Matthew T. Farrell - Church & Dwight Co., Inc. Britta Bomhard - Church & Dwight Co., Inc. Steven P. Cugine - Church & Dwight Co., Inc. Scott Druker - Church & Dwight Co., Inc. Richard A. Dierker - Church & Dwight Co., Inc. Louis H. Tursi, Jr. - Church & Dwight Co., Inc. Rick Spann - Church & Dwight Co., Inc..

Kevin Grundy - Jefferies LLC Jason M. Gere - KeyBanc Capital Markets, Inc. William B. Chappell - SunTrust Robinson Humphrey, Inc. Steve Powers - Deutsche Bank Securities, Inc. Caroline Levy - Macquarie Capital (USA), Inc. Rupesh Parikh - Oppenheimer & Co., Inc.

Olivia Tong - Bank of America Merrill Lynch Jonathan Feeney - Consumer Edge Research LLC Jason English - Goldman Sachs & Co. LLC Andrea F. Teixeira - JPMorgan Securities LLC.

Okay, everybody. It is game time. And I want to thank everybody for coming today. Have lots of familiar faces in the crowd. We had a terrific fourth quarter and concluded another solid year at Church & Dwight. And our call for next year is 16% to 18% EPS growth.

This is tops among CPG and it reflects the efforts of our employees as well as the team that's here today, we're going to have the whole management team up here at the end of the show. There have been mixed results of late in CPG, as you all know.

And before we get into the formal program, I'd like to spend a few minutes recapping why we are a standout among CPG. So, we have a portfolio of brands that consumers love, and we have employees who are committed to making those brands successful. We have an evergreen model, which leads to consistency and a financially literate company.

We are lean, we like to keep it simple, and this enables two things, it's speed and our ability to adapt the change. I'm sure many of you heard us say in the past that we think change is our friend. And if you look at our portfolio, you get a little more granular. You'll see that we have a lower exposure to private label than most of the CPG companies.

And we also have a lower exposure to promotional categories. And finally, we make really good choices when it comes to acquisitions, and that results in us riding waves. And those waves include dry shampoo for example, gummy vitamins, hair thinning, gum health and you'll hear a little bit more today about alternatives to antibiotics.

And these are the reasons why we expect to continue as a standout in CPG. And if you were investing in the consumer space, there's no better place to invest than Church & Dwight. So, now I want to get into the formal part of the program. First is the Safe Harbor Act or Statement, I encourage everybody to read it. There is the agenda.

So, I've a one page short story. I'm going to run through who we are, state of the business, and what innovation we have coming in 2018.

Then we have three members at the management team come up, talk about our digital capabilities, our continuing great story in International, and also, educational part of the program today is our animal productivity story, which is a fabulous story.

And then we'd come back up, talk about how we run the company, and Rick's going to wrap it up with the financials. Okay, short story. So, I hit a few of these upfront, solid year. We have a lot of confidence in 2018 and beyond. Terrific results, all three segments are healthy.

And you see on the far right side, we're going to cover those three points later on today. All right. Who we are? So, we are a company with 11 power brands. Those 11 power brands drive 80% of our revenues and profits. All of our efforts are concentrated around those brands.

And we have a balanced portfolio between household and personal care brands and we have a thriving specialty products business. We also have a nice balance between premium and value products 60%-40%. And now, we're a small company, so we operate in the land of the giants, but that helps us. We are a very nimble organization.

So, the three things that enables us to do. We make quick decisions and not a lot of bureaucracy in our company, easy communication, and our ability to adapt. And we have a long history of growth through acquisitions.

You can see $1.5 billion in 2004, $4 billion we will cross in 2018, and 10 of those 11 brands that I talked about, they were all acquired since the year 2000. So, we are regarded as an acquisition platform.

So, we're a company that can buy a brand, help that brand to grow, bring some ideas and some operational efficiencies to the business, and we have a terrific track record with acquiring businesses, large and small. And we have access to capital, so we continue to do that. And we're very fussy about what we buy.

So, this criteria, many of you, and particularly our long-term holders know this very well; so we buy number one or number two brands, high-growth, high-margin, they need to be asset-light. If you go all the way over to the right, this is the way you can ride a wave.

You got to make sure you have a sustainable competitive advantage from the business that you're buying. And in 2017, we bought our 11th power brand, Waterpik. So, number one power flosser and number one shower-head replacement. So, if there's one thing to remember, we're a company with 11 power brands today, we're looking for 20 tomorrow.

So now, state of the business, which is terrific. So, you all saw this in the release this morning, Q4 up 3.4% organically, double-digit EPS growth, and a great quarter for cash. All three businesses are healthy, that's Domestic, International and Specialty Products, all growing. And here is our report card.

So we're pretty transparent about how we're doing with shares, show this to you every year. Seven out of our 11 power brands grew share in 2017, so terrific result. And if you look at measured channels and non-measured channels, look at category growth, so the Nielsen, the measured channels, we would say account for 1.7% of our all-in category growth.

But because non-measured channels are growing double-digit, that adds another point to what we would say is our all-in category growth. So, we would say the categories that we're in on a weighted average basis are growing. And that's a nice tailwind for us. I mentioned earlier that we have low exposure to private label.

You can see five out of our 14 categories have private label exposure, but generally they're very stable, not growing. Now, innovation, always a good story for us. So, SLIDE was a fabulous new product launch for us in 2017. So, we're going to build on that in 2018.

Also in 2018, for Clump & Seal lightweight, we're coming out with an unscented variant, this unscented is growing. In detergent, Odor is the new stain. So, we're taking our Odor Blasters concept and we're moving it across all of our variants in fabric care. Next up is gummy probiotics.

You know us as a gummy vitamin company, we're moving into gummy probiotics in 2018. First Response pregnancy kits, so if you're a hopeful positive, you're going to check once, you're going to double check, you're going to triple check. So, this product is doing extremely well, we just launched it.

And Batiste is a juggernaut for the company, continues to grow. Not only has our share grown, but the category has been a rocket ship for several years now. And why? Because, 80% of women do not wash their hair every day. Waterpik's got a couple of new products coming out. This is a really good one, convenience of whitening while flossing.

And then if you have a dog, you know what's like to wrestle a dog in a tub. So, we have a Waterpik Pet Wand Pro. I encourage everybody to get this if you have an animal, because it makes shampooing your pets a lot easier. All right now, I'm going to bring up Britta, Britta Bomhard has been with our company for 4.5 years.

She ran our European business for 2.5 years. In January of 2016, she came over and became our Chief Marketing Officer. So, she's going to have some fun with you now, and update you on our digital capabilities..

Happy Monday, everyone and particularly Eagles' fans. So, I'm going to talk a little bit about the digital capabilities we're building. And I thought I'd start by grounding ourselves. So, first of all, in 2015, 1% of our sales was online. In 2016, we doubled that to 2%.

And as you can see, in 2017, we really accelerated and now 5% of Church & Dwight sales are online, which from all the information I have, puts us in the top scale of our peer group. So, you might wonder what have we done, how did we get there? So, how did we accelerate? First is, we are and invest where the consumer is.

Secondly, we have a growing expertise in digital attribution models. And thirdly, we are developing our DTC skills. I'm going to take you through each of these topics one by one so you understand more what we're working on. So, first of all, how long do you think U.S. consumers spend online? Five and a half hours.

