Good morning, everybody. Thanks for joining us today..

Good morning, ladies and gentlemen, and welcome to the Church & Dwight First Quarter 2023 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, President and Chief Executive Officer of Church & Dwight. Please go ahead, sir..

Good morning, everyone. Thanks for joining us today. I'll begin with a review of the Q1 results. And then I'll turn the call over to Rick Dierker, our CFO. And when Rick is wrapped up, we'll open the call for questions. So Q1 was a solid quarter. Reported revenue was 10.2%. Organic sales grew 5.7% and exceeded our 1% Q1 outlook.

Of the 10.2% reported sales growth beat our outlook of 4%, thanks to stronger results from several brands, including Hero, THERABREATH, ARM & HAMMER laundry and ARM & HAMMER litter and exceptionally strong sales growth in our international business.

The other good news is that the vitamin business and the WATERPIK business hit their Q1 sales plan, and were right on expectations. And finally, it's also fair to say that we had a degree of conservatism in our original Q1 outlook, both top line and bottom line.

Our Q1 top line growth reflects the strength of our brands, both premium and value and also our focus on execution. The combination of consumer demand and improved case fill, which is now over 93% in the U.S. is resulting in strong revenue growth.

Something else that is noteworthy, we had flat volume growth in Q1, which is an encouraging sign after declining volumes in the last six quarters, and we now expect volume growth in our full year net sales outlook. Adjusted EPS was $0.85, which was $0.10 higher than our $0.75 EPS outlook. And that was driven by higher-than-expected sales in the U.S.

and especially in our international business, which posted 11.6% organic growth. In Q1, global online sales as a percentage of total sales was over 16%, and we continue to expect online sales for the full year to be above 16%. Now private label shares remained consistent with historical weighted averages.

Both domestic and internationally, private label is stable in our categories. And now I'm going to comment on each business. First up is the U.S. The U.S. consumer business had 5.5% organic sales growth, and 8 of our 14 power brands held or gained market share in the quarter.

Now I want to look at a few of the important categories in the U.S., and I want to start with laundry. If we look at the big picture, value laundry detergent grew 9%, while premium detergent declined 3%. So the trade down to value detergent continues into 2023. During Q1, the liquid laundry category grew 3.6%, while ARM & HAMMER grew 9.3%.

ARM & HAMMER liquid laundry detergent grew share by 80 basis points in the quarter to 14.3%. So with more consumers migrating to ARM & HAMMER laundry detergent, we have the potential for a long-term benefit to the ARM & HAMMER brand similar to the last recession. Now over in litter, the category grew 12.7%, while ARM & HAMMER litter grew 13.5%.

So we gained market share in the quarter. We did see a trade down from our premium ARM & HAMMER Cat Litter to our ARM & HAMMER value litter, which is in the orange box. So consumers are staying in the ARM & HAMMER franchise.

And our Give it the Hammer advertising campaign, which halos met the many categories that ARM & HAMMER competes in is resonating with consumers. Now in dry shampoo, the dry shampoo category was up 11.8% in Q1, driven by BATISTE consumption, which was up 20%. We now enjoy a 46.2% market share in dry shampoo.

In the condom category, the condom category was up 4.1% in Q1, while TROJAN consumption was up 5.3%. There again, we gained 80 basis points of market share, thanks to our new TROJAN bare skin raw condom and the success of more targeted marketing. Our most recent acquisitions, THERABREATH mouthwash and HERO are performing extremely well.

THERABREATH, which we acquired in December of 2021, had just a great quarter with 70% consumption growth. THERABREATH grew share 6.8 points to 22.5% of the alcohol-free mouthwash. And as promised when we bought the brand, distribution of THERABREATH has doubled since we acquired it in December of 2021.

THERABREATH is now the number two nonalcohol mouthwash brand and the clear number four in total mouthwash. We expect this brand to be a long-term grower for Church & Dwight. Now ZICAM, this is a December 2020 acquisition, also delivered strong results this quarter. ZICAM is the number one brand in the cold shortening segment with a 78% share.

Now to our latest acquisition, HERO, which grew year-over-year consumption by 43.5% and gained 1.6 share points to achieve a 9.1% market share in the total acne treatment category. And distribution has expanded by 50% since the October acquisition date.

And as we said in the release, there continues to be a great deal of excitement around HERO -- about the HERO brand and especially the HERO team. From our oldest brand to our recent acquisitions, our brands are driving category growth. I'm going to give you a few examples.

