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

Okay. So next up this afternoon, we are pleased to welcome back Church & Dwight. We're fortunate to have the company's Chief Executive Officer, Rick Dierker; Chief Financial Officer, Lee McChesney, and Executive Vice President and U.S. domestic President, Chuck Raup, with us. Rick, I know you have a lot of slides to get through, so no long introduction, and I will step away. Thanks so much.

All right. Thanks, Lauren. She's right. We have a lot of slides to get through. It's always good to set a new record each and every time we come to Boston. All right. So first and foremost, here is our safe harbor statement. Please take the time to read this. We do have forward-looking statements on our website. Okay. Who we are? Look, our Evergreen model is alive and well. And I'm especially pleased that in 2026, despite the volatile world that we live in, we've been able to have an outlook that encompasses the organic sales growth, evergreen model and adjusted EPS growth. So fantastic. Now remember, this is the output. Like there are so many things that go into this that make this work, and it's our productivity program, is our innovation program, it's the way our sales and marketing teams go to market. So we will go through this a bit more, but just really, really pleased with how we've hit our Evergreen model this year. We have strong performance over a long period of time, whether it's 10 years, 5 years, 3 years, 1 year for TSR. We're typically industry leading. Last year, we took a step back, like many in the industry did. This year, we are taking a big step forward. But how do we do that? We've talked about this briefly before, but what made Church & Dwight unique and different? Well, one of the things is we do our organic growth fantastically well, right? And we have the ability to identify, acquire, integrate and grow acquisitions. We can do both. And so if you look at net sales up into the right over the last 20 years. Same thing with earnings, same thing with free cash flow up into the right. Organic growth at entire time has been about a 4% CAGR. So we can do both of those well and it creates value. We're a $6.2 billion company, about 3/4 in the U.S., 18% international and 5% for SPD. We have 7 power brands, and those 7 make up 75% of our sales and profit. That's why we talk about those more than any others. We have a winning formula, a balanced and diversified portfolio. We typically do well in any economic environment, low private label exposure. It was low previously. Now it's even lower. Online success, strong, consistent category innovation and we're an acquisitive company. So about half of our business is household, half of it is personal care, about 1/3 of its value, 2/3 of its premium. So again, we do well in most economic environments. Low private label exposure. I think now really, if you take a big step back, one of the threats to consumer goods and really food, different industries, is the rise of -- I don't even call it private label, I call it store brands. And the good news for us, we were industry leading with our weighted average exposure being around 11% or 12% for many, many years. After we sold our vitamin business, that dropped all the way down to 5%. So we are positioned well versus the rest of the industry against private label. Number three, online success. We've gone from laggard to leader. 2% of sales back in 2016 now 25% of our consumer sales are sold online. Strong, consistent category-leading innovation across categories, THERABREATH toothpaste, Hero, cleansers, ARM & HAMMER laundry, cat litter, stain fighters, Trojan. So just a really broad base of category-leading innovation. And that is why tend to get great distribution points. This year, we were #2 across the entire industry on distribution points gained. A big reason for that was our innovation pipeline. We're an acquisitive company. We really do. We have an ability and a competency of identifying and acquiring, integrating and growing brands. And many companies want that strategy, but we have decades of experience doing it. We want primarily #1 or #2 share brands. We want high-growth, high-margin brands that are fast-moving consumables, asset light. We want to leverage our internal Church & Dwight manufacturing, logistics and procurement capabilities. And we also want to deliver sustainable competitive advantage. And we've gone from about a $1.5 billion company back in 2004 to a $6.2 billion, $6.3 billion company today. And I wanted to provide a brief update today on our most recent acquisition, which is Miss Mouth's. So this is a broad spectrum of brands, right? We have a portfolio for Miss Mouth's. We have sprays, we have refills, we have pens, wipes, shoe cleaner and laundry detergent as a small business. So we just think this is such a fantastic brand. Look at household penetration. Miss Mouth is 2.5% household penetrated, 50% is the category. 25% is OXICLEAN. So we just have a lot of room to run. Distribution points, a similar story. It was really only distributed online a year ago. Now it's in 2 other bricks-and-mortar retailers, but we really believe we can use our distribution muscle to help expand this to other classes of trade. And it has a great category story, not just for retailers, but for consumers. I mean it's growing the stain fighter category. Category is up 10%. It's because Miss Mouth is up around 50%. And here's the point about bricks and mortar. It's been largely incremental as we've expanded this business, right? A year ago, it was only in 1 online retailer today. It's actually a 13 share at 1 retailer already. And look, this is a real problem solution brand. When we were doing diligence on this business, we came across this video that they shared with us, and over 25 million views. And I just want to share this magic moment on Miss Mouth. So please roll the video. [Presentation]

