Good morning, ladies and gentlemen, and welcome to the Church & Dwight First Quarter 2021 Earnings Conference Call. Before we begin, I have been asked to remind you that on this call, the Company's management may make forward-looking statements regarding, among other things, the Company's financial objectives and forecasts.

These statements are subject to risks and uncertainties and other factors that are described in detail in the Company's SEC filings. I would now like to introduce your host for today's call, Mr. Matt Farrell, Chief Executive Officer of Church & Dwight. Please go ahead, sir..

Okay. Thank you. Good morning, everyone. Thanks for joining us today. I'll begin with the review of the Q1 results, and then I'll turn the call over to Rick, our CFO. And when Rick is done, we'll open up the call for questions.

Before we begin, I'd like to recognize all Church & Dwight employees around the world for their continued dedication to keeping our Company going during the pandemic, especially our supply chain and R&D teams as we overcame raw material shortages in Q1 as a result of the Texas freeze. Now, let's talk about the results.

Q1 was another exceptional quarter. Reported sales growth was 6.3%, and adjusted EPS was $0.83, and that's $0.03 better than our outlook. Organic sales grew 4.9%, driven by higher consumption. E-commerce shows no signs of slowing.

In Q1, our online sales increased by 54% year-over-year and as a percentage of total sales were 14.8% in Q1 compared to 10.2% in Q1 of 2020. We continue to expect online sales for the full year to be 15% as a percentage of total sales. Vaccinations will significantly influence consumer behavior. The U.S.

is slowly opening up, which means consumers are more mobile. 60% of vaccinated consumers are optimistic that they will return to a normal or new normal as we are seeing the first signs that consumers are willing to spend more time in stores based on a study by IRI. In contrast, many countries outside the U.S. continue to experience lockdowns.

As described in the release, we have been facing shortages of raw materials due to the Texas freeze. Raw material and transportation costs spiked higher in February and were exacerbated by the Texas freeze. We expect the tight supply and higher input cost to continue for the balance of the year.

To mitigate the cost increases, we have announced price increases in laundry and across our international portfolio, and we have reduced couponing and promotional spending. Rick will discuss this further in a couple of minutes.

At our Analyst Day in January, we outlined which categories and brands we expected to stay elevated throughout 2021, recover from COVID lows, decline from COVID highs and which ones would remain steady. Overall, our full-year thinking has not changed.

To name a few categories, demand for vitamins, laundry additives and cat litter are expected to remain elevated in 2021. Condoms, dry shampoo, power flossers and women's grooming are expected to deliver year-over-year growth as society opens up and consumers have greater mobility.

Baking soda, pregnancy test kits and oral analgesics are expected to decline from COVID highs. Of the 16 categories in which we compete, 8 grew consumption in Q1, in some cases, on top of big consumption gains in Q1 of 2020.

Of those 8 categories, 5 saw a double-digit growth, gummy vitamins, toothache, battery-powered toothbrush, pregnancy test kits and women's electric grooming. Household categories, such as laundry detergent and baking soda were down in the quarter and unable to comp the huge COVID-19 sales spikes seen in Q1 2020.

Looking at market shares in Q1, 8 out of our 13 power brands met or gained share within our U.S. Consumer Domestic business, which grew organic sales 5.1%. I'll comment on a few of the brands right now. Consumers have made health and wellness a priority.

VITAFUSION and L’IL CRITTERS gummy vitamins saw great consumption growth in Q1, up 24% with the help of the new launches described in the release. It appears that new consumers are coming into the category and they're staying. One survey showed that consumers who are new to the category had a 90% repeat rate.

WATERPIK grew consumption 15% in Q1 as it continues to recover from COVID lows and benefit from the heightened consumer focus on health and wellness. WATERPIK is also benefiting from dental offices returning to pre-COVID patient levels. We expect the frequency of our lunch 'n learn program to return to normal levels in the second half of this year.

Now, BATISTE. While BATISTE remains impacted by social distancing, consumption was up 6%, and we achieved a record high quarterly balance share of 39%, behind our International Women's Day campaign. Now, I want to talk about the International division.

Despite European lockdowns, our International business came through with 3.2% organic growth in the quarter, primarily driven by strong growth in our Global Markets Group. Asia continues to be a strong growth engine for us. WATERPIK, FEMFRESH and ARM & HAMMER led the growth for the International division in the quarter.

Our Specialty Products business delivered a positive quarter with 6% growth, primarily due to higher pricing. Milk prices were stable in Q1 and are projected to increase later in the year due to higher demand. Now, turning to New Products. Innovative new products will continue to attract consumers.

