Church & Dwight Co., Inc. (CHD) Q4 2011 Earnings Report, Transcript and Summary

Okay. Good afternoon, everyone, and welcome. My name is Matt Farrell. I'm the CFO of Church & Dwight. And before we begin, this conference call will include forward-looking statements. These statements are made on the basis of our views and assumptions as of this time and are not guarantees of future performance. Actual events or results may differ materially from these statements. For information about certain factors that could cause such differences, investors should consult our most recent annual report on Form 10-K, filed with the Securities and Exchange Commission and available on our website, including the information set forth under the captions Risk Factors and Cautionary Statement on Forward-looking Statements. We will discuss organic sales growth, including -- pardon me, excluding foreign exchange effective tax rate, acquisitions and divestitures. We will also discuss gross profit margin, operating profit, net income and earnings per share, excluding the impact of the onetime items described in today's press release. A full reconciliation with the corresponding GAAP measures is included in the press release and is posted on the Investor Relations section of our website at www.churchdwight.com. Now let me turn the podium over to Jim Craigie for his opening remarks.

Thank you, Matt, for covering that exciting part of the presentation today. Once again, good afternoon to all of you, and welcome to the epicenter of capitalism on planet Earth, here in the boardroom of New York Stock Exchange. And I want to say, I mean, I know we had some great Q4 results, but throwing us a parade was just over-the-top, I really appreciate that. I'm going to start today's presentation by doing something a little different. Since we are in New York, I'm going to give you an executive summary of the entire presentation in what they call a New York minute or 2 minutes. If you pay attention for the next 60 to 120 seconds, you're going to hear a summary of the 5 key points that are going to be made today. And then Matt and I will give you a longer version of the presentation. We've got some pretty charts, which help support these points. We'll then open the floor to you for questions. We'll do our best to answer those questions. So sit back, if you haven't finished your lunch, keep enjoying it. If you want to go back for seconds, go back there and get some. And Matt and I will tell you about our great company. So here's the executive summary. Here's the 5 things I want you to takeaway. I mean, first, if you follow the Giants, one of the great things the Giants talked about this year, their coach was finish; finish a game, fight all 4 quarters to the very end. So finish is a great thing we believe in Church & Dwight, and we had a great finish. Q4 results were outstanding: 23% adjusted EPS growth, 7% organic revenue growth. Let me say it again, 7% organic revenue growth. We exited the year with great momentum. All the 4 corners, our organic revenue growth went from basically 1% to 3% to 5% to 7%. And something that's really monumental to me, ARM & HAMMER Liquid Laundry Detergent became the #2 selling laundry detergent in America on a dollar basis. We passed all, we passed Gain. So big news for our company. I'll talk more about that in a minute. Number two, the great fourth quarter was the end to a terrific year. We had very strong total 2011 results: 12% adjusted EPS growth, 4% organic revenue growth, strong free cash flow, 112% of net income and 35% total shareholder return. Kind of funny, one of your cohorts today kind of said to me, "Geez, your dividend yield's only up about 1.5%." Well, we did double last year to get the 2% and then, we had that unfortunate problem. Our stock ran about 30%. So we're sorry about that. For all of you who have a hold or a sell in the company, you had a bad year. Anyway, looking forward, we expect a very continued tough business environment in 2012. And to explain [ph] what I think you read in the papers, that's not our opinion. We expect continued weak consumer spending, continued volatility in commodities, continued competitive pressures and continued struggle for retailers. So it's a tough environment ahead, as we've faced the last year or 2. As far as 2012 targets, we have set aggressive, but we think are achievable targets. We're calling 3% to 4% organic revenue growth, 25 to 50 basis points of gross margin improvement. We've been slightly down the last 2 years, and we're going to tell you why we think we can get that engine growing again and a 9% to 10% adjusted EPS growth. Last but not least, we're going to leverage our great cash machine. We're going to generate $1 billion in free cash flow over the next 3 years. On top of doubling our dividend last year, we're raising it another 41% this year to get to a 2% yield. We're also seeing that great cash flow to build a new plant on California, which will open up and start full speed in the second quarter of this year. And we are continuing, I want to emphasize, to aggressively pursue good acquisitions. Do not misread the dividend increase as we're no longer an aggressive company and looking for acquisitions. We are looking for acquisitions as hard as ever before, and I'll talk about that more in a few minutes. So again, in summary, excellent Q4, great year, but continued tough environment ahead. We've set what we think are very aggressive, but achievable targets. I think some of the most aggressive targets in our industry coming off a good year. Those who have set -- 1 company I know has set similar targets coming off a bad year. We're going to continue leveraging our great cash machine. So you think, how does Church & Dwight do it? If you've been investing with us for the past now 11 years, you love us. If you haven't, get on board. These are the numbers of how we've done versus the S&P 500. If I showed you the chart, which we have, of us versus our competitors, we are #1 in every one of these time frames as far as total shareholder return. And how we do it is we have top 10 TSR drivers. These are not new. I've been telling you these for several years. It's the same 10. Just briefly, recession-resistant product portfolio; we know how to build power brands; we know how to ferociously defend our brands when we're attacked; we know how to drive international growth, great record there. We know how to expand gross margins, went a little backwards a year or 2, but I'll show you some charts over the last 5 years, and nobody has come close to us. We've got a superior overhead management system to keep our overheads down, the best in class in the industry; we've got an expert management team, something very unique about Church & Dwight. We keep our top people in the same jobs forever. And that pays off in tough times, and it pays off without making mistakes in our businesses. We've got a great proven track record in acquisitions. We're best in class for free cash flow conversion, and bottom line, you add all that up, we're all about being total shareholder return junkies. Now today, I'm only going to talk about the #1 one, because in a few weeks most of you will probably be down to CAGNY, and at CAGNY, I'm going to talk about all 10. But #1 is the most important one right now, as far as any new news. I want to show you some fascinating things going down there. So let's talk about our recession-resistant product portfolio. As you know or if you don't know, our portfolio is the most unique in the consumer packages industry. 60% of our portfolio is premium, like most of your other players. But unlike most of them, 40% of our portfolio are value brands. And our value brands thrive in a recession economy. You've heard me say before, I'm probably the only CEO in this industry who wishes this recession would last another decade or 2 because it plays to our favor. And you might say, if you don't know it, "How value-oriented are your brands?" Well, here's our biggest category, liquid laundry detergent, $6 billion category. And if you index Tide and the other players, Tide is 100. You can see that our brands are roughly 1/2 to roughly 1/3 of the price of Tide. The recession has just been wonderful for us. It's accelerated the shift from premium mid-tier brands to value brands. Look at that growth as the households are shifting into the value segment. The value tier is the only growth tier and has now passed, big news. We've now passed the mid-priced tier to become the #2 priced tier, with 28.5% of the dollar value in this category. Bigger than that, when it comes down to what do people actually do in wash loads at home, more U.S. households buy a value detergent than premium or mid-tier products. So we are truly the #1 most used category by households. Not everybody knows the great Procter & Gamble leads the premium mid-tier segment, with a 70% share. But Church & Dwight is the clear leader in the value segment, with a 46% share. In fact, we've gained 7-points since 2007, and we're now 68% bigger than the #2 player. Church & Dwight is the only liquid laundry detergent manufacturer reporting significant share growth since 2007. We're up 4 points in that category. In fact, in 2011, the latest year, we grew more share than any other manufacturer, up 1.5 points. Big chart here. Church & Dwight is now second only to Procter & Gamble total wash loads. I love this chart again. You can talk units. You can talk dollars. At the end of the day, what's actually go into a washing machine out there, you can see Church & Dwight is 22.5% of all wash loads out there, having passed Sun Products and coming up the tail of Procter & Gamble. So it's a big jump since 2007. But Matt, get up here. I'll be back in a little while to give a little more color on our 2012 outlook. But let me -- Matt, get up here. He'll take you through 2011.

