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

Welcome to our next session. I'm Steve Powers. I'm the Head of Deutsche Bank's U.S. Consumer Staples franchise. And today, I'm thrilled to welcome back Church & Dwight to the conference. With us today are Chairman, President and Chief Executive Officer; Matt Farrell, Chief Financial Officer and Head of Business Operations, Rick Dierker; and the President of Consumer International and the Specialty Products division, Mike Read. Matt, Rick and Mike are going to lead us through a brief presentation, and then we'll use the balance of time for some Q&A. And with that, I will turn it over to Matt.

All right. We have our customary 80 or 90 slides that we'll go through in about 20 minutes. One public service announcement, Rick is celebrating his 15-year anniversary with Church & Dwight. Congratulations Rick, round of applause. Okay. Safe harbor statement. I encourage everybody to take a look at that after class today. I want to run through just who we are. Here's our report card to hold shareholder return 1 year, 3 and 5 years and also year-to-date, you see a pretty healthy -- our 3-year -- that's going to be a little bit difficult time, you may call in 2022. Here's our Evergreen model. I think anybody who's a long-term shareholder is very well acquainted with this. Our top line, we expect to grow 4% organically, bottom line 8%. That 8% has been the same for just all the years I've been with the company. It was about 18 years. And by and large, we hit that year after year after year. So we're very consistent. As far as our 10-year sales growth, you can see the 4% is our Evergreen model. You can see that more recently and starting 2017, we started a trend above the 4%, and we recently changed, however, remodel from 3% to 4% annual growth expectation. We focus on 7 power brands, formerly it was 14. We narrowed the store to 7. Why? Just to make it more easily digestible by investors, but the 14 brands are still very important to us. The 7 we pick is because they're large categories, growing categories and also global. And they represent 70% of our revenues and profits. So we're a $6 billion company. We are largely a U.S. company. So 78% domestic, 17% international and our smallest business is specialty products. That's our original business, bulk sodium bicarbonate and also we have an animal productivity business as well. Mike will talk to you about how we're expecting to grow that 17% in the future. And we're very balanced between household and personal care products. Our gross margin as a company is around 45%. Generally, the household margins are less than that, personal care are higher. And we are known as a serial acquirer. In the year 2000, the only brand we owned was ARM & HAMMER. And we had ARM & HAMMER from 1846 until the year 2000. Over the past 24 years, every other brand you know, for Church & Dwight, was acquired. And the short story, we have got 7 power brands today, and more to come in the future. We're always in the market for new brands. I want to bring up Rick now to go through the financials and a couple of other topics.