In 2021, we have launched many new products, which are described in our press release. In the household products portfolio, we are introducing OXICLEAN Laundry and Home Sanitizer. It is the first and only sanitizing laundry additives that boost stain fighting and eliminates 99.9% of bacteria and viruses.

The product is also designed for cleaning throughout the house and on a variety of surfaces. In the personal care portfolio, VITAFUSION launched Elderberry gummies, Super Immune gummies and POWER ZINC gummies to capitalize on increased consumer interest in immunity.

WATERPIK launched WATERPIK ION, a water flosser which is 30% smaller and contains a long-lasting lithium ion battery and is specifically designed for smaller bathroom spaces.

To capitalize on its earlier success, WATERPIK SONIC-FUSION, the world's first flossing toothbrush, was upgraded to SONIC-FUSION 2.0 with two brush head sizes and two brush speeds.

And finally, FLAWLESS is taking advantage of the at-home beauty and self-care trends with a facial cleanser system, a shower wand for a full-body spa-like experience and at-home manicure and pedicure solutions. Now, let's turn to the outlook. We're off to a good start in Q1.

We continue to expect full year adjusted EPS growth of 6% to 8%, which is in line with our Evergreen target, despite the heightened input cost. Given our expectations, for consumer consumption, we have raised our full year outlook for reported sales growth from 4.5% to now 5% to 6%. Organic sales growth expectations were raised from 3% to 4% to 5%.

And if you look at consumption trends through the middle of April, 14 of our 16 categories were up in consumption year-over-year. Now, in conclusion, I'd like to remind everyone of the many reasons to have confidence in Church & Dwight.

Our track record shows that we are positioned to do well in both good and bad times and in uncertain economic times such as now. Categories in which we play are essential to consumers. We have a balance sheet of value and -- pardon me, we have a balance of value and premium products. Our power brands are number one or number two in their categories.

And we have low exposure to private label. And with a strong balance sheet, we continue to be open to acquiring TSR-accretive businesses. Next up is Rick to give us details on Q1..

Thank you, Matt, and good morning, everybody. We'll start with EPS. First quarter adjusted EPS, which excludes the positive earn-out adjustment, was $0.83, flat to prior year. And as we discussed in previous calls, the quarterly earn-out adjustment will continue until Q4, which is the conclusion of the earn-out period.

$0.83 was better than our $0.80 outlook, primarily due to continued increase in consumer demand for many of our products. Reported revenue was up 6.3%. Organic sales were up 4.9%, driven by a volume increase of 3.1% and a positive price mix of 1.8%. Now, let's review the segments. First, Consumer Domestic.

Organic sales increased by 5.1% due to the higher volume and positive price mix. Overall, growth was led VITAFUSION, L’IL CRITTERS gummy vitamins, WATERPIK oral care products, FLAWLESS beauty products, ARM & HAMMER clumping cat litter and KABOOM bathroom cleaners as well as VIVISCAL hair thinning products.

Consumer International delivered 3.2% organic growth due to higher volume, partially offset by lower price and product mix. This was a great result despite European write-downs. For our SPD business, organic sales increased 6% due to higher pricing, partially offset by lower volume.

Milk prices have remained stable month-to-month and are projected to rise as 2021 moves forward. Now turning to gross margin. Our first quarter gross margin was 44.5%, a 120 basis-point decrease from a year ago.

Gross margin drag was impacted by 350 basis points of higher manufacturing costs, primarily related to commodities, distribution, tariffs and COVID impacts. Commodities, which were exacerbated due to the Texas freeze were a 90 basis-point drag on margin. Tariff costs negatively impacted gross margin by 40 basis points.

These costs were partially offset by a plus 190 basis points from price/volume mix and a positive 170 basis points from productivity programs as well as a 10 basis-point positive impact from favorable currency. As a reminder, our outlook for the quarter on gross margin was down 50 basis points.

The entire variance was related to the spike in commodities and tight transportation market. The good news is for the back half of the year, we expect margin expansion behind the pricing and promotional actions we laid out in the release as well as we start to lap some of the higher inflation and tariffs that we experienced in the back half of 2020.

Moving to marketing. Marketing was up $2.3 million year-over-year as we invested behind our brand. Marketing expense as a percentage of net sales decreased 30 basis points to 8%. For SG&A, Q1 adjusted SG&A increased 60 basis points year-over-year, primarily due to acquisition-related intangible amortization.

We also had higher investments within IT and R&D as well as some transition costs from the ZICAM acquisition. Other expense all-in was $11.6 million, a $3.6 million decline due to lower interest expense from lower interest rates.

