second and third quarters. The -- with respect to new products, we pulled back on new product support because consumers were less inclined to really try new products last year. It's different this year. We had to qualify a lot of new co-packers and suppliers because we had to slow down production in some of our plants in the need for social distancing. We still have some of those co-packers, and we've increased the inventory levels so that we'd be able to react to surges in demand. As far as going back to the office, it's another good question. We're not back yet. We have about 600 people in our corporate office. But one thing we did was we reviewed all the positions, concluded that about 20% could be permanently remote. So that's the way it looks right now. As far as our categories go, there were 3 or 4 categories we thought we'd stay at an elevated level in '21. And they were Gummy Vitamins because of the wellness trend. And if you look at the first quarter, it was up. The category's up about 19%, and it's up again, not as much, but so far, mid-quarter. Gummies are still up versus a year ago. Additives is another one. So that's OXICLEAN. So we expected that also to stay at an elevated level, which it has. Cat litter, we also mentioned this on our most recent call that 6% of households -- there's a 6% increase, I should say, of households that have cats. So a lot of people were going to the adoption centers last year. So that's helping keep the litter category elevated. And finally, depilatories, which is NAIR. A lot of people were focused on at-home solutions last year, and NAIR's still doing well in '21. The things we thought would decline like baking soda are declining. The first quarter was down -- CAGR was down at 7%. It's down double digit in the second quarter. So that's happening. Cold shortening, which is the ZICAM business that we bought. So if you're following cough and cold, you know cough and cold is down significantly. So is ZICAM. We've lowered our expectations for ZICAM for '21. Pregnancy kits, we also expect it to fall back, but that hasn't happened just yet. Normally, pregnancy kits fall back when you're in an uncertain economic environment. And I think with the strength of the economy and the strength of the consumer balance sheet, et cetera, that, that has affected the consumer interest in expanding the families. The ones we thought would recover are recovering. So dry shampoo, condoms. These are things that are directly tied to consumer mobility, and so dry shampoo, condoms, water flossers. In, yes, in the first quarter, women's grooming was up 2.5%. And the ones we thought were going to be steady state year-over-year category-wise were kind of laundry, toothpaste, toothbrush, and that's sort of playing out so far. So like that's the way it looked in -- through the end of April when we had our last earnings call for Q1.

Yes. We were talking earlier. You've got -- I think you said July 19 is when you've earmarked staff to start coming back to the offices -- headquarters, which symbolic -- symbolizes the resumption of social mobility and resumption of relative normalcy. How does that -- I mean, first of all, how does that compare to where we are now to where your expectations were coming a couple of months ago? And how does that likely impact some of the dynamics you just described over the balance of the year?

Are you asking is the return to the office a surrogate for what's happening in larger society?

Well, a little bit. But yes, just -- I'm more interested in the larger society, but however you want to answer the question is fine with me.

Well, it's -- society is opening up differently, state by state. I think the biggest issue that employers are dealing with right now is how to deal with using -- wearing masks. So -- and that's something that's an internal issue for a lot of companies. Some people have a personal -- make a personal decision that they don't want to wear a mask. And that OSHA is saying you don't have to wear a mask in a plant if you're vaccinated, but -- and that's our -- we're following OSHA as well. But as far as society opening up, I think it's going to continue. I don't -- I'm not expecting -- this is a personal opinion. I'm not expecting a resurgence and -- at the end of the year because the number of people getting vaccinated is -- continues to rise, and it's something we track as well within our company. So we're encouraging everybody to get vaccinated.

Great. Barry, internationally, what -- how does the lay of the land compare? And how are you thinking about your -- really, your investments from here in terms of where you're going to kind of double down on growth versus continue to tread a little bit more lightly?