All right. Thanks, Matt. We've been in Europe for a week. Germany, Italy, London had a great visits with investors. And then we had a business review on Monday, which was a fantastic review as well. Our business is doing really well in Europe. And so we're capping it off with the conference. So thanks, Steve, for having us. So first, I'll go through the financials. I'm going to walk you through why we're winning as well. And then we'll wrap up and then hand it over to Mike. So our outlook for 2024 is a strong outlook, 4% to 5% revenue growth organically and on a reported basis, just, again, really strong. Gross margin is 75 basis points. We expect expansion, which is just on top of extraordinary growth a year ago over -- as we look back at 2019, pre-COVID levels of gross margin, we're approaching those levels as a company again. Marketing is 11%. That's what our outlook is, anywhere between 10% and 12% is what we've spent over the past few years, we think 11% is the right number. As you grow 4% to 5%, it throws off a lot more dollar investment, and that's what's happening right now. And then SG&A is flat as we're making investments in e-com, international analytics. EPS growth from an adjusted basis is 8% to 9%, which is, again, industry-leading and we'll go through those details in a second. And then cash from operations is well over $1 billion, $1.050 billion, which is just a strong year-after-year cash flow generating machine. So here's the track record for organic growth over the 10-year period. We've averaged over 4%. So it's not something that's new to us. We've been doing it for quite a while. And then in 2024, we estimate again to be 4% to 5% on top of the 5%, we had a year ago. Gross margin is just a hallmark of Church & Dwight. We believe the gross margin expansion is one of the most important metrics there is. Gross margin expansion leads to EBITDA growth, which leads to free cash flow, which is what valuation is based on, in our opinion. So as you can see in the slide, we were at 45.5% back in 2019. We have made some great progress this last year, 1.5 years. And in 2024, we'll be approaching almost 45%. So we have about 60 basis points left to get to our pre-COVID number. And then marketing, this is my comment earlier. We've ranged anywhere between 10% to 12% over the last few years. 11% is what we think the sweet spot is for the company. And EPS growth has been just stellar. If you look back at their track record, low double-digit or high single-digit EPS growth, and we expect no different in 2024. Capital allocation is one of the most important jobs that we have. And number one, far and away, is M&A. And so you've heard Matt say before, that in the year 2000, the only brand we had was ARM & HAMMER. And we've acquired every brand since then. So #1 is TSR from M&A, and we spend a lot of time, focus and the energy to do that. #2 is CapEx for organic growth and G2G, which is our productivity program. #3 is new product development, #4 is debt reduction; and #5 is return cash to shareholders. And we're not a capital-intensive company. We've averaged about 2% of sales for a long, long time on CapEx, partly because of our model. About 25% of our sales is manufactured by third parties. And we bumped up from a CapEx perspective over the last 3 years as we added capacity for laundry, litter and vitamins. And we expect by 2025 to get back down to 2%. So that's the financials. I'll just walk through a few slides on why we're [indiscernible] in this environment. Number one, we have a balanced portfolio value and premium. Number two, low private label exposure. This is a little unique to us, and we'll go through that detail. Number three, online success. We went from a laggard to a leader over the past 8, 9 years, and then strong, consistent innovation, one of our best years ever for innovation. And we're an acquisitive company. That's the backdrop for how we operate the company. So value and premium. For the last 10 years, we've been 40-60 split on value risk premium and it remains unchanged. So 37% value, 63% premium. So we do well in almost any economic cycle. We have low private label exposure. So this has bounced around between 11.5%, 12.5% over the last few years. But if you look even further back, it's been very, very steady at around 12%. So many companies in this environment are talking about the rise of private label. It matters what categories you're in. And for us, it's been pretty consistent. Steve Powers actually sends out a weekly or biweekly or monthly report on private label, every now and then I take a look at it and if you look at the detail, sometimes you'll see our private label exposure go down actually, which is just a good indication of that exposure that we have. eComm. This was my comment about laggard to leader. Back in 2016, we were 2% of sales. Now we're about 20% of sales. So we've progressed in a big way. $6 billion times around 20% is significant. And we believe this number is going to go closer to 30% and we're preparing the company for that over time. And innovation is important, not just one innovation, not just one category, but in many categories; in laundry; in litter; in BATISTE, our dry shampoo; our HERO Mighty Patch. Again, in laundry, for laundry sheets and vitamins and THERABREATH. So across many, many vectors, innovation is doing really well. This is our largest year of innovation that we can remember, 2% of incremental net sales. And we have clear acquisition criteria. So we really want to acquire primarily #1, #2 brands, high-growth, high-margin, and fast-moving consumable categories, asset light, we leverage our own internal manufacturing network or logistics and procurement for synergies. And then we deliver a sustainable competitive advantage year after year after year. So let's move on to the U.S. story really quick, and then I'll hand it over to Mike to talk about the international business. So remember, I talked in the financial section about our Evergreen model. And typically, we grow the company at 4%. The U.S., we want to grow 3%; international, 8%; and SPD, 5%. So I'll talk about the 3% for the U.S. So we've had a great track record of growth in the U.S. And why is that? We're -- it matters what categories you're in. So when we do acquisitions, we say no a lot of the time and we're very fussy. And so when we do say yes, it's typically because we want to get into a category. So our categories themselves are leaders and we've been in paving the way. Number two, we thrive in difficult environments. So that was the value and premium. We're doing well in any economic environment. And then finally, we have tailwinds from fast-growing acquisitions like THERABREATH and HERO. And most importantly, our categories are so strong. So this is our 7 power brands that are play in 8 categories. Look at the report card for the categories themselves. So a lot of green on the page and a lot of growing categories to be in. Categories matter. Market shares matter too and innovation. So throughout all of our brands, ARM & HAMMER, OXICLEAN, VITAFUSION, BATISTE, THERABREATH, HERO and WATERPIK are 7 power brands. And then the 2 that I'll deep dive really quick are THERABREATH and HERO. So there's a lot of room to run for the THERABREATH brand. So the TDP is on the left of the slide. And it just shows how much distribution points we've gained over the last 12 months. So a 57.8% increase. There's a lot of room to the second player -- in the first player in the category. And then household penetration. If we take a long view of the category, only 7% of households have THERABREATH mouthwash and that compares to over 60% for all mouthwash. So again, just a fantastic runway. And as a result, our shares are gaining rapidly. And our -- we just had an all-time record of 16% in the mouthwash category, not alcohol or nonalcohol, the entire mouthwash category, we're the #3 player. Now let's move to HERO. So HERO, a very similar story. We're getting distribution by leaps and bounds, 200% increase in HERO distribution. We still have room to run versus the market leader. And importantly, very similar story to THERABREATH, Hero is 6% household penetration. Acne is 22%. So again, just a great chance to continue to drive this brand across many, many households. And as a result, HERO is doing significantly -- just fantastic results on share as well. So 19% all-time share high last quarter. Now with that, I'd like to turn it over to Mike, who is running our fantastic international business.