Okay. Thanks, Jim. As you saw on the release, we had a terrific fourth quarter to the 5.4% volume and the difference of course is price mix, 1.7%. Gross margin was down 120 basis points. But if you paid attention to the release, you saw we had a tremendous quarter on household. And household, of course, has lower gross margins than personal care, and obviously, affected our operating margin as well. And EPS is up 23%, and I'll say a little bit about cash flow on a full year basis in a minute. Here are the numbers, if you want to run your eyes down the page, but you see the reported net sales were up 11.3%. We had a number of adjustments, as we described in the release, related to a change in accounting period for international and the effect of the early customer orders as result of implementing SAP in Jan 1, some customers ordered early. But strip all that out, and that's how we got the 7% organic growth versus the 11% reported. So here are the full year numbers. As everyone knows, we have an evergreen target of 3% to 4% organic growth, and once again, we were able to achieve that this year, 4.1% organic. Gross margin was down 50 basis points. If you were here last year, you probably know we were crawling up 50 to 100 basis points, but didn't happen for us this year largely because of commodities and also, because of mix, because household not only had a big fourth quarter, it also had a big year for us. If you run your eyes down the page, you can see free cash flow, down 4%. I'm going to hit that in a minute. Again, here are the numbers on a reported basis: net sales, up 6%; organic, up 4%. So here's the history. You can see, it's where Jim talked about, we've had double-digit EPS growth 10 years in a row, and now this is the 11th. So we're 11 for '11, with 12% EPS up in 2011. And here's the history. So when you hear us talk about 3% to 4% organic growth, here's how it's been the last few years. So you see, 7%, 5%, 3% in 2010 and now 4% in 2011. So very consistent deliveries of organic growth. Here's how the quarters looked this past year. So we accelerated your organic growth year-over-year 1%, 3%, 5% and then 7% in the fourth quarter. Now obviously, what this means is we're going to have very easy comps in 2012 in the first and second quarter and wicked comps in the second half of 2012. But I'm sure we'll talk about that more in the Q&A. Here's how price looked on a full year basis. So remember that 4% we talked about for organic, and that's largely all volume on a full year basis. And on this slide, so we got prices in the Specialty business, and you may recall at the Specialty business, we're essentially just passing through cost increases to our customers. That's what's driving the 7%. Here's gross margin history as well. We had a huge up in 2009, over 400 basis points, to get us to 44.8%. 2010, we lost 10 basis points. In this past year, we lost 50. But we're pretty proud of our record in hanging on to such high gross margins in spite of significant commodity cost increases over this period of time. And here's how it shook out this past year. So we were able to offset the commodities, the 200 basis points of hurt, with cost savings but really the mix is what drove us down to a negative 50. And here's the marketing history as well. So you remember in 2009 where we -- our gross margins expanded more than 400 basis points. Well, that's the same year we took up our marketing 190 basis points, and right in the teeth of the sort of the recession. Over the past year from 2010 to 2012, you can see we shaved it by 20 basis points. It's pretty obvious that it had no effect on our organic growth rate, considering the fact that we came in at over 4% on a full year basis. So marketing is relative, and one of the metrics we spend a lot of time looking at is share of voice versus share of market. Here's how we ended the year. We tracked our 8 power brands and look at how well we're growing our shares. As you can see in this case, we've maintained or grew share on the 5 of our 8 power brands. And here's free cash flow. So free cash flow once again, as Jim pointed out, if you look along the bottom of this slide, you can see that we've had free cash flow conversion in excess of 100%. Once again, $361 million, as compared to $375 million the prior year. Something to keep in mind here is that we had $9 million more higher CapEx in 2012 than 2000 -- pardon me, 2011 versus 2010, and we also had a swing, about $30 million hurt year-over-year in components of working capital. Here's, as far as the days ago, our cash conversion cycle is pretty solid, under 30 days, which really the timing of a lot of the purchases of inventory and receivables and payables that created that increase in year-over-year working capital. Okay here's that minimum capital investment, this is something we track very carefully as well. So typically, we bang around between 2% and 2.5%, that's CapEx as a percentage of sales. You can see this past year, we're at $73 million. I'm sure one of the questions on people's minds is what are we going to be calling for next year. Next year is going to be $70 million to $75 million, and a big chunk of that, about $24 million of that, has to do with this West Coast plant that we'll be completing early this year. And here's the balance sheet. As many of you know, we've been pretty much unlevered since the fourth quarter of 2010. We're leveraged 0.5 total-debt-to-EBITDA. We're BBB rated, and we have lots of dry powder. So lots of cash on hand and lots of availability of our credit lines. And we're very deliberate about the destination for cash flow at Church & Dwight. So we'd spend a lot of time thinking about this slide. So TSR is #1 for us. As Jim said, we have a lot of capability here. We haven't bought anything large in a couple of years, but we're very fussy. And that's not going to change. If you run your eyes down the page, you'll see new products would be #2 and then CapEx for organic growth and our G2G program, which is good to great. Return of cash to shareholders, so that, of course, is dividends, which you saw this morning, we increased. I'm going to say a little bit more about that in a second. We also bought back $80 million worth of stock late in the year, November, December. Didn't have much of an effect on the 2011 versus '10 numbers. But I guess it starts us off at a lower number going into 2012, and our expectations, we'll at least spend as much on share buybacks in '12 as we did in '11 and likely more, and we certainly have the cash to do it. And this is just to give you a graphic with respect to the dividend. So we took the dividend up this morning, 41%, and you probably know we would've taken it up 12% anyway, because we always increase the dividend commensurate with the prior year's EPS increase, which was 12%. So we took it up a little bit higher, so now we're at a 40% payout, which we think is a comfortable payout for us. We also think the dividend yield of 2.1% is a meaningful dividend to investors. We're not going to chase it. So the 40% payout right now is more of a principle that we're going to be following. And I'm going to turn it right back over to Jim right now.