Sure. Yes. It's been a little different experience for us internationally, right? Asia, in particular, went into lockdown ahead of the U.S. So Q1 a year ago was a really tough time for us, led by China, and it's emerged faster as well from lockdown. So we've had a little bit of a different experience there. But to go back to your question for 1 sec on, kind of, society as a whole, our team in China has been back in the office for a year now. And likewise, we've seen personal care categories there really rise. And so if you look at that as an analog of what might happen in Western Europe and the U.S., I think you can say yes, probably, that's what's about to happen. But anyway, our experience was a little different. We went into a lockdown earlier in Asia. We emerged a little earlier. We look a little different, too, because our portfolio is 80% personal care in international. So we don't have some of the benefits of laundry or household in the same way. But overall, international business is healthy. We grew high single digits last year. We're seeing a really nice rebound in emerging markets, in particular, which was surprising to me that they have performed so well: China, Latin America. So if you're asking where we might double down on investment, it's really emerging markets for us, which are the big story, where in the last few years, we've built teams, whether it's in Singapore or Panama or, more recently, in India. And so we're going to keep investing there because we believe in household income that's growing, in populations that are growing, and our brands are being really well accepted there. So that's kind of the future for us. It's not a deviation of our strategy. It's just a continuing investment, particularly in emerging markets.

Barry, it's also fair to say we've had intermittent lockdowns in some of the European countries that are effected.

Yes. It's hard to give you one answer, Steve, because even Australia, for example, just went back into lockdown. Melbourne or Victoria, which is 20% of the population of Australia, back in lockdown a few days ago. Malaysia back in lockdown, parts of Europe back in lockdown. So it's been a little lumpy, to be honest. We're in over 100 countries. So I can't give you one answer just because it's been so varied. China has been back for a year. Australia is back in lockdown last week, just for a comparison.

Does that -- it contrasts a little bit with how Matt is -- described what is, I think, the base cases in the U.S. for not retrenching. Does that -- internationally, in terms of how you just allocate capital and make your planning, is that -- how impactful is that? Or how hesitant are you? What are you not doing that you would do if you had more conviction that we were through it?

Yes. It's a good question. It is from a -- before we get to capital, from kind of an investment standpoint, from a marketing investment, we want to make sure we're not overinvesting in markets where people literally can't make it to retail. So we can dial that back relatively quickly and be flexible. From a capital allocation standpoint, we're really leveraging third parties and contract manufacturers. So we're not making big capital investments right now. To be honest, we haven't reached the scale that's required to do that yet. So it's not really impacting our strategy. We're still leveraging third parties and co-packers. Longer term, beyond the 5-year horizon, that's when we'd be looking at kind of more capital investment in terms of manufacturing. So the good news is it's really more impacting our marketing investment than any capital allocation is the answer to your question.

Yes. That makes sense. Yes. Okay. So as -- given the supply constraints that built up over the course of the pandemic, and now this resurge of demand, we're seeing a lot of inflationary pressure across all end markets. Rick, what's the latest and greatest inflation outlook for Church & Dwight? And then the -- probably, the question you're very used to getting, but just how are you thinking about the different levers to offset that, whether it's list price and depth and breadth of promotion and just revenue growth management versus productivity and other mechanisms?

Yes. I mean we gave some clarity on inflation during the last call, and I'd say it's largely unchanged. Resins are still extremely high year-over-year, and ethylene is as well. That was kind of the backdrop as we went to market for about 30% of our product portfolio globally for price increases. So not only commodities are up, but labor is up, and transportation market is tight and has inflation as well. But we get back to, well, why are we confident on expansion, right? We're -- our guidance is flat for the year, and that implies kind of up 235 basis points in the back half. And so why do we think we can expand? And partly, it's -- pricing takes effect in the back half. We have latitude on our trade promotion. We actually were higher than most a year ago in the back half. Many of our competitors had already ratcheted down the back half a year ago. We have higher personal care sales. You heard from Matt. I mean those categories are recovering. So that's a tailwind for mix. Our vitamin business is doing really well. It's higher than corporate gross margins. So that is a tailwind. At no time in our history have we had as much volume going through our plants as we do now. So that's a tailwind from a production perspective. So all those things, COVID costs, right? As COVID -- as we seek to open up and as incidents are lower, our COVID costs in terms of manufacturing are lower certainly versus a year ago. And so that's a tailwind. So those are like 4 or 5 reasons why we think and have confidence in the gross margin expansion in the back half.