ARM & HAMMER liquid laundry detergent, which has a 14% share of the liquid laundry category drove 35% of the category growth. In dry shampoo category, BATISTE has a category-leading 46% share, but contributed 75% of the category growth.

And in the mouthwash category, THERABREATH makes up 11% of the total category but delivered over 50% of the growth in mouthwash. Next up is international.

Our international business delivered organic growth of 11.6% in Q1, driven by strong growth in the subsidiaries and double-digit sales growth from our Global Markets Group, and that was quite balanced across all of our global regions. And the growth was headlined by BATISTE, vitamins, femfresh, WATERPIK and gravel.

And as far as the consumer goes, similar to the United States, unemployment remains low in our international countries where we have subsidiaries. However, in many of these markets, particularly in Europe, the consumer is facing inflation in energy and food, but so far, consumption has remained strong.

In China, while it is a relatively small market for us, we are experiencing stronger growth in Q1 and remain optimistic about the full year apart. And finally, Specialty Products. Specialty Products organic sales decreased 5.9% primarily due to lower volume in the dairy business as low price imports returned to the U.S. market.

I want to wrap up my remarks right now by saying consumption is strong. Our value offerings are performing well as are our premium offerings. Acquisitions are on track. We're ramping up our marketing this year in support of our brands and new product launches.

And we expect to have the opportunity to invest even more behind our brands in future quarters. And now, I'm going to turn it over to Rick to give you some more color on Q1..

positive 160 basis points impact from price/volume mix, positive 120 basis points from acquisitions, a positive 160 basis points from productivity and 10 basis points from currency, partially offset by a drag of a 360 basis point impact due to higher manufacturing costs, including inventory charges related to discretionary brands primarily flawless.

For the balance of the year, we still expect sequential improvement in gross margin year-over-year expansion throughout the year. Moving to marketing. Marketing was up $20 million year-over-year. Marketing expense as a percentage of net sales was 8.6% or 70 basis points higher than Q1 of last year.

For SG&A, Q1 adjusted SG&A increased 90 basis points year-over-year. Other expense all-in was $23 million, an $8.6 million increase due to higher interest rates. Our expectations for interest rates for the remainder of the year remain unchanged from our prior guidance. We do not have any looming long-term debt refinancings.

In fact, August of 2027 is the timing of our next maturity. For income tax, our effective rate for the quarter was 24.4% compared to 23.2% in 2022, an increase of 120 basis points. We continue to expect the full year rate to be approximately 23%. And now to cash.

For the first three months of 2023, cash from operating activities increased to $273 million due to higher cash earnings and improvements in working capital. We now expect full year cash flow from operations to be approximately $950 million. Previously, we expected $925 million.

The $25 million increase is driven by higher cash earnings and an improvement in working capital. Our full year CapEx plan continues to be approximately $250 million as we continue to make capacity investments, and we expect to return to historical levels by 2025. And now for the full year outlook.

Given the strength of our Q1 results and our confidence for the remainder of the year, we are raising our outlook for sales, EPS, gross margin and cash flow. We now expect the full year 2023 reported sales growth to be approximately 6% to 7% and organic sales growth to be approximately 3% to 4%.

We now expect full year EPS in the range of 2% to 4% growth. Given the strength of the business, we see opportunities to make incremental investments in our brands and capabilities in future quarters. We now expect full year reported gross margin to expand approximately 120 basis points.

And as we expect pricing and productivity to more than offset inflation. Our full year inflation expectations remain unchanged from our previous outlook. Gross margin is expected to benefit from pricing, pack size changes, longer concentration and the full year impact of the higher-margin HERO business.

As you read in the release, two items of note that are aiding our margin recovery are new litter pricing that went into effect on February 1 and the latest round of concentration for laundry. We intend to increase marketing as a percent of net sales to 10.5%.

We continue to expect SG&A both in dollars and as a percent of net sales to increase compared to 2022 as the company's incentive compensation plan returns to normal levels in 2023. As a reminder, our EPS guidance includes a step-up in our level of marketing investment as well as higher SG&A.

For Q2, we have a strong outlook and expect reported sales growth of approximately 7%, organic sales growth of approximately 3% and gross margin expansion and higher marketing spending. The math would show a sequential decline in sales growth, but it's easy to explain.

First, distribution pipeline fill for HERO and THERABREATH accounted for 1% of growth in Q1 that will not repeat in Q2. The other is around quarterly comps and how that impacts the current year.