So, a lot of you might think that's not me. But, if you total up your phone usage, your computer usage, watching Netflix or being on the game console, that makes five and a half hours on average every day. So, what's important for us? We have to be where the consumer is.

And what do the consumers do when they're online? So, first of all, they want to be entertained. Secondly, they're looking for products, they're searching for product information, and then they shop. So, what we've done very deliberately is resource allocation. So, now more than 35% of our advertising spend is digital.

We make sure that every single one of our products has a great review and we're aiming, and the majority already has a 4.5 or above rating. And we've spend a lot of effort to bring more than 1,000 product pages to life, so that when consumers are online, they get great information about our products.

So, we are number one, for example, on Amazon, for baking soda, Trojan, First Response, Batiste. That shouldn't be surprising, because we're number one for those products also in bricks and mortar. But we're actually also number one on cat litter, which is much better than our bricks and mortar performance.

And then we have brands where actually the consumer online matches so well with our target group and where we work hand in hand and partner. We've great campaigns like the New Year, New Me campaign and we get extraordinary results.

So, in Vitafusion, our market share in the gummy category is more than 50% in Amazon; sets us apart from all our competitors. So, online presents a great opportunity for us. 24/7 the consumer can get our products. And let me illustrate that with a little example.

If you have a health and hygiene problem, you probably don't want to be seen going into store and some hygiene products are not readily available, not all retailers have it, whereas if you go online, that category is fully there. So, great opportunity for us to get full distribution on all our products.

Secondly, we learn a lot about the consumer in their online journey. You get great consumer insights, and also with that insights, you can develop better targeting, better messaging, and with that, better results.

Why should you believe me? We're actually at the point where we do predictive modeling, that's the lovely black box, and we've seen in the first couple of brands that we get sales improvement of up 12% versus last year. So, I'm sure you would love to know what's in our black box; obviously, I can't tell you.

But I will take you through the part that's visible. So, coming back to the Super Bowl and our competitors, and you might have seen ads about clean clothes or about one type of stain, which was I think avocado. Let me talk you through how we as the leader in stain management are actually targeting. Stains are much more complicated than you think.

So, now during Super Bowl time, you might have pizza stains, so you might have wet stains or whatever was on your Super Bowl menu. But when it comes to maybe March, April, better weather, you're going to actually have grass stains or dirt stains.

During the course of the year, different stains become more prevalent, and then actually there are different type of person. So, some people here in that room know how annoying these makeup stains are and some people in this room don't care about makeup stains at all.

And if you've been a new parent you know that for once spinach stains and carrot stains start to dominate your life, things you've never dealt with before. So, stains vary by the season, by the type of person you are and by your life stage.

So, let me see what I can show you on one stain, what we do with that, which hopefully applies to lots of people here, red wine – and it went dark, sorry.

So, we have with Dear OxiClean, a great campaign which can target every single type of stain and because the product has such a great performance, consumers actually write to us and share their successes and we turn that around into campaigns for our consumers. So, let's have one of our campaigns. [Video Presentation] (00:13:38-00:14:31).

So, you're seeing a real consumer story, we've shared back. We equally have most people who discovered that OxiClean is fantastically cleaning your boat or baseball stains and so on, so on. And in the digital world, you can even do hyper-targeting.

So, we are able to target people who used to buy bleach and no longer buying bleach because they're dissatisfied; so, lapsed bleach users. And here I have another campaign for you. So, this is actually digital online, and as you know, lots of people watch it while they're supposed to be working.

So, this is silence, so your boss doesn't discover that you're online instead of working on that presentation. So, another great example of how we really target the pain points of consumers, and what has that produced? It has produced two great results for us. First of all, the category which has been down in the past is back to growth.

So, stain fighting for long time now is invigorating and growing again. And secondly, we now have over 50% market share in that category, which is our all-time high. So, Dear OxiClean, thank you. Now that I've talked a little bit about this, I wanted to move on to the next topic which was our direct-to-consumer.

Direct-to-consumer is a marketeer's dream, because what I just talked about and we have the acquisition of Toppik and Viviscal, which helped us build that capability. Why is it marketeer's dream? Because here there is no broken link in the data.

So, if you sell in bricks-and-mortar or even to Amazon, you cannot follow one person from start to finish, whereas in direct-to-consumer you can. That means we're not only able to see which campaign got how many people to buy, but we can also see how often did they repurchase and how many years did they keep repurchasing.

And that gives you such a wealth of data, it's just so exciting. We can try campaign A versus campaign B. We can actually try medium A versus medium B, and we can see all the way what it does to lifetime value of a consumer. So, lot of fun, great stuff, great learnings.

And then, we have also I think learned a lot about digital advertising and how it works. As I said earlier, it's all about entertainment. And one of the things in part was all about features and benefits. So that's no longer the case.

So, we are now much more about emotion and humor, and I know I probably have found a great targeting category for all of you, because you all every day think about bathroom cleaning. I know you can't wait to learn features and benefits. So let's see our latest campaign for Kaboom.

[Video Presentation] (17:32-18:43) So, if you want to have an oddly satisfying moments, there are Kaboom cans on your tables, we can fight over them. So, I can only say we think the future is bright for Church & Dwight in online; we are number one on online market shares. We're getting a growing expertise in attribution modeling.

We are having great and growing DTC skills and I think we're becoming more skilled in connecting to consumers. And with all of that, we're having a lot of fun. So, I think we are only at the beginning of a great journey of using digital to its fullest. And with that, I would like to introduce Steve Cugine, who is our Head of International.

He is actually the composer of our international strategy, the conduct of a fantastic international team, and I'm sure his presentation will be music to your ears.

Steve?.

Britta, thank you very much. So, I'm excited to be here today to share the international story. I am very excited about the Eagles winning. It's been a long, long time, and so two things to celebrate today. But I wanted to first ground us in where our subsidiaries are located outside of the United States.

So we have wholly-owned subsidiaries in Canada and Mexico, Brazil, the UK, France, Australia, and effective January 1 of this year, Germany, capitalizing on our strong growth in that country. The international business has been a historic grower for the company, very consistent, performing at the high-end of our Evergreen range.

But in 2013, Adrian Huns, the former President of the division, was retiring. And I had a passionate belief that the international business represented a growth engine for the company that was yet untapped, and the management team also felt the same way. So they asked me to come in and develop a new strategic plan for the international business.

We began to implement that new strategic plan in 2014. Q1 of 2014, we had 0% organic growth. By Q4 of 2014, we hit 7.4% and frankly never looked back. What I'd like to do is now establish a new Evergreen target for the international at 6%.

And we're confident that we're going to be able to deliver that organic growth moving into the future, and I'll tell you why. But first let me unpack the box of our international strategy a bit for you today. First, we differentiated developed markets versus emerging markets.

We said that these markets are unique, the consumers in those markets need certain brands that are highly differentiated, and our go-to-market strategies are much different. So, we identified and focused on these six brands across North America, Europe and Asia.

So, differentiated strategy based on markets, focusing on a select few brands that will get our attention and disproportionate investment. We did the same thing in emerging markets, to really capitalize on the expanding middle class in China and Southeast Asia, South America, Middle East and Africa.

And you will see a slightly different set, smaller set for these markets. But we've seen the success of this strategy in that, our markets where we have subsidiaries, we've seen increased growth across our subsidiary markets and certainly exploding growth in our export markets.