. Thanks, Matt. Truly awesome numbers, very proud to look at those myself again and again. 2012, what do we saw for much of the business? As I said before, we think it's going to stay very tough. We expect commodity costs to stay high up in the second -- but you'd have 3 questions: Will commodity costs get worse or better? Will competitive price wars continue wherein? And will consumer spending improve or get worse? Attitude is, I have to say, pretty dismal on this. We don't expect consumer spending to get better, we expect it to stay weak. We expect commodity costs to stay high. We expect continued price wars out there. So as we always -- we have motto in-house, we plan for the worse but we hope for better. Let me talk about 6 key points on 2012, which are our strategic outlook on the business. First of all, the new product pipeline. On the table here in the center of the room is our new product pipeline. I think it's the best, and I'll say it again, the best new product pipeline we've ever had in the company. Let me take a few -- through a few of the key ones. ARM & HAMMER laundry detergent, we had a very good success from 2011, bringing out a skin-sensitive version, our best ever in that. 2012, you all know, is going to be the year of the unit dose. We're the first ones in the market with it. The products are all there on the table. All of our competitors are launching their products. Over the next few months, you're going to see what happens in the industry. I think, it's going to be a very interesting situation as to how much of the marketplace unit dose becomes, how it shapes out and everything. But 2012 will be the year of the unit dose product from all competitors, and we have a great product over there. Cat litter. DOUBLE DUTY was the most successful new cat litter in the past 5 years in the cat litter industry. In 2012, everybody else is catching up DOUBLE DUTY. We're launching a great new product called Ultra Last, which gives you longer-lasting odor protection for that. So everybody keeps catching up to us. We're staying a step ahead, and the new product is just terrific. Toothpaste, now I will admit, we've been a little delinquent on toothpaste, as Procter, Colgate and Glaxo have been very aggressive out there with new toothpaste. Well, finally, I think, we've hit a home run. We're taking 2 of our power brands and putting them together: the great ARM & HAMMER toothpaste brand and Orajel, which is #1 brand in tooth sensitivity, to come out with a new sensitive toothpaste. This is just launching. This is brand-new news. I will tell you, this is my -- I think, I'm not -- I'm parochial, I know. I'm Chairman of Church Dwight, but I think this is the best new toothpaste in the marketplace. So there are samples over there. You'll see us showing up in your store shortly, but I think it's a fantastic new sensitive toothpaste. Nair. If you go in spas these days, Brazilian spa clay is very hot. And so we're taking this great new idea and bringing it out for the retail markets, and I think it will be a great new addition to the Nair line. Trojan. Interesting new product, Trojan Charged. Intensified experience from beginning to end with heating, cooling and tingling. And there's some interesting ingredients there. So if you want to charge up your sex life, get Trojan Charged, an example there. Now something a little bit new for us. We're ending 3 with that term. I know you'll love it. They call it white space categories. Those are new categories for us. I know they're not white space categories for some of our competitors, but they are white space categories. We're entering the manual toothbrush business, which is an $800 million category. We're adding dishwashing additive, about $140 million category, and we're entering -- continuing to enter the vibrations category. Let me tell you about the products. First of all, ARM & HAMMER Tooth Tunes. I know we launched this last year. We had a little technical problem, so we held it back. I truly think this is the biggest thing in manual toothbrush since they put bristles on a plastic stick. This is proprietary technology that delivers music while your brush. The actual -- You can't hear it if you hold it outside your mouth. It actually goes through your jawbone up to your ear. Plays 2 minutes, so get your kids to brush their teeth for 2 minutes. We've got some very hot artists from Black Eyed Peas to Queen to Selena Gomez. So a hot new product we'll be launching into the marketplace, and I really think it's the biggest thing in manual toothbrush in a long time. OxiClean dishwasher booster. You may not know this, but a year or so ago, all the guys at dishwashing liquids were told to get the phosphates out of their product by the government. Phosphates can be bad things, they pollute the waterways, and they had to take phosphates out of all their great brands. As a result, their products can't clean as well or certainly get the spots off of glasses in that. So it was a great chance for us. We had OxiClean, the #1 product in laundry additive. Let's bring that into dishwashing additives. So right in front of me on the table right here, is a great new product, a booster product, you put in with your detergent to get cleaner, spotless glasses out there. So a great new way of staying [ph] the OxiClean brand. Trojan Midnight Collection. You know we've started in the category, we launched full-priced vibrators last year. This year, we're taking those products into the largest vibration channel, which is the adult class of trade. So if any of you'd like to go out on store checks with me, sign up. It will be lots of fun this year. Distribution. Great products are nice, but if you don't get distribution, your fighting upstream on this one. This is the chart we've shown in the past. If you index where we sit in 2005 in this categories, I won't give you specific numbers because that would be of great insights for my competitors, but then index where we are today, in 2011, last year. You can see we've made great strides. And I'll just tell you right now based on what we know about 2012, we have grown distribution in almost every one of these power categories. So we have a great insight in 2012, and our distribution base is growing, driven largely by these great new products. Marketing spending. We have increased marketing spending by over 50% since 2001 to 2011. We did have a great breakout year on 2009, where we just had so much growth in gross margin, we investment spent. And since then, we've held around 13%. Now 2 perspectives on this thing. 13% in 2011 or 12.9%, that's more than any of our competitors out there. And it's a bigger change since 2007 than any of our competitors. But I'm going to show you now something for the first time, we've never revealed. Because some of you may say, "Well, 12.9, 11.3, 10.9, not a big deal." Well here's some new news for you. If you break up that 12.9%, actually, domestically, we've spent 13.9%. Break it up. On the premium side, we actually spend 20% of net revenue on marketing. On the value side, we only spend 5%, so remember that. If you go back to this chart now, imagine putting Church & Dwight compared to our competitors there, who are almost all premium products, we're really at 20%. They're at 11%, 10%, whatever. So we are significantly advantaged to most of them on the premium side of the category and growing. So that's new news, folks. We've never revealed that little insight to you before about Church & Dwight. But it's a big factor of why we've been able to grow our businesses. And as you can see from this chart, by spending than our competitors, our share of voice to share of markets have exceeded 100%, 19 out of 21 times since 2009, a key reason why we've been able to grow our shares quite steadily. Improved gross margin. Gross margin, our goal is to grow 25 to 50 basis points. We've been struggling with this one the last 2 years after having an enormous jump in 2009. But I will show to you that we delivered more growth over the last 2 years. While our gross has not increased the past 2 years, we've had greater gross margin growth than anybody else over the past 4 years. Nobody's even close. We've been up 510 basis points. Next closest is the great Reckitt company, over 120. So we've had [ph] progress, but we're going to get it back. We're going to get the mojo back in gross margin. The 4 key drivers of that have always been the 4 key drivers, but we've stepped on the gas even harder. What we call our good [ph] rate cost optimization program, reformulating, reducing packaging, reducing SKUs harder than ever. Supply chain restructuring. We are starting up a new plant in California second quarter this year. Acquisition synergies. If we do make a major acquisition, we'll certainly drive a lot of synergies there to help our margins by buying higher-margin businesses and taking the cost out. And price mix. We are launching all the new products I talked to you about. Certainly, the personal care side are all high margin. All those white space 3 categories are all high margin for us. So we love those. If you look at gross margin next year, I said to you, cost savings, we've really sort of stepping on the pedal, offset some of the raw materials, and price mix in total will be kind of neutral for us. So net, we believe we can get 25 to 50 basis points of gross margin. Building cash position. We are just a cash machine, folks. We are just doing math. When I first came to this company, back in 2004, I think, we were generating $150 million of cash flow a year. Now we're well over $300 million a year, and $1 billion over 3 years. So we've got cash coming out of our ears right now. Acquisitions, again. We've had a great history on this over time. It's been a great builder of our company. We know how to do acquisitions. We know how to drive synergies. We know how to make them accretive to the company. We have mapped it before. We're very disciplined and very tight on this thing. We will not do an acquisition unless they meeting these guidelines. It has to be a #1 or #2 share brand. It has to have higher growth, higher margin. We want asset light. We don't want to pick up headquarters and plants from them. We want to leverage our capital base and manufacture this [ph] in purchasing by taking those business and putting them with the backs of our business, and we want to deliver sustainable competitive advantage, taking brands we think we can continue to build. We've made a couple of little bolt-on acquisitions last 2 years. They were terrific. Simply Saline, the #1 brand in the nasal hygiene, a great growth category as people are looking for more and more natural solutions, instead of drugs, to put in kids' noses and adults' noses to take care of their colds and allergies. Feline Pine was a nice bolt-on to our cat litter businesses. It's the #1 natural cat litter out there. And BATISTE, kind of a funny one for us. It's a U.K. product, mostly. It's dry shampoo, interesting product, very hot over there. It is the #1 driver of the shampoo business in the U.K. This one's on fire. We can barely keep up with demand on this product, and it's just been terrific. And we love it and may even have some future growth potential outside of the U.K. on this one. Matt told you, we've got tons of firepower. Even though we took our dividend up 40%, even though we're buying back stock, we've got tons and tons of cash. So there's nothing beyond our reach in terms of the kind of acquisitions we will make. We could easily make a $1 billion acquisition, but it'd have to fit our criteria, and we're very stingy about that. So let me wrap it up in terms of the 2012 business targets. As Matt said to you, we're calling 3% to 4%, that's our evergreen target. We've always, at least, met that. Gross margin expansion, we've been sliding a little sideways in the last 2 years. We are adamant about trying to make this goal in 2012. We believe gross margin is the gas to the engine. We need to get gross margin growing again, and we have an all-out effort to get it growing again, get it back to at least the 2010 levels. Marketing spending, as I told you, we're keeping it relatively flat. But I showed you the secret sauce on that today. 12.7% really isn't 12.7% on our premium brands, it's more like 20% of our premium brands. So we have almost twice the spending power of our competitive brands in those categories. And if price wars break out of that, we could afford to shave that a little bit, if we had to, over the course of the year and still be way above our competitors from a marketing spending. Adjusted EPS growth, 9% to 10%. We're shooting for our 12th straight year of at least 10% growth, and we're calling 9% to 10% in total. But again, most of our competitors, you know where they are. We've seen them down in the low- to mid-single digits range in that. So we're looking for another very good year, top of the pack within the CPG industry. And so wrapping up the results, 5 of the targets, including the dividend getting back up to 2.1% yield. So again, we want to do another 10% year. If you haven't been on board of the Church & Dwight train, get on it. We're 11 for '11 right now. We're going for 12 for '12, and we plan on delivering that target. So let me open the floor now, and Matt, join me up here. Any questions you may have about what we've told you?