Of those different levers of inflation -- you mentioned transportation, you mentioned raw materials and packaging and labor. Maybe it varies over the course of time, but does one of those buckets concern you more than another one? Or are they relatively equitable in your thinking?

Well, of course, the biggest part of the pie is the commodity piece versus labor or versus transportation. The transportation market is extremely tight, higher cost for trucks, containers. But over time, we've seen that movement before, and it gets back in balance, supply and demand. Labor, again, it's certainly very important, but inflation is happening. It's happening across the country, but that's a relatively small part of our cost of goods. It's really the material piece. And even as new capacity is coming online, demand remains strong. And the Texas freeze that happened had ripple impacts across those supply chains that are still not fully recovered, right? So it's just that one event like that has an extremely adverse impact.

Matt, you've got 13 core power brands at this point. Just, I guess, what's your relative level of satisfaction and optimism with respect to those brands and their positioning as they stand today, both in terms of like the -- what you're seeing now in the marketplace, but also where you see sort of the -- which of those brands do you think have the most power behind them as you think about the medium term?

Okay. Well, we have 13 brands we call power brands that make up 80% of our revenues and profits. And all of them are #1 or #2 brands in our category. So they have strong brand equity. And as Church & Dwight continues to add power brands -- I think when I joined the company, we had 6 or 7. We have 13 today. And we say 13 today, 20 tomorrow because we think that using our cash for acquisitions is the highest and best use of the cash. As far as the standing of those brands, if you look at the first quarter, 8 of 13 brands gained or held share. And that's a good target for us. If we have 8 or better, holding and gaining share annually, that's a good thing, and that's a sign of a healthy business. We have gotten questions about laundry shares more recently. They've been impacted by our exit from OXICLEAN liquid laundry and also our exit of XTRA from the drug class of trade. And we also discussed on our Q1 call that we had supply constraints on unit dose, which impacts share. But we're bringing unit dose in-house. So we expect that's going to improve over time. And for ARM & HAMMER laundry, that's impacted -- those shares would be impacted by a change in promotional activity by -- step up in promotional activity by competitors, not to historical levels, but certainly, above year ago. And if you think longer term as far as brands that are kind of growing, not just domestically, but also internationally -- and Barry can jump in here. Vitamins, for sure, the transition from pills and pastilles to gummies was accelerated last year. That's going to continue. We also think that BATISTE, which has been a great grower for us, it will continue to grow both domestic and internationally. And WATERPIK and FLAWLESS, we see upside in the future, both domestic and international. But Barry, you can add, if you'd like.

Sure. Yes, yes. Really, WATERPIK is just a great brand for us. We've already doubled it internationally, Steve, since we bought it. And as you might imagine, that category, water flossers, is still really new in a lot of markets. But we've got 70 clinical studies. We're building relationships with hygienists around the world, so a lot of room to run for WATERPIK in particular. We're seeing Asia, Middle East, really, really boom right now. BATISTE. Dry shampoo's still a new category in a lot of these markets, low awareness. We're the #1 player globally. So that's got a lot of room to run as well. And then FLAWLESS is still really brand new internationally. Part of the reason we bought it is because we have a much greater footprint than the seller did, and we're seeing sales really jump in high double digits right now as we're bringing it around the world. So I'd say those are 3 of the power brands I get particularly excited about. A lot of room to run, margin accretive, and those are the 3 probably I'm most excited about right now.

Okay. Cool. So just circling back on laundry because it is a topic that investors have been talking about with respect to Church & Dwight lately. The ARM & HAMMER share progression and the promotion relative to competitors, how much of that is unexpected from your perspective? How do you think it plays out? Maybe we'll start there.