For the domestic business, there was a large improvement in case fill in Q1 to Q2 last year, which leads to a tougher comp in Q2 of this year compared to Q1 last year. As an example, our international business in Q1 in 2022, organic growth was 0 and in Q2 it was 6.5% in 2022.

As a result, adjusted EPS is expected to be $0.78 per share, a 2.6% increase from last year's adjusted Q2 EPS. And with that, Matt and I would be happy to take questions..

[Operator Instructions] For your first question comes from the line of Chris Carey from Wells Fargo. Chris, please go ahead..

Hi, good morning..

Hi Chris..

So I just wanted to ask about -.

Chris, you're breaking out..

Operator, why don't we go to the next question and Chris can get back in the queue..

Right. Sure. No worries. One moment please for your next question. Right. So for your next question, it comes from the line of Kevin Grundy from Jefferies. Kevin, your line is open. Please go ahead..

Great. Thanks. Good morning, everyone.

Can you guys hear me okay?.

Yes..

Great. So I wanted to start on the gross margin outlook. Some of the key drivers there, maybe how you're seeing that a little bit differently given the strong start to the year and some of the moderation in commodities and sort of tie that in with how you're thinking about potential reinvestment.

So the outlook now, up 120 basis points on gross margin year-over-year. The prior outlook was up 100 to 120. So modestly better.

Rick, maybe just comment on how you're seeing the contribution from pricing, commodities and productivity sort of the key levers? And then Matt, maybe you could want to chime in on just how you're thinking about restoring advertising and marketing levels.

It was kind of a stair-step function, at least that was sort of the thinking coming into the year. Is there anything maybe accelerating that sort of within the context of advertising and marketing had been 12% of sales, get down to 10% this year, the thinking is 10.5%.

How should we be thinking about the potential reinvestment if gross margin exceeds expectations? And I have a follow-up..

Yes. Thanks, Kevin. I'll go first. I think gross margin, we said in the release and in my script that really, we expect gross margin to expand -- the expansion continues to improve throughout the year. We did do better than we expected in Q1. That's why we raised the full year.

From a pricing perspective, as we go through the year, there will likely be less pricing overall. There will be less inflation overall, and productivity kind of ramps up as we go through the year as well. So all those things we think are -- will be tailwind.

And to the extent that we overdeliver on gross margin, that's why we put the investment commentary in the release as well.

Matt?.

Yes. You asked a good question with respect to marketing. As everybody knows, last year, in 2020, our marketing as a percentage of sales was 10%. It was kind of a low point for us. And what contributed to that was all our difficulties with the fill rate, et cetera. And we said, hey, we're going to build that back. We want to get back to 11%.

At least, we go halfway there in 2023. And you can see from -- and we had a really good first quarter. We let some of that flow through to EPS on a full year basis. So we took up our estimate from 0% to 4% to 2% to 4%, but we always take a long-term view with the company.

So yes, to the extent that we have even better performance in future quarters, it's going to give us an opportunity to go higher than 10.5% as a percent of sales. And whenever we're in a position like this, and it's been a few years since we've been flushed, but there's three destinations. First is going to be growth.

So we'll be looking to pay for marketing. Can we go higher than 10.5%. For international, we have a lot of runway there. So one thing we could do there with respect to regulatory, we get a third-party help to help us knock out product registrations that might have been scheduled for next year or the year after.

And there's always R&D projects as well that we can allocate to. And then from an efficiency standpoint, we're -- like most companies, we're trying to automate this place. And there are discrete projects we can accelerate to automate some repetitive transaction processing in the company. And also there's always IT investments.

And finally, with respect to the environment, we're really focused on our sustainability. So there are projects with respect to sustainability like alternative packaging that we could fast forward as well. So it gives us the degrees of freedom, so we're in a good spot here looking forward for the rest of the year, Kevin..

Yes. I appreciate the comment. If I can just get one more, Matt. Just on -- and for Rick as well. HERO seems to be performing much better, I think maybe than folks had modeled, how is it coming in relative to your own expectations? Presumably better, I would think.

And why is that? Is the distribution ramp more quickly? Is the velocity been better? Is it both and sort of why? And then maybe just updated thoughts on your outlook for the brand. And I'll pass it on. Thank you..

Yes, I'll give you a couple of comments, Kevin. It's Rick. I think both is the answer. Velocities are even better than we expected. And I think distribution gains and TDPs are even better than we expected, faster than we expected.

