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

All right. Thanks, everybody, and welcome back. I'm thrilled to welcome Church & Dwight back to the conference. With us from Church & Dwight are CEO, Matt Farrell; CFO, Rick Dierker; and Executive Vice President of International, Mike Read. What we're going to do today is the team from Church & Dwight will run through -- rapidly run through, as they typically do, some slides that articulates their story. That will take about half the session, and we'll use the balance of time for Q&A. But with that, I'm going to hand it over to Matt, and off we go.

Okay. Thank you, Steve. I'll begin with the safe harbor statement. I encourage everybody in the room and who's listening in to give it a read. Okay, who we are. Church & Dwight is a wildly successful consumer products company. See the numbers there were 1, 3, 5, 10, 15 years. The numbers so far in '22 are double digits, but they have a bracket around them, and we hope to change that in the near future. Okay. Here's our evergreen model. Top line growth 3%; bottom line 8%. We try to expand our operating margins 50 basis points annually. Our organic growth, how we're doing with that 3% organic growth? There's a look over the past 10 years or so, and you can see it virtually in every year, we're able to meet or exceed 3%. EPS, 8% is our target on the bottom line. You can see there as well, virtually every year, we hit 8% with the exception of 2021, we were around 7%. Okay. We have 14 power brands. Those 14 power brands account for 80% of our revenues and profits. And here's how we split. We're essentially 3/4 U.S., 18% international and then our original business, which was both sodium bicarbonate and also animal nutrition is 6% of the company. This is important. We have a balance between premium and value. So we believe that our portfolio performs well in virtually any economy. And we have a long history of growth through acquisitions. This is the #1 destination for cash. Go back to 2004, we were $1.5 billion. You can see on the bottom of the slide. We've acquired a brand virtually every year, and then we're a $5.2 billion top line. The brands that we've acquired, 13 of the 14 acquired over the past 22 years. In the year 2000, the only brand that we owned was ARM & HAMMER. All the brands you see here displayed today are #1 or #2 in their categories. So we say 14 brands today, 20 tomorrow. Why are we winning? Okay, here's our winning formula, and I'll run through each of these 5 attributes one-by-one versus a nimble organization structure. We make quick decisions. We operate like a $50 million company as opposed to a $5 billion company. And very quick communication and decision-making, and we're very adaptable. And I think we demonstrated that throughout the pandemic. As far as the split goes, it hasn't changed that much since 2009. This is sort of a then and now look, kind of run your eyes around the page as far as the household and personal care split is somewhat similar, a little bit higher in personal care today. And we do have a report card. We measure how many of our brands have gained share -- held or gained share each year. Our target is for 2/3 of those 14 brands to gain share annually. And we have low exposure to private label. I think this is very important considering we're in a recession that's going to worsen over the next 6 quarters. So our weighted average market share for private label is about 12%. And here are the 5 categories where we have exposure to private label. And if you look at the graphs that are displayed on the slide here, you'll see that they're fairly constant over the past years. So these are the things we'll be watching over the next 6 quarters. And we have very clear acquisition strategy. We get opportunities to buy lots of businesses, but we're very fussy about what we'll buy. Run your eyes across the page, you have to be #1 or #2 brands. You have to be able to grow 3% or better and be at or above our corporate gross margins. Need to be asset light. We don't like to buy businesses that have plants. We'd like to be able to leverage our supply chain footprint. And finally, it needs to have a sustainable competitive advantage. That means that when I'm in a nursing home, this brand is still growing for the company. And our most recent acquisition is THERABREATH. We acquired that business in December of 2021. And I would say that we stuck to our long-term plan of the #1 destination for cash-green acquisitions. In December of 2020, we bought ZICAM, which is the 75% share, #1 brand in cold shortening. And in December of '21, we bought THERABREATH, which is the fastest-growing brand in the mouthwash category. And year after year, we have consistent innovation, generally of our 3% top line growth, half of it is driven by new products. So that is our formula. All right. Then and now, just kind of -- I'm going to deepen the understanding there. If you go back to 2009, about 3/4 of the company was U.S., that's still the case today. International has grown more organically than the U.S. The U.S. has benefited from acquisitions, which is the reason why those ratios have stayed pretty close together. And this is really, really important. Back in 2009, the split between premium and value was 60% premium, 40% value. That's still the case today. And this is why we say that we can perform well in virtually any economic environment. And here's e-commerce. Back in 2009, we were -- 1% of our sales were online. That was true in 2015. So we were fourth quartile in comparison to other CPG companies. We're 15%, now probably hit 16% in 2022. So we were the first quartile today. And as far as our brands go, there's some important brands we've displayed across this slide. And you look at what the market share is, ARM & HAMMER Liquid, litter, baking soda, OXICLEAN. You can see that we buy businesses, that's OXICLEAN on the far right, and we're able to grow share. And even the ARM & HAMMER brand continues to grow over time. And as far as power brands go, we had 8 back [ 2009 ], we've 14 today. Why is that important? Because we believe that the more categories that you're in, the more you're going to spread your risk, the more revenue and cash flow streams that you have. And as far as categories go, 11 categories in 2009 and 17 in 2022. You can see we put a red line on one of the new categories that we've entered. Now here's the international story. Mike is going to come up and take you through a few slides.