Yes. We don't get too excited about what happens in a quarter, Steve. Remember, ARM & HAMMER is -- in laundry is a value brand. And the thing that we have going for us is that it's an advertised brand. And so there's no other brand in value detergent that is advertised. So that's going to halo ARM & HAMMER, not just in the past industry, but also in the future. So the unit dose and XTRA and OXICLEAN that I described were -- those are known issues. So we knew that was going to affect our shares this year, particularly in the first half, less so in the second half, but we still think we're in great shape through innovation and the brand equity that the business is going to continue to grow.

Yes. Maybe in terms of promotional levels, Steve, we said we're going to raise -- be higher for the category in Q2 because year-over-year, they were depressed, but they're still not back to historical levels.

Yes. Given on the one hand, you've got a pretty vibrant consumer backdrop demand, savings are up, demand is still pretty high; on the other hand, you've got rising cost baskets that are broad. The whole economy is inflationary right now. When you think about positioning of the ARM & HAMMER brand in a category like laundry, does that become a tailwind for that brand and its value positioning in terms of trade down? Or is this cycle different in your view because the consumer is going to be more resilient and more accepting of the pricing that is coming through?

Yes. You're referring to -- well, trade down typically is something we expect when we're in uncertain times or a recession, which is not what we have right now. So that wouldn't be a driver with respect to the consumer. We see the consumer balance sheet being healthy. Personal savings rates the last few years have been extremely elevated, but there's a lot of pent-up demand. The unemployment is under 6%. Labor, wages have increased over the past year. So I do think, actually, when you think about the price increases that are happening across lots of categories, that the consumer actually is in a position to absorb those increases.

Yes. And is that -- so yes, I infer from that, that gives you confidence to take some of the pricing actions you're taking. Does that also bias you towards investing in the more premium aspects of your portfolio, some of the personal care and other things that are poised to reaccelerate? Or is the investment disbursement relatively equitable, value versus premium?

Yes. Well, as far as advertising right now, there's such strong demand across so many categories and even -- that it's not driven necessarily by advertising. It's just driven by kind of consumer mobility. So that's going to continue for a few quarters. So that does give you a little bit of flexibility with respect to your advertising, that you can move the money around to some categories with the higher margin or personal care categories. So you're right, Steve. That is a lever that's available to us in the second half.

Okay. I guess maybe for Rick -- I think, Matt, you mentioned it earlier the 13 power brands going to 20. Just in terms of readiness and appetite for adding a 14th or something in the near term, where is Church & Dwight in its thinking on that? And then, Barry, I'd love to hear your perspective, too, as to both whether you think -- you mentioned a little bit earlier, but some of the power brands exist, the runway that they have overseas and -- or whether we could -- what the likelihood is of the next series of power -- the next, what is it, 7 power brands, are those biased to be U.S.-based that expand internationally? Or is it in your thinking that you can actually go source those power brands increasingly from overseas?

Well, I would like our next 7 to be international.

Me, too. I'll let you go, Matt.

Do you want to talk about M&A first, and then I'll talk about, and then Barry can come in third.

Yes. Yes, we'll order.

Yes. So with respect to our appetite, yes, we have a consistent appetite for acquisitions. We have looked at a couple already this year that we passed on. It just didn't meet our criteria. We generate a lot of cash, and acquisitions are the highest and best use of cash. So that's our job, is to deploy cash to increase shareholder value. And our acquisitions generally take us into new categories, and that will continue in the future. You think about the ones we entered, vitamins or water flossers, with great success. Women's grooming, still a work in process, but we see that as a future grower. ZICAM took us into cold shortening. And so we have #1 or 2 brands in all of our categories that we compete, and our acquisition criteria really helps ensure we make a sound investment. We have done -- even this year, 1 of the 2 businesses we looked at was an international brand, but it didn't really pass muster. But both domestic and international is where we're hunting right now. Then, Rick, you can add to that.