I think in the -- maybe Matt script, he commented about TDPs for HERO and we're 50% higher since we bought the business already....

[Operator Instructions] For the next question, it comes from the line of Chris Carey from Wells Fargo. Chris, your line is open. Please go ahead with your question..

Hi, good morning. And sorry about the technical difficulties there in the last question. So I just wanted to ask about personal care business. Clearly, we're continuing to see a little bit of sequential improvement.

I guess, can you just comment on your visibility on this business relative to even a few months ago? And also just what you're seeing from a kind of gap between what we can consumption data, which remains stronger relative to what you're actually delivering from an organic sales standpoint.

Just any visibility on when you think your organic sales will start to look a little bit more than like what we see in the consumption data, which is a little bit better. Thanks so much..

Yes, I can hear you. By the way, we lost Chris' line at this time. Should we move on to the next caller? No, we're still live and your line is still open. All right. I'll just go ahead and check here. Yes. By the way, I'm -- we'll talk over the audio. Yes, sure. I'll just try to stop the stream for now then, let's see if that would refresh the connection.

Okay. All right. So good day, ladies and gentlemen. Apologies for the technical difficulties. So we're going to be resuming with a Q&A. [Operator Instructions] So for your next question, it comes from the line of Lauren Lieberman..

Hello. Okay. I feel like we were in, myself to the fact that we're live again. Okay. Hi. So let me just -- okay, go back to my questions. So I guess consumer domestic was like, let's call it, 500 basis. It was much stronger than what we saw in Nielsen. So I'm just kind of curious what drove that? Kind of anything you can talk to us about untracked channels.

Is there any rebuilding of retailer inventory? I know, Rick, you called out the 1 point on HERO and THERABREATH. But I was just curious, anything else, just helpful to know about on track. Thanks.

Hello?.

Hi Lauren, just wanted to take if you can hear me. This is the operator..

I can hear you..

Okay..

Okay. Now I'm being told -- okay, some people are messaging me that they can hear me, but not here, the company..

Okay. So for -- okay, so for Mr. Farrell, Mr. Dierker, please try to redial. Just please try to dial back in. Okay. Sounds good. So Lauren, please standby. I'm really sorry about the technical difficulty at this time..

Hello? Hello?.

Yes, this is Kyle. I can hear you..

Okay. Well, this is our cellphone. Now we're on this way..

Rick, it's Lauren. I can hear you..

Yes, can I -- to the call now?.

All right. Well, hey, take 3..

Okay.

Did you catch my question or no? Because I can repeat it if you need me to?.

Yes. No, I got it.

I think everybody -- the question was really, how does consumption match up with organic for domestic?.

Yes. And just particularly untracked, right? Just curious about untracked channels..

Yes, yes. We don't think there's a huge disconnect actually. We -- IRI consumption is 7%. That included some of the HERO consumption. And so that got -- if you back that out, that's around 6%. So 6% is what IRI would say is our organic consumption. And we were at 5.5%.

And the drag is, as you would say, it's from untracked channels like WATERPIK, for example, online or other businesses. So with the disconnect, it's a little bit closer..

Okay. And there was just the -- you called out there was a 1 point benefit to total company from pipeline on HERO and THERABREATH when -- which is small. But when you look at the second half of the year, I know you've talked about improving volume and volume now being up to the total company for the full year.

I was curious on any updated thoughts on what you've deemed the more kind of discretionary categories and how you're thinking about shipments for WATERPIK, vitamins as we go through the year?.

Yes. And I partially thought I was answering that when I answered Chris' question. I probably got cut off. So in 2022, those three businesses, we said in the release, at the end of 2022, they were about a 4% drag for the three businesses. In Q1, they were closer to 3% drag.

And I said we expect personal care organic to inflect positively in the back half. And a big reason is because those businesses are not a drag. And furthermore, Matt said it in his script, but it was very encouraging that WATERPIK and vitamins hit their internal plan numbers..

Okay.

So you expect them -- those businesses in particular for volumes to be up in the second half? Or not calling that yet and don't need to?.

I wouldn't call that yet. I would just say we don't expect it to be a drag in the back half..

Okay. Got you. I will pass it to anyone that's dialed in, and we can hear. Thanks..

[Operator Instructions] For your next question, it comes from the line of Rupesh Parikh from Oppenheimer. Your line is open. Please go ahead..