Thanks, Rick. Thanks, Steve, for hosting us again this year. I appreciate that. I'm going to run you through the consumer story and then also our Specialty Products division. So from an Evergreen model perspective, our International division is looking to grow 8% organically a year. And just the way to think about we're about $1 billion in size, we break that into kind of 2 parts. One is our subsidiary markets: Canada, U.K., Mexico, France, Australia, Germany, those are direct to retail markets. The other 37% is what we call the Global Markets Group. So we operate with a number of distributor partners and service over 100 counties around the rest of the globe. If you look back over the last 15 years or so, it's just important to note where our growth is coming from. So the International division has tripled in size, but the global markets group within that has doubled in importance. So it is the fastest-growing part of our business. And then we're servicing that through 5 regional offices. We continue to build infrastructure in 5 different locations around the globe. Most recently, we've opened up an office in Mumbai, India. But again, we've got exposure in China, Singapore, Panama and London. We're continuing to build infrastructure and resourcing within those markets to support the growth in the region. I think probably what's most exciting about our business is we're still very young in our journey. So relative to most of our peer set, we've got about 17% of our businesses internationally. Many of our peers that have been at it a lot longer than we are, are somewhere in the kind of 50% to 60%. So lots of geographic runway to go. I think the really good news is our brands travel extremely well. So the way to think about how we leverage our brands as we extend out large U.S. power brands, OXICLEAN, ARM & HAMMER, VITAFUSION. We have a really strong international portfolio, BATISTE, STERIMAR, FEMFRESH and some other OTC brands. And we've been really leveraging our acquisitions. WATERPIK, going back a few years, one of our biggest brands in international and here on TheraBreath are rolling out really quickly. Our track record is really strong. So at 8% Evergreen model, in 2023, we had 8.5% we started strong in the first quarter of 2024. So again, brand travels really well. We're investing where our growth is. We've really got a strong track record. Specialty Products, we look to aim to grow 5% annually organically. It's about a $320 million business. We just most recently removed our MEGALAC business, which is a commodity low-margin business. But the way to think about it is 2/3 is animal nutrition. The rest is specialty chemicals. And essentially, we're focused on prebiotics, probiotics and nutritional supplements for what used to be largely the dairy industry. We've extended that out into kind of poultry, swine and cattle, but this is really the focus of the growth, not only in domestically in the U.S. but internationally. Internationally has been a focus. So similar to our consumer business, about 17% and last year grew at a 25% clip and is a big focus area and has a lot of commonalities in the markets that we're operating in the consumer business, which is why we put it together. And with that, I'll turn it back over to Matt.