This pie chart frames the difference between our subsidiary markets and our export markets. Our subsidiary markets represent 74% of our total and export represents 26%. Export has been growing double digits in the past and will continue to grow double digits in the future.

This is also a key part of our strategic plan shift that we implemented, export used to be incorporated in – as part of the subsidiaries. We separated this out to find it as a strategic business unit for the international business, and we run it as a separate business.

So combined, we found that with that focus and these new strategies, our subsidiary markets improve their growth rates and we're able to really capitalize on a very fast growing business called export markets. And we wanted to invest behind this growth.

So in 2016, we created sales and marketing headquarters in Panama, Singapore, and the UK designed to support our distributor partners in region. I want to shift a little bit to the Asia-Pacific region. We have experienced very significant growth, so our Asia-Pac business grew 30% last year.

And so we're excited about this growth and we by focusing more time and attention to this market, we expect it to deliver continued strong growth into the future. As we all know, this market is exploding. The middle class consumers are growing quite dramatically and that will continue. So we want to position ourselves for success in this market.

So, I talked about adding regional sales and marketing headquarters in many parts of the world, but Singapore is one we established in 2016. We've been increasing head count and investment in our Singapore office and in this region. As I mentioned, this region is growing 30% or has grown 30% in the past year.

In the announcement, we also talked about our new relationship with the DKSH, which is a leader, one of the leading distributors in the Southeast Asia region and Hong Kong. And we just completed training 200 of their sales reps.

So we are investing this year 2018 behind increased distribution and additional marketing, so we expect very significant growth from these emerging markets. But you can't talk about Asia Pacific without talking about China. We have a relatively small business today in China.

That business doubled last year off a small base and we're really evaluating our strategic plan to really capitalize on this for the future. But, I would say, maybe the biggest news today for International and Church & Dwight is, we believe that we really have achieved critical mass.

In 2017, we finished the year with over $600 million in sales and we have – we believe between our subsidiary markets and our export markets a real global platform. And so, we're going to leverage this global platform to drive growth of our acquired businesses. These four businesses will all see very significant growth in 2018 and we believe beyond.

Let me give you an example. So, Waterpik, when we acquired this business had three people in Canada, but we have 100. They had seven people in Europe and we have 280. So, we have scale that we can really bring to these businesses, and we're excited about growing them dramatically.

So, I believe the international business is well-positioned for 6% growth moving into the future. Why, we have brands that have significant runway. For example, our ARM & HAMMER brand is our largest brand in the portfolio, and it continues to deliver strong organic growth, and we believe that is well-positioned in emerging markets to continue to grow.

Exports, as I mentioned has been growing double digits, and we expect that to continue. We're investing significantly in Southeast Asia and China ,and that will be a growth engine for us moving forward. Our acquired brands, all represent significant opportunity for growth.

Last, but not least, we have some members of our international team present today, and so I'm proud to say that we've built a cadre of very strong leaders and managers that really understand their markets and are driving growth whether they'd be in our subsidiary markets or anywhere where we export our wonderful products.

So, I am very confident in our ability to deliver 6% or more per year moving forward. Well, I'd like to introduce Scott Druker. Scott is 9 years with Church & Dwight, and he is the architect of our animal nutrition business. So with that Scott, welcome..

So, when you present, you're supposed to know what your audience knows, so by show of hands, how many people know what the animal productivity business is about? Hey, more than I would have thought. So, if I accomplish nothing else, at least this video I'm about to show you, should give you a good concept of what our business is about.

So, with that, if we would kick the video in. [Video Presentation] (28:50-30:19) So by confession, I am not a farm kid. I was born and raised – well, born in Princeton, raised in Philadelphia. So, I stand here today. I'm very proud Eagles fan. Hopefully, I won't get emotional over that.

But in addition to that actually what I am is the guy that has the best job at Church & Dwight, all arguments aside. I get to come to work every day and lead an awesome team of people that are really passionate and dedicated to help and provide safe affordable food to the world.

It's a team of trained salespeople, most of which are an animal science degrees. We lead a team of vets, microbiologists, immunologists. So, it's a really just awesome, awesome group of people that are very dedicated to what they do.

So before I get into the details of the business, I thought I'd share with you three key trends that are really going on in the marketplace that are creating opportunities for our business. The first is literally the amount of resources we as a species are consuming.

We are consuming our resources on this planet one-and-a-half times faster than we're replacing them. Our current population today is roughly 7.5 billion, projections have grown to close to 10 billion by 2050. So, we have some really significant challenges and opportunities when it comes to feeding a world population.

So, improving productivity is a key, and you can think of a certain ways we can deal with these challenges. One, we could control population and fortunately Church & Dwight has some products that can help on that end. We could change what we eat. You've probably seen in some popular press, some more promotion of the benefits of eating insects.

I'm all for choice. I like my protein really from the traditional animals, but hey, go for it. But the real opportunity and this is the one where our business is, is really about leveraging technology to help drive productivity gains.

So, just to give you an example, I'm going to just walk you through an opportunity in the dairy market, but this story could be told whether it's swine, chicken, aquaculture.

In order to feed 10 billion people consuming – in the future, consuming the same amount of dairy products that we do today, we would need to add 66 million new cows worldwide to produce enough dairy products.

If we can just get the current population of dairy cows to produce a half a glass of more milk a day, we don't need to add those 66 million dairy cows around the world. So, what does that mean to us? That means, we would be able to save the equivalent of 6,000 Empire State Buildings worth of food that's fed the cows each and every year.

It would save the amount of land that needs to be used for farming to raise feed for animals, that's the size of Alaska, every single year. And we would save the amount of water each year that could supply Germany, France and Great Britain. Productivity matters, and it can really, really help improve the lives of people around the world.

But it's not just about resources that's really driving and creating opportunities for our business, it's really consumer trends that's probably having the greatest short-term impact on our business.

We in this room and particularly the younger generation that's coming up has made it very loud and clear to retailers, they want their food product to be free of antibiotics, added hormones, any chemicals. And the retailers have responded.

I'm sure you all have seen in the news, virtually every significant restaurant chain or supermarket chain come forward with a long-term sustainability plan and a commitment to get antibiotics out of the food. Now, of course, that puts a lot of pressures on farmers today, who have to look at alternate ways of raising livestock.

So, it's challenge to find technologies that are going to enable them still to grow healthy productive animals when some of these tools are being taken away from them. So, what we've been as a business as the video show, we got into this business in the early 1970s, and it was anchored around feeding baking soda to dairy cows.

And we really put the science behind the benefit of feeding baking soda. And for those that may wondering, it's basically Alka-Seltzer for dairy cows that helps as they eat more and become more productive, they need baking soda to help. And that's really where we anchored our business.

And then really over the decades, we really led and pioneered new innovations in feeding, mainly in dairy. We offer a product, Omega 3, Omega 6 fatty acids to help with reproduction in animals.

In the early 1980s, we introduced MEGALAC, which just celebrated its 30-year anniversary, and it's still the number one bypass fat fed to cows, and the fat is fed to help them – give energy to produce more milk.

So, you could see we really, over the years, built a lot of natural solutions, fats, natural amino acids, baking soda, all anchored around that ARM & HAMMER brand that we go to market as. Then, in 2015, we had an opportunity to add prebiotics to our portfolio through the acquisition of VI-COR. It's really exciting.