Good morning. Thanks for taking my question.

Can you also hear me right now?.

We can hear you..

So I guess just continuing on just vitamins. Just curious what you're seeing right now in the category. And I believe your fill rates have now improved in vitamins. Just curious if you're starting to see progress on the share front..

Yes. The vitamin fill rate is improving sequentially month by month take November, December, January, February, March, which is a really good thing. As far as the category goes, if you look at the last few categories for gummies, you may remember in the third quarter last year, a big decline to gummies were at 8%.

But then Q4 was down 10% and Q1 down, 2.3%. So I would say it's really stabilized, which is a good thing for us. Now we did lose share in the first quarter, again due to our fill rate difficulties. But we anticipated some of that. And we probably benefited a bit because the category was stronger than we expected.

So consequently, the vitamin business wasn't a drag on our outlook. They hit their plan for the first quarter. And we think things should improve from here for the rest of the year..

Great. And then maybe just one follow-up question. So I know at the Analyst Day, you gave expectations for organic growth expectations by segment. So it appears at least consumer domestic, a stronger international story or maybe specialty products is weaker. So just curious if you have updated views on expectations by segment for the year..

Yes, sure, Rupesh, it's Rick. Domestically, we're now calling 3% to 4%. International between 5% and 7%. SPD is actually slightly negative and that gets us to the total company organically of 3% to 4%..

Okay. Great. Thank you. I'll pass it on..

Okay..

[Operator Instructions] For your next question, it comes from the line of Olivia Tong from Raymond James. Olivia, your line is open. Please ask your question..

Great. Thanks. Good morning. I just wanted to get a little bit of an update on your view on the U.S. consumer, particularly any early reads on the incremental pricing you took, impact of compaction and the extent that you've seen any change in promotional levels? Thank you..

Okay. That's a broad question, Olivia. I'll talk about the U.S. consumer. Look, we're all reading the same data. The U.S. unemployment remains low, although it's clear that job growth is slowing. And the -- also, stats will suggest that the growth -- the year-over-year growth of household income is also decelerating.

And I guess the other thing we have coming ahead is student loan payments resume late summer. I think that may not be a big deal, but 40% of millennials and 25% of Gen X consumers have student loan debt. And I think the combination of all that is contributing to consumers being so -- intense and trade down from premium to value.

What was your second question, Olivia, your second part?.

Sorry, it was around compaction, the pricing, any early reads on those and....

Yes, the elasticity and -- yes, we've been taking price for the past couple of years. In some cases, we've taken it 2x or 3x depending on the category like litter or laundry detergent. So the gaps -- the price gaps between brands are actually largely similar to they were pre-COVID. And so I would say that there's no story there right now..

Yes. And it's kind of early to call any impact from concentration that just rolled out late Q1, but we expect that will be positive..

Great. Thank you..

All right. Thank you. And for your next question, it comes from the line of Dara Mohsenian from Morgan Stanley. Dara, your line is open. Please ask your question..

Hi, guys. Good morning. So clearly, a strong Q1 that was better than you expected. The guidance for Q2 look favorable relative to consensus also. Just trying to understand, if you look at work sales and EPS, you didn't necessarily fully flow through the upside in the quarter to the full year. Obviously, a full year raise, but more modest.

So just help us understand that there are some specific limiting factors there? Or is it more just the reinvestment you talked about earlier? Conservatism in a volatile environment? And particularly on org sales, the questions on org sales and earnings, but org sales, you're not assuming a sequential acceleration in the back half despite easier comps.

So I just wanted to understand that relative to the first half expectations. Thanks..

I think you answered the question for me, Dara. We're three months into the - and we follow a lot of companies. And so we're not alone and having a good first quarter but not necessarily falling along through just because there's always a certainty with respect to the economy. So that has [technical difficulty].

So we do have the freedom now to take a long view and increase our marketing from 10.5% higher. And we have all of the place where we can put money, which I went through with Kevin, growth, efficiency or sustainability projects. They're all available to us. So yes, we feel like we got a lot of flexibility going forward for the rest of the year..

Yes. And it's very rare that if you look back at our history that we've ever raised after one quarter. Typically, we talk about that in the second quarter. So this is a bit of a positive..

Okay. That's very helpful. And then can you just give us a little more detail on some of the problem areas recently, WATERPIK, FLAWLESS, vitamins, just sequential performance in Q1 relative to recent trend. I know you mentioned a couple of them, you were on plan.