And for income tax, our effective rate for the quarter was 24.2% compared to 23.2% in 2020, an increase of 100 basis points, primarily driven by lower stock option exercises. And now to cash.

For the first three months of 2021, cash from operating activities decreased 57% to $100 million due to higher cash earnings, which was offset by an increase in working capital. Inventory is higher to support increase in sales as we continue to improve customer fill levels. Accounts payable and accrued expenses decreased due to the timing of payments.

As of March 31st, cash on hand was $128 million. Our full year CapEx plan continues to be approximately $180 million as we continue to expand manufacturing and distribution capacity, primarily focused on laundry, litter and vitamins.

For Q2, we expect reported sales growth of approximately 4.5%, organic sales growth of approximately 4% and gross margin contraction of 350 basis points as higher input costs continue and we lap artificially low promotional levels from a year ago. Adjusted EPS is expected to be $0.69 per share, a 10% decrease from last year's adjusted Q2 EPS.

As you read in the release, we did a voluntary recall of selected products within our vitamin business. We expect the EPS impact in Q2 to be approximately $0.04 for the quarter and we are seeking reimbursement by insurance. And now for the full year outlook.

We now expect full year 2021 reported sales growth to be 5% to 6%, which is above our previous 4.5% outlook. We're also raising our full year organic sales growth to approximately 4% to 5%, up from the previous outlook of 3%. Turning to gross margin.

We now expect full year gross margin to be flat for the year, primarily due to the impact of higher raw material and transportation costs and the Texas freeze in March. We had previously expected gross margin expansion of 50 basis points for the year. And recently, we have seen a large increase in raw materials and transportation costs.

We're absorbing $90 million of incremental costs for the full year. Higher sales, reductions in promotions and price increases across all three of our divisions represented about one-third of our portfolio, offset a large part of the cost increases. As a reminder, we price to protect gross profit dollars, not necessarily margin.

Our full year tax rate expectations are now 22%, higher versus our last expectations due to lower stock option exercises. This is a $0.02 headwind versus our previous full year outlook. Adjusted EPS expectations continue to be in the range of $0.03 to $3.06, a 6% to 8% increase year-over-year.

Our cash from operations outlook continues to be $1 billion, while we continue to pursue accretive acquisitions. As you heard from Matt, the Company is off to a great start, and we expect 2021 to be another strong year. And with that, Matt and I would be happy to take any questions..

[Operator Instructions] We have a question from the line of Kevin Grundy with Jefferies..

Let's start, I guess, on pricing and commodities. Rick, if you can just spend a moment on how much of your commodity exposure you have hedged for the year, I think that would be helpful. And then, shifting to pricing. Matt, you mentioned laundry and your international portfolio.

I think typically, the Company will lead in baking soda, contraceptives in OXI.

What percentage of your portfolio do you expect to take pricing? How much is in your outlook? I know pricing is a sensitive topic, but maybe just sort of triangulate between how much is in your outlook? And then how much you -- there might be additional pricing that may not be in your outlook, I suppose.

And then what are you seeing from competition, specifically in your bigger categories, like laundry and litter and vitamins on the pricing front?.

Yes. Okay. Kevin, it's Rick. I'll take the commodity piece really quick. Maybe two-part, maybe to give you comfort on the back half gross margin expansion as well. But, we're about 80% hedged from a commodity perspective. And remember, we said if we could hedge those, whatever key 6 or 7 commodities that a lot of the volatility does go away.

We do have a lot of confidence in gross margin expansion in the back half as we are lapping some of those higher commodity costs in the back half of 2020. Just as an indication, ethylene, for example, in the first half of 2021, is up 70%.

If we keep that current spot rate for the remainder of the year, the back half would be up 30% versus the second half of 2020. So, like I said, we are confident in some that. And that's why we think we have confidence in the back half gross margin expansion as well as the price/volume mix..

Okay. And Kevin, your question about pricing. So, we'll start with laundry. So, if you look at over the past 18 months, our competitors have taken price in a different way, generally through changes in ounces. And our estimate is anywhere from maybe 8% to 12% price. And so, we announced in early April that we're raising price.

We're sort of discussing that with retailers now. And -- but we don't think we're going to be out of bounds with respect to price gaps in laundry. Your question about how much has been priced, we've got a third of the portfolio. And that would include Domestic, International and also SPD. And in the U.S.

business, it's ARM & HAMMER and XTRA, our sheets business, scent boosters, so it's pretty much concentrated on the laundry. A couple of other categories in there raising some price and also just a couple of specific variants within the TROJAN category. Internationally, it's largely a personal care business.