Well, I would just say that we introduced a slide 2 years ago at your conference, just about the strength of our categories. And people were always asking how -- why do we have confidence in our model, and it goes back to how picky we are on deals. And what deals we buy determines what categories we go into, and our category average growth rate was above 3% for a long time. And we even said in the April call that 10 of our 16 categories were growing, right? And so it's a great thing. We have tailwinds on categories and your brands are growing share, and that all is derived back to our M&A model and how picky we are and the time we spent upfront on this financial filter but also on the category dynamics. So alive and well, we spend a lot of our time doing it. And Barry, if you want to talk about internationally.

Yes. Sure. We've built, I think, Steve, a real competency of accelerating acquisitions internationally. So if I go back to BASTITE, which is around when I started, that business has grown 5x since we acquired it internationally, right? And then we brought it to the U.S., and it's grown there as well. So in terms of our ability to grow, WATERPIK is another example. We've doubled it internationally. FLAWLESS is growing. So I feel really good about our capabilities, and it's a credit to our team. They're hungry for more acquisitions internationally. It adds scale to us. It gives them new opportunities to grow. So absolutely, internationally. And there are some that we've, as these guys have said, we've just looked at that are primarily international brands that we would then look to bring to the U.S. So we're certainly able to do that, but they have to meet the same criteria as a primarily U.S. brand. So we're pretty picky, as you know, pretty choosy. But we think absolutely, we're prospecting internationally. We're hungry for it. We really look forward to the scale that, that can add to certain businesses as well that allows us to then reinvest in the business. So that's how I'd answer that question. There's a lot of going on, a lot of good momentum on acquisition acceleration internationally already and a lot planned for the future. So we're keeping our M&A team of one very busy.

M&A team of one. Got it.

Yes.

Can we talk a little bit about just the -- I want to get to -- well, let's talk about capital investment now first before we get through the more operational investments. But the capacity additions that you're making, Rick, can you just give us an update on how that's progressing? And refresh us in terms of the benefits you expect to derive from that.

Yes. Sure. So for a long time, we've always said we're about 2% or less of sales from a CapEx perspective, and we're going to bump up in the next 2 years a little bit higher than that. And those investments are centered around largely laundry, litter and vitamin capacity as well as technology, new warehouse management system, those types of things. The investment returns are great because it's really enabling us to serve incremental volume or bring some supply back from the outside, inside. So right now, we're running -- I think Matt gave the example. Late last year, we had a new laundry line come on in April, and it was fully filled out within 6 months. So all these investments aren't necessarily a drastic bet in the future. They're more of -- we see the next 2 or 3 years, and it gives us the capacity we need to react, right? It's not just in times. It's also having the flexibility to meet surges, as we discussed.

Okay. And Barry, do you see on the medium-term horizon the need to -- a CapEx cycle that's bursting in -- your, I mean, your markets are varied, depending on how vertically integrated you are versus how distributor-centric they are. But as you realize the growth that you're pursuing, does that get to a stage where you need to step up from a capital perspective?

I think not in the short term, Steve, right? Right now, we're still -- we're leveraging co-packers. We're not at the scale where big capital investment is required. So we can get closer to the consumer. We can manufacture locally, but we can do that through 3PL, through co-packers without a big capital investment. So I think over the 3- to 5-year horizon, for sure, we keep growing in an asset-light way. There's not big capital investment required. Laundry and litter are very small for us internationally. So we wouldn't be looking to replicate any of that, and that's typically where a lot of capital is required. So I'd say not in the short term. Longer term, when we get closer to, let's say, our fair share, we're 50% of the business, and Asia is a big driver. We have to be manufacturing locally then. We'd probably want to do that ourselves, but that's still a ways down the road. We've got a lot of growing to do before we get the scale necessary to do that.

Okay. And then, Matt, what about -- less on the CapEx side, but just more discretionary capabilities-based investment, capabilities building. You haven't always invested at a healthy rate in terms of advertising and increasingly in R&D and innovation, but are there other capabilities, digital and the like, that you're investing more now than you might have even expected to be 24 months ago?