All right. Okay, how we run the company? So 5 operating principles. I'll run through each one of them. First one is to leverage the brands. We believe we have brands consumers love, and generally, they're #1 or #2 brands in their category. I'm going to move to a friend of the environment. We all know that being a sustainable company does matter to consumers. If you -- one of the things we're pretty proud of is, we've been a friend of environment for a long, long time. So back in 1888, the company was producing cards that were put into boxes of baking soda. And this -- if you have these cards on eBay, by the way, if you're interested. This is called the useful birds of America. Anyway, here's the history of store in 1888. But if you move across the page here in the early 1900s, we were using recycled paperboard in our cartons. In the 1970s, we were the only sponsor of the first Earth Day. By the way, in 1990, 20 years later, we were still the only corporate sponsor. More recently, we started plant trees in the Mississippi River Valley. It's going to offset the CO2 we put into the atmosphere. But then most recently, we signed on to science-based targets where we're spending money in our plants to reduce the amount of CO2 we put into the atmosphere, and we've gotten a really nice scores. There's lots of rating agencies out there, they rate companies from this perspective, but we can see we've been AA for a number of years now. [indiscernible] to leveraging people. We have 5,500 people in the company. We have the highest revenue per employee, virtually anybody that's presenting at this conference. So a very talented bunch, in particularly with respect to eCommerce. Rick pointed out that we've gone from 2% to 20% over a short period of time. We have a extremely talented digital marketing team within the company. We think that 20% becomes 30% by the end of the decade. We have -- about 80% of our spend is digital advertising today. So you've got to get good at that. And by the way, half of our growth in the first quarter came from the online class of trade. That is where the world is going. We have a very simple compensation structure. It's 20% for each of these, net revenue, gross margin, cash and EPS. And then we have a number of strategic initiatives we want to make sure people don't lose sight of from year-to-year. And the gross margin being 20% of everybody's bonus, it promotes financial literacy within the company. So if you say you want to grow -- your gross -- expanded gross margin, 25 basis points annually, the short story is simply that you want $0.25 on every $100 of sales, you got to make it real for people. So we find that it works. And here is the ways we get gross margin expansion. Obviously, a good to great program, that's the name of our continuous improvement program. If you go around the horn here, supply chain optimization, a question of where is the best plant to make your product. New products generally have higher gross margins than existing products that they're replacing. And finally, when we buy businesses, generally we're able to [indiscernible] through cost synergies to expand the gross margin that came in with the acquired business. Next one is leverage assets. So we pride ourselves and begin to asset-light company. In general, the deadline across the page is generally 2% of our sales is what we spend on CapEx annually. You see a blip there for 2022, '23 and '24. What is that? That's where we expanded capacity primarily for laundry and litter. We expect to go next year in 2025 back to 2% of sales. So if you do the first 4 really well, you get really good returns for your shareholders. And if you do acquisitions well, you get great returns. So this is sort of our history, if you go back to 2004 through 2023, almost 20 years. Almost every year, we've done an acquisition. Not in 2023 because we were pretty fuzzy and we didn't -- haven't done any so far in 2024. So I'm going to wrap up here. So we have really strong fundamentals with respect to the current year, strong organic growth between 4% to 5%. Gross margin expansion, we're at the high end of our range, 75 basis points, 2% growth is expected. [indiscernible] from incremental sales from new products, doing a great job in the international, the fastest part -- growing part of our company as well as our eCommerce prowess, and we generated lots and lots of cash. So a very strong balance sheet, so we're poised to take advantage of any brands that come to market, not just in the U.S., but also internationally. We recently hired somebody who's here with us today. He's getting the street wet. So he's been with us 6 weeks and now we're trying to get into deal flow in Europe and Africa, we're probably doing the same in Asia. And if you have any interest, we have our European management team in the front row today, if you want to quiz them after class. So I'm going to stop right there and turn it over to Steve.