So, the price increases are largely around the personal care business. And SPD, in particular, some of our products are being impacted by PFAD, which is a palm fatty acid distillate, which is affecting inputs for one of our products called MEGALAC.

So, we've been increasing prices now monthly for MEGALAC, and we'll be doing it as well for some of our other products. As far as -- I think a related question might be sold on deal, so how promotional is the environment today. So, as everyone knows, the household side of the business is the one that's promotional.

So, laundry was down 300 basis points. The laundry category is now 300 basis points year-over-year sold on deal. And litter, similarly, was down 500 basis points year-over-year in Q1. We think that's probably going to reverse in Q2, and there's a simple reason for that. It's because last year in Q2, promotions were pulled in these categories.

So, for example, last year, in the second quarter and year-over-year, the laundry sold on deal was down 1,700 basis points 2020 versus 2019. So, obviously, a different kind of comp in Q2. So, we think it may be up.

Does that help you, Kevin?.

Yes. That's helpful, Matt. A quick follow-up on the pricing comment, a broader question, if you don't mind. You mentioned that one-third of the portfolio is taking pricing.

Is that to suggest that the other two-thirds are potentially upside should -- and presumably, you're not going to lead, so you're waiting for the competition to lead, because it's probably hard to envision many categories where there's not a cost justification for the price increase.

So presumably in that two-thirds, you're waiting for the competition to lead. If you could just sort of confirm that.

Is that potential additional offset to the commodity cost pressure you're seeing?.

Yes. That's the right way to think about it. I mean, the price increases were -- or the cost -- input costs were very acute in the laundry category. So that's where we thought we had to move. But, as far as -- we wouldn't speculate on any other category but what we might do later..

Got it. Just one more quick. I apologize if I'm monopolizing time here. But sort of like $1 million question, Matt.

Long-term implications from COVID, understanding still a lot of volatility, a lot of uncertainty in the environment, it would seem like at a minimum, the Company's view would be expect higher consumption in vitamins even as we sort of get through this and looking out to next year.

How are you thinking and planning internally? And what could the potential implications be broadly for Church's portfolio? And I'll pass it on. Thank you..

Hang on, Kevin, is your question in the next six months, what our expectations with this….

No, the question's longer term, Matt. The question is, so relative to the 3% organic sales guidance which you guys have pretty consistently beaten for some time now, at a minimum, it would seem like household penetration has and will, to some degree, sustain a higher degree in vitamins at a minimum within the portfolio.

How are you thinking broadly about Church's portfolio in terms of shifts in consumer behavior as a consequence of the pandemic, focus on health and wellness, et cetera?.

Well, certainly, the focus on health and wellness is going to benefit not just our gummy vitamin business, but our WATERPIK business, which has been just a high single-digit grower perennially since we acquired the business.

I think what you're going to find is that 2021 is going to be kind of a reset, that as we live with COVID this year, we'll be able to grow from there. But, we have such a broad portfolio, both in household and personal care. We do think that we're well-positioned, frankly, for '22 and beyond..

Your next question comes from the line of Andrea Teixeira with JP Morgan..

Yes. I want to go back just to basically coming back for the categories that are kind of more impacted by mobility. What are you seeing now? And then, as a follow-up to the recall, what is the -- obviously, you called out for $0.04 impact and you're trying to get insurance payback on that one.

Is there any additional potential charges there? And have you had any issues with the shelf space or anything else for the balance of the year on the vitamins? Any comments on that or any potential changes on production or any disruptions that we should be thinking of? Thank you..

Yes. So, I'll let Matt take the categories and mobility, and I'll just talk about the insurance and the recall. So, trying to be very clear that the potential impact is up to $0.04. We think it's relatively limited to that. To our knowledge, there has been no additional shelf reset issues. This was a small window of production.

We've been very clear in the release that we've talked about. And that's kind of the extent of it..

Yes. As far as the categories go, just give you some color on that, the gummy category was up 19% in Q1. And even depilatories were up 9%. Again, people who discovered depilatories a year ago were using at-home solutions. So, those are a couple of examples, two of the categories, we expect it to be elevated this year.

Litter is another one, and there's 6% more households that have cats. So, that's sort of the tailwinds for litter. And there were a number of categories we expected to recover, for example, water flossers. Water flossers was up 29%, just the category in Q1. And even electric grooming was up 3% in Q1. Dry shampoo was down 1% in Q1.

So it's way better sequentially. And we have -- as I mentioned in my remarks earlier, we had a record share and we grew sales in Q1 year-over-year in dry shampoo. And as far as the ones that will decline, baking sodas already start to decline in Q1. Toothache as well was off 3%, that category in Q1.

