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

Hello, everyone. Thank you for joining us, and welcome to the Church & Dwight Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Mr. Rick Dierker, President and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

Thank you. Good morning, everyone. Thanks for joining the call. We had a strong second quarter and first half, and I want to start by thanking all of our Church & Dwight employees all around the world for executing so well in a challenging environment. I'll begin with some thoughts on the broader environment and then a review of our Q2 results. And then I'll turn the call over to Lee McChesney, our CFO, and when Lee is done, we'll open it up for questions. Starting with the broader environment. Conditions remain dynamic. However, our categories are growing ahead of our original expectations, and Church & Dwight is growing even faster. Consumer spending remains resilient. Our teams are executing with excellence, and we remain focused on offering high-quality solution-oriented products to consumers the right value. Our brands continue to perform exceptionally well, driving a second straight quarter of industry-leading organic sales growth. Turning to the quarter. Net sales increased 1.6%, which was ahead of our outlook. And organic sales grew 5.8%, almost 6 well above our 3% outlook. This growth was broad-based across all 3 divisions and was primarily driven by volume growth of 4.3% and positive price/mix of 1.5%. Adjusted gross margin was 45.4%, up 40 basis points, and adjusted EPS was $0.89, above our $0.88 outlook. Overall, this is a great result. And with the first half of the year behind us, it gives us great confidence to raise our sales, EPS and cash flow outlook for the full year. In Q2, we also completed the acquisition of the fast-growing Missmouth brand the #1 stain remover brand on Amazon. We're encouraged by the strong initial sales results from the brand since the June acquisition. And I'm especially excited about the growth opportunities for Mismouth over the next 12 to 18 months. In the second quarter, Westmound consumption grew over 50% and gained almost 3.5 share points. And we think this is just the beginning as household penetration for the brand is currently just 2.5%. And compared to the category, which is 50%. Additionally, ACV for [indiscernible] is only 35% compared to 80% for the category, which again indicates plenty of room to run on distribution. Innovation and distribution gains remain a significant competitive advantage for Church & Dwight. They were a major contributor to our industry-leading growth. We're confident that our relentless focus on innovation will continue to drive strong growth distribution gains at shelf and market share expansion. New product launches this year are expected to account for about half of our organic growth as we innovate in key categories across the portfolio. Consumption across our largest categories grew at 2.7% in the second quarter, which exceeded our category growth expectations of around 2%. Now I'm going to turn my comments to each of the 3 divisions. First up is the U.S. business. Domestic organic sales increased 5.1% with sustained growth in both of our household and personal care portfolios. Growth was driven by volume and favorable price mix with strong performance from THERABREATH mouthwash and toothpaste, Hero, ARM & HAMMER Catletter and Zicam. The [indiscernible] brand had another quarter of growth with laundry maintaining record shares across total laundry. ARM & HAMMER laundry detergent consumption and category consumption grew about 1% in the quarter despite a step-up in competitive promotions and a lower level for ARM & HAMMER. The value segment of laundry continues to grow. Next step is [indiscernible]. Continued fantastic results as ARM & HAMMER cat litter consumption grew a robust 7.5% and share increased 0.8 points to reach 2.5. While category promotional levels declined slightly, they remain at historically high levels. ARM & HAMMER Cat Litter launched dual defense Microban clubbing letter earlier this year, and that launch continues to do very well. Hero and Therabras continue to contribute considerably to overall performance. Their breadth achieved another quarter of record share gains, jumping 4.5 points to a 25.3% share and further solidified our #2 position in total mouthwash. Even with that growth, household penetration remains relatively low at only 14% compared to the mouthwash category of 65%. Our Thera breath toothpaste launch continues to perform well and it's still early in the launch. It's off to a great start with a 1 point share in total toothpaste despite only just fully entering brick-and-mortar in the last several months. Pro consumption outpaced the patch category and with the cleanser launched just starting now, we're confident in hero continuing to gain share in total acne. Facial cleansers represent a $650 million category and accounts for approximately 30% of the total acne category. Lots of runway as Hero has, again, relatively low household penetration at 10% compared to the category of 30%, which gives us confidence in the continued growth of this brand. For Touch lens, sales grew in the second quarter and with back half weighted innovation, new collaborations and activations, we expect continued sales growth in the second half of the year. Looking forward further, our international expansion, our innovation categories and future distribution opportunities continue to give us confidence in this brand as we look to 2027. Global e-comm was once again a strong contributor Global e-commerce grew 22.7% in the second quarter, and global online sales now represent 25.5% of total consumer. Turning to international. Q2 is another great success with our international business delivering organic sales growth 9.1%, driven by higher volume and favorable price mix. Our great international brands are leading to share gains and growth that outpaced local countries GDP. In addition, our recent U.S. acquisitions are paying dividends across the world in a big way. where brands like Hero and their breadth are driving outsized growth. Our ability to scale brands to so many countries so quickly is getting better and better. Overall, our international team is executing very well. Our Specialty Products division also performed well. We're getting sales growth of 2.8% due to a combination of higher volume and higher price and product mix. I'll close by saying that we were very pleased with the great first half. The benefits of our strategic actions in 2025 are enabling greater focus on our growth initiatives. I am especially pleased with the time the entire organization is spending focused here on the future. Momentum is building. The category works surrounding ARM & HAMMER, our acceleration plans for oral care behind there breadth and the pipeline for M&A within the international business are just a few examples. I'll provide a detailed update in early 2027. But I'll say more, but I will say I'm more optimistic about the future than I've ever been. I'm also very proud of our Church & Dwight as we continue to execute well in a volatile environment. And with that, I'll turn the call over to Lee for more detail in the quarter.