Yes. There were probably a handful of areas that are a focus for us. Certainly, Asia Pacific infrastructure is one that Barry would be familiar with. Social media teams, we could use more people like that. So we have been expanding the investment there. Automation has been really big within the company, not just in the factories, but also automating nonplant processes, in the offices, transaction processing that we can automate. And we have some big projects going on right now in IT to modernize our logistics as well as our financial systems. And then something we've talked about in the past is predictive analytics. We've gone into predictive analytics in sales and also in the marketing over the past couple of years. And we expect to expand that to supply chain, that we have analytics projects as well. So that gives you a sense for the types of investments we would be making both in '21 and in '22.

Okay.

Yes. Matt mentioned Asia, right? Getting people on the ground in Asia, that's been a focus for us. So we now have offices in Singapore and Shanghai. We're hiring our first employee in South Korea, for example, to support a region that's growing really, really fast. And ultimately, we see China as becoming our second largest market, right behind the U.S. So I'd say if there's an investment we're making, certainly internationally, that's where the primary investment is going.

Yes, the top of the list.

Top of the list. The social media investments that you've been making, I mean, that -- I don't know. 7 years ago, I think you were -- maybe characterized yourself as behind the curve and not really that focused at all on anything that was social media, digital, e-commerce. You've invested a lot. It seems to me you've caught up, if not, in some cases, gotten ahead of peers. Where does that rank on the list of what you just described? And how important is that? It's buzzworthy externally. But from your perspective, just how critical is that?

Yes. That's a good one. Just to give you some perspective. Yes. Back in 2015, 1% of our sales were online. It's like $35 million. So it was a peanut, and that became a priority for us over the past 5 years. So last year, thanks to COVID, it was 13% of our sales. The year before that, it was 8%. From 8% in 2019 to 13% last year, we expect it to be 15% this year. And that's online sales, and that excludes order online, pickup in store. So that's harder to measure, but let's say that's another 5%. So that would suggest that 20% of our sales are ordered online by consumer and not in a store. And we do expect that over the next 5 years that, that could double the combination of online, delivered to your house or online, pickup in store. So we're no longer what we're often referred to as a fast follower. So this is something we put our minds to. And I do think we're clearly front -- first quartile with respect to ability to compete. So we're going to keep investing. So I say, the first quarter, it was 14.8% of our sales were online. So clearly, 15% looks like it's in the cards for this year. And as far as the incremental spending that might be available to us, would be going to social media teams, for example.

Do you think your abilities and your insights in that domain are now value-added when you talk to your retail partners across omnichannel type of considerations? Are your retail partners searching for some of the insights that you've been able to derive, and to the extent you can deliver them, it gives you an advantage?

Well, yes. Sure. I mean if you look at online sales, this used to be true. I'm not sure it's true anymore. But if you went back a couple of years ago, about half of a lot of companies' online sales in the U.S. were through Amazon. Nearly half was through other major retailers, Walmart.com, Costco.com, et cetera. So that may be shifting a little bit, so that does give us the ability to share with the buyer what our learnings are with respect to consumer behavior. And also it's -- all the consumer research that we do with consumers, also we provide those insights to the retailers as well. It's less developed internationally, as Barry can comment.

Yes. Sure. From a kind of leveraging synergies, Steve, we're taking all those learnings from the U.S., and we're sharing them internationally to make sure we're kind of amplifying them. And an interesting thing we're doing is -- you know how important distributors are to our business. We're training our distributors on both digital marketing and e-commerce. Historically, they've been really good at bricks and mortar but not so good at e-com. So we're training them to be successful because we're not successful if they don't win. And so they're coming to us for insights. They're coming to us for value-added, to your earlier question. And we're able to leverage that from the U.S., bring that to them. And as a result, we're seeing sales go up really, really dramatically. China and Southeast Asia are probably the biggest beneficiaries. Western Europe's in a little bit of a different place where it's not quite as reliant on e-com just yet. But that's how we're kind of amplifying success in the U.S. and adding value around the world by leveraging those insights and that knowledge.

Okay. One last question on this, just for -- just so I'm aware. I'm not aware. How are you organized around this, around e-commerce and digital? Is that -- are these separate teams, separate functions dedicated to that domain? Or have you integrated it into just more generalized brand teams and innovation teams?