But I just wanted to get a little more detail on sort of the year-over-year performance, both in terms of consumer demand as well as retailer inventory levels. If you can just give us a little more insight there. Thanks..

Yes, I'll give some insight on WATERPIK. So as I said, we're happy with the progress in WATERPIK. They hit their internal number. So not a drag on our outlook. But the economy is affecting consumer behavior. Consumers are either not buying or trading down to lower-cost flossers.

On the push side, our lunch and lunch are back to normal with the high-volume dental offices. And of course, that's very important to recommendations for first purchases of water flossers.

But I would say we're -- we went into the year saying it's going to be a little choppy the first six months, and I think that the comps will get easier in the second half. And vitamins -- on the vitamin side as well, the category performed better than expected. It was only down 2% in the first quarter.

And as I said, our fill rates have improved monthly so that now we're getting into the high 80s. And so it's one of the drags on our total company fill rate. And as that progresses, we're going to be in a better position to win back share..

Yes. So those two are stabilized and -- expectations. The third one is FLAWLESS. Retail inventories are moving slower than we expected. That's partly have an impact on our inventory reserves for -- limiting inventory on our end, but we think we've appropriately captured that from here, and we're moving forward..

Great. Thanks guys..

And for your next question, it comes from the line of Anna Lizzul from Bank of America. Anna, your line is open. Please ask your question..

Hi, good morning. Thank you so much for the question. I'm curious around volumes. Volumes were flat in the quarter, and you're now expecting volume to be positive overall for Q2 and the full year. You've commented previously on economization on volume expected in certain categories such as laundry, litter and toothpaste.

So I was wondering if you're seeing a reversal in that from consumers to maybe are more accepting of price increases or just more benefit from trade down versus economization?.

Yes, I'll start and then Matt probably has a point or two to add to. What we said on volumes, and just to be super clear, was they were flat in Q1, and we expect to inflect positively in the second half and for the full year. So you can infer that, that means we think they're going to be negative in Q2.

Originally, our outlook was down in Q1, down in Q2 and inflect positively in the back half. So we're encouraged by what happened in Q1. That was largely because that was our largest year-over-year delta in case fill. A year ago, Q1 case fill was 72%. Q2 is 89%. So we just have less volume to make up there. Yes.

So I would probably say volumes continue to impact -- inflect positively in the back half. We're now calling going to be positive for the year. And that's kind of the short story..

And the only thing I would add to that is that we were out of the gate early in some of our categories with respect to pricing. And so consequently, the passage of time, pricing is going to have less of an impact on us and volume, greater.

So we think that the flat line is a great story for the company, and expecting positive volumes for the year, again, this is typically what investors expect from us..

Great.

And then just in terms of pricing and margins, just curious how would you attribute the benefit to outright pricing versus the package size changes?.

Yes. We haven't -- it all gets bundled into that price/volume mix on the gross margin bridge. And so our outlook in February was 180 basis point tailwind. It still is that in April, 180 basis point tailwind from price/volume mix.

And that would have, for example, the litter list price increase, but it would also have pack size changes that are happening. It would have -- at times, it would have the laundry concentration benefit in there. So it's a mix. We don't break them out any more independently than that..

Okay. Thanks very much..

All right. Thank you. And for your next question, it comes from the line of Bill Chappell from Truist. Bill, your line is open. Please ask your question..

Thanks. Good morning. Matt, just a little bit more on kind of your commentary about consumer trade down.

And I'm just trying to understand how you feel like why you think it's consumer trade down as you're benefiting versus just the power of the ARM & HAMMER brand because -- especially in laundry detergent, I mean, for years, you've been taking share from kind of the smaller old Unilever fund, whatever their -- whoever owns them now brands.

You're looking at a lot of the stores and a lot of those brands have lost some or all of their shelf space and you gained shelf space.

So I'm trying to understand like what you're seeing that -- where you think it's trade-down benefit versus just power of the brand benefit that isn't sustainable regardless of what the economy does?.

Yes. Well, look, it's a combination of both. Yes, the ARM & HAMMER brand is a very powerful brand. We got a $5.4 billion of sales. $2 billion of it is ARM & HAMMER. So we're able to advertise ARM & HAMMER across lots of different categories.

But when we look at the macro numbers, just look at value laundry detergent grew 9% while premium laundry detergent declined 3%. That's in the category, all brands, premium, all brands, value. So it's clearly happening. That's our biggest category. And then when we look at litter, we see the same thing.