Not at -- some of the best advertising oversee is unintentional, and that is unintentional. And there's a bride still wine stain on her wedding dress, right before they're going to take pictures and that wedding photographer fixes it in a minute. And not only is it problem solution, it actually is a magic moment, you can see it before its eyes. And so we just think that's fit for purpose. Okay. Back in January at CAGNY, I walked through some of the growth initiatives. And I said, look, U.S. category growth was slowing in general, like our categories have grown around 3% for many, many years. And partly because we've got to choose what categories we entered as we did M&A. But if categories were slowing to be 2% or 2.5%, we said, look, consumer confidence is also weak. Those 2 things put together, we want to make sure we're owning our future. And so even if categories slow, we want to be able to make sure that we're growing and hitting or beating our evergreen model. And so we put these 3 initiatives in place. The first one was to grow our ARM & HAMMER business, our aspiration is to go from $2 billion to $3 billion. We want to drive our oral care expansion from $1 billion to $1.5 billion. We want to scale our international business from $1 billion to $2 billion. And so here's a quick check-in on those initiatives and just to discuss it again, but we're going to provide a more detailed update in January at our Analyst Day. So over a long period of time, I usually use this slide to talk about M&A. We had one power brand in the year 2000, that was ARM & HAMMER. And then all the green bars were all those businesses that we bought and brands we bought over the past 20 years or so. What's unique, though, is the orange bar. The orange bar is ARM & HAMMER. So it's gone from $1 billion to $2 billion, a little over $2 billion plus over the last 20 years or so. And so now the journey is about going from $2 billion to $3 billion. And we're going to do that a few different ways, but we have a lot of reasons to believe. It's proven that ARM & HAMMER equity can go across categories. We've launched into these big categories, and we've been very successful. We have a master brand that is so well known. It has brand equity that's right up there with these other common brands that you see in your everyday life. And then finally, we have some ARM & HAMMER halo effect for advertising. When we advertise, laundry, it helps toothpaste. When we help -- when we advertise toothpaste that helps our litter business. So ARM & HAMMER advertising is so synergistic. And many companies want a mega brand that can go across these different categories, and that's the strategy. I would say we already have one. We have a brand that goes across categories. It's known for cleaning, known for deodorizing, it's premium in some categories, it's value and others, it's personal care in some categories, it's household and others. So it's really a collective brand that can do many, many things. And so I said, hey, here are the 4 areas we're focused on. One is we're going to grow the core. And we're going to keep doing what we've been doing for many years on laundry and litter. We're going to invest in innovation, invest in distribution. We're going to continue to grow that business. Number two, we're going to round out the portfolio on good, better, best. In certain areas, we need to make sure we're play at different price tiers. And then number three is really the work we've been focused on the last year or so is all the new category work. And then 4 is when it makes sense, what brands get launched by a third-party partner licensee and then they get to such a scale that then we take back and grow exponentially from there. Remember, the most common uses of vacancy, there's over 100, right? It's not us trying to put our -- and drive consumer behavior. Consumers are already using using baking soda for all of these needs, whether it's cleaning, deodorizing in the kitchen, the bathtub and the toilet, removing stains and the list goes on, deodorizing. And so the kind of the brief update is we took 3 different groups of people. One group was our NPD team. And they spent a lot of time doing the drill sites of the category where we have the right to play and win. The second group is kind of a high-potential mid-level management group within Church & Dwight. And again, they spent months and months on this problem statement and came back with some recommendations. And then third, we had a third-party external consulting firm come in and do the same thing. And the good news is with all that work that kind of coalesce around a similar handful of ideas. And I think what I would leave you with today is we're going to launch into one new category in 2027, and we'll go through a lot of the detail on that in January. But we're super excited about all the work that's gone into this, and I can't wait to share more. We're driving oral care expansion through THERABREATH. That's the second growth initiative. And look at this, mouthwash is a 12%, household penetration for THERABREATH these days, and it's 65% for the category. So again, a lot of room to run. Even as the #2 mouthwash, we still have upside on distribution as well. We want to be in large categories, Toothpaste and mouthwash, $2.4 billion for mouthwash, $4.8 billion for toothpaste. We want to -- we care a lot about getting a share point in these types of categories. And we're off to a good start. And our target for 2026 was to get a one share in THERABREATH toothpaste, and we've done that. And Chuck will talk through some of the success we're having. And then finally, international growth through M&A. Everyone knows our story on international growth, really consistent, high single-digit growth organically for a long time. We've been able to scale some of these brands like Hero and THERABREATH. We're working on scaling touch. It takes a little bit longer because of regulatory requirements, and we think we can also scale this mouth globally, not just here in the U.S. PAUSE And I'm probably -- I alluded to it on the last earnings call, what's different. And one of the things that's different is the way we do M&A internationally. 2 years ago, we put some M&A folks in Europe and Asia. And for the first 12 months, we didn't make much progress. What changed? We changed the accountability and responsibility of M&A to the country leaders. And when we did that, and then the M&A folks support that. But when we did that, all of a sudden, the paradigm shifted. And we've gone through almost 100 different deals to the filter in Europe and Asia now. We have a good cadence of going through the pipeline. So I'm really optimistic about international M&A. It's not a matter of AF just when. Okay. Let me turn it over to Chuck to walk you through the categories and the brands.