Bill?

I guess, going back to the gross margin, 2 questions. One, I'm a little surprised that you kind of said that price mix would be flat just because I've heard P&G talk about maybe raising prices again or altering prices in the detergent category. Also, it seem like with your growth, the mix would continue to be a drag on gross margin indefinitely. So maybe you could talk about that. And then also, a few years ago, there was a goal of 50% gross margin. Is that really out of the question kind of in today's landscape? Or do you need an acquisition to get there? How should we look at that long-term?

Yes, Bill, as far as the 50% long-term target, that's still in the cards for us. And there's lots of ways to get there. Obviously, organic is a piece, but acquisitions is also an important piece. I would say for the last 2 years, we've had a detour on that, but that's largely because, if you look at the schedules of the release, that household really has been growing tremendously, double-digit growth in 2011. And if you look at how 2012 is starting out, it's only the first quarter. First quarter is starting to look like a replay of Q4 2011. So again, so we have a little bit of a detour with respect to the gross margin, but not with respect to profits.

Plus all these new product are gross margin accretive, so we're already feeling good about it.

Right. So we don't have an infatuation with just the gross margin percentage. As Jim said, it's one of -- it's very important to the company. We have 4 metrics, it's 1 of the 4. We got a donut on that one this past year, so it's very motivating for next year. So I think it is the secret sauce for the company, and it's probably not going to go away. As far as gross margin goes for next year, many of you know we entered 2011 with almost 50% of our most volatile commodities hedged. Going into 2012, we have almost 60% hedged. Now the hedges that we had in place going into '11 actually provided us a fair amount of benefit to gross margin this past year. Now remember they roll off. So obviously, we are going to have little bit of a bigger hurdle year-over-year '11 going to '12 in covering commodity cost. So that is baked in to our numbers of 20 to 25 to 50 basis points up. The other thing, too, is PODs. PODs are being made outhouse right now, a third party co-packer. So until we get them in-house that's going to be a bit of a drag for us as well on margins on the first half of the year. But mix is really is the wildcard for 2012.

Alice?

My question is about the weighting of the quarters. From what you're saying, it sounds as though organic sales might be exceptionally strong and decelerating in the first quarter than decelerating through the year. But that gross margins might go in the other direction, maybe being down still at the beginning and then up to the year. Is that -- could you tell us about the quarterly weighting?

