Church & Dwight Co., Inc. (CHD) Q4 2013 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Church & Dwight Fourth Quarter and Full Year 2013 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 conference, Mr. Jim Craigie, Chairman and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

Good morning. I want to welcome all of you who took the time, thankfully, to come visit us today in the boardroom of the New York Stock Exchange. I want to thank those listening to our call. I am so excited today, I can't tell you. I have been waiting 6 months for this day. For 6 months, I've had to listen to chatter from our competitors about what they're going to do in 2014. And for 6 months, I've had to bite my tongue because I didn't want to tip off my competitors. I come from a world where you don't tip off your competitors even for 30 seconds. You don't give them any advance notice. Well, today's D-Day for Church & Dwight. Today, we're going to announce the onslaught of new products that we're going to launch this year. It's the greatest launch of new products in the history of our company. I know you heard -- some heard me say before, every year is great. Well, this is truly the greatest. We have never before launched a great new product across every one of our major categories. So today, we get the joy of telling you and telling the world about these great new products. So let me start our presentation today. Safe Harbor Statement, a lot of words, basically says, if you go ahead and buy the stock based on what we say today, which includes forward-looking statements, proceed at your own risk. I think you're very smart to proceed. Opening remarks. Let me give you a New York minute about what you're going to hear today and then capsulize it. Number one, you're going to hear we had very solid Q4 results. We're exiting the year with great momentum. Two, that capped off a great…

Okay. Hey, Jim, thank you for that bouncy introduction. I'm going to cover Q4 and full year 2013. Just from the top, you probably remember from our third quarter call that we expected 1% to 2% organic growth for the fourth quarter. We came in at 2.3%. And for the last 2 quarters of the year, Q3 and Q4, we had approximately 5% volume growth. So very strong volume. But we also know in Q3 and Q4, there was a lot of price competition, so that continued in Q4. Gross margin was also a little better than expected, came in up 90 basis points, up year-over-year, resulting in 100 basis points of operating margin expansion. So EPS up 14% in the fourth quarter. Some things I didn't talk about. So you look at the top, you'll see that the reported sales was up 1.6%. The marketing at 14.3% was the highest of the year. I'll show you that in a second. We got nice leverage on SG&A. So that was down 100 basis points. Some of that is because we had some Avid cost in last year's fourth quarter. And you see the effective tax rate for the quarter was 33.8%. We expected 34% for the year and 34% for the quarter. So it came in about right. And here's the volume and price/mix equation. So you see on -- 5.2% was the volume for the quarter. You see the breakdown by the divisions. And you see, it was a heavy quarter for price/mix of negative 2.9%, landing down to 2.3%. You can see in the international line what happens when you take price, has an impact on your volume. They we're down -- they were up only 30 basis points for the fourth quarter. This is the sixth consecutive…

Thanks, Matt. So great quarter, capped off a great year, but now let's look forward. First of all, I want to tell you, look at the total shareholder return of this company over the past 10 years, which is my tenure as Chairman and CEO. I mean, I just want to stop at this slide for the next hour. But just look at this, 394% return since July of 2004, blows away anybody else in this industry, about 6x the S&P 500. And we did it largely through -- the blue part there is the stock price appreciation and the gold part is dividends. You can see, we've been very driven by driving the stock price but paying a nice dividend on top of this. Some of our competitors are more like bonds, they pay a dividend, but terrific results. So you sit there and say, "Great job, Jim and your team." My team is in the room here today. But what about the future? And I'm going to give you 10 reasons today why I believe we can continue to deliver superior total shareholder return. First of all, you've heard me talk about this a lot, but it's evolving a little bit. We have a recession-resistant product portfolio. If you've seen this chart in the past, you'll notice, it's been slightly tweaked. We used to be 60% premium, 40% value. Now we're 55% premium, 45% value. And I'll show you why in a second. But it's great to have a value part of your portfolio during a rough time in the economy. I showed this slide before about proving the value part of our portfolio. Our laundry detergents have been half the price of the premium brands, same for fabric softener sheets. Toothpaste at half the price of the…