Thanks, Rick. As we look at the U.S. portion of Church & Dwight's business for our evergreen model, we're targeting 3% organic sales growth. And where this growth is going to come from is the 7 power brands that Rick just talked about. Now what's really fantastic about these power brands is the fact that they play in very strong categories that have shown historical growth. And in fact, through the front half of 2026, the average growth rate across these categories has been about 3%. Now not only are we playing in advantaged categories, but we're also able to grow volume, which is very difficult to do in an environment where the consumer is pressured and there's heightened competition. In addition to that, we're leading our peer set in distribution growth. And so as we look at our TDP growth year-to-date, we see that our TDP percent change through the front half of the year is second amongst our peer set. And not surprisingly, but very encouragingly, this performance has led us to great success with our customers. So in 19 out of 20 of our top accounts, we are growing sales. So let's take a look at some of the categories that are driving this performance. First, in laundry. Through the front part of the year, we've been able to grow share slightly and outpace the category at 2.5%. Now we are able to do this in an environment where promotional activity went up for the category, but we actually went down for Church & Dwight. And this strong performance has led us to historical share levels of 14.5% which has enabled us to retain our position as #1 in wash loads. Now that's exceptionally important because if you think about that, that really underscores the strong role that we have in the everyday lives of our consumers. And as we move forward to delight our consumers and deliver superior value, we're going to leverage our good, better, best strategy. And so at that base good tier, we'll continue to deliver that great fundamental ARM & HAMMER clean. In the better tier, what we're doing is we're adding value through things like OXICLEAN addition to the formula. And then we're offering premium products like Deep Clean in that best tier. Moving on to litter. We're having a great year on litter, and we're strongly outpacing the category. And what that's really behind is twofold. One, we are doing well in our good, better, best strategy in litter as well. And in our better tier, we introduced a product called Dual Defense, which offers superior odor management. Additionally, in our lightweight segment, we have our hardball product, which is a superior product versus competition. The hard ball product has a 49% repeat rate, which is 15 points above the competition. And so as we look to continue to drive hardball, hardball is at about an 8.5% share of lightweight litter. Just moving up to 27.5%, which would be our fair share of lightweight litter represent a $75 million opportunity. Moving on to THERABREATH. As Rick said, THERABREATH is a shining star in our portfolio. And through the front half of the year, we've grown about 21%. And so we are the ones that are driving category growth. This performance has led us to historically high share of just under 25%. And as Rick talked about, we have significant upside in driving brand awareness, capturing additional shelf space and driving THERABREAT penetration up to category levels. And for our PACE launch, we're very happy with the results that we're seeing in PACE. A few key statistics. First, 65% of our sales are incremental to the category. And so what that shows is consumers are willing to trade up and pay more for a premium oral care product like THERABREATH. Additionally, we're a #10 toothpaste brand already. And then for our online stores, we're at 4.6 out of 5 stars, which is very strong. So it's great to see that instant positive consumer feedback. Moving on to HERO. For the acne category, the acne category showed strong growth through the front half of the year, growing about 5%. And that's about where HERO was, just a little bit below. Now what we have seen is that there's growth -- strong growth in products outside of acne patches. And that underscores why our strategy to meet consumer needs across the acne life cycle is very important. And so what are we doing with that? Well, we just launched our cleansers. We have products like our MicroPoint that's for that initial red bump before you fully get the pimple. We have our Mighty Patch original for when you actually do have the pimple. And then we have products to address the discoloration once the Pipple is gone. And so what we're going to continue to do is to drive these products and also innovate and find new ways to meet consumer needs across that acne life cycle. In addition, we still have upside to drive that Mighty Patch original and continue accelerated growth. And so as we look at from a share perspective, we're right at about 10%, where the acne category is about 30%. So a ton of headroom. Additionally, given Hero's performance, we want more shelf space than we have right now. So much THERABREATH, there's upside in capturing shelf space that's more representative of what our brand delivers. Moving on to Touchland. So for Touchland, we're a bit behind where we thought we want to be. But the fact is we're very excited about this brand, and there's a lot of reasons to be enthusiastic about Touchland. First, it's #1 in hand sanitizer. Second, it's at a 6% penetration. The category is at nearly a 46%. So there's tremendous headroom to drive penetration. And as we've gone through this presentation, you can see that when we get a whole of a brand where there's significant upside and penetration and to really drive brand forward, we do quite well. Additionally, aided brand awareness at 23%, but there's other brands within this hand sanitizer category that's more up in the 70 and 80 level. So there's more room to drive our aided awareness for Touchland. And then finally, we're continuing to grow our TDP base which shows that customers are interested in driving