Yes. So if you go back to the slide that we had. 1%, 3%, 5% and 7% is organic. So we're going to have an easy comp in the first quarter. So you're right, organic is going to be skewed towards the first half of the year versus the second half, and gross margins is -- given how we're starting out, Q1 looks like Q4. So we expect to be down in the first quarter in gross margin year-over-year. As far as how the EPS works for the year, this past year, we were slightly skewed to the first half of the year. It was 52%, 48%. And for 2012, it looks more like 49% 51%, if that helps you.

I guess, I'm still confused about why gross margins are going up, given there's all kinds of reasons to be concerned about it. You're not getting any pricing. The gross -- the hedging has worn off. What makes growth -- and you say the California plant doesn't really help until 2013. Or is that wrong?

So I don't know if everybody is aware of this, but we have our California plant that's going to be coming online midyear. We're going to turn it on around March, April, but it won't really ramp up full board until, say, at late June or early July. This plant is 1/3 the size of our plant in York, Pennsylvania, so consequently not nearly the same contribution that you would have from a plant the size of York. And we do have charges this year with respect to severance and write-off of assets because we're moving operations for cat litter from Green River, Wyoming out to Victorville. As far as commodities, your question is 25 to 50 basis points is aggressive for 2012. Well, number one, you wouldn't be aware of what hedges we have in place; number two, our Good to Great program is something that's alive and well. And that is, if you look at these slides we've put up for each of the last few years and you look at commodities and you see savings, savings comes from the efforts that are in the plants largely to reduce our cost per unit, and we have a lot of efforts going on right now in our personal care plants in Lakewood and also, in Folkestone in the U.K.

You're right, gross margin is going to be our toughest thing to turn around because it's a turnaround for us in the last 2 years. I would tell you two different terms -- in terms of all the projects we have going on, we have 2 relatively new things in this industry we're doing. One, we're combining our purchasing power with noncompeting companies across various commodities. Where we feel we've done a great job of maxing our purchasing power based on $2.7 billion of revenues. We're talking to other companies on common ingredients and trying to boost purchasing power, and that's off to a good start. It takes some time to put those kind of agreements together, but we're doing that. Secondly, we're continuing a project we call project simplification, which is ripping apart all of our various businesses into how many SKUs, how many pack sizes, how many formulas, how many different ingredients in that, and trying to simplify that to save money across different categories. So it's a tough one, but we are committed. We have the projects, and the organization is committed. As Matt said earlier, it's 25% of our bonuses. We got a goose egg on that one on this past year as far as bonus payout. So I got a very motivated organization to take all those efforts of cost savings, project simplification, combining purchasing power and everything to get the gross margin growing again. We must make that happen for our future success. And I think we have the right amount of programs and focus on the company to go do it.

And Alice, just a follow-up to your question, because somebody's probably going to ask this, is we had the SAP implementation on January 1. So consequently, there were some sales -- customers ordered early in anticipation of Jan 1, just to make sure they were protected. That would create additional sales and profits in the fourth quarter, which we spent back in marketing. So it didn't help our EPS in Q4, but it is out of Q1. So it's probably a couple of cents. It's one reason why we would say we're probably going to be $0.01 to $0.02 below consensus for Q1.

I just want to say, too, that SAP startup was a major startup. We went on Canada, October 1. We did the U.S. in January 2 or 3. I've been involved with SAP startups in the past that have almost brought a company to its knees. That project, I won't use the word flawless, but it was remarkable. We didn't miss one order. Everything was on-time, and my organization, particularly the operations and finance, they did a spectacular job. We've had people working 7 days a week, 15, 20 hours a day since October, November of last year. They would -- I hate to say it, but we only gave them Christmas Day off. They were back at work, and they did an absolutely phenomenal job. And we haven't had one customer complaint about a misorder. And I think, in the past, I know companies like Hershey at one point in time, Fruit of the Loom, other companies have been brought to their knees, by an SAP startup in that. So kudos to my organization for making a major change. That new system will help us a lot in the future as far as better insights and data, better management of our working capital and everything else. So kudos to my Church & Dwight team, and one thing I'm proud of Mark Conish [ph] at the back of the room there, Head of the Operations Group, came to me about the middle of January and said to me, "Jim, do you know what's most remarkable about this?" It's not that we've been -- done a great start-up. He said, "Not 1 person complained about working so hard." And that's the Church & Dwight way. And I had, I don't know, 50, 100 people working on this almost full-time. It was absolutely spectacular. So I've just got to brag for my corporation. SAP startups have brought a lot of companies to their knees, and again, we didn't miss one order. Mr. Schmitz?

Well, you're feeling fairly charitable about this disclosure. Now we know that 20% of your ad spending is in personal care. Can you break down the gross margin differential between the personal care side of the U.S. business and the household side, and then maybe how much that's impacting the total company gross margin?

No.

I mean, close? I mean...

Nice try, Bill. We're not going to go into that kind of detail. I mean, mostly we're walking around numbers, you'd say, that household are going to be lower than personal care. So it's probably 20 basis points -- actually 20%, 2,000 basis point difference between average personal care and average household.

Okay. Now along those lines, I mean, what do you think is driving the softness of the personal care business? I mean, how much of it is cyclical? And what do you have to do to kind of move the categories again?

I think, Bill, it's largely recession. I really just think the personal care products -- actually, the ones that are, I hate to say, more necessary in life. The toothpaste categories have been relatively strong, and it's been positive. Other categories, I think, people are just using less or not using at all, and it's more discretionary. I mean, you got to wash your clothes, your cat needs cat litter, you need cleaning products for the house. But I hate to say it, you don't have to use as much underarm deodorant or you kind of chintz on some of the personal care stuff, and they're expensive. So I think people just cut back in this recessionary time. So I think it's just largely a recession impact. We're seeing that across the board of most of our competitors in that. So I think it's recession.

And then, just lastly, just maybe some more details on the laundry pricing environment. I know a couple of your value competitors are being pretty aggressive later in the year. I mean, do you think that's going to normalize over time? And then maybe P&G in powder, which talked about a price rollback there.