We have a black box, which is our premium cat litter. And we've got a yellow box, which serves our value cat litter. And we see these consumers have traded down within the category from the black box to the yellow box. But that's where you have the power of the brand, where people stick with ARM & HAMMER as opposed to move over to a different brand.

So I'd say it's probably a combination of both, Bill..

Well, and I guess just to follow up on that.

Are you seeing outsized or accelerating growth for the extra brand or for that deep value or more shelf space for the -- being given by retailers for the deep value?.

Yes, yes. No, that's a good one. We said 8 out of 14 brands that gained share in the quarter. We were almost at nine. We just missed it by hair with Extra. And I would say in recent weeks, Extra has shown a lot of strength. So we think that, that one could turn positive for us as a share grower in future quarters.

That's more evidence of trade down, right, Extra - catching fire..

And for your next question, it comes from the line of Peter Grom from UBS. Peter, your line is open. Please ask your question..

Thanks Operator. And, good morning, everyone. So I was hoping to get some perspective on what you're seeing from an input cost perspective, kind of building on Kevin's earlier question.

Can you maybe just help us understand where you're seeing costs moderate? Where you're seeing costs be stickier? And Rick, I know you previously mentioned that you were less hedged on commodities than you typically would be heading into this year.

So to the extent that commodities continue to moderate, how quickly could we see that benefit flowing through? Thanks..

Yes. Okay. Thanks, Peter, for the question. In the release, we said that largely for us and our inflation expectations were unchanged. And there's puts and takes on the commodity side. Transportation costs are down. Our resin, the outlook is slightly higher. Soda-ash is higher. Sugar is higher. Some resins are down. Ethylene is down.

So it's a mixed bag, but it kind of nets to kind of neutral from our original outlook. You're right, we did say at the beginning of the year that we were less hedged this year than we have in many years, just thinking that commodities would come down over time as the recession was potentially looming.

And it just takes a few months for costs to actually be down and stay down before you start seeing those commodities trickling to material pricing, and tickle into -- and then you have to buy and they go on the balance sheet. They get expensed to the P&L when you sell it. So I don't know.

If you see something down now, it has to be down for a few months and then probably within six months, it would flow to the P&L..

That's super helpful. Thank you so much. I'll pass it on..

All right. Thank you. And your next question, it comes from the line of Andrea Teixeira from JPMorgan. Andrea, your line is open. Please ask your question..

Thank you. Good morning. So I wanted to just -- one is a clarification. The other one is a real question. One on the whole pricing and mix dynamics and volume. Understandably, you have these dynamics in the second quarter. You've got a help in the first quarter.

But the second quarter -- the second half, sorry, as you imply, the new guide and do you still have some pricing to come through? And I understand your lap as everybody else, the pricing that you've put in. But you're putting in some pricing even towards the end of last year and beginning of this year.

So was just trying to reconcile should we expect in the second half implied in price/mix in your new guide? And then on -- the real question is on the ARM & HAMMER share gains, which obviously have been remarkable. Just wondering on liquid. Your biggest competitor also reduced some price points that were, I think, more sticker shock to some consumers.

Have you seen that changed these dynamics as you exit the quarter? Or you continue to gain share in ARM & HAMMER channels? Thank you..

Yes, I'll take the -- just the first half, second half dynamics of pricing. But Matt's comment is true, a lot of pricing does roll over. But the first half average, we think, is in the 160s. And the second half we think is 180, 190. So the full year is 180.

So we do think there's a little bit, and that's really because of our litter price increase in February, and the concentration impact that kind of flows through there as well. So those are the two things that help in the back half a little bit..

Yes. And with respect to pricing, obviously, we do watch what happens and what our competitors do in all of our categories. But with respect to any recent price increases, not just in laundry, but elsewhere, it would be too early to tell. We needed a quarter or two before we can comment on it.

What I will add though is that -- and I think Olivia might ask this question earlier, our friends sold on deal. So if you look at liquid laundry detergent and look at it a year ago, the sold-on deal was 31%. And if you look at where it is today, Q1 2023, 31.7%. So another big change year-over-year in promotions.

And even sequentially, Q4 was 32% and Q1, 31.7%. So things are pretty stable in the liquid laundry. It's a different story in cat litter. Cat litter, a year ago, sold on deal was 10.7%. And first quarter this year was 14.9%. So it's been kind of a stair step up quarter-by-quarter over the last five quarters. In fact, Q4 was 13.9%.