These products, A-MAX and CELMANAX, are yeast-based products or cell wall based products, and they're really targeted to help improve gut health in animals, to help improve health, welfare and productivity in animals.

And then, most recently, in May of last year, we acquired Agro BioSciences, which is a really exciting business, brings probiotics into our portfolio of all-natural solutions to help livestock producers grow their animals.

So, I'll talk a little bit about that Agro business, because it's a really exciting business about us and really is a unique approach that we have to going about a business.

So, your typical probiotic company, whether they're selling to humans or animals, has a strain or two that they've done some testing to show its benefits of killing bad bugs or helping good bugs grow, and they go to market with those one or two strains.

What we do in our business that makes us unique is we have the ability to develop a customized or bespoken – heard that one, right, bespoke, bespoke product, just learned that word last week, which is embarrassing, since I like doing crossword puzzles. But we have the ability to come in with a customized solution.

So, here's where I'd give you an example. I want you to think CSI meets agriculture. So, think if you're a poultry operation and you have challenges.

We have the ability to go in, sample the feed that the chickens eat, the litter that they're raised in, actually swab the chicken itself and get a full picture of the microbial diversity that's present, the good bugs, the bad bugs that are present.

We're then able to screen through our thousands and thousands of proprietary probiotic strains to find the right mixture for that operation to kill the bad bugs and help the good bugs grow.

And this really now is a tool that a lot of the livestock producers, whether in dairy, aquaculture, swine, poultry, are looking for since these are really the alternatives to helping improving the animal's health as the antibiotics are being removed.

So, it really ties us all together with some really natural solutions that help drive productivity gains. So, the couple of recent acquisitions certainly brought new products into our portfolio. But one of the things that it really helped us do is become a more balanced business.

If you look prior to 2015, we generated less than 1% of our revenue outside of non-dairy. We finished 2017 with more than 10% of our sales from non-dairy, and our outlook for 2018 is to continue that growth trend and see more than 15% of our sales coming from non-dairy. The diversification isn't just across species, however.

Like we've heard on the Consumer side, we've had an opportunity to grow internationally. 95% of the world population eats food outside the U.S., and we have been woefully under-represented there historically. But we've changed that over the past few years. In 2015, less than 5% of our sales were outside the U.S. and Canada.

In 2017, it was greater than 10%, and our outlook for 2018 is continue growth there greater than 15%. And as Steve pointed out, we're very confident for our outlook of continuing at 5% organic growth within our business as we look at 2018. One of the key reasons, our brand is really trusted in the marketplace.

It's trusted obviously for just the recognition on the Consumer side, but we're recognized as a science leader in our industry. Probably the most important thing that gives us a lot of optimism and excitement is our product portfolio, as Matt alluded to, about riding a wave. We are riding a wave.

We have the right product portfolio to capture a lot of the opportunities there with our natural solutions, whether they're the probiotics or the yeast-based products, to meet the needs of consumers.

Clearly, our new products as well as some of our traditional portfolio has opportunities across species, and as I showed earlier, we started that and we're going to continue that pace getting into global markets and global species. And that actually wraps it up as well. On the International side, we sell product now in over 70-plus countries.

We have an excellent team of people internationally to help drive sales for our business. So, the future is very bright and we're very excited. So, hopefully, I accomplished one thing and you know a little bit more about our business today. So, with that, Rick, I believe – oh, Matt, you're up. I probably should have known that..

All right. Okay. That was Animal Productivity 101 for everybody today. It felt like the Discovery Channel a little bit. All right, I'm going to spend a few minutes on how we run the company, before we get Rick up here and talk about the financials. So, just a few words. So, we have four operating principles.

One is we have number one brands and we've leveraged those brands. Those are the 11 power brands that are 80% of our revenues and profits. Number two, we're an asset-light company. We're very focused on the relationship of cash earnings to our tangible assets. Third thing is people. We have fabulous people in our company.

You've seen some of them present here today. We have a lot of passion for the company, for the brands, and you can't manufacture that, you can only feel it. So, if you take those three things, leverage brands, assets and people, you get good results. But then, on top of that, the company has a competency to target and acquire businesses.

We've been doing it since 2001. We're 16 years in. We know how to do it. And that's why we say, if we have 11 brands today, it's going to be 20 tomorrow. It's just a matter of time. And we focus on gross margin. This is a big part of anybody's financial model. Four ways to get it. First is your continuous improvement program, which is we call Good to Great.

The second thing is supply chain optimization. Occasionally, we expand a plan to invest in new capital equipment. Third thing is new products. You want to launch new products that have a higher gross margin than the product that it's replacing. And finally, acquisitions.

Virtually every business we buy, we find ways to improve them and expand their gross margins. Our compensation structure is very simple. So, there's four things, net revenue, gross margin, EPS and cash flow. It's been like this for quite a while. It's 25% each. Everybody understands it and we keep it simple.

And we also have an all employee bonus, and 25% of that is tied to gross margin. So, when you have a simple incentive compensation plan, it does promote financial literacy. People in our company know what cash flow is, they know what gross margin is, and it helps get it. All right.

Now, I'm going to bring Rick up here to wrap it up, and then after that, we'll have some Q&A..

All right. Thank you, Matt. I'm going to go through the outlook, talk about 2017 and how we finished that with a lot of momentum, and then we'll spend a couple of seconds – or minutes on the Evergreen Model as well. So, just as a backdrop, right, the Evergreen Model, 3% organic net sales growth.

We've been doing that for quite a while, and that's kind of the bedrock of the model. Gross margin, typically 25 basis points of expansion, and Matt just walked you through some of those details.

Marketing, in terms of percentage is flat, but in dollars is up typically year-over-year, and Britta walked you through how we're better targeting consumers in the digital space. SG&A, we leverage as the top line grows, and we get about 50 basis points of operating margin expansion, which leads to 8% EPS growth before those acquisitions.

We talked about this within the last year a couple of times. You heard it again today. When we're talking about 3% organic sales growth, we're saying 2% for the Domestic business, 6% for International and 5% for SPD. And of course, if any one of those over-deliver, that falls to the bottom line. Okay.

Q4 2017, you've read it in the press release this morning. We had a great finish to the year. Organic sales growth was almost 3.5%. Our outlook was 2.5%. So, just far and away, just great broad-based strength from across all of our brands. One to note is our personal care growth was up 4% organically, right, so just a lot of momentum there.

Reported growth was 15% versus our outlook at 12%. About 1% came from organic, 1% came from the Waterpik acquisition, and then 1% came from currency and some of the other smaller acquisitions. Consumer organic was up 3.2%, and gross margin, in a world of higher commodity costs, we were up 50 basis points for the quarter.

Operating margin was up 90 basis points and EPS was up 18% to $0.52. So, as you can see through the bar chart, Q4, we exited with a lot of momentum. That's kind of the theme. 3.4% was the high watermark for the year.

If you look at it from any angle on a two-year stacked basis, again, Q4 was a really strong quarter, 6.7% for the Consumer – Global Consumer business. Turning to the full-year really quick, 2017 organic sales growth was 2.7%, almost 3%. Gross margin was up 10 basis points. Marketing was down slightly at 12%, which is a key number for us.