And also cold shortening, as Rick made reference to the ZICAM category, was down 70% in Q1. So, that gives you a little bit of color on what's going on in the categories..

Yes. Andrea, I think Matt's commented in his prepared remarks, about 13 of 16 categories being positive in April, and that's pretty broad-based across household and personal care. So, all those social distance impacts are starting to mitigate..

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

So, a couple of questions. Just first, on the back half gross margin expectations, I guess, it feels like something like 225 basis points average midpoint of gross margin expansion versus 2020. I appreciate your comps, appreciate your lower promos and pricing.

But it's also, I guess, implying a slightly higher gross margin level than even in 2019, despite this higher inflation environment. I wonder if you can just -- maybe, number one, is that a fair way to look at it? And then number two, maybe just unpack that a little bit.

How much of that is maybe lower promo, the mix of the business relative to 2019, higher pricing levels? Just anything you might think relevant to better think through that dynamic. And then, I have one follow-up..

Yes, sure. And I'll do it two ways. The first way, I'll just give you some of the details of the full year outlook. Remember, in New York, in our annual -- or at CAGNY, we gave you a full year outlook on gross margin, gave you the pieces. So, I'll do that again, and then I'll kind of bridge it to you.

So, the full year outlook for margin is plus 200 basis points for price/volume mix, plus 120 basis points for productivity. So, those are the two big tailwinds.

Price/volume mix, for example, is a lot higher than it was, given all of our expectations for, number one, lower promotional spending but higher pricing and really baseline volume is doing better than we expected. Then, we have inflation down 300 basis points. And then, tariffs down 40. M&A, up 20. That's how we get to zero.

Now, if you take a step back and you think, well, the first half of this year, to get to zero, the first half is going to be down about 235. And the back half is going to be up about 235. That's a delta of about 470 basis points.

So, why are we convinced that we can go from the first half down to the second half up? 200 basis points of that 470 is because of price/volume mix, those are the actions that we took -- we talked about. The other 300 basis points is really cost related.

Inflation, I gave an example in relation to Kevin's question, that ethylene, for example, is up 70% in the first half of 2021. HDPE is up 85% in the first half of 2021. Ethylene is only up 30% in the back half. We keep current spot levels. HDPE is only up 50% if we keep current spot levels.

We're lapping tariffs, right? We had tariffs in the year ago numbers in the back half. We had some higher COVID costs in the back half of 2020. So, those are -- that's a little bit more color, but I just wanted to walk you through..

Okay. I appreciate that. And just one follow-up would be on the vitamin category. So, I know that this was -- has been approached a few different ways already just from a category growth and higher per capita consumption perspective.

But, it's not just that, right? I mean, you outperformed the category, I don't know, at least in scanner roughly 50 points, maybe a little bit less in 2020. And the relative outperformance has certainly sustained, not that high of a level, but it certainly sustained on a year-to-date basis.

So, like there's clearly a pretty significant share gain story here, too, and asked different ways in the past.

But, can you just offer a little bit of perspective on exactly why you think that's the case? Whether that's the incremental capacity that you had already invested into, whether you think your product SKUs or the price tiers or the specific subcategories that you're in are particularly relevant in the current environment? Just broadly, what do you think is contributing to the relative outperformance in a category that's doing quite well?.

Okay. Well, remember, in the gummy category, we have number one brand. So, let's start right there. We know the transition from pills and capsules continues to gummies. I mentioned earlier that household penetration is up.

So, the households that were already buying VITAFUSION L’IL CRITTERS gummies are taking more, and where new consumers are being attracted to the categories. So, we stand the benefit from that being the number one brand. We've had a lot of success with new products over the last couple of years. So, we're able to spread out on shelf.

And something else, too, is you may recall from earlier calls that we had third-party production come on line late in 2020. So, our end stocks are way better right now. So, a combination of all those is what's going to sustain the elevated consumption in 2021..

Your next question comes from the line of Rupesh Parikh with Oppenheimer..

So, I wanted to go to the International segment. So clearly, Q1 was impacted by some of the European lockdowns. I was curious how you guys are thinking about it for the balance of the year.

And do you still think a 6% type growth rate is achievable for that segment?.

Yes. So, on a full year basis, we're still expecting 6% from International. The engine for International growth in the last few years has been the Global Markets Group. So, that does spread your risk quite broadly across many regions around the world. So, we're not wholly dependent upon the countries where we have operations.

And you may recall that Global Markets Group is about a third of our business, and it's been growing at 15% or better for the last 4, 5 years. So, we think that will be sustained in the 2021, Rupesh..