Thank you, Jim. So Bruce and I are very excited to be here today. And we're going to talk about our 2014 new product innovation portfolio. There are 4 key takeaways from this presentation: One, Church & Dwight is built on corporate competency for new product innovation; two, new product innovation has been and will continue to be a critical driver of organic growth; three, innovation supports our mega brand growth drivers; and four, 2014 represents the most significant portfolio of new products in the company's history. So our primary driver of growth is new product innovation. Church & Dwight defines innovation success as new products that drive sustainable organic growth at accretive gross margins with a focus on our mega brands. What you see is our track record for successful new product innovation. The dedicated new products team was started in 2006. In 2013, new products launched by this team will account for $1.1 billion in gross sales and represents over 32% of CHD's consumer domestic sales. Our new products are very sticky and thrives in-market over time. We've created a fundamental capability for innovation at Church & Dwight. We started by separating new product development from brand management and future business from current. We added structure and governance by adding a staged gate management process and executive portfolio reviews just to name a few. We linked our business strategy and innovation strategies with technology strategies, further aligning new product marketing and R&D. We expanded our skills and innovation process knowledge. We had significant front-end training. The result, we have strong capabilities in both commercializing powerful line extensions and in qualifying significant future opportunities for growth by expanding our mega brands into adjacent categories. We believe that great innovation requires 7 critical success factors: One, focus. As Jim mentioned…

Okay. Thanks, Steve. I see that Jim has been drinking water and coffee is not a good idea, Jim. I think we'll stick to water. I have the pleasure to talk about our brands, particularly ARM & HAMMER. It all began 150 years ago. And those of us who have been here over the last 8, 9 years have just had great pleasure in taking what we thought was a wonderful ship that just needed a little bit of polishing. But 150 years of focus and a renewed 8 to 9 years of focus have resulted in a very powerful brand. Today, ARM & HAMMER is over $1 billion in sales. And we think there's a lot of runway ahead. If you look since 2008, we've grown 44% or about 7.6% compound annual growth rate. You don't find many 150-year-old brands with that type of growth. In fact, you don't find many 150-year-old brands. But I think that speaks to the longevity and the staying power of this great equity. When we first started looking at the brand about 8 to 9 years ago as marketers rather than mere consumers, it is clear to us we had a fairly fragmented presentation to the consumer, and we needed to harmonize it. You've probably seen some of these slides before, but it's fairly obvious. And what we did is we returned to the heritage color of the 1860s. So we really look to the past to develop our future. And it was a good move. It's really grown the business and making it easy for consumers to see our products in every aisle of the store. We did the same thing with advertising. One of the first things, I know, Steve and I did is we talked to the retirees and sort…

Thanks, Bruce.

And to talk a little bit about the new product innovations.

So we're going to take you through 2 examples in bringing this to life. One is, the first example is ARM & HAMMER plus OxiClean. The consumer need we identified is for superior stain removal for the value consumer. Our answer, we joined 2 powerful equities in 1 product, ARM & HAMMER and OxiClean. The result, ARM & HAMMER plus OxiClean represents a 3% dollar share of the liquid laundry detergent. It's bigger than Cheer, Era or Wisk. So successful, it spawned an entire plus Oxi segment in detergents. The second example comes from the litter category. Consumers had a problem that we identified which was, the cat owners needed to control both urine and feces odors. Consumers and manufacturers were primarily focused on urine odor. Our answer, ARM & HAMMER Double Duty. At the time of launch, it was the only product to eliminate both feces and urine odors. The result? ARM & HAMMER Double Duty alone has achieved a 7.6% share of the clumping cat litter and is the #4 variant in the entire category. ARM & HAMMER has led innovation in this category, generating a 14% compounded annual growth rate since 1998. Now we're going to show you how we intend to carry our innovation momentum into 2014, starting with exciting news on ARM & HAMMER. We're going to begin with the cat litter category. Odor control is the #1 concern of consumers, which is why our answer to this problem is ARM & HAMMER Clump & Seal Cat Litter, with a guaranteed 7-day odor-free home. This is an outstanding new product. It achieves 100% odor satisfaction, delivers superior clumping, no dust and low tracking and commands a premium price point in the $2 billion litter category. Bruce?