Great. Thanks, Matt. So from an international perspective, our aim is to grow 6% organically each year. Just for context, that's a combination of our subsidiary markets across U.K., France, Germany, Canada, Mexico and Australia and our Global Markets Group, which coined GMG, which is we service about 130 countries through 400-plus distributors around the globe. So if you look over the last 10 years, we've averaged about 6.7% growth. This is due to a kind of wider distribution, continuing to kind of leverage innovation and acquisitions and entering new geographies. So the result of that is going back to 2014, we're a little over $500 million, we're now in excess of $900 million. We're approaching scale in many of our markets. We're still very early days in many of the world's largest economies. So lots of runway ahead from an international perspective. For 2022, kind of a story of 2 halves. Certainly, we've been impacted by some inbound and outbound supply issues. We made some strategic choices as it relates to some of our laundry business trading off kind of profit and [ lowering sales ]. And we've had some intermittent challenges of consumption, particularly in our China market, which is our largest GMG market. But again, we're seeing some good rebounding for the back half. This just sort of breaks down how we're positioned across international. So now over 1/3 of our business is within our GMG group. It's growing the fastest ahead of all of them, has doubled over the last 5 years. Canada represents just under 30%. Europe across the 3 subsidiaries at 22% and then Australia and Mexico. Again, if you kind of look at the split across GMG now represents 35%. And again, it has grown double over the last 5 years and will be the key growth driver with international for the years to come. From an animal productivity perspective, so in this area, we aim to grow 5% a year. If we break it down, 2021 was an exceptional year, we grew at 12%. That's broken up between the dairy market, nondairy and then specialty chemicals. And essentially, from an animal nutrition perspective, where focus is on prebiotics, probiotics and nutritional supplements, which is really key in terms of our portfolio as the market moves away from antibiotics. So we're well positioned for future growth in this area. Most notably, the dairy market in particular is quite cyclical. So we've had sort of an up year followed by 2 down years over the last number of years, evidenced by 2011, '14 and '17, as we expanded into other species like cattle, swine and poultry and also diversified globally, it has allowed us to break that cycle. So now we've got more consistent growth moving forward, which is good. And just in terms of breakdown, if you go back to 2009, we did have a chemicals business in Brazil, which we exited. But now we've got a good healthy balance between kind of our dairy nutrition business, our nondairy nutrition and chemicals for steady growth. So overall, trusted brand, ARM & HAMMER it is under the ARM & HAMMER brand name a very on-trend portfolio around kind of prebiotics and probiotics. We've expanded our species footprint, and we certainly have a lot of runway for global growth similar to our consumer business. All right.