I would just say the category has been relatively stabilized and our terms in terms of promotion spending in that. Actually, we saw a little less spending on our part in Q4 on trade spending and that. But it's -- you know the history of this one. There was kind of a price war kicked off by Procter in 2010. They were a winner that year. We were a winner that year also, in terms of share growth. But the guys who lost, guys like Henkel or Purex came back with a vengeance in 2011 and continued the war. That was even more pertinent to us because they're value competitors. And we had to be competitive with them in our price gaps. So we had another great year. They came back a little bit, and guys like Procter lost some. So laundry detergent is one of the most aggressive categories in terms of straight spending, so you've got to keep your price gaps. You've got to be up there with your merchandising. My team does an awesome job with that as far as managing price points, pack sizes everything else like that. And we have a good -- great pipeline of new products, so we expected that category to stay aggressive. We'll see what POD does. I think it's a very fascinating product. All the competitors have it now. You'll be seeing it hitting the shelves. We were out there first. Everybody else will have their products out there, I think, in the next 30 to 60 days. We'll see how the retailers set it. Do they put them all together? Do they break them up by brands? We'll see whether it's co-merchandised, or separately merchandised. You'll see the incentives of all the manufacturer offerings. It's going to be quite an interesting game in 2012. And again, it's a higher-margin product, long term, for everybody. So if it wins, it wins. But it's also kind of interesting in launching the highest-priced laundry detergent in the face of a recession. So I look forward to a Harvard Business School case being written on this in 2 or 3 years from now to see what it does. We all know that PODs have been tried or unit dose has been tried many times in the United States on laundry detergent, without success. But times are different, things are different, new products. We'll see. We're very happy with the products we have out there. We're putting them out there, maintaining the price gaps we have on the liquid side, and we'll see what happens.

[indiscernible]

Who, Procter? Talk to Procter.

[indiscernible]

So probably what?

[indiscernible]

Good for them. We like -- our powder business is doing just fine. Jason? I'm sorry.

Just a quick question about that advertising split. So the 20% of sales spent on the premium part of the portfolio, a lot of what's in there is also on personal care and is also the power brands where shares are actually down, so not just that categories are weak, but shares are down. So can you just talk a little bit about that? I mean, it seems like a disproportionate amount of spending was not the same kind of return that you get on the value portion of the portfolio.

I see what you're saying, but really there's not a linkage there. Three of the brands were down. Trojan was one, we're off a couple of tenths, not something big. And we've been -- overall, sales are fine. Profits are fine. Gross margins were up in that category for us, so it's just awful hard to grow share when you're a 75-plus share. The one brand that had a little trouble was Orajel. Private label's been very aggressive in that category. We're dealing with that but we're keeping our spending power up on that side. And the third one was...

Nair.

Nair. Nair was kind of a weird one this past year. Procter entered the depilatory category with a very high-priced lip hair removal product, I mean, way up high. Good for them, it seems to be very successful. But we did the appropriate thing, we built that into the category. We changed the whole category dynamics. If the category, if they didn't enter the category, we would've had a bright green light on Nair. We had an awesome year on Nair, and we were up on sales and everything was going well there. But as we adjust the category to take Procter into effect, we had to go to a yellow. The other one is Spinbrush. Spinbrush was down a little bit. There was a lot of competitive spending in there by other guys. We're dealing within that. But we got the launch of Tooth Tunes this year, that we're very happy with. So we're going to keep our spending up high. So don't -- different factors were going on in that, and we feel we have the spending power. It was mostly a private label issue, more of a pricing issue was going on there that we're going to deal with. We're not going to necessarily pullback our spending to do that in those categories.

Okay. And I would never want to suggest that it's a good idea to pull back on marketing spending. That's, like, not something all of us are allowed to think. But it does seem like 20% of sales is a really high number on businesses that are -- this side of the category are just so challenged right now. So I mean, do you think that the categories reaccelerate to be more attractive categories? Is there anything that you think you guys can do to just stimulate category growth in a different way with that kind of money going after it?

Yes. We hope the new product pipeline will do that. We have some of the best new products ever in those categories. We're going to keep the spending up high. We think we're dealing with price point issues out there, but it's a new news category, a premium categories. And we're going to put this -- we're going to keep the spending power up there, and I think with this new product pipeline that we have, we will stimulate product category growth. Again, it's a recession. We're flooding a massive tidal wave of these recession-hit categories in that, but we're not going to give up. And I'm just -- I'll say it 100 times. I'm very happy about the new product pipeline, and I think, with the advertising spending behind that, we should see some terrific results.

Just following on that, though, you've got this awesome new product pipeline, and yet you're still only looking for 3% to 4% organic sales growth this year. And if I'm not mistaken, 2012, the 9% to 10% EPS range is lower than you've seen over the last 10 years. I think it's the first time you will, maybe, put up high-single digit earnings growth. So as you think out -- not about 2012, but as 2013, 2014, as you think about your capital spending plan and what you see kind of for a 5-year long-term growth rate, do you think 9 to 10 is the new range and 3 to 4 is the new range on the top line? Or do you think it gets better?

That's a very good question. I think part of it depends on the economy. This run of recessionary time is going to be tough. Part of it depends on competition. I mean, we are, honestly, quite surprised to see some of the calls by some of our major competitors in low-single digits. That makes us think -- and they've talk about increasing marketing spending at some case. Well, they're going to accept low-single digits and try to increase marketing spending. We're going to deal with that. It may be a little out of line to call 12% to 15% earnings growth when they're investing in marketing and coming back to get their share back and sacrificing EPS. So I think those are the 2 biggest factors. We just see a continued tough time in the economy for any kind of premium products out there, and we see competitors doing things we're a little wary of, that they may be trying to get their shares back at the expense of earnings that we can't be blind to that. We've got to be able to defend against that and grow our business. So I hope long term, the economy gets better. I hope long term our competitors won't be a little more profit-oriented. We'll see. So right now, I think -- there's only one company I know in the industry who's calling better than that, and they're coming off of pretty down year. So we're the only guys off a good year promising another double-digit year.

Absolutely. But does it make you think differently or more aggressively about the international opportunity for acquisitions? I mean, BATISTE sounds like it's a one-off, being a U.K. business. But if you assume maybe that the mature markets really are going to be dead in the water for quite some time, potentially, do you say, "Wow, we need to be a little bit more aggressive about Latin America or other emerging markets?"

We're not -- we're absolutely aggressive. I think we spend more time working acquisitions this year than any year I've been involved in the company, this past year. Just nothing came in that would fit our criteria. We don't feel we missed anything that got bought by somebody else. I can't go into some of the things we've looked at, might surprise you, we were looking at that we were -- to fit our criteria, other categories. As far as international, I'll take it as international versus domestic, I don't care where it is that fits the criteria. As with BATISTE, I mean, you know my history, I've kind of always poo-pooed the hair category. I never really loved it, but it was too competitive in that. And we found this one little niche brand over that, that's just rocking the market in the U.K. we couldn't resist it. I'm glad we didn't because it's off to a fantastic start for us. It has also built our U.K. business by 25%, giving us more scale in that country. So no, we'll look anywhere in the world. I will tell you the emerging markets, there's going to be a case study written on that one very shortly. The emerging markets have become extremely competitive. The acquisition prices are sky high. And I think similar guys who put their toe in the water out to one of these markets and pay ridiculous prices. There are now price wars and everything else going on. I will tell you my heart I think there's good sense that you are focusing on the domestic market here and mining your gold at home. You can make a lot more money and get a lot more growth in the U.S. in terms of consumer spending them for some of these foreign markets. That said, I'm not stupid. I know long term the growth is in the emerging markets. We are looking at it, and if we find the right opportunity, we'll take it. So we're just not going to say the next one has to be emerging markets because that's where the growth is. We'll take the next one if it is the right criteria, anywhere.