Thank you, Rick, and good day, everyone. We appreciate you joining the call. As we now enter the second half of the year, we are encouraged with the results fueled by innovation and share growth, which provides us the momentum to deliver strong Church & Dwight Evergreen model results. The second quarter demonstrates the strength of our portfolio of categories, our leading levels of innovation and the execution capabilities of our teams around the globe. Similar to Rick, I also want to recognize our teams across the globe for their focus and execution this past quarter. Very well done. Let's get into the details. We'll start with EPS. Second quarter EPS -- adjusted EPS was $0.89 and exceeding our outlook of $0.88, stronger-than-expected sales and continued gross margin improvement fueled our results and enabled increased investments in our brands. Organic sales in the second quarter grew 5.8% and well above our outlook of approximately 3%. And growth was broad-based across the business and primarily volume driven, with volume growth of 4.3% and positive pricing and mix of 1.5%. Our Power Brands once again gained share fueled by well-received innovation and a robust distribution wins with our commercial partners. Strong organic growth and the contributions from our acquisitions more than offset the impact of our 2025 business exits and led to reported net sales growth of a positive 1.6% in the quarter, ahead of our expectations. Let's now turn to gross margin. Our second quarter adjusted gross margin was 45.4%, an increase of 40 basis points versus last year. Our results were driven by 150 basis points from productivity programs, 110 basis points from our higher-margin acquisitions, combined with the impact of our successful portfolio actions and 180 basis points from the combination of volume, price and mix. These factors offset the headwinds from inflation, tariffs and transportation of 400 basis points. We continue to invest in our brands in the second quarter as the marketing expense was $165 million, up $8.2 million or 40 basis points versus last year. And similar to our strategy in past quarters, when our sales and gross margin results exceed our original expectations, we will utilize those opportunities to invest in our brands. Adjusted SG&A was $241.4 million or 15.8% of net sales, a 220 basis point increase versus the prior year. As we've noted in our 2026 outlook, SG&A in the first half of the year is primarily growing to the inclusion of Touch lands SG&A and amortization expense. Adjusted other expense increased by $9.2 million due to the lower interest income compared to last year. Let's now turn to cash flow. Cash flow remains a significant strength of the company. And for this first 6 months of 2026 and Cash from operations was $462 million, an increase of 10.8% versus the prior year as we delivered improved cash earnings and executed disciplined working capital results. Capital expenditures were $61.8 million in the first half, and we continue to expect full year capital expenditures of approximately $130 million or roughly 2% of sales. Let's now turn our outlook to the outlook for 2020. And as detailed in our press release this morning, we are increasing our sales, earnings per share and cash flow outlook despite the challenging macro environment. This improvement reflects the strength of our operating fundamentals, which is led by volume-based organic growth, steady market share gains and management's focus on gross margin expansion. Our outlook continues to reflect the impact of transitory cost pressures that developed over the past 100 days. Our latest outlook of approximately $30 million reflects raw materials, transportation costs and various premiums resulting from the conflict in the Middle East. And this outlook assumes a crude oil price of approximately $9 a barrel. Our teams have acted to fully mitigate this headwind this year through increased productivity. And separately, on a positive note, we expect to receive approximately $15 million of Phase 2 tariff refund benefits during the second half of 2026. We will invest these proceeds in primarily customer consumer-facing business activities. We are raising our full year organic sales outlook to approximately 4% to 5%, up from the prior outlook of 3% to 4%. The improved outlook reflects the strong first half execution and the continued momentum across the portfolio during the second half of 2026. And we now expect to adjust gross margin expansion of approximately 100 to 120 basis points for the year. and marketing investments is now expected to be at or above 11% of sales as we invest behind our brands and continue supporting our growth initiatives. We are raising our adjusted EPS outlook to a growth rate of 6% to 8% and versus our prior expectation of 5% to 8%. And we also now expect cash from operations of approximately $1.175 billion, up from $1.15 billion. And turning to the third quarter. we expect organic growth -- sales growth of approximately 3% and an adjusted EPS of approximately $0.89 per share, representing approximately 10% growth versus the prior year while we also invested approximately 12% rate of marketing as a percentage of sales. So to conclude, we are very pleased with our first half performance and are confident in our ability to deliver our improved outlook for the balance of 2026. Our portfolio remains strong. Our brands continue to gain share, and our teams are executing well in a dynamic environment. Operator, we are now ready for questions.