All right. Okay. Now how we run the company? So we have 5 operating principles, you can run your eyes down the page there, but in the first 4, if you do those well, you get good returns. And -- but if you can make good acquisitions, you get great returns. And you saw in the very first slide, that's the catalyst difference between good returns and great returns. First off, leverage brands. We believe that we want brands to consumers love within the company. We like to promote that have an obsession with the consumer. We have been a friendly environment for a long, long time going back to the 19th century. If you live in the United States, the baking soda comes in the little box, back in the 19th century, the company was putting cards with pictures of birds on it, not baseball cards, but birds or collectibles to promote, save the birds, save the environment. And if you kind of run your eyes across the page in 1907, we were using recycled paperboard in our cartons. In the '70s, we were the only corporate sponsor of the first Earth Day. 20 years later, in 1990, we're still the only corporate sponsor of Earth Day. So this is part of the company's DNA. And more recently, we started planting trees in the Mississippi River Valley and we planted millions of such trees today. Why? Because we always remember from primary school that trees takes CO2 out of the atmosphere. And more recently, we signed up for science-based targets. So that's reduced the amount of CO2 we put into the atmosphere in addition to the offsets that we're doing through trees. And here are some of our goals. We want to be 100% carbon neutral via offsets that's planning trees, et cetera, by 2025. Just to give you kind of a fun fact. Our little company puts 350,000 tons of CO2 into the atmosphere annually. That's just Church & Dwight. So we're going to offset that by planting trees. And as I said before, we signed up for science-based targets recently. And try to reduce what are usage and we'd like 75% of our waste to be recyclable from our plants. Again, a lot of recognition from around the world with different agencies. We don't do this just because we're looking for accolades or take a bow, it's just the right thing to do. So number 3 is leverage people. We believe we have the most productive team in CPG. We have over $1 million of sales per employee. So we have 5,000 employees. We've got over $5 billion of sales. And we think this is an underappreciated statistically in evaluating companies. And we do have a very simple compensation structure. We have revenue, gross margin, cash EPS, 25% each. And everybody in the company is tied to this. And what it does is it promotes financial literacy. And this is -- I think this is important. It is somewhat unique among incentive compensation plans is having everybody tied to gross margin. And how do you get gross margin? We have a Good to Great program, that's a name for our continuous improvement program. That's a book that everybody is familiar with, but maybe nobody's read, but it's the name we've given to our continuous improvement program. Supply chain optimization. We're always trying to make our lines more efficient. New products, try to launch new products that have higher gross margin than the products that they're replacing. And then finally, acquisition synergies. When we buy a business, generally, we're able to expand their gross margins. Number 4 is being asset light. We like to be around 2% of sales for as our spend goes. You can see that in some years, we've been right at it or a little bit below it, a little bit higher in '20 and '21 and will be even higher in '22 and '23. Why? Because we're going to be spending $200 million this year and $300 million in '23 to expand our capacity, notably in laundry, litter and vitamins. And then finally, leverage acquisitions. I mentioned that before, it's the same slide. Good returns become great returns when you can do good acquisitions. And then we have Rick come up and say a few words about the business results, and then we'll get into Q&A.

All right. Thanks, Matt. So 3 things today. Just talk about the evergreen model briefly. We'll go through a supply chain update and then wrap up with capital allocation. So for our long-term investors, they've known that we've done this for not 1 or 2 years, but for over a decade. We've run this place with an evergreen model. Organic sales of 3%, gross margin typically 25 basis points of expansion. Marketing higher dollars, but flat from a percent of sales is what we aspire for. SG&A, we leverage hopefully by 25 basis points, half of that we can get to play when we grow the top line, SG&A at half the rate of the top line. And that leaves the operating margin expansion of 50 basis points or 8% EPS growth. Okay. Real quick on just supply chain. A lot of momentum recently, but we talked about Q1, how our fill rates were in the 70s. Remember, if you take a big step back for over a decade, almost in perpetuity, we were at 98% on time in full. So what does that mean? It means 99% on time and 99% in full, and you multiply the 2 and you get 98%. Industry average is in the mid to low 90s. And that's where we're going to get back to. So good news is in April, we were around 90%. In May, we were around 90%. And by Q4, we're going to be right at hopefully 95%. So that's the outlook. Okay. Moving to capital allocation. We have 5 destinations for really our free cash flow. Number one, is TSR-accretive M&A. And for those of you who have followed Church & Dwight for a long time, I would say, 1, 2, 3, 4 is typically TSR-accretive M&A. CapEx for organic growth in G2G, Matt just talked about 2% of sales is our historical number for CapEx. MPD support as well. And then the last four and four is debt reduction and return of cash to shareholders. And of course, if cash builds on the balance sheet for a period of time, we think we do a higher buyback. We expect to be about 1.6x levered by the end of the year, so under-levered balance sheet as well. Okay. So moving into capacity and really just CapEx, we are spending quite a bit on CapEx, about $200 million and $300 million in 2023, and here's what we're spending on laundry, litter, vitamins, baked soda, some technology and capacity. Here's the track record over time. You can see back in 2009, we spiked up as we were developing capacity; 2011, same thing; 2022 and '23 are no different. Okay. And with that, we'll turn it back over to Steve for Q&A.