SG&A was up largely because of some of these acquisition costs, right. We have non-cash amortization. We bought – some of these acquisitions have higher SG&A rates. We have some transition costs. So, SG&A is up slightly. So, that leaves the operating margin being down slightly. EPS is up 10% to $1.94.

And then, a hallmark of this company is cash flow and cash flow generation, so $637 million or 123% free cash flow conversion. So, the theme there is just a lot of momentum, and so not only did personal care grow, but a couple of quarters ago – and we talked about this last quarter on the call, the promotional environment, right.

In Q2, price/mix was negative 600 basis points for us in the Domestic business. It was minus 490 basis points in Q3. It was minus 100 basis points in Q4. So, that environment is improving as well in those key categories. Okay. Turning to the outlook, 16% to 18% adjusted EPS growth in 2018. That's just head and shoulders above our peer group.

Reported sales growth is around 8% with the acquisitions. Organic sales is 3%, very consistent to what you just saw on the previous page. Gross margin is flat. We can attack that a little bit. But in a world where you're hearing from all of our peers about negative gross margin, we're actually proud that this is a flat number.

Commodity headwinds and transportation headwinds at around 50 basis points to 70 basis points, offset by productivity and some help from volume and mix, but again gross margin being flat for the year. Marketing flat. SG&A is up year-over-year. That's really what you saw in Q4, the acquisition, full-year impact of those dollars.

Operating margin slightly down. And as a result, other expense is minus $70 million. That's largely the interest expense from the $1.4 billion that we took out earlier in the year. And then, the effective tax rate 24% to 25%, that's a range with the new tax act.

And there's a range there, because as we go through the year and regulation becomes clearer, we will tighten that range. And then, EPS is 16% to 18%. And I just want to be clear on this slide, because I know there are some questions. But absent tax reform, we would have been 9% EPS growth, right. I just want to be clear on that. Okay.

Looking at the track record from 2013 to 2018, 3% or higher typically organic sales growth, and 2018 is no different. Focus on gross margin, we've had a steady run-up over the past few years. We have a great productivity program. We think that's going to continue to pay dividends in the future. I talked about commodities a little bit.

But resin and surfactants, we said maybe a quarter ago that we thought that we're going to have recovery in the back half. Resins and surfactants are up around mid-single-digits, whereas diesel is up in the teens. Polypro as an example or a type of resin is up 20% on a spot basis, so just some headwinds there.

Transportation, you've heard in a lot of different calls as well. Just the industry in general is tightening, right, capacity is tight. So, these costs are our headwinds. But as I said before, we think that with all the great work we're doing internally that we're going to make sure the gross margin is flat year-over-year.

Marketing spend is key, that drives consumer behavior at the end of the day, and we make sure we invest a lot of money there. Remember, we were one of the top 20 largest advertisers in the U.S. SG&A management, we haven't lost our way. This is the hallmark of the company. This is in our DNA. SG&A management is really important to us.

This is really mostly due to acquisitions and non-cash charges, and this is what the next slide shows. We're largely flat as you go through history, if you strip out some of those non-cash charges. So, then the end message is a great one, strong adjusted EPS growth, double-digits, 16% to 18% in 2018.

One thing that many of our long-term investors get is how much cash flow we do generate. If you look at revenue, we're always maybe one of the smaller companies, around $4 billion in 2018 in the peer set. But if you turn and look at cash, free cash flow conversion, we're typically near the top of the chart.

And so, we've had a great ability in the past, and we think we have a great one in the future too to generate cash. We do this a few different ways. Cash conversion cycle, our working capital management has gone from 52 days to 18 days over time, right. So, we continue to believe that we have goals of zero working capital.

We have a strong balance sheet. Despite doing the acquisitions this year, we're still around 2.5 times. We have a belief that by the end of 2018 that we'll be at or below 2 times levered. And so, when you hear that, number one, prioritized uses of cash flow is TSR-accretive M&A.

And as Matt said, today, we have 11 or 12 power brands and we're looking for 20 in the future. So, number one is accretive M&A. Number two is debt reduction, right. We've moved that up the list as we bring that net leverage ratio down. New product development, CapEx, and then return cash to shareholders. We're not a capital-intensive company either.

We're about 1.7%. It bumped up a little bit in 2018 in the outlook as we bought Waterpik. And then, in addition, we have good news on the dividend, a 14% increase in the dividend in 2018, 117 consecutive years, so just a bedrock. And with that, I'd like to invite the rest of management team to come up, and we'll answer any of your questions..

All right, don't be bashful, come on up. Okay. Let me tell you who is with us here today, so if you want to direct your questions, we got, you know Rick; you know Lou Tursi, who runs our Sales Organization. We have Carlos Linares, who runs R&D; and we have Rick Spann, who runs Supply Chain. And here, we have Patrick, who's our General Counsel.

Britta, you know is our Chief Marketing Officer; Judy Zagorski, Head of HR. We have Scott, who presented on Animal Productivity; and you know Steve runs International. So, floor is open for questions.

Okay, Kevin?.

Thanks. Kevin Grundy with Jefferies. I wanted to start, Matt, with your take on the pricing environment. There's been a lot of discussion on it in the marketplace. We've had a lot of disappointing results from some of your peers. Your quarter was actually quite good in that respect. So, a couple of questions related to that.

How are the pricing discussions going? I understand that you guys often don't lead in terms of when pricing is taken in the industry. But I guess what investors are wrestling with, has something changed here within the construct of private label, within what's going on with Walmart and Amazon.

Is there less ability to take pricing? Do brands seem to matter less? Is that what's causing some of the perhaps reluctance to take pricing at this point? And then, maybe you could just sort of wrap into that, how much pricing, if any, is baked into your 3% guidance for fiscal 2018. Thanks..

I'll try to remember your six questions, so I can get them in order. Well, for starters, you've heard Rick comment about the trend in price, if you look at our organic number, so there was a big price in Q2, less in Q3, less in Q4. So, the trend is favorable. Second thing is commodities.

When you have that kind of commodity pressure, that should tamper everyone's appetite to drop price and to compete on price. A third thing I would say is that generally when it comes to price, you really need to have a pretty significant position in a category.

So, for baking soda, we have a 75% share, condoms 70% share, those you might expect, you might be able to take some price. But generally, you need the story behind it. For condoms, it would have to be latex cost. You get the idea. So, if you look at us, I said earlier on that we don't have as much exposure to private label.

On a weighted average basis, we're around 10% to 11%. So, we don't have the same story as others. And I'll ask Lou if he wants to comment about any conversations we're getting from our retail partners..

Yeah. Kevin, what I would say is the environment really hasn't changed all that much. It's never easy to take price in any year. I would start by saying that. I would agree with everything that Matt said that sequentially between Q2, Q3 and Q4, the promotional environment has gotten better.

For all the reasons Matt said, we're expecting, in 2018, nothing much to change. As far as the promotional environment goes, I would say it's still high, right. It's not low. It's still high. But sequentially, it's gotten a little bit better. And with the commodity cost going up, it should temper the situation and kind of calm it down a little bit..

Yeah. The only thing I'd add is from the outlook perspective, it's largely volume driven in terms of organic growth..

Okay.

Jason?.

Thanks. Maybe talking on the gross margin a little bit, the confidence you have in the flat gross margin outlook. So, I know we've talked about – maybe you talk about where you're locked into some of your commodity costs, the Good to Great program.