Okay, Steve. So it's easier to develop very persuasive advertising when you've got a great product like the one that Steve and his team -- our teams put together with the help of R&D and everybody else. The problems are big problems. We provide a real solution. And if you have a cat and you haven't tried this product, I think we have some coupons. I can give them to you as you leave, but it's a great product. And Steve's focus groups, we had to pay for the focus groups, the people were just so compelling that we decided that the best way to advertise this product would be to show real consumer reaction to this wonderful product. So we've tested this advertising like we test all our advertising. I think I've told Jim we have had more advertising tests in the field in the last 6 months than I've seen anywhere in my career for the number of brands that I've had responsibility for. And the advertising you're about to see is going to be -- I'll let you judge for yourself. And I'll tell you the results. If we could roll the tape, please? [Presentation]

Okay. So if you don't have a buy in our stock, if you look under the table, there's a litter box right next to you, but no doubt, you didn't smell it. The testing of this was really great. It's gratifying. It's the top 20% of commercials in the industry database that most of our competitors use and we use -- it's wonderful that all the hard work is able to be presented to the consumer in a persuasive way. So we're expecting big things this year on cat litter. Now Steve's going to talk about laundry detergent.

So we're going to focus on a category that has been the engine of growth for Church & Dwight for some time. In laundry detergents, nothing delights consumers like the fresh smell of just washed clothes. In fact, freshness is just about as important as value in the consumer purchase decision. Delivering freshness is what makes our new line of detergents stand out. Our answer to delivering freshness is ARM & HAMMER Clean Scentsations. This great new line is designed to deliver noticeably cleaner, whiter and vibrantly fresher laundry inspired by America's national parks. This line expands our portfolio into the highly fragrant segment, but does it in an ARM & HAMMER way. Bruce, over to you for the advertising.

Okay. So our challenge is pretty clear. We needed to dial up the freshness, especially because that is a consumer driver for some of the -- our competitive brands, less so for ARM & HAMMER, but we certainly developed a product that delivers. So the advertising, you're going to see, does communicate that message. And as Steve said in an ARM & HAMMER way, we're actually donating royalties to America's national parks as a percentage of sales. And there's nothing -- there's no better way to celebrate an iconic American brand than to support our national parks. And the scents actually, as Steve said, were inspired by them. And I'll let you judge for yourself. And like all the products this year, it's guaranteed or your money back. So we are really stressing performance and also putting our money where our mouth is. So if you could roll the tape on this one. [Presentation]

Now this advertising also ranked in the top 20% of the database for the industry for all laundry detergents. So we've got some powerful advertising to support all the good work Lou Tursi and his team have done in getting us distribution. So I'll hand it over to Steve to talk about oral care at this point.

Great. Thanks, Bruce. Oral care is powered by innovation. So we conducted extensive research to identify what consumers are really looking for in their oral care regime. We found that whitening, enamel strengthening and overall health are really important, yet consumers want to go beyond just whitening. They want to look truly radiant, especially -- specialty whitening toothpaste do a great job of whitening, but you need more than whitening for a radiant smile. Our answer, ARM & HAMMER Truly Radiant, a premium toothpaste that has patented liquid calcium technology and delivers superb whitening, excellent cleaning, while it repairs and strengthens enamel and delights consumers with its outstanding taste. We paired this innovation with ARM & HAMMER Truly Radiant SPINBRUSH toothbrushes. These brushes are designed with axis bristles to reach deeper in between teeth and remove 100% more plaque than a manual toothbrush. Bruce?

Yes, I'm really pleased to announce that we're teaming up with Alison Sweeney, the host of the TV show Biggest Loser, to promote and market this product. Strength and beauty is a key component of the product, and this embodies Alison. As we speak, the advertising is being filmed. I look forward to you seeing it on TV and online. I sound like a broken record, but this, too, was in the top 20% of toothpaste advertising in the industry database that we and all our competitors use. It is the highest scoring advertising that we've ever tested on toothpaste. So we're looking forward to making an impression with this product. Okay. Now I have the pleasure to talk about our second mega brand, which truly has become our second mega brand, which is OxiClean. Since we bought it in 2006, it's just proven to me that it's one of the most powerful and resilient brands that I've ever worked on and, I think, of any brand in America. We lived through some incredibly fierce competitive situations, competitive launches that happened coincidentally with the death of our friend and pitchman Billy Mays. He's a very good friend of mine. And it was a hard time back then when really from a personal perspective when Billy passed, but we were in the middle of a competitive situation, and I think that we've emerged with a lot of strength. And it's as much to the great teamwork at Church & Dwight as it is to the strength of this brand. If you look, since 2006, when we bought the business, it's grown 51%, compounded annual growth rate of 6.1%, but there's certainly a lot of opportunity to move beyond stain fighters and wash additives. Like with ARM & HAMMER, it was a…