Yes. And just to give you a little bit more color, Rupesh, our outlook in February for organic was 3%, and that was 2% domestically, 6% internationally and 5% SPD. Now, we're thinking it's closer to 4%, and that's 6% internationally and 6% rest..

Okay, great. And then, maybe just one follow-up question. So, on ZICAM, it looks like -- I think if I'm reading the numbers correctly, that you guys took down your expectations for ZICAM this year. And clearly, everyone is calling out the cough and cold challenges.

So, I don't know, as you guys look out this year, next year, like do you think -- would you expect the business to be back on track, I guess, next fiscal year?.

In 2021? Yes, absolutely. Look -- I mean, it's common knowledge that the incidence of flu and cold and cough is way down. So, it's affected many, many brands in the category. We remain focused on the fact that we have the number one share, and we had a 73% share in cold shortening. So, it is a strong brand.

We bought it for the long term, and we do expect it to be a contributor to organic growth, particularly in 2022 and beyond..

Your next question comes from the line of Kaumil Gajrawala with Credit Suisse..

I’ll ask a question maybe about stimulus and the impact on demand. In particular, you mentioned water flosser strength -- water flossers have been very strong. We've also heard some pretty strong device sales at Procter & Gamble, and this morning, Keurig Dr Pepper.

Do you think there's maybe something in the figures that we're seeing which are very strong that is a bit less sustainable because of the impact of stimulus?.

I wouldn't think that that would apply to water flossers just because of the growth rate that we saw beginning in 2017 when we first bought the business. So, it's a high single-digit growth for the past several years, and we have so much opportunity internationally. That's where all the growth is going to come from long term..

Yes. And I do think that -- remember, we're comping over periods of time a year ago that we're just super depressed. And nobody was in retail stores and are doing shopping for devices. So, I do think it’s also a comp..

Yes. It's a super easy comp year-over-year. So, I wouldn't be swayed by the fact that the category might have been up 29% in Q1. But long term, it's going to be a grower for Church & Dwight..

Outside of water flossers, any feel on impact to stimulus?.

Well, look, I think this stimulus can affect virtually every category. I mean, the way to think about the economy, the way we think about it is, savings rates are up. Now, stats that I've seen is 13% of disposable income. And the average for the last five years is between 6% and 8%. And certainly, stimulus checks are helping those in need.

There's labor shortages, right? So, there's -- more jobs are available and average hourly earnings is up. So, I think all of that suggests that the household balance sheets on the consumer is healthier and getting healthier. So, I think that benefits all of our categories..

Okay, great. And then, just a very quick one. Obviously, there's a lot of discussion about raw material prices and transportation pricing and stuff, but we're also hearing about kind of real supply issues that maybe just can't get what you need.

Is that impacting your business anywhere at all?.

Well, it certainly does, right? I think, I gave the example of the Board the other day that in a normal year, we might have one force majeure for one of our suppliers. In the quarter, we had six. So, there is tightness in supply.

Our ops and R&D teams are doing a great job getting substitute suppliers or working with suppliers to get through that -- have largely on cap. There's always stuff we can hand to mouth on. But by and by, we've announced everything most..

Your next question comes from the line of Bill Chappell with Truist Securities..

Just a follow-up on one of Kevin's 23 questions, on pricing. In terms of timing, P&G had said that they were looking at pricing kind of in September, I think you're talking about a little bit sooner.

So, do you think there's any risk of kind of price gaps being extended kind of over the summer before everybody kind of pushes it through?.

The timing for our price increases is starting in July, Bill.

Is that what you're trying to address?.

And Bill, I think what Matt was trying to allude to before is, some of the compaction activities that happened with some of our competition kind of means that our price gaps aren't really that aligned versus historical levels..

Got you.

So, you see everybody kind of -- in terms of the competitive front, everybody kind of taking price in lockstep at the same time?.

No, our decision with respect to raising price in laundry was unilateral and was driven by the cost increases that we've been experiencing. My reference was just simply the fact that, hey, over the past 12 months or so, our competitors had raised their prices by reduction in ounces and things like that in their products.

So, consequently, we didn't see that raising prices on our part was going to create a difficult gap for us in pricing..

Got it. And then, just, can you give a little bit more of an update on where you see the FLAWLESS franchise? I mean, since you bought it, there hasn't been a normal environment from, bed bath issues to supply issues, to COVID, people staying at home, to somewhat kind of return to normal.

I know, it seems like on shelf it's gotten better positioning at retail more with the shaving kind of category. It seems like you've expanded some SKUs. So, it's a bigger block when you walk through the retail orders.