All right. So maybe Rick, while you're transitioning, you talked about how supply has evolved. I'll loop back on that. But you talk about the -- start with cost and just how the cost picture for the company has evolved since the 1Q reporting? And we've had -- I mean, we've heard mixed but generally an upward trajectory on costs. How is it for Church & Dwight?

Yes, yes. So just as a backdrop, right. In 2021, we experienced 9% of COGS inflation in a typical year, I would say it's anywhere between 1% or 2%. In 2022, our initial outlook in January, we thought we were going to be about 5% of COGS that ended up -- our forecast in April was 9% of COGS. It moved pretty rapidly. In our release, we explained that $85 million of incremental pressure had shown up just in those 3 or 4 months. I would say maybe not status quo still inflation. What's unique is we used to be able to say, if we could manage the 6 commodities, then that would be all the volatility in our COGS line. And one day, we'll get back to that, but that's not true right now. We have commodity inflation because of oil and oil-based derivatives like ethylene and resins, but we also have broad-based increases across everything because labor trickles down, freight trickles down. So we saw broad-based increases. I'd say maybe there's -- by and large, it's similar to what we had said back in April. And freight is still -- of course, freight rates might be recovering a little bit, but we have diesel pricing, the highest it has ever been. So a lot of offsets, but about the same.

Yes, Steve. I would say that the cost environment that you think is even more significant is how it affects the consumers because our expectation is that food prices have not peaked and that's ahead of us. And the other is price of gasoline and petrol. In the U.S., it's $100 to $120 to fill up a tank of gas. And you reminded about your situation every time that happens. And the median household income in the United States is around $68,000. And that's not a salary, that's all the income within the household. So the median, we have 115 million households in the U.S. that's in the middle. So the low-income consumer is squeezed and we squeeze it even more. And of course, if you're more well off, you're looking at your portfolio, you're not feeling very good. And consumer confidence is pretty low right now, as you know and I think that's going to worsen.

Yes. So you were among the more cautious on those fronts 3 months ago?

Typically, we're more transparent.

Okay.

So we were looking at what we were seeing and then we're looking what others were seeing, so that doesn't seem right. Yes.

Are you -- how has that caution progressed in the last couple of months?

Yes. Well, look, we can't give any kind of mid-quarter outlook right now, but the things that we were seeing were that in the first quarter that the value segment of laundry detergent had suddenly stopped losing share to premium. And some people were trading up for 6 or 7 quarters. Why? Because it's stimulus. That's turned around in the U.S. Water flossers were selling the same number of units where people are trading down from the high priced to the lower priced units. And then in cat litter, is another example, we have premium cat litter and we have value cat litter. And premium have been growing faster than the value in the first quarter, that turnaround. Value was growing faster than premium and that was just in the first quarter. So that was -- we'd say, well, that was a canary in a coal mine. So that's what we're seeing. So we would expect that to worsen.

Okay. Mike, overseas in your markets, help check on how you're seeing the consumer across the landscape?

Yes, I think the timing of when it's going to hit is going to vary by market. Certainly, the demand for the portfolio is still strong, but we are starting to see similar dynamics. I think it will just be a lag effect of when do people come out of COVID restrictions, when is a recession to hit in different markets. So we are preparing no different than what we're doing in the U.S. We're probably just getting a head start in the U.S., and we'll inform kind of what comes next. Yes, we're ready to react all those, but it will vary by market, for sure.

Okay. So you did give a number of comparison contrasts in the slides. Can we just level set on how does the company define value versus premium?

Oh, we just look at the category.

So there's median price point and upper...

Price points, right? So we -- for gummy, for example, gummy vitamins. Gummy vitamins are a premium to hard pills, but they are [indiscernible] value in the gummy category.

Okay. So the overall balance, 40-60 hasn't changed, but there are -- as you point out, there are a number of new categories, new brands, WATERPIK, FLAWLESS, vitamins, THERABREATH, ZICAM, et cetera, even BATISTE is new versus '08. What data do you have on those categories in terms of how they perform through recessionary periods even before you own them? And what are your expectations for that? Because I think to many of the people in the outside, including myself, many of those categories feel more discretionary, maybe even vitamins coming off pandemic demand. So how are you guys thinking about the additions since '08 performing through a recession?