Great. Thank you very much. As Rick said, I know you guys have been traveling around Europe the past week as have I. And the #1 question I've gotten in, I think, every meeting is what's going on with the U.S. consumer. Is it resilient? Is it slipping? What's your perspective?

Yes. It all depends on which company is sitting in the seat. So all a function of what categories you're in. So if you look at our categories and look at what we talked about earlier, we don't have a large exposure to private label. So that is not an issue for us. The second thing is you look at some of the barometers. So we said, well, you're in mouthwash. We have the highest priced mouthwash in the category, yet the brand is growing week after week, month after month, and it hasn't slowed down. So it does depend on what you have in the categories and innovation matters as well. So when you have pressure on the consumer, in order to get the attention to the consumer or bring consumers who are loyal to other brands, to your brand, you have to have innovation. So the combination of; having a low exposure to private label, having innovation and broadly in many categories and having #1 or #2 brands does help. But we would say that if you look at our consumption numbers in measured channels, much across the board. We would say that our consumer in our categories has been resilient.

Okay. There's also been a lot of observation, QSR restaurants investing in menu pricing. We've heard announcements from Walmart, from Target from Amazon about investments back into consumables categories, which has prompted conversations are we going to end up in some kind of promotional deflationary environment to stimulate volume growth. What's your perspective on that?

Yes. Look, the retailer has the ultimate decision with respect to what the price is for our products. So that is up to them. So the practice of having retailers invest in price is not new. You do say that year after year in different categories at different times by different retailers. So I wouldn't call that out as being an anomaly. We read an article in the Wall Street Journal every year, the retailers are now pressing CPG companies. It's not new. It's -- and we're very strict about discipline, I should say, with respect to making price investments. Now looking ahead, we were early in increasing price in many of our categories. We've lapped a lot of our price increases. If you look at the last 3 quarters, we've had volume growth in Q3, Q4 and Q1. The worry is when -- if you have categories that's stagnant with respect to unit growth then what happens is then because you have all these public companies and in these categories, do people start reaching for the promotional lever to try to grow, that could precipitate price pressure, but it hasn't happened at this point.

Okay. Great. And maybe -- because I've gotten this question too, just a clarification of what we're seeing in the consumption data versus how you've guided. You've guided the quarter essentially to 100% -- the current quarter, it's 100% volume algorithm. That's kind of the outlook from here. The consumption data we're seeing is still showing some price flow-throughs, these price/mix flow through. How do we interpret that? Is there a disconnect?

Yes. I'll take it, Steve. I think in general, the majority of growth organically will be from volume for this quarter, for next quarter, for -- quarter after quarter. That's kind of our outlook. Is there going to be some slight carryover from pricing still? Is there going to be a slight positive mix impact? Sure. But the predominant growth is from volume.

Okay. Mike, maybe a question for you on sort of the markets of focus for your business internationally. You mentioned Europe and good business review this week. There's also been concern I've encountered about -- but what has been a very strong European backdrop start to erode as well. What are you seeing? And how dependent is your business on a healthy economic backdrop versus the distribution runway that you have?

Yes, I'd say from -- whether it's Europe or wider, we're seeing pretty strong resilience with the consumer as well. So we're not seeing a theme that is creating pause there. So our brands are performing extremely well in the categories where that resilience is in the U.S., it's extending out to the global markets. I think one of the things that it makes us unique at the stage that we're at, is we have a really strong portfolio of brands. We're quite disciplined about which ones we're putting where and we're emerging in a lot of different regions. So we're quite well diversified. So the degree that we've got any setbacks in 1 area, we have the opportunity to pivot and support another one. So what I would say is our brands travel extremely well around the globe. We're building and investing a lot of infrastructure to support those in growing regions. But so far, I wouldn't call it any consumer resilience themes of any concern.

Pivoting back to the U.S., 2 categories I mentioned, but didn't drill into, laundry and litter. They've been strong. Maybe you're -- and actually, we've seen some share acceleration for Church & Dwight in a positive sense, share gains. Just perspective on recent strength, and you've had good innovation success in both of those. Maybe just highlight how the response to recent product introductions have been.