[Operator Instructions] Your first question from the line of Rupesh Parikh with Oppenheimer.

Congrats on a nice quarter. So just going back to the organic sales growth delivery for the quarter. Just curious, at a high level, what are some of the areas that drove the significant upside that we saw on that line item?

Yes. Thanks, Rupesh. The good news is it was pretty broad-based. But as we said in the release, I think air breadth, cat litter, I'd say ARM & HAMMER laundry was kind of flattish. Anything else you would add, Lee?

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

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

Yes. I think it's a little early to do that. I mean we just bought it in June, early June. I would say a lot of work is going on to integrate and then accelerate this business. And I don't think we've been more excited about an acquisition in a long time. There's 5 individuals that came over. They've talked right into our fabric or business. We know Fabric Care really, really well. And retailers, our internal sales force are clamoring for this brand. So it's already at a 13 share at a major retailer, and it's only been there for a few months as 1 example. But I'd just go back to household penetration 3, it's 50 for the category. Probably the right time to talk about our North Star on growth ambitions is probably early 2027, but we think there's a lot of enthusiasm around this math.

Your next question comes from the line of Anna Lizzul with Bank of America.

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

Yes. And on your second one, are you talking about there breath? Or are you talking about touch?

Sorry, breath, you're right.

Well, on laundry, look, laundry in general, -- the good news or really the great news is despite a significant increase in promotion. I'd say we're back to historical levels of promotion and laundry. The category was up 200 basis points Henkel was up 1,100 basis points and Procter was up almost 200 basis points as well. Church & Dwight was down 300 basis points on promotion. And so despite that, the value segment grew, and we maintained our share. So just the world we live in these days, ARM & HAMMER is so well positioned for growth. there's a lot of couponing that happens off of the off channel as well, and our competitors are spending on couponing, of course, as well. So ARM & HAMMER to hold share in an environment like that is fantastic. Over time, we'll make sure that we're at historical levels of promotion as well. So a lot of optimism on ARM & HAMMER laundry, especially behind our innovations. Like we have a good, better, best strategy, and I'd say each of those tiers within laundry are doing well. Even our sheets as TiVo launches, and take shelf space and money behind it. We're the #2 player in the sheet space. So our sheets are up 30% as well, and we're going along for the ride, which is great. So that's on ARM & HAMMER. Laundry. On THERABREATH, I would say, again, number 2 mouthwash, lots of runway. Consumption grew at 20% plus. We grew 4.5 share points to 25%. We're less than 1,000 basis points from the market leader who's Listerine. Our household penetration is still relatively low at 14 compared to the category at 65. That is enabling us to go into other parts of oral care like toothpaste, like we never deserved the space that we got for THERABREATH toothpaste, but because of the success of the mouthwash, we got some premium great shelf space. And as a result, we have a great brand with a great value proposition on fresh breadth and cleaning. -- and it's doing extremely well, and it's already at 1 share point. So I couldn't be more optimistic about our oral care franchise behind THERABREATH.

Your next question comes from the line of Chris Carey with Wells Fargo Securities.