But kind of any thoughts ex kind of the COVID bounce back you see on that franchise?.

Yes. We've talked about this in the past. And you're right, we've kind of gone sideways since we bought the business for a variety of reasons. When we bought the business in 2018, it had net sales of $186 million. And then 2019, $180 million, and then last year, $171 million. So, this year, we expect to be up approximately 20%.

And the reason why we believe that is because we've got a nice array of new products to go with our existing products. And I mentioned those in my remarks, got a body cleanser, face cleanser and some mani, pedi products, which are really good. Plus, we've got influencers now that are getting behind the product.

So, notably, Ashley Graham and Dove Cameron. We also have a celebrity Halle Berry, who is pitching FLAWLESS. So, I think -- and all of those are hitting in 2021. So consequently, we're optimistic about the future for FLAWLESS..

Your next question comes from the line of Lauren Lieberman with Barclays..

I was hoping you guys could talk a little bit the two things. And the primary thing is the driver of the change in outlook for Consumer Domestic from 2% to 4% growth.

I guess, one, to what degree is that greater optimism on how well the vitamin business holds in? And secondly, how does that relate to what we're starting to see in the Nielsen data, which is that market shares in laundry are down and softening and it's not multiple periods, but now we're talking about going into a pricing environment.

So, just curious on your thoughts on laundry market share performance and how that ties in again with that change in outlook to a more optimistic view on Consumer Domestic. Thanks..

Yes. I'll take the -- just change in the organic outlook and what brands are driving it and Matt can add on. So, Lauren, it's really two or three things that are driving the confidence and the strength in the outlook from 3% to 4.5% as the midpoint. Vitamin is a big one. WATERPIK is doing exceptionally well.

PTK our pregnancy test kit business is doing well. So, it's kind of broad-based. Those are all -- those three that were certainly helping raise our outlook. Now, in terms of laundry, real briefly, we review share and information all the time. Really, there's two things. Really one primarily is unit dose. Unit dose is down slightly in share.

And that's not because consumers aren't choosing to buy our product. It's because we continue to have a transition from making that outside to bring that in-house. And so, outside supply is very tight at the moment. But, the good news is, we are in the ramp-up stage right now to bring everything in-house. So, a short term blip..

Yes. As far as the laundry category, Lauren, if you look at Q1, ARM & HAMMER gained share; XTRA did not. We have been prioritizing ARM & HAMMER for quite a few quarters now, throughout the pandemic. We do expect that shares could be impacted certainly by our actions with respect to price. I mean, that's pretty normal.

So, how competitors react to that is unknown. And certainly, if competitors were to raise price or reduce promotions, less sold on deal, obviously, that could affect our shares as well. But unpredictable right now. But, we're committed to raising price starting July 1..

Yes. I'll also give you an optimistic comment. All of our assumptions and our outlook include assumptions that our competition doesn't follow-up. So, we've taken down the volume on the elasticity and everything else. So, that's kind of a conservative way to do it..

Your next question comes from the line of Steve Powers with Deutsche Bank..

So, just building on that last comment on the elasticities. You've got momentum in brand strength. It seems like you've approached it conservatively relative to the competition.

But, at this point, as we listen to so many CPG companies talking about raising price, either already having done so or pricing to come, the whole -- the majority of the consumer shopping basket seems like it's poised to be going up.

So, just -- can you talk about how that factors into your thinking and relative cross-category elasticity that might benefit or complicate your scenario analysis?.

Yes. Hi. It's sort of an umbrella statement, Steve. We've pointed out to investors for years that we have a balanced portfolio between premium value. And when you have number one brands, typically, you're going to fare better in difficult economic times than companies that do not have number one brands. So, we like where we are right now, going forward.

We think we're in a good position..

Yes. And a lot of our brands are value brands, and even in the laundry example, despite any increase, the price gaps are in line with historical levels and are great values compared to competition..

Okay. Fair enough. I guess, there's been just a tremendous amount of volatility in shipments and consumer takeaway patterns as inventories rebalance, both at retail and I presume in household pantries.

As you try to cut through that -- those dynamics from where you sit, do you have a sense of how actual consumer usage of your brands or your categories is trending today? And I don't know what the right benchmark is, whether sequentially versus the fourth quarter of last year versus 2019 or a year ago.

But just any benchmark on actual usage that might give us more insight into your confidence in raising the full year outlook?.

Just based on looking at consumption patterns in the categories and consumption equals usage. I wouldn't point to pantry loading or panic buying anymore. I think, it's a steady state now, Steve..