So it's up another 100 bps. And historically, and we've talked about this on previous calls, the litter sold-on deal is typically much higher in the high teens, 18%, 19%, 20%. And I guess the other promotional category would be vitamins. And last year, was 38.9%. Sold-on deal in Q1 this year is 38.5%.

So I think that gives you a little bit more color on what's going on with respect to pricing and promotions..

But do you expect promo to continue to accelerate as we go? I mean I appreciate it's backward-looking, but forward-looking, you're embedding that, obviously, cat litter will be one and perhaps vitamins or you think that this is going to be a similar dynamic?.

Yes. No, but Andrea, we would never telegraph our plans. But typically, we're going to react to competition when it comes to trade..

Yes. And I would just say, laundry for Q1, a little lot like Q4 from a promotional perspective like that was going through..

And just -- I'm sorry, just a clarification, the 180, 190 is the -- that you mentioned on the pricing front, that's on top of -- that's what the incremental pricing would come from those two price increases that you mentioned, right?.

Well, that's for the full year. So there's also partial pricing finishing from last year when we took it midyear, that would be a benefit and a tailwind as well. And that's price/volume mix is that line on break out the three. So that's also volume growth of higher-margin brands, as an example, year-over-year.

So there's a lot in that number, but I guess the answer for you, Andrea, is it's a tailwind and the tailwind gets a little bit better in the second half..

So you should say like all sudden and according -- I mean, if my math is right, you're going to have a second half with pricing of about 2%, 2-ish.

That's what comes out with your guide, if that makes sense?.

Yes, I'm not saying that. I'm just saying that, that 180 basis points is also following the mix that is not just priced by itself..

Okay. Perfect. All right. I'll pass it on. Thank you..

Thank you. And for the next question, it comes from the line of Javier Escalante from Evercore. Javier, your line is open. Please ask your question..

Good morning, everyone. And hopefully, you can hear me. I would like to double-click on the ever -- in the greater degree of conservatism built in guidance and what we're going to see in tracked channels. So one is you have positive volumes in the second half despite of compaction in detergents.

Is it -- are we going to see a gap between tracked channels and what you report because you correct for wash loads? On HERO, doing very well.

Do upsized trigger impact -- higher impact of restricted stock? And thirdly, on the marketing investment, do you -- have you built any sales lift in the second half or just basically investment for the longer term? Thank you..

Yes. I'll take the first two and maybe Matt has the third one. But -- and I'll even take your second one first. Through RSUs for HERO, our adjusted EPS excludes any impact of amortization related to RSUs. So that's kind of not a factor in our outlook or in our adjusted EPS. So that's apples-to-apples.

Number one, we don't expect to see much of a gap between shipments and consumption at all. And when you see tracked versus our -- or Nielsen or consumption versus our organic growth in the back half, it should be really close, is the short answer.

And in Q2, you may see a little bit of a disconnect again because some of those brands like WATERPIK, as they continue to stabilize and go backwards a little bit, that's largely in untracked channels. Some of HERO growth from a reported perspective is also in untracked channels, whether it's online or a few specialty retailers.

So I would say, overall, we've kind of talked about -- we had a great quarter. We're raising the full year on reported organic EPS across the board. We've made the comment that we're going to make investments if we continue to outperform on revenue and profits.

And Matt?.

Yes. As far as marketing goes, we're -- what we have in our forecast is we're modeling 10.5%. But if you look at what our -- what happened in the first quarter, first quarter, we're up 70 bps. And we said for the full year, we'd be up 50 bps. So our track record so far is as we get into a quarter.

And to the extent we have the same experience we've had in Q1 in Q2, then we have the opportunity to take it up again more than 50 bps. But it's going to be pay-as-you-go..

And if I can follow up on the detergent side because perhaps I didn't explain myself is that when you compact, don't you have a negative impact on volume? Or does your reporting basically adjust for wash loads, something that we cannot see in IRI track channels?.

Yes. These compaction levels are not to the extent that happened five years ago, 10 years ago, when we were doing 100% compaction. They are a lot more marginal. Round one happened a year ago. This is round two for us. And they just -- we don't anticipate them throwing volumes or price off in a major way..

Thank you very much..

Okay. I think that was the last question. We're going to wrap it up right now. We'll talk to you at the end of the second quarter..

This concludes today's conference call. Thank you for participating. You may now disconnect..