Okay. Well, take litter, for example. We're strong in regular litter. We are not strong in lightweight litter. So last year, we launched on a limited basis HardBall, which is a plant-based cat litter. And it's just very different characteristics than the other clumping litters in the category and hard -- it clumps really hard, hard as a rock. So we're now expanding that out to more retailers in 2024 with good success. So that would be a contributor to the success in litter. The other thing about the litter category, we have a premium, and we have a value, a black box and yellow box. So if you -- even if you had trade down in the category, you can keep people within the brand from a black box to yellow box. For us, the laundry, we have 2 innovations this year. One is deep clean, which we did launch on a limited basis last year, but now we're going national. So that's just rolling out now. Naturally, there will be displays and coupons and trade promotion and those types of things to stimulate trial. The second one was laundry sheets. So this is essentially laundry detergent in a cardboard box. It comes in the sheet form. We launched that on Amazon last year, August of 2023 with great success, thousands of reviews, 4.5 rating. Our priority is still Deep Clean liquid laundry for 2024. Sheets -- though it is launching a limited number of retailers in 2024, probably more of a priority for next year. This year, we're completing our Good, Better, Best strategy in liquid laundry. Good is the yellow bottle, which is ARM & HAMMER. ARM & HAMMER with OxiClean is better. And then ARM & HAMMER Deep Clean is best -- Good, Better, Best. So the Deep Clean launch is important, not just for the current year, but future years because it could establish us in the higher tier, attract our existing consumers maybe to trade up or maybe we'll be able to gain share from competitors in the high mid-tier and the premium tier.

And investors are always watching that competitive dynamic in both categories. What's your sense of the relative overused word rationality of competition?

Are you talking about sold-on deal, for example?

Yes.

Yes. Well, if you look at the first -- take the first quarter, the -- not sold-on deal on Liquid laundry detergent was 34%. What's the high watermark historically? It's close to the 40%. It's high 30s, 40. If you look at litter, Same thing, it's 15% was sold-on deal in Q1. High watermark wouldn't be 20%. You have to go back a number of years, even pre-COVID to hit a number like that. But I would -- it is true that if you look at the trend over time, that the amount sold-on deal has been increasing. So liquid laundry that 34% we saw in Q1, it was 32% last year Q1. So it was a 200 basis point increase year-over-year. And even sequentially from Q4 to Q1, it was up 70 bps, similar story for litter. But still, in both categories, if you say we're that an index versus pre-COVID, it's still ramped in between 80% and 85%.

As you went through the 7 power brands and the relative health, one red spot on that red-green scorecard was vitamins, which is not a surprise. It's been an issue, been a struggle, both from a category perspective and the competitive positioning. Where are we today both from a category recovery perspective and with your businesses positioning within it?

Yes. Rick likes to quote one particular number with respect to vitamins.

Yes. I'll talk about the category. Matt can talk about the share. So just for a reminder, right, the gummy category has been a long-term grower for so many years. And then what happened? COVID happened and behavior by consumers changed. So in 2019, 2021, the gummy category actually doubled, right? So you had multiple years of growth happening in a one-hit wonder. And then we had flat, flat, flat growth over the last 3 years. And so yes, the category was down 5% this past quarter. We think the category is still fine in its feet. And so it's going to be a little while before the category normalizes because it doubled a couple of years ago. which is outsized growth. And some of those users are going to naturally migrate away. So Step 1 is category will return to normality. And as that negative growth starts to turn to flat, starts to turn to growth, that's when one other category piece of the story is stable.