Yes. There's no question that the consumer is going to trade down and that they will be stretching what they buy. So for example, if you had -- if you're a cat owner, you got cat litter, you're not going to change the box as quickly as you did before. And even some of the retailers were saying that consumers are trading down from sort of a gallon of milk to a quart of milk. But some of the things that you described, we didn't own back in the last recession, so we didn't own THERABREATH, ZICAM, BATISTE. These are all brands that we've acquired. What we do believe is that ultimately, the consumer is going to be interested in are they getting a bang for their buck? So we do think -- because we have low exposure to private label, we do think a lot of those brands will still perform well during the economy. But we do think volumes would have to be impacted over the next 6 quarters.

Another big topic, it's been a topic for a while but big topic this week, pricing. So in the context of a weaker consumer -- stretched consumer and under the prospects, the costs continue to rise, how do you assess the ability for companies, including Church & Dwight, to go back to the pricing well, if needed, if needed by costs over as we go forward?

Well, I'm sure many of you know that we've priced up 80% of our portfolio. In some cases, we've taken a bite of the apple twice. So laundry and litter, we've raised price in '21 and we just announced, it takes effect July 1 price increases for the second time in laundry and litter. As far as going back to the well, it's more likely that we and others will resort to pack size changes. And so instead of 8 ounces and 7 ounces or size of the box or the container is smaller that requires CapEx and retooling in order to pull off. So I think that would be the next logical shooter drop in 2023. And that's something we are preparing for now should we need to reach for that.

And in one great example of what's already out in the market is laundry, right? We compacted it by 10% for laundry detergent. And our competition as compacted within the last 12 months before that. And that's really no change to the consumer, right? The same dosing as before, just less water, smaller bottle. So that's kind of a win-win.

Is the -- is that bias towards pack size changes versus list price increases? Is that because the consumer can't bear it? Is that because retailers won't allow it, a combination of both?

Yes. Well, the easy answer is a combination of both. But yes, I do think that you're going to have demand disruption if more prices go up. The thing I'm sure everybody is worried about is stagnation or stagflation is prices go up, wages just go up and continue. It's very possible that in 2023 that wages will take another step up. Why? Because wages have not kept pace with inflation. And so consequently, we'll need to do that in order to hang on to your workers. But I would say it's probably a combination of both.

Okay. Mike, overseas is the same thing in terms of -- or is there more opportunities as you see it for list price increases?

Yes, we've been quite disciplined around list price increases, but I do think it's been a good opportunity to also partly in light of inflation, but also to manage kind of recessionary pressures on the consumer is use all the revenue growth levers. So how we think about pack and price architecture, mix management, trade promotion optimization, all those things are things we're focused on. But pricing has been a key lever internationally as it has been in the domestic market.

Yes, just one thing on pricing, Steve. Back in 2016, one of the first things that Matt did was we put in a pricing department, right? And so a 170-year-old company, and we only had a price department for about 6 years. But those folks have really added a ton of value. So we know more so than we ever have about our -- what tiers matter, what elasticities are, what the interactions are among competitors. And that group has been worth their weight in gold. And they inform us on every single price increase we do, whether it's list price or pack size changes or whatever, but we just have the capability that muscle is pretty well developed now.

You mentioned CapEx in order to drive some of these pack size change. Is that CapEx you've already budgeted in terms of -- are you building -- you've got those capabilities now? Or is this incremental need for CapEx to drive?

No, it would be baked into forecast.

On the supply side, the 90% to 95%, that's a global -- is that a global number or is that a U.S. number?

It's a U.S. number, but it's true globally as well because really going to remember most of the production that happens in the U.S. for export or the U.K. for export is that would be incorporated in that number. So, yes, is the answer.

Okay. And is there -- is it a -- should we think about that as a relatively smooth glide path or are there known bottlenecks to break through that really creates a step function?

Yes. Well, 90% right now, which is a great recovery and 95% by the end of the year. So there is going to just be a little bit more step change. I think one misnomer is that our asset-light strategy is the reason why we're having supply issues, right? 25% of our revenues are headed by third-party co-packers. And I would say most of the issues that we had from a fill-level perspective is more on the raw impact side. So our raw material suppliers. And that was the backup to the main supplier wasn't filling their role as good as we had hoped. And so now we have a backup to the backup. Those decisions take time to implement. So even though we said go 12 to 18 months ago, most of those -- I mean we've showed a slide at CAGNY in New York. We have a 20% increase in raw material suppliers in packaging and then a 20% increase in third-party manufacturing. All those changes would be online by late Q3. So that's a step change in my mind.