the category with their breath. And then as we move outside of the U.S. we're going to see accelerated international growth. And you're going to see some more of that international expansion as we push forward into early 2027, and then we'll continue to do that in future years as well. Moving on to innovation. Innovation is a significant part of our growth algorithm. And really what we've done to make sure that we're delivering strong innovation is to revamp our innovation model. And so we used to be -- we used to use a single source innovation model. But what we've done over the past couple of years is we've gone to a multiple source model. That includes things like third-party innovation, classic NPD, white space and open innovation. And what this enables us to do is to, one, identify new consumer occasions that we can meet to drive accelerated growth and also lets us find new ways to meet those new consumer occasions. And this approach has really worked because over 50% of our current innovation now has been identified and it's developed through these other sources of innovative thought. And then as we look and market, our new approach to innovation or operated approach to innovation is really working. So we used to average about 1 point, 1.5 points of incremental net sales contribute to our top line growth. It's now around 2%. So in market, we're seeing those stronger results and we're seeing the incrementality of our innovation. And we're very excited about the products that we have in market. So we talked about THERABREATH toothpaste, new products in litter and also what we're doing for Hero. But we also have innovation that's supporting initiatives like our Good, Better, Best strategy in stain fighting and laundry. And what that looks like is things like baking soda fresh in laundry and also power sheets with OXICLEAN that give the consumer a heightened experience. Additionally, we're pushing -- we're developing and really marketing our Max Force item on OXICLEAN. And what that does is that takes our stain fighting power to a whole new level. So across our portfolio, our innovation algorithm and our way of working is really delivering, and we'll continue to leverage our innovation model, to drive new innovation across all of these categories moving forward, ensuring that we have a strong innovation pipeline as part of our Evergreen model. So with that, I'm going to turn things back over to Rick to talk about our international business.

All right. Thanks, Chuck. So same algorithm for this division, 8% is what we target. And remember, our international business is about $1.1 billion, right? Our aspiration is to get to $2 billion over the next few years. But today, about 1/3 of that is our Global Markets Group, which goes to distributor. The largest sub is Canada. International has a long track record of just success from a high single-digit perspective. And we're still under-indexed. I think we're early -- still in the early innings of international growth. About 18% of our sales, many other companies are a lot higher than that. As we take these brands across the world, they're starting to scale. We're at scale in many of these countries. So WATERPIK, ARM & HAMMER, OXICLEAN, we're leveraging from the U.S., BATISTE, [indiscernible] are brands that are really in our international business and do really well. And then THERABREATH, Hero, Touchland are ones that we are rapidly scaling. Hero, for example, we've already distributed out into say 5 different countries. We're the #1 patch in many countries already. Touchland is next in line. You heard Chuck kind of go through that detail. We have a lot of demand pulling for Touchland globally. And as we've evolved international, we're starting to get to the point where we can really do not just local manufacturing, but local insights. And we have great use cases in China as an example that we're doing, BATISTE and Trojan for that market, specifically in Japan, we're doing liquid OXICLEAN, made for that market. And then as we move on, SPD is a 5% evergreen model for growth. And that business is about 2/3 animal nutrition and about 1/3 specialty chemicals, $300 million business. And just a reminder, a couple of years ago, this was a very cyclical business, and it was up 1 year down the next. But we shut down about 2 years ago a business that was a lot of revenue but not much profit. And once we did that, you can really see the core of SPD is not just consistent, but just the definition of consistent, 10 quarters of growth through all this turmoil and volatility over the last few years. Okay. How we operate? I've gone through this slide many times, how we leverage brands. And Chuck talked about our categories and our brands, how we're a friend of the environment. We've walked through how we were one of the original sponsors of Earth Day. How we leverage people. We're a lean company. One of the benefits of being lean as fast decision-making, it enables execution how we leverage assets. We're an asset-light model typically. And then how we leverage acquisitions and good returns become great returns over many, many years as we have the ability to acquire businesses. But all of these things are also being enabled today with AI. First and foremost, we're training the entire organization. We have 101, 201, 301 classes. We've gotten each and every salaried employee access to the latest LLM models. And we're letting individuals really do their work in a more effective way. And then next, we're also doing massive projects across the enterprise. We're doing one on revenue growth management. We're doing one on content creation. We're doing one in R&D to help with formulation. We're doing some stuff in supply chain. So I'm glad to say that we're off the starting blocks. And how we really attack our e-com sales years ago. We went from 2% to 25%. I really feel like now that we're off the starting block. We're going to make this a big advantage for the company. And with that, I'll turn it over to Lee to walk through the financials.