And then, is pricing – kind of dovetailing off of Kevin's question, is that still an option if commodity costs still run a little bit higher? So, just looking at the HPC landscape and the confidence you have that flat is the right number..

Well, I'm going to let Rick – the two Ricks comment on that. But I'll begin by saying that we have a very robust Good to Great program. So, our continuous improvement program, we're already working on 2019, and we could tell you what programs we have in 2019. Sometimes when you're debottlenecking things, you have to do one thing before you do the next.

So, we know going into the year that we have things to offset commodity increases. The second thing is, yeah, we do have a hedging program, and I can ask Rick to comment on that..

Yeah. From a gross margin perspective, we're about 50% hedged on our key commodities. We have seven of them that we track all the time. I walked you through some of the movements in key commodities. But the other tailwind we have is some of the mix is, I think, going our way with – as the personal care business has continued to improve over time.

So, that's going to help. I'll let Rick opine on the G2G program, but we've had some great incremental steps in our productivity program..

Okay. Rick, maybe you can comment on opportunities in the supply chain..

Yeah, sure. So, we are certainly renewing our focus on the Good to Great program. We are exploring areas that – where we felt as though the pipeline had gone dry. But now with some changes in our focus, we're able to dig into new areas to increase our delivery on Good to Great.

So, as Matt said, the pipeline, we're looking at a pipeline through 2019, and of course, focusing this year on bringing home a good delivery of savings in 2018..

Okay.

Bill?.

Yeah. Bill Chappell, SunTrust. I had two questions. One on the International, just maybe a little more color – I don't know what the old Evergreen Model was for International, but maybe you didn't change your overall model. So, maybe help me understand where you come up with 6% from developing versus developed and then how does that affect.

Is that assuming that the U.S. Consumer – maybe is it slower than it used to be over the long-term? And then, the second question just on new products. I guess in the past, the presentations have been much more focused on a pretty robust big new products, everything from the CLUMP & SEAL to Oxi detergent to what have you.

This seems to be a year of maybe more smaller innovation.

Is that the right way to look at it, where you're putting more of the marketing behind just kind of the brands and categories versus big new innovation?.

Okay. I'll comment on the Evergreen Model. I'll have Steve and Britta comment on both International and the new products. The Evergreen Model once upon a time was 3% to 4%, if you went back 10 years. And that, a couple of years ago, became 3%. So, that was Evergreen Model 1.0.

So, we're a lot more granular now with respect to how we're going to grow in the future. And we have the luxury of having an International business growing 6% and a more balanced animal productivity business that can grow 5%. That takes a lot of the pressure off the U.S. business. So, that's why the way to think about it is U.S.

is 2%, International 6% and Specialty Products is 5%. I'll let Steve comment further on his confidence in the 6%..

Well, I'm certainly very confident in the 6%. I made several mention of that. But I think back to Matt's point, they were banging around that 4%, 4%-plus over time, and I think that simply because the U.S. represented such an opportunity and was growing much faster. And so, all the time and attention largely went to the Domestic business.

Not until we really changed the strategy, did we say, jeez, we really think we can really fundamentally change our participation in the International marketplace and really get behind very strong growth.

And we wanted to prove that, one, to ourselves first that we had strategies that we could rely on, depend on, and then build enough scale that really is material for the company. So, I think we've done that. To your question in terms of – certainly emerging markets are going to play a much bigger role in driving growth.

Our Asia-Pac business will be growing very strong, we expect that, for next year and beyond. Certainly, the developed markets, the traditional markets, Europe for example is not going to grow nearly as strong as – whether it be any of our LatAm businesses or Asia-Pacific businesses. So, it is going to be weighted that way..

Okay. Now, back to your question about new products, the one thing you got to keep in mind is go back to what we said. So, SLIDE was a fabulous product for us in 2017 and took share. So, we're going to ride that even harder next year. And you were talking about laundry detergent. We are rocking in Pods.

So, what happened in Pods the last two quarters, there were 3% growth. We're growing double-digit in Pods, and we have a lot of runway to go there. So, we had some new products in 2017 in both the litter and the detergent, and we see a lot of good things ahead for us in both those categories.

Britta, do you have anything to add on the new products?.

Well, I definitely want to add something. So, mea culpa, normally at this point, we're showing you the TV commercials of the new product, and that's maybe why you have the impression that we are not giving it the same full support, mea culpa, because we haven't got them ready yet.

So, what you will see soon is exciting news and TV commercials for the new product, which I hope will reinforce your confidence that we give it full support, we're very excited..

Yeah....

ODOR BLASTERS will be a blast..

I'd like to build too. So, I wouldn't look at it the kind of the way you worded it. I would look at it more this way. Every once in a while, you get surprised with an innovation. SLIDE would be one. So, now we're expanding the distribution of SLIDE year two.

We launched ODOR BLASTERS in the laundry detergent last year and didn't really fully capitalize on how big of an idea that was. Batiste is a growing monster, and we have a lot of distribution to continue to gain.

So, those are examples that I would say there's a lot of opportunity through the innovation that we've launched on how we can expand that moving forward..

Okay.

Joe (01:02:07)?.

Thanks, Matt. So, both you and Rick mentioned earlier today that ex tax, you guys would be growing the top line 3% organic and EPS 9%. I guess the delta in terms of the investments that you're investing back in the business is about $0.10.

So, A, why aren't we seeing faster growth this year? I know there's a lag time between those investments and faster growth. Or B, is it that you have to reinvest that $0.10 every year going forward to still get that 3% top line? Thanks..

The way you should look at that is – and if you're listening today, we have a lot of opportunities here to reinvest. So, you heard about International and you heard about digital. We're maintaining our marketing spend at 12%. It would naturally be lower because Waterpik has a much lower spend. You heard about animal productivity and our expansion there.

So, that spend is a permanent spend. So that's going to help fuel us in the future. And in a way you answered your question, Jo, and that it takes a little bit of time, but healthy companies can approach the tax cut very differently than others.

So it gives you degrees of freedom and start looking ahead not to 2018, but 2019 and 2020, and that is how we're looking at it. And if you listen to the things I just described where we can put the money, we will make the right choices to sustain our model going forward..

The analogy I use sometimes is M&A. And sometimes people who have a base business is going backwards has to do a bad deal, that's a reach for something. And so, that's never been the case here. Our business is performing very well, we just had a great quarter, great end of the year.

And those are the investments from the same concept as we want to make sure the algorithm is bulletproof 10 years later..

Okay.

Steve?.

Yeah. So, I mean to build on that though, should we be thinking about this as an – this extra investment in 2018, is that insurance policy against 2019/2020 and beyond or should we expect a return on this investments such that we get an acceleration of the algorithm in 2019/2020, question one.

Question two is, free cash flow conversion expectation for next year, that'd be helpful. And question three for Lou is if the categories are growing, I think it was 2.7%, 3%, you're growing with those categories presumably maybe even a little bit faster than at the shelf, but you're also getting distribution gains, why is the call 3% and not better.

Those are my three. Thanks..

Okay. If you look at our history, this is not a company you want to bet against. So we deliver on our commitments. And our commitments to our shareholders have been that we're going to drive that Evergreen model year after-year-after-year.

So, we're going to make investments this year we're going accelerate investments that we might have done over maybe the next two years to three years. We're not prepared today to say suddenly we're changing our model and now we're going to have much higher top line and bottom line.