Okay. The -- you cited the sales per employee productivity number, which has been an attribute to the company for a long, long time, how much of that is true productivity versus Church & Dwight utilizing more third-party co-manufacturers, as Rick just mentioned or third-party partners versus someone who's more vertically integrated with in-house employees, can you benchmark that?

Yes. Well, some of it is in due to the fact that it's gets co-packed, but it's -- I'm sure a lot of people are presenting here this week have 15% or 20% of their products are made by third parties. So we're not unusual in that respect. But since I've joined the company, it's very difficult to add people and that's deliberate. Yes, so the whole idea there is that when you have your people, you're forced to prioritize. So you can only work on things that matter. We could easily hire a few hundred people, and they'd find something to do. That's just the way the world is. But yes, we're very focused on productivity. And our HR team is -- they are business people and they are focused on productivity. So I think they have a big hand in maintaining that edge that we have with respect to productivity.

Okay. As you plot out supply chain redundancy risk mitigation for the future, which I know is an ongoing effort, is the balance between in-house efforts versus outsourced efforts about the same?

Yes. No. Yes, that's a good question. When we say it's 25% today, long term, we'd like that to be higher because that is our model. In spite of what's happened during the pandemic and in spite of the fact that we see that the trend is to bring more in-house and put more iron in the ground and more CapEx, that is not the path that we're going to follow.

ESG. It's important for you guys. It's been notably important for a long time. It's -- I think only getting more important. To what extent as is your compensation structure, right? So to what extent is -- are there plans or thoughts to marry those 2 and make ESG part of the company's compensation structure?

Yes. That is in the works right now. We would expect that as early as 2023. We would have ESG in some respect tied to our compensation. And the question is, do you tie it to your annual incentive plan or do you tie it to your long-term plan. So that's something we have to sort out.

Okay. And is it -- also in terms of what level of the organization are you thinking about, just at the executive level or all the way through or combination? I mean what do you think about that evolution?

Yes. Well, the executives are the ones that can influence those the most expect not just the environment, but also diversity numbers as well. So I think initially, it may be more at the senior level of the company as opposed to the entire company. But that remains to be sorted out.

Yes. Okay. M&A. I guess, first, in terms of the strategy around M&A which hasn't really changed, but the company has obviously become a lot bigger in the portfolio a lot more complicated or maybe not complicated, but complex just in terms of number of brands and number of categories. Does that -- to what extent can the model -- how long can the model keep going, right? In terms of -- because you need to move the needle the same you did 10 years ago. You need bigger deals or more numerous deals. How long can that flywheel keep going before it becomes too difficult to manage?

Yes. Well, you got to look at us in the context of our peer group. We're a $5 billion top line, a $20 billion market cap. So you might say, "Hey, we need to do bigger deal," but we don't think that is a gating factor for us. So all comes down to meet the criteria. And if you look at BATISTE, we bought BATISTE in 2011. At the time you had $20 million in sales. Today, it's $200 million globally. It's #1 shampoo. So even though you might buy something small, that thing could be a good driver for you long term. And one thing WATERPIK that we acquired in 2017, that's got so much runway internationally because gum health is a trend, and we think that's going to continue. And at some -- one day, we think WATERPIK in outside the U.S. will be bigger than in the U.S. So I think it's a focus on whether or not you take the long-term, is this something that can be a long-term contributor as opposed to it's just going to be a 3% grower.

Yes. And in terms of like people and complexity, remember, we talked about sales per employee. We don't have that many people. So as we add these acquisitions, we typically do add some people. So as long as we're scaling in that way, we feel like the infrastructure, the backbone of the company, the back office, the supply chain, everything else is there just to keep growing module. So I would -- a lot of room to run on that perspective.

Yes. And just to add to that, if you think about oral care, so once upon a time, you had toothpaste and then the company bought a SPINBRUSH and then ORAJEL, oral analgesics and then WATERPIK and then THERABREATH. So it's all oral care. So you might say, wow, I got lots of brands, lots to manage, but you got an oral care business unit. You got R&D focused on that. And you're you can leverage your supply chain and your sales force. So even though it may seem like, Hey, you got lots of brands, where we group them so that they're easily managed.