Okay, great. Sorry about that. So I wanted to start with the oral care portfolio and specifically the THERABREATH rollout. You said that you're getting more than your fair share out of the gate. I wanted to -- I was wondering how you think you're tracking relative to the ambitions that you outlined at the Investor Day, I think it was an incremental $0.5 billion. Do you feel like you're starting out stronger than expected? And was that shipment for that launch, a bit stronger in the quarter than perhaps what you anticipated. I was surprised you didn't call out some of the key drivers of organic sales. Is that something that we should be mindful for going forward, given the quite robust personal care implied organic sales number this quarter? And I have a follow-up.

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

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

Yes. Yes. And you really had asked in terms of the growth initiatives, it's kind of early to talk about how it's doing for the first the growth initiatives laying the groundwork is what I would say. Not just in oral care, but all the Arm and HAMR stuff, too. But that groundwork and the momentum that we're starting to build is fantastic.

Okay. The second question is I think this is 1 of the highest inflation numbers that we've seen over the past 4 years or so. How quickly did that develop for you was that freight and logistics inflation that happened quicker than you anticipated? And should we be expecting about that kind of number as we go through the rest of the year with that Q2 more of an anomaly. And I'm also struck just by a bit stronger price mix contribution to both top line and gross margin -- is there a bit of a step change in thinking about how you're going to be covering inflation this year with pricing? Or is there a bit of mix dynamic in that number as well?

Yes. So keep in mind, when we talked about the $25 million to $30 million of kind of Middle East derived inflation, our outlook in 2Q said it was going to be higher in 2Q. There is some transportation costs that were going to happen right away, and then you get time to respond to it. Our productivity issues that we we kicked off accelerated to mitigate that. We definitely would be more back half. But -- so it's a combination of 2 things. That number should drop down because there's just some anomalies in the second quarter. And then we have essentially more productivity in the back half. So we have this outlook of 100 to 120 basis points of gross margin improvement. You can see where we are halfway through the year. That implies that the gross margin will expand over 100 basis points in the back half of the year. On the price volume mix, that's a good number. Obviously, we always say never overreact to 1 quarter. The first quarter was just slightly negative. Our mindset is to drive volume growth, and we do drive positive mix -- that's part of our algorithm. And then remind you, this year, we do have the benefit of the portfolio actions that help as well, and that will be a benefit all year.

Yes. And I'd probably say in the quarter, we don't spend as much on promotion on laundry, that helps. Year-over-year a little bit on the price side of Intel.

Your next question comes from the line of Bonnie Herzog with Goldman Sachs.

All right. I just had a question on your improved outlook for the year. You took up your top line growth guidance by 1 point and now expect higher gross margins -- and while you did raise the lower end of your EPS growth guidance, you did -- you kept the high end of the range. So I wanted to understand the drivers of that -- and maybe how much further you plan to step up reinvestments to drive sustainable top line growth ahead Also, if you could provide some examples of these investments and any changes you might be making to your strategy given the pressured macro environment would be helpful.

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

Your next question comes from the line of Peter Grom with UBS.

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

Yes. I mean the short answer is we're still assuming around 2% for category growth. We continue to do better than that as you saw in the last couple of quarters. I think that's a good, in general, walking around number for a while. Our our monthly consumption numbers in Q2 were just -- were fantastic. And June, was also good with the exception of Laundry as we didn't repeat some promotions in laundry. Sometimes, we choose to do that. We also had a club promotion that we didn't do at the -- in the quarter as well. So I would say we did that fantastic growth without really with flattish impact from 1 of our larger businesses. So I'm just, again, consumption is going really well. Shares are doing really well. It's broad-based to my first answer to kind of Rupesh's question early on. So there are a lot of things that are going right. So this is the right time for us as a company, especially because we're not distracted with some of those businesses that we've sold, Peter, we had the time to focus in the future. And so we're laying the groundwork for those 3 growth initiatives that we've talked about again and again and again. So a lot of internal time is being spent in the future right now.

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

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

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

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

Yes, I think it's a fair question, Olivia. I would just tell you, though, like look at our track record over the last not 1 or 5 a decade or 2 of how we compete in household, right? And we have a great ability to do that. And sometimes, it's trade promotion, hopefully, usually it's innovation, hitting the right price pack architecture and sizing you want to deliver -- like I said in my remarks, a great high quality at a value price for the consumer. And it just so happens that our brands or the intersection of that naturally. And so they have to -- competitors have to compete a lot harder than we do because we naturally fall in those intersections.

Got it. And then on Mismo, sort of similar to Hero with Air breast touch land. I know it's early days, but what do you think this mouth can bring to you in terms of discussions with new retailers, new categories, geographic opportunities as you sort of assess the ability to grow that business beyond where it is right now.

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