The people who invest in this company are taking a five-year view and they have confidence that we can nail that for the next five years, and that's why they invest in us..

Yeah. The other comment I'd add to that is, we always measure ourselves versus our peer group as well. So ex-tax reform, if we're around 9% EPS growth, then the peer group's 4.5%. If post-tax reform we're 16% to 18%, the peer group is 6.5%, 7%. So, we feel very happy and very satisfied with where we're at on that sliding scale.

Your free cash flow conversion question, on average, we've averaged around 120% free cash flow conversion. That will dip down because of the new tax law, right. Cash tax rate and book rate converge over time. So, if I was doing a model, I'd probably model it around 110%..

On the shelf, I really go and doing this for 14 years. I think hopefully you will agree that we live by the commitment almost like the Eagles, where we're the underdogs and we like to deliver.

Building on what Matt said, there is – you'd never hear me talk about destocking, you never hear me talk about hurricanes, you never hear me bring up anything like that. We are consistent. We put a number out there that we believe we can hit under all conditions and we deliver it..

Okay. Hey, Caroline..

Hi. Just thinking through your margin, what is the impact of international and the animal feed growing faster than your base business? Number one..

Yeah. Well, the good news is over time those gross margins are converging on actually the company gross margin. So it's not that different for international to the corporate gross margin.

The productivity business – animal productivity business does have a little bit lower gross margin, but some of those recent deals we've done have margins in the 60s and 70s, right. And so those are really the fast growing business as well. So, I'd say, minimal impact overall of those two divisions growing faster..

Thank you.

And if I just could ask on Waterpik, how much of the business is the sort of one-time purchase of the equipment? And how much is recurring service sort of replacement blade idea? And how do you see that changing over time?.

You're talking about CapEx?.

No, I'm talking about the consumer purchase, the blade and razor idea? Are you with Waterpik selling....

Today, 100% of that business is just the equipment. The example that I showed on the screen, the whitening one, and maybe Britta wants to talk a little bit about that, that is the first entrance into like a refillable type of scenario..

Yeah. So we're learning lots about Waterpik. And I think we would struggle with exactly the questions you have. So, actually different households act differently. We have a few people, maybe some of them in the room. They buy it once, and that's it.

But we obviously also have a lot of dedicated families where we can see the first family member has one and then they actually extend it over the family. So if you look at households, there is repeat purchase. And then of those people who actually get into the habit of using it, we also see that people renew the models.

There is a constant upgraded improvement, and also we are branching out into areas, which you might have seen the latest models are extremely Silicon Allegan. There's something like bathroom aesthetics. So people buy those, or we are now launching a model, which is a travel model for those people who cannot be without that fresh and clean feeling.

So, there's lots of opportunities to either extend into more households. Household penetration currently is only around 16%, electric toothbrushes is around 40%, so huge household penetration opportunity. Secondly, more devices per household; thirdly upgrades per household; and then as I said fourthly, this is early days.

My expectation, I have some background in razors and blades is that the first product we launch will not be the success on the replenishing model, but over time, we will get it right, and then life gets really exciting..

My last question is most important, can you scrape our bodies the way you do the chickens and figure out how to give us the right probiotic..

I'm sure somebody is working on that, okay. Yeah. Over here..

Thanks. I have a question on your probiotic or vitamin business. You guys put a slide up there where you show that you've lost share and it's the first time in the last few years.

So could you drill down a little bit more on what are the key drivers of that share loss, the competitive environment? And then what's your outlook for that business this year? And is your goal to stabilize share and how do you expect to accomplish that? Is it through innovation, stepped up spending, promos for instance behind that business..

Yes. You're talking about the gummy vitamin business..

Yeah..

Yeah. So, let me just start, I'm going to hand it over to Britta. The way to think about that is that the category continues to grow double digit. So although we may not be growing at double digit, our consumption continues to grow. So, the business continues to grow. And when we bought that business, it had six competitors, today it has 30.

So, there are a lot of people that are piling in there. So it's a growing category, grows double digit, we continue to grow. I think what will happen over time frankly is that there will be a shakeout, and it's not going to happen this year or the next year, but generally retailers can sustain that many brands on the shelf.

Britta, you can add that?.

Yeah. So, building on that what you saw was AOC share Nielsen. Nielsen in this category only covers 70% of the market. I just talked about how much and that we have market dominance on Amazon. So actually if you put those together, our share picture would be much more positive, first of all.

Second, we do have innovations, and third, we are absolutely confident we will grow that..

Okay. Over here, Peg (01:11:23)..

Thank you. Rupesh Parikh, Oppenheimer. So, maybe just going back to the international segment, I was curious, clearly, you guys are doing well with Amazon in the domestic segment.

Are you able to leverage your Amazon relationship and maybe some of the other retail partners as you grow internationally?.

Yeah, I would say that we're doing just that, Actually both in Canada and Europe, where Amazon is making significant investments. And we're taking the learnings that the domestic team has and applying them in our international markets.

I would put Costco in that category as well – strong, global, retailer, and we're very successful with them in many parts of the world..

And then if I could just go into the slide before in your online sales growth. I think your online sales are now 5% of your sales.

Is your online penetration continues to increase, are you seeing any impact on your gross margins?.

Yeah. The good news is across the portfolio largely gross margins online and in bricks-and-mortars are very similar. So, no, we're not..

Okay. This way, Peg (01:12:30). Olivia, right there..

Olivia..

Yeah..

Yeah. Thanks. I was wondering if you can talk a little bit about the latest and greatest in the laundry category.

And then also in terms of 2018, can we talk about the component of volume versus price mix? And then just lastly in terms of M&A, you talked about gross margin and the importance of that, but both Waterpik and vitamins were gross margin dilutive. So, can you marry some of the comments around M&A and the importance of gross margin? Thank you..

Yeah. You started off with the laundry category. So, the laundry category in the fourth quarter was flattish. It was less promotional frankly sequentially. So, that's all good news. If you look at the brands in the categories that are doing really well, one would be ARM & HAMMER.

So, we've grown – no surprise, ARM & HAMMER grew in the fourth quarter and also on a full-year basis. So, that is our flagship brand in detergent. Within the category deep value was (01:13:33) struggling. So, that would be brands like our brand Xtra, Sun and Purex. So, all three of those brands lost share last year.

So, that's – so Xtra is a leaky bucket for us, but the combination of our three brands ARM & HAMMER, OXICLEAN and Xtra, we grew share in – I think we're up 50 basis points or 60 basis points of share all in, in the laundry category. And Pods, I mentioned earlier, I said Pods has slowed down quite a bit in last two quarters.

We continue to grow double digit..

And in terms of price mix and volume for the organic call (74:12), I kind of touched on that before, it's largely volume-based. I'm not going to go into too much more detail, but it's largely volume-based. We probably have some positive mix offsetting any price as personal care continues to do well.

And then, I think your third question was, was it gross margin with acquisitions, with M&A?.

(01:14:30-01:14:39).

Just, you know, our aspiration to gross margin accretion from every M&A deal we do, right. That's definitely the goal. Waterpik is, I'd say largely neutral to gross margin. We think over time, right, we said when we made that announcement in August that we're going to spend around $10 million in 2018 to get $10 million of synergies in 2019.

So, I'd expect in 2019 for some of the gross margin to be a little bit more accretive for Waterpik.