Something else that might be useful, when you think about the 9% to 10% call for 2012, is that, there's a 2% drag. Say, 1% or a little more than 1% is FX year-over-year. And the other is our JVs. So you may remember we had a press release we put out that were getting into air pollution game. We have a 3-way joint venture with TATA and FMC. So if you look on our JV line, that's a drag as well. So that 9% to 10% has got a couple of other things netted in there. So we think it's pretty strong call.

Jason?

What was the contribution from innovation in 2011? And just trying to think about 2012, obviously, it seems your strongest and certainly, looking at the products, most interesting than we've seen in a few years. So I'm just trying to think about the success of innovation over the last few years, especially in an economic downturn versus still opportunity for distribution gains. And what type of share gains are you building into that 3 to 4?

I would tell you, in general, new products have represented about 50% of our organic growth for the last couple of years. I haven't seen a final number in 2011 because the laundry business did quite well, but the sensitive skin part of that was a good contributor. So in general, we're looking for at least 50% of our organic growth as we've done the last couple of years from new products, which I think is pretty great, great number out there. So my group's chief genius over there, released new products for us now for quite a few years. I think I've got a fantastic new product team. Like other guys, these ideas are coming both in-house and out of house. We've signed some deals with companies with great new technology that are part of the products here, part of the things you'll see in the future. We haven't revealed yet. I'm very happy with -- when I came here in 2004, the new product pipeline was pretty poultry. Today, I think we have one of the best of the new product pipelines in the industry, and it's a key contributor to our great organic growth numbers.

Okay. And just a follow-up, what was the guidance at the beginning of 2011 that you set for the year in a pre-split basis?

Guidance for what?

For 2011. What did you set the year at? What did you start the year at?

EPS, you're talking?

Yes, EPS.

It would be 4 something.

Maureen, how's your memory?

12.35% for the year.

EPS?

10 to 11. [indiscernible]

I guess, the point is you're making these commentaries that you're planning for the worst. So the old Church & Dwight that we know usually provides conservative guidance. Why not try to spook anybody about a 9 number out there, if you look just based on how...

Why don't we call for the -- we'll call it 10% to 11%, EPS. It came in at 12%

Joe Lachky with Wells Fargo. Jim, I hope this is not a touchy subject or anything, but I guess given the recent disclosures, how would you gauge the board's support of you and your management team? And then just a follow up for Matt, was there any -- how much was the benefit to EPS from any sort of compensation accrual reversal in the fourth quarter?

Let me just add, I think, the 8-K we issued speaks for itself. Other than that, we really can't comment any kind of litigation going on, and I think your comment about EPS is -- it's less $0.005. If you'd like to give it back to me, I'll be glad to see you afterwards. Other questions? Bill?

Just on cash usage, so you said we're kind of done for the dividend for this year. Trying to understand as we go through the year, 1 quarter, 2 quarters, 3 quarters and your building cash, would you step up share repurchase? I mean, you said $80 million is what you did last year. You'll do at least that much this year. Will that be front-end loaded? How should we look at use of cash versus earning 0.1%?

Yes, just so everybody's aware, we have a $300 million authorization with no endpoint. We bought back $80 million of shares late in 2011, and what I said earlier was that we would buy a minimum of $80 million in 2012 and to get the benefit of that, obviously, we need to be front-end loaded. And yes, we would go above that in 2012. I don't expect we would expect our authorization level, though, in 2012.

And then just one follow-up on the PODs, since you're one of the first ones out, can you give us, -- I mean, 45 days in, kind of what you've seen on consumer acceptance? Has it been better or worse? How should we look at it?

Bill, we don't have any consumer feedback data on it right now. The battle's really going to heat up over the next 90 days. We've been really guys out there in some accounts. We're now building distribution in all accounts. The competitors are launching their products in all accounts so I just -- I found it a fascinating thing, moving faster and watching what happens in this category, how much the category takes. I'm somewhat worried about the negative impact on overdosing on the liquid side because this is a quantity control versus people tend to use as much liquid. They tend to use more liquid than they're supposed to. This one giving a controlled dose, does it cannibalizes liquid? Does it reduce liquid? You've got -- liquid category even may have negative year because of this. We'll see. And it's a recession, the consumers want to buy something that's the most premium-priced laundry detergent ever for all of us on a per dose basis. So I fought Procter. I love innovation, and I love to fight in innovation story. I don't like to fight pricing wars. We're good at it, but the best thing to do for the whole industry is to bring in a lot of great innovation. And so I applaud them and us and all for following this. But innovation is great. There's a whole table full in front of you here. Any data is better [ph] than fighting a price war, so we'll see. I think it's going to be fascinating what happens in the category, and I don't know all the competitors' plans yet for what they plan to spend on things like that. We don't know. The first interesting read is going to happen in the next, again, 90 days is how does the retailers set the shelves. I mean, how many products show up from every one of the suppliers? Are they put altogether into a POD section? Are they separately put next to the brands? Introductory trial programs, advertising spending, promotion spending, a lot of stuff's going to be -- the next time we see you, we'll have a lot more insights into what happens in the category. And it will be interesting. But I'd rather -- I like this way in laundry. I love to get out of price wars. I like to get innovation, will love that any day of the week. So it's a good direction. Yes, sir?

Jim, I guess, to what extent did the single-dose initiative hit P&L this quarter, if at all? I mean, are going to see that as you go through and as the sales come through next quarter?

You mean as far as the pipes for PODs in December?

Or the upfront cost for that matter and from a capital perspective, too.

The shipments weren't a whole lot. It's probably less than $1 million just for PODs. I think the 2 PODs and Ultra Last is probably, may have $2 million of sales. So not a whole lot because we got this going in December. So it wouldn't necessarily be a whole lot of delve. It may have little bit of sliding associated with that too, which would depress the margins in Q4. That's all in Q4.

And that's more of the question. I mean, from the cost side or just getting organization ramped up to have a decent amount of capacity ready to get out there, is that material at all?

Well, we're developing that now so we're not in-house just yet. So we're actually going to be bringing it in-house. But yes, it will be a few million dollars of capital for sure. But it's not a double-digit number.