Yes. What -- in this environment, do you expect more opportunity for M&A to emerge at some point over the next 12 months?

There's always businesses for sale. And I've been with the company since 2006, and there are always things to look at. Now we've had a droughts where we hadn't acquired anything. So if you go back to 2008 to 2011, 3 years, we didn't buy anything. But because in the U.S., we're regarded as a buyer as opposed to a shopper. The shopper goes to the mall tries in a lot of clothes and doesn't buy anything. So -- because we do buy things, we do hear about everything that's for sale in the U.S. We never wake up in the morning and go like, "Wow, I didn't know that was for sale. So we're certainly in the deal flow when it comes to the U.S. market.

What about overseas? Are you in the deal flow overseas as much as you'd like to be?

No, we're not as much as we'd like to be. And we have bought a couple of international brands, BATISTE we bought, that came from our European folks so they had that idea. And ANUSOL we bought from J&J. It's a hemorrhoid brand in 4 countries around the world: U.K., Canada, South Africa, Australia. And -- but I would say that's something we would like to hear -- do more of internationally.

Are valuation expectations from private sellers coming down at all or not yet?

No. No. People always have very lofty expectations. But how we approach deals is, I think, different than maybe a lot of companies. We're not focused on EPS accretion at all on a top 10 things to look at, that's #11. The things that we're focused on is cash earnings, how much cash is the business showing up? And can we grow that cash.

Okay. Do you expect -- I mean, at some point, you would expect valuation expectations to come down or pressure to build? So...

Yes. It's true, like private equity is going to have a much more difficult time borrowing, right? I think that's already the case now. And we've rarely -- we're going to lose to private equity because they don't have synergies and the cap about how much they can borrow. But yes, I think you're right. This time next year, as the recession deepens I think valuations could come in a bit. And then if you think about that, if you think about the drought from 2008 to 2011 that was right after the last recession for context. But there are things for sale, for sure.

Okay. Just a couple of minutes left. And one of the things, I think, you guys have made like the biggest strides in versus peers over the last 5, 6, 7 years is digital competency, data analytics, not just e-commerce, but I can't say it.

Yes, I can't spell it either.

So just maybe a perspective from you guys on how you see that journey and how you see yourself versus aspiration on your digital competence and where the incremental investments go?

Yes. So back in 2015, 1% of our sales were online. So we were the basement. We were bad when it came to the online.

I didn't say bad.

No, I'll say it. We look at it. So, wow, we're really behind the pack. Now today, we'd say we're at the front of the pack. One of our expectations is that 3 or 4 years from now, that 40% of our sales will be ordered online. And if you say, what's it today? We say it's 15%, 16% is ordered online today, delivered right to your house. There's another maybe 5% or 6% that's ordered online and then it's click and collect, you go and pick it up. So you'd say you're at low 20s today as far as percentage order online. That is going to accelerate. So we've had that point of view for a few years now, which is one -- is a catalyst for what we're doing inside the company. Look, everybody's got complete information. So everybody comes up here today. We all know what's going on in the categories, the economic environment, its conditions are universal. It's a level playing field. The difference is your reaction time. And do you act? So we've been adding data scientists because we want to make sure that we can -- predictive analytics is embedded in our functions, particularly sales, marketing and supply chain. And earlier this year, we hired a Chief Digital Growth Officer, and she is making significant -- a significant impact on the company.

Almost out of time, but are there investments that are going in, in terms of -- we talk a lot about sales, marketing, consumer insights, kind of direct facing e-commerce to consumers. What about between you and your retail partners or between you and your suppliers? Have you leveraged technology more and in a better way to get closer and tighter in your relationships between up and down the value chain?

Yes. Just kind of a quick one for us, technology goes. We have 400 distributors that we manage. And so we're good at managing complexity. And what the international business has done a great job doing is putting in portals. So it's easier for the distributors to work with us. And we've done something similar on the supply chain side as well. And as far as all the other investments we might be making may not be technology-wise, but we aim to be the expert in lean within CPG. And 3, 4 years ago, lean, no one knew what lean was within the company. And of our 5,000 employees, 3,000 are in supply chain and they've done a fabulous job. Out of those 3,000 employees, 2,000 have already participated in the lean events. So that we think that's going to help us with respect to managing costs going forward.

Great. On that note, we'll break. Thank you very much.

Thanks, Steve.

Thank you.