So, remember just like the Avid deal, when we did, vitamins, when we bought the business, it was a 38% gross margin, and we got up to 45% over two years, and that was part of Matt's slide on how we expand gross margin and just the run way for productivity, so..

And the only thing I would add too from a retailer shelf standpoint, as powder continues to decline, the powder shelf space will continue to decline. And liquid and unit dose is doing well. So you'll see the powder space will move to unit dose and liquid..

Okay. Couple more, over here, Peg (01:15:43)..

Thanks. Jonathan Feeney, Consumer Edge. Walmart's made a lot of noise about a lot of categories about on-time and in-full, how they're managing their logistics.

Could you comment maybe about logistics broadly for 2018, those cost, and any particular categories you've had to think differently about deliveries maybe extra expense, and maybe why you don't seem to be as impacted as some others? I know Clorox, it was pretty big impact. They weren't able to get a lot of product to market.

Why are you able to succeed so much better and presumably as you're talking about 2018 continue to do that? Thank you..

Yeah, well, I'll say a few words and if there's anything Rick wants to add, he can. Yeah, as far as trucking and the shortage of truckers, that's pretty much common knowledge.

So, we got out ahead of that in November, and we worked with our carrier partners to ensure that we were going to have trucks available and be able to keep up our fabulous record on on-time performance. And we would expect to do that again in 2018 with our transportation partners.

(01:16:58) to add to that?.

Yeah. The only thing I would add, Matt, is that, we have over 100 carriers that we work with, but 10 of those deliver 80% of our product, of our volume. And so, we were able to partner very closely with those 10 and we've been able to ensure that we had adequate supply of containers and drivers, so we've been ahead of the curve there, as Matt said..

Okay. Thank you.

Jason?.

Thank you. Jason English, Goldman Sachs. Congratulations on a good quarter. I had a couple of questions, maybe the first for Britta or Lou, I'm not sure which.

Personal care had a bit of a tough year, but finished on a really strong note, can you give us some of the underlying drivers of what drove the acceleration of fourth quarter and lay out maybe where your expectations are as we head into the new year?.

Well, if you ask me, of course, it's great advertising..

That's right..

No. I think that we did do – so, yeah, absolutely.

I think one of the things we're finding is, when we talked about category growth early as well, there's, a, some of our categories like condoms where we talked for long time, young people are, with absolute number declining, are having less sex, we heard all about that I think several times, and they're moving online, right.

So, these are things which are difficult to scale. I think we have great campaigns in place now. Same for vitamins, I think we've seen a clear up-tick on our vitamin campaign, Vitamin Better. So, I would say we are driving those sales, particularly in the later quarter and we've also put some investments behind it..

Just to echo what Britta said, it was really broad-based in the personal care business, it was across many different brands. So, just a good combination of innovation over the long-term and great advertising..

You had a second one?.

I do. I want to come back and try to beat the gross margin horse again.

First, can you help us maybe unpack the fourth quarter a bit? It was pretty strong, your 60 basis point full-year commodity drag I think suggests maybe around 140 basis point drag in the fourth quarter, is that kind of right and do you expect something similar to next year? And then the last couple of quarters, not the fourth quarter, because you know the detail, I know M&A was a positive 100 bps contribution third quarter, plus 70 bps in the second quarter, what if anything did it add in the fourth, and are we looking for a similar sort of contribution to help us sort of bridge our way to flat in the face of, what looks like it's going to be a fairly onerous commodity environment next year?.

Yeah, lot of details in there. I'd say in general in Q4, I think we had around 70 basis points help from acquisitions offset by maybe price mix of minus 30 basis points, minus commodities of, not 140 basis points, but maybe 40 basis points or 50 basis points, and then positives from price mix, I mean mix really.

You're right, we've had some benefit in 2017 from M&A on the gross margin line, and conversely, we've had some negative help from the SG&A line for these same acquisitions. So, I think it's kind of neutral on an operating margin basis. In 2018, we expect 0 to 10 basis points from M&A. So, it is not a tailwind in 2018.

What I talked about earlier was personal care, the fact that we've hedged, the fact that we have a great productivity program, so those are kind of what's going on..

Okay. Peg (01:20:34).

Thank you. Andrea Teixeira from JPMorgan. So I wanted to just go back to Jason's question, as you look into outlook for 2018, you mentioned like M&A would not be a tailwind, but I wanted to basically if you can put it in as a ranking, let's say, you mentioned that the mix International wouldn't affect you that much.

So maybe like you're going to be investing more in innovation this coming year or you're seeing more of the raw materials had rolling over into 2018. So, we're going to feel more of the impact of the raw materials into 2018.

So if you can kind of help us elaborate or on an EBITDA basis you actually would see margins expand, so excluding the non-cash charges? And the second question will be on sexual health, I think she alluded to improving trends, but if you can comment on the 3%, if you're assuming market share gains, market share will actually improve on a total channel basis when you include in also Internet.

Thank you..

And maybe I'll take the gross margin, and you could take the revenue..

Maybe I'll do the sexual health one. And you can think about that extended gross margin multifaceted question. So, as far as sexual health goes, so you probably heard us talk about in previous calls that people are having less sex. And also there is also prevalence of other alternatives. So for example the IUDs, Plan B et cetera.

So, all of that is contributing to the category. Another thing I would point out is demographics. So, if you look at the 18 to 24 year old population today versus where it was, say, four, five years ago, it's smaller and that's not going to turn around till 2021.

So, there is lots of things that are influencing the sales of condoms in the United States, but we have 70% share, so we certainly like our chances in the future and we're in it for the long term.

And Britta, do you have anything to add to them?.

I just want to add, I think actually our toy business is going very well. So, those people who are having sex are having more fun..

Yeah. And then....

Hey, did I give you enough time, Rick?.

Yeah. A lot of focus on gross margin, I guess, right. In the industry, there is a lot of pressure on gross margins, so I get the question, right. I would have said back in August, if I gave you a gross margin outlook, it would have been positive 30 basis points to 40 basis points.

And so, we're well positioned and a lot of those things are structural, right. A lot of the G2G productivity programs we've had in place for years now, that are coming to fruition now. We were hedged last year about 50%, we're hedged this year about 50%. There is no turnover that's happening on resin per se that's causing us any flux..

(01:23:32).

Yeah. No, it's a fair point that if it was that material, then yes, that would happen. But resins, I think it sometimes is overblown for Church & Dwight, how material it is. It's not like a Clorox in the Glad trash bag business. We have resin in laundry bottles, yeah we do, but it's not as exposed that I think we could ask about it.

So, it's one of the seven, it's probably one of the top four, but it's not the number one. So, I don't know if there is any other questions besides that, but really, and we have a lot of confidence in 2018 margin because of the productivity programs that we've done about for a year or two, because of the personal care mix coming.

We still launch accretive new products, we haven't changed that. We still aim to launch accretive new products with innovation, right, SLIDE is a great example, Clump & Seal is a great example. We're moving up the litter category, units aren't really going up, but the price premium for the consumer is..

Okay. So, we've been at this for a good while now. Of course, we only have the room for so long. I just want to thank everybody for coming today. The team that you see up here is representative of the kind of talent that we have at the Church & Dwight, and we are very confident in our future.

And I think you would all have to agree that what we're calling for 2016 is head and shoulders over our peer group. Thanks for coming..