We have a digital team that's sort of our center of excellence. But within the businesses, they're embedded. So the expectation is that each of the businesses will not only be managing the bricks and mortar, but also the online sales. So we haven't segregated it, if that's where you going, Steve.

Yes. Okay. Okay. You talked about some of the simplification efforts that you made coming into the year just around portfolio simplification, SKU simplification in terms of where. As you look ahead, caveated by all of our earlier discussion, you think about the pipeline planning for '22 and beyond, are you starting to -- does that complexity start to come back? And if so, does it come back in a different way than it was pre-pandemic? How are you thinking about the innovation pipeline plus COVID?

Well, look, our innovation pipeline is something that we, usually, we can look out 3 years. So we got a pretty good handle on what we would be launching in '22, '23 and '24. And some of that is informed by what we've learned during COVID, but we wouldn't necessarily share what our new product launches might be in the future. Does that help you?

Yes. No, I guess I was curious as to just the rate of change in the portfolio. How impactful -- you had a '23 plan coming into COVID. You still got a '23 plan. How different is today's '23 plan versus the one that used to be in? And how different is that difference than any kind of normal innovation pipeline update?

No. I wouldn't say that it's dramatically different. I mean within our new product group, we have -- it's about 20 people we have dedicated to new products. And within that group, there are a couple of people that we get dedicated to rapid commercialization. So we're doing more test and learns right now. So some of the products that we might launch in the future, we might launch them just online to get a read and get feedback from the consumer with respect to the products. So that would be what we would be doing.

I would just add to that, that's exactly where -- what I would say is rapid commercialization. So like OXICLEAN sanitizer that we launched, that wasn't really in the docket pre-COVID, but we're able to react fairly quickly. So we're trying to build that strength and leverage that, especially in our vitamin business, which is a fast-moving innovation business.

Yes. So [ tabs are really -- ] are more important.

Yes. Is there a way to quantify that, sort of the speed, the iterative nature of R&D and how that's evolved? Like how much faster are you today than you were a couple of years ago? How do you measure that?

Well, I guess one example would be last year, we launched in second half, POWER ZINC. And it's because there was great interest on the part of consumers in zinc as -- because of the belief that it was -- the ability to retard the development of a virus in the human body. So zinc products were just shipping off the shelves. And in about just an 8-week period, we went from idea to having a product that we could ship. And historically, we were slower than that, I'll call it. We might say, all right, we're going to launch that next year. But because there was a need for it, we thought, hey, we can do this. Let's do it quickly. And we did. So that's a muscle we expect to be using more in the future, Steve.

Yes. Matt, give them the example of the sanitizer that we did in the U.K.

Yes. That's a great one. Yes. So we never made hand sanitizer, and we didn't have a formula for it. We got ahold of one of our suppliers. They helped us with the formula. They had to reconfigure the plant. And I think from idea to first ship was 6 weeks. And we then -- we shipped hand sanitizer to all of our plants around the world. We also made it available to hospitals and health care centers, near all the plants. So about 20 hospitals got hand sanitizer from the company. But it's another example of how we were able to move very quickly as a company.

Cool. Can you -- ZICAM is your latest addition. Can you talk just a little bit, just update us on your thinking as to how you're going to grow that business as presumably colds/flu season will return one day and end market will naturally redevelop? And then, Barry, if you could weigh in just in terms of the applicability of some of those products in that brand in general to your markets?

Sure.

Yes. We acquired ZICAM in December of 2020. So that's pretty recent, 6 months ago. And in looking at that business, we knew that the demand for ZICAM, which is zinc-based, was elevated in '20. So we kind of haircut our expectations, but it wasn't a big enough haircut. So cold -- cough and cold brands have been way down the entire category through masks and social distancing. So ZICAM will also be way down in '21 versus '20. But the silver lining is that ZICAM will contribute meaningfully to organic growth in '22 versus '21 when things get more back to normal. And in the meantime, it has maintained its 70-plus percent market share in cold shortening. And I think what Barry is going to tell you is it does not have legs to go internationally for a number of reasons. But Barry, you can jump in.