Yes. And just numbers wise, Q4, the category is down 5%, gummy category. Q1, category down 5%. We were down at 11% Q4, Q1. So clearly, it's an issue for the company. Why is that? Well, if you go back to COVID times, we had problems supplying our retailers. That continued into 2023, unlike many of our competitors. We got punched for that. So with respect to 2024, we lost -- with resets, we lost shelf space. We have lost shelf position. And if you are at that level we can move down on shelf. No interest in taking new products, et cetera. So that is contributing to our decline year-over-year. What we started to do last year, we said, hey, we're going to have to do some things to win back the consumer. We've changed the packaging. We've changed the messaging on pack, our targeting, how much we spend on advertising. In some cases, we've offered more margins. Some retailers to try to improve our shelf position to the extent they punished us. So there are a lot of things we're doing to try to turn that around. The goal is by the time you exit 2024, that you've stabilized that year-over-year, your consumption, you are not down 11%, then you're flattish year-over-year, and that growth going into 2025. But all that's ahead of us to see if these actions are actually going to work.

Okay. Great. Now you went through a number of sort of reinvestment priorities, capability investments, advertising, eCommerce, analytics, R&D. The investment feels pretty full right now, pretty healthy across all the board. As you think about where the next dollar goes, you have, how do you prioritize investment across those buckets?

What do you think, Rick?

Well, look, this happens to us quite a bit. And when we typically over deliver and do better than we expect, the first stop on this train is typically marketing and advertising. And even within marketing and advertising, you can choose to fix a weakness or double down on the strength. And more often than not, we typically put more advertising behind the brands and businesses that are doing extremely well like HERO or like THERABREATH or Laundry or Litter. Even in Europe, we heard this week, how well HERO is doing in Europe. So there's many places to go for advertising. Beyond advertising, there's always things that we want to build capabilities on like eComm, right? We talked about how we think it's going to go from 20% to 30% over time, like analytics, like international infrastructure as we continue to build out and accelerate growth there. So those are a few examples.

Okay. And on that, maybe on the last point. So Mike, your perspective on how hard you have to fight for capital relative to the U.S. priorities? Do you feel like the business has got that right that you're getting the funding you need and, et cetera?

Blank check, right?

Blank check, yes.

No, look, I think we're really clear as a company. The 2 big focuses are international and e-com development in those 2 intersects. And so we've got to be smart about where we're investing and how, but we're -- it's a meaningful part of the conversation. We're getting strong investment to support the growth that we're expecting from the division.

Okay. M&A. Priority? Priority #1 for free cash flow. Free cash flow, look, Rick, how are you feeling? And Matt, how are you assessing the M&A backdrop?

Yes, I feel about that $1 billion of cash flow outlook.

Look, cash flow, CFO is $1.50 is our outlook. And then we have a couple of hundred million dollars of CapEx. So $800 million of free cash flow is pretty stout, and we're looking for destinations to deploy it.

And free cash flow conversion is always a good.

Yes. I mean a lot of companies target 100% or 90%. We, for a long time, our 5-year average was 118%. So we convert net income into cash flow in a really great way, and we believe that's what drives valuation more than anything. We do that through working capital management. We do that through being a low CapEx company typically because of our outsourced model. So free cash flow conversion is a very key metric.

Yes. Last year, I mentioned we didn't buy anything, but we did diligence for 5 different brands last year, 5 different auctions. We didn't pull the trigger on any of those, and we looked at a couple. So far this year as well, interest rates, obviously, are impact people look at EPA as accretion. Fortunately, we are unencumbered by that because we are focused on cash earnings accretion when we acquire a business and also that in relation to whether or not it's asset-light. So there's always things to shoot at. The issue is that our criteria is very strict and it served us well over the years. So we have very few misfires.

And as you mentioned, there's investments to bolster the capability to search or enter auctions overseas. Is that more a function that you see the market more conducive to deals externally or more a function that Church & Dwight is now ready to do those deals?

Yes. Yes, we have critical mass now internationally. We have strong management, some of the strongest people in the company are an international business. So consequently, when you write a big check to buy a business, whether it's in Europe, Central America or Asia, the confidence that we can acquire it and grow it. It's easy to write a check and acquire business, but our competency is target, acquire, integrate and then grow. So we're ready to do that outside the U.S.

The way you weren't before.

Right. Yes. That's right.

Great. With that, clock just hit 0. Well, okay.

Thanks for coming.

Thank you, all.