Yes. And just to add to that, we talked about in the release about personal care categories that are up double digits in consumption, but partly because there's low comps a year ago. But gummy vitamins, as an example, Matt referenced, it's growth on top of growth.

And if you look at most of our categories and whatnot, it's growth on top of growth, because April last year, we grew, but April of this year, Matt just said, 13 of 16 categories are up. So again, growth on top of growth..

Your next question comes from the line of Nik Modi with RBC Capital Markets..

So, there's been a lot of talk about declining birth rates, and I noticed in the release and the commentary during the call, you called out positive pregnancy test kit trends.

So, I'm just curious, is this a relation to just easy comparisons, or do you think there's something else going on that happened over the last 12 months as we're all locked up in our homes?.

Yes. I think, one way to look at it is, if you look at the period like February, March, April last year, that was down versus 2019. So you sort of have easy comps year-over-year. And when you look at kits in the first quarter, we said the category is actually up about 23%. And that's one of the categories we thought that would fall back a bit in 2021.

So, I think best case, maybe it doesn't fall back and maybe it's flat year-over-year. But it's -- one other fact that I could give you, Nik, is that typically, if you're in a recession, the birth rate decline. I mean, I think in the last people maybe thought [Technical Difficulty]. Clearly, we are not.

So, the category could be better than we [Technical Difficulty]..

Great. And one other question, Matt. I was just thinking about how more and more of these kind of testing kits that you can do at home to diagnose a lot of things, like in terms of what you should be eating and what kind of vitamins you would need and things like that.

And I'm just curious, now given that you're already in that business, have you ever thought about expanding the portfolio to deal with other types of diagnosis?.

Nik, I think you have a future in new products. I think that's exactly the types of things that we'd be looking at. And of course, we have a great brand name at first response that we certainly put in other categories, but yes..

And our final question comes from the line of Jason English with Goldman Sachs..

I wanted to come back to the gross margin question. I think, it was asked earlier, because I don't think you fully answered it. Your guidance suggests that you're going to hit a pretty high gross margin in the back half.

In fact, going back over the last 10 years, it will be the highest back half margin you've ever achieved, which in context of the environment, seems surprising.

So, I was hoping you could explain, like why structurally you're going to be at a higher margin, even with these cost pressures? And then, the second related question is, gosh, if you can hit all-time high margins in the back half of this environment, what is the right margin for this portfolio? Street’s out there looking at fiscal '23, maybe you're 46, 46 Street.

Do you think with the portfolio you have today, your normalized gross margin rate should be in the 47%, 48% type range?.

Yes. Hi, Jason. I thought I gave some context to it. I hear you on absolute numbers. I think, I'm trying to explain that we're going to -- we have a lot of confidence in being up in the back half. And part of it was the comp on inflation, the comp on COVID, comp on tariffs.

But, underlying that, remember, all the things we talk about with our Evergreen model are certainly true, right? Our productivity program over the last couple of years has almost doubled in relation to where it was just five years ago.

So, we have a new capability that's offsetting these things that has been masked for a period of time because all this inflation, all these tariff discussions, all these COVID costs. So, that's certainly coming to bear in just a great way. MPD, as an example, when we buy businesses that have higher gross margin and simply add as well.

So, ZICAM, even though, as an example, that revenue number will be lower than we had hoped for because there's zero cold and flu season, the margin impact is still a tailwind. So, all those things that are structural are also tailwinds. I think, over the long term, we have a lot of confidence in the Evergreen model, expanding gross margin.

We've got to get past all these one-timers, like tariffs and whatnot. But I really do believe that we have more upside, more room to run. And so, I do think that we're going to be into the higher 40s over the long term..

Okay. I appreciate all the year-on-year stuff you gave. But just sequentially, forget about year-on-year, you've got a cost structure in the first half.

Do you expect it to be a lot lower in the back half?.

Yes. So, not year-over-year, but just sequentially, do we be lower? Right now, like all of the inflation, as an example, we are assuming that it's kind of a spot pricing. We've locked in, like I said before, about 80% of the commodities.

So, it's really the absence of higher inflation, the absence of higher tariffs, the absence of higher COVID costs, in theory COVID costs should actually help us in the back half. We don't have the same extent. And all those things help. But then, we're going to get the positive price/mix that's new to the portfolio.

That is incremental pricing on those brands that Matt talked about. And then, the incremental productivity program that we always talk about as well in the M&A tailwind. So, those are the kind of the things that are structurally higher..

And there are no further questions in queue..

Okay. Hey, thank you, everybody, for joining us today. Obviously, we're always available for follow-up questions. And we'll talk to you again in July..

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