Yes. Sure. So WATERPIK, yes; FLAWLESS, yes; BATISTE, yes, all growth. ZICAM less so really for regulatory and claims reasons, there are different classifications internationally. So less applicability for ZICAM specifically. Everything has sort of be more of an opportunistic pursuit for international for ZICAM.

Okay. You talked -- and in the context of your evergreen model, it's -- well, you can tell me, Rick, or whoever, if this is the wrong way to think about it. But I think it's you've got kind of these normalized category growth rate realizations and historicals that kind of underpin the confidence in the evergreen -- top line to keep going. But as we talked about, you lead a lot of these -- a lot of your power brands lead in categories, ZICAM, as you said, 70% share in cold shortening. So in some cases, you define the category growth. As you think about those -- the improved innovation process that we talked about and the faster speed to market, do you see opportunities to accelerate some of the category growth rates that we may have become accustomed to in the past given your own personal capabilities and your share of the categories you lead?

Yes. Well, any time you're dominant in a category and you are the category, you do have to carry the flag. And oftentimes, it's innovation that's going to expand the category. The other thing we have available to us is to go to take a brand into adjacent categories, which we can do for brands like TROJAN. Even ZICAM may have some ability to go to adjacent categories. Do you have something, Rick?

Well, yes. I was just going to say, look, if you look at our track record and our organic growth over the long term, we've consistently hit -- met or exceeded our kind of evergreen model. And it's been a virtuous cycle, right? Our evergreen model works well, 3%. We get 8% EPS growth. We do deals and leverage that on top, and it works, and it kind of feeds the machine, which is great. What the evergreen model tells us, though, is we only have to grow at 3% in order to hit all those metrics. And we only have to do it domestically 2%. And so it just gives us more latitude to make investments, to lay the groundwork for the next 3, 5, 7 years each and every year. And that's what we do well. We continue to lay the groundwork for the future every single year.

Yes. Steve, I'd say the evergreen model is based on 2% U.S., 6% international and 5% SPD, and we revisit it annually, and it's proven to be a durable business model. And the more brands and categories you enter, the more you spread your risk and the more opportunities you have to grow. In fact, the last couple of years, last 3 years, we beat the organic target of 3%. And so we're going to beat it again this year. Our expectation is 4% to 5% outlook for organic growth for '21. And as the rest of the model, it's around free cash flow. I mean free cash flow conversion is historically above net income. Our cash earnings is underappreciated because typically, the focus is on book EPS. And we have a reliable dividend. Our financial metrics are simple, and our long-term incentives are tied, too, in the share price. So we do have what we think is a really good model from an investor perspective.

And I do want to end on cash. And maybe just to build on what you just said, Matt. Rick, is there anything -- well, the free cash flow conversion, what are the puts and takes in your mind? Are there anything -- are there any sort of cash tax benefits or amortization cliffs that are coming up that would make that conversion less strong than it has been? And conversely, are there opportunities to improve it even further? How should investors think about the free cash flow conversion profile of the company?

Yes. No, we've averaged -- on average, over 120% for the last 10 years. And I did say when we had tax reform, the book rate and the cash tax rate would converge, and I thought we would slow down a little bit. That hasn't happened, partly due to stock option exercises last year. But overall, free cash flow is strong, strong plans for working capital improvement, which is the other piece of how you drive cash flow in excess of net income. So we have a long path to go down there still, a lot of room compared to our peers. No real cliffs coming from an amortization standpoint, a lot of those deals recently have been stock deals. We still have a long runway for the amortization for most of the other deals.

Great. Well, we're at the end of our allotted time. So we're going to have to wrap it up there, but I thank each of you. I thank Church & Dwight for attending the conference. And thanks to all of you who are listening, and enjoy the rest of the event. Thank you.

And thanks, Steve.

Thanks, Steve.

See you.