Okay. And then, I guess, on acquisitions. I mean wish list is pretty long for what you want. As the organization has gotten stronger and obviously, a lot bigger, how realistic is it to think that you can fill a deal that's niche, that's margin-enhancing, that's a low capital requirements, that's also leading share and high growth opportunity for a $2.7 billion company? Can that -- how optimistic do you feel that can happen over the near term?

Are you saying is my organization's ability to handle them or finding them?

No, finding them. At the size that you are, that's not going to be material at all, so bring you everything you want.

Yes, it's funny in the acquisition world, every day of the week, I walk in and Brian Buchert [ph], who's in the room here at your table back there. Brian's our conduit for all the divestment bankers out there. Every day is a new day in acquisitions and things like that. The phone rings, interesting calls. We've been all over the country in this presentation. It's totally unpredictable. If you talk to the investment banker, they are not happy with the lack of acquisitions in the industry in the past 12 to 24 months. They're not making a lot of money. I think we're starting to see wins that there's going to be more opportunities for companies, either being sold or selling off parts in the year. But again, I kind of felt that last year, too, honestly, but we're seeing some winds right now start to blow that may be more opportunities for acquisitions for us this year in terms of people selling stuff. But again, it's never over to the cholerically-challenged Y chromosome talks there. So -- old yogi term, sorry. But we'll see what happens in the industry. But I'm a little optimistic right now. We'll have more opportunities coming up, and we're ready. My organization is drooling for an acquisition right now. Especially, it's kind of true that was actually -- maybe it's wasn't the worst thing in the world that we were doing the SAP startup to not have an acquisition on top of it. So of the SAP startup, a lot of the heavy lifting's behind us because a lot of the same people would have been involved with an acquisition. So maybe, we caught a lucky window where we didn't pick up a mass of acquisition on top of an SAP startup. We could focus a lot on the SAP startup. So now we're ready and waiting. We got the cash. We got the wherewithal. We know how to do acquisitions, so we just need the right one. But I won't do the wrong one. I would just won't do the wrong one. We've passed on some junk out there, and I could have maybe made some people in this room by doing a big acquisition with a lower margin #5 brand in some country where I don't really want to be and don't have scale and power, but I just don't won't do that.

My question was similar. I mean, given that you have all this cash and you said that you're reviewing so many acquisitions, are you willing to accept some dilution in the first year or 2 if you find the right thing that makes sense in the long run?

It's possible. It's possible. We really don't like -- we'd like to be accretive within 1 year because when we get there, you'll see us, we're very aggressive on the synergies, both organizationally and manufacturing. But if there was something really, really awesome long term for my company, that was a guaranteed winner, will we accept the solution? That's possible. But usually it doesn't happen because we have a policy. Usually in 90 days, we make the people changes. We get rid of majority of people in the company we acquire within 1 year as we bring their products in-house. So usually after a year, we sometimes double or more the profit of a company just from synergies. But then we tap the growth potential after that. I didn't show the story today at OxiClean. OxiClean, we doubled the profits within 12 months, and the business was a great business. And within 2 or 3 years, we took the share of 50% using our marketing muscle of new products, so we've got a pretty good track record of how we handle acquisitions, so -- and then we won't overpay. We pay very fair prices. So it's kind of hard to imagine how it would be dilutive given our aggressiveness on cost savings and synergies. But if it's something -- I never say never, but I don't love dilutive deals because the world changes.

I'm going to send it over, though.

All right. I just always -- the world changes, you think of something I think is a great acquisition, all of a sudden some major competitor enters the category 3 years out, and you've waited for 3 years to become accretive and you lost your window. So we're just very aggressive one on synergies.

Something to keep in mind there is that that's only one criteria is that accretive to EPS. That wouldn't be too high on the list, accretive to free cash flow would be higher. And also, internal rate of return is a big metric for us. So typically we are looking for 12% internal rate of return on anything, certainly any large deal we would do.

We're looking hard. We're looking hard. But we have a, how can I say that -- there's not one acquisition that happened, and when I look back, and decide I wish we have made that one or we've missed it, nothing we've missed, which we had. I see a hand in the back.

SAP. So I know it's, to say the least, early days. But what's the time frame for when you think you'll start tapping into savings? Is it kind of a 2013 thing? And is it kind of gross margin for us? Or is it SG&A? Where do you think the biggest buckets are to go after for?

One thing about -- I've been through an SAP implementation in another life. And in the other life, we had did not have good discipline around working capital. We have mountains of it and not a little visibility to it. So if you look at the financial statements for Church & Dwight, it's pretty apparent that when you have cash conversion cycle under 30 days, there's going to be a whole lot that you're going to be pulling out of balance sheet to fund it. The second thing is our SG&A. I mean, our SG&A in comparison to virtually all our peers, save one, is the lowest in the industry. So we have -- running the year with 3,500 employees. We're ending the previous year, 2010, with 3,600. If you go back a few more years, it was 3,800. So I trended down on people. So you probably heard Jim before talk about sales per employee, profits per employees, et cetera. So we're very lean. What SAP does for us is it's going to be good for our supply chain folks. They're going to have more access to data more quickly, and the whole goal here is to be able to continue to grow the top line without growing the employee base, frankly. So we'll be able to continue doing what we've been doing for a number of years to come because that's how we think about it.

Any more questions?

I'd like to save Maureen 100 calls, so our effective tax rate for 2012? So we came in at, I guess, 34.8% for 2011. If you went back to 2010, we were 35.3%. So 35% for 2012, if you're working on models. And SG&A, is also expecting more leverage in SG&A. So we came in at 13.4% this past year. So it's going to be down 20 to 30 basis points in 2012.

Let me just stand by telling you I recently told my board at my board meeting a week or so ago that I never cease to be amazed with the resiliency of my team. I have an awesome team. Over the years we just have a knack of being able to pull the right levers between organic growth, acquisitions, financials, engineering, things like that, to always get 10%. We know how to fight price wars. We know how to grow our power brands. We know how to defend our brands. It's an average perfect team. I really think the best team in the industry, and we will fight our way to do -- how anybody else is doing this year is to get double-digit EPS growth, again, in a very tough environment. And I'm very proud of them, and they're all in the room here today. So I'll just tell you 2012 is going to be a very challenging year, I think, for everybody. I've told some people earlier, I've seen some economic forecast that this country will be in a recession by mid-summer. Not as long indeed as before, but I tend to be a pessimist. I disregard all the things about employment right now. I think this country has had it for more trouble short term than not. But my team will pull the right levers and get through that and deliver good quality earnings growth. And I hope to see you here or see you over the phones -- hear you over the phones in the next 90 days and start to tell you about that. So thank you very much for coming down here today. I hope you enjoyed the parade we threw out front. And I hope you get home safely with all the millions of people outside, and go Giants. Now go Yankees.