Couldn't be more excited to talk about OxiClean's growth. We're going to take OxiClean into 3 major categories: the $7 billion laundry detergent category; the $1 billion auto dishwashing category; and the $800 million bleach category. So first, we'll turn our attention back to the dynamic laundry category. The #1 consumer frustration in laundry detergent performance is getting the tough stains out. Consumers want to be able to remove all types of stains the first time. So our answer is OxiClean Laundry Detergent. This great new product is specially formulated to lift out even tough dried-on stains the very first time, from blazing whites and brilliant brights at a meaningful value to the leading brand. Bruce will show you the advertising.

Okay. I'd like to talk about the advertising. And I think we have a demonstration that we wanted to show as well. [Presentation]

Thank you very much.

Thank you.

Okay. So as I begin to tell you a little bit about the advertising, I can't help but...

I am getting started here with introducing America's favorite stain fighter.

Sully, I'm in the middle of the presentation.

OxiClean, powered by the air you breath and activated by the water you and I drink. Boy, am I excited to be out of the laundry room and in the boardroom. It's mother nature approved. Look at that. It makes your whites whiter and your brights brighter. And if you think that's good, I've got some big news for you that are here today, OxiClean is introducing OxiClean Laundry Detergent, 4x more powerful, it gets your whites whiter, your brights brighter, takes out grass stains, clay stains, ketchup stains, mustard stains. It will take the Chief Marketing Officer's stains out. It will even take Steve's stains out. Coming to you this year only from OxiClean. That's about all I got for you right now, Bruce.

Sully, you're in for a triple. Could we show the real advertising right now, please? [Presentation]

We're very excited about this launch. And as you can see, Sully is as well. We're going to now talk about dishwashing.

All right. Thanks, Bruce. The second new category we're going to talk about is auto dish. When phosphates were removed from auto dish detergents, it created a situation where consumers became dissatisfied. Category performance declined and consumers could no longer get the cleaning performance they wanted. OxiClean, with a strong heritage of getting tough stains out, is coming to consumers' rescue to tackle the toughest dishwashing jobs. Today, nearly 7 in 10 consumers still experience significant problems with existing auto dish solutions. Dried-on foods that don't come off, filming on glasses and baked-on stains are the top issues. This is why we created our new OxiClean detergent, with cleaning so powerful it eliminates the toughest stains, stuck-on foods, cloudy films and odors for crystal clear and clean dishes every time. Over to Bruce.

Okay. I'm hoping I can get through this presentation, but I'm not entirely sure that I'll be able to with Sully upsetting it.

But wait, there's more. If your dishes are covered and are kind of clean, barely clean or are sort of clean, guess what you need. OxiClean Extreme Power Crystals. This is the glass done with the old stuff. This is the glass done with new OxiClean Extreme Power Crystals. You can get it in liquid or pack. It's coming to a grocery store near you. So don't do your dishes without using brand-new Extreme Power Crystals from OxiClean. We're not just taking over the laundry room. We're taking over the dishwasher as well. I'm pretty excited about this whole thing.

Yes. All right. I wasn't sure this was a good idea. Okay, let's run the advertising. [Presentation]

Okay, I think 74% of consumers who saw that ad said they'd definitely or probably would buy it, so it's very high rating. Again, very high persuasion scores, in the top 20% of the dishwashing database. Very excited about it. Talk about bleach now.

Yes, and it's an outstanding product. So moving to bleach alternatives. Chlorine bleach can make consumers worry. Many consumers want an alternative to bleach, with less risk of ruining their clothes and without the harsh smell. This is why we're introducing OxiClean White Revive. It powers out tough laundry stains and delivers bleach-like whitening to revive whites without the chlorine smell, yellowing or color damage. So your clothes look newer, longer. Bruce?

But wait, there's more! It's no secret that bleach can ruin your clothes. It will damage your socks, it will leave your socks yellow and dingy. We actually had to use coffee today from the boardroom to make sure it worked. If you've got ink stains on your shirts or [indiscernible], turn to the power of where is it, new OXICLEAN White Revive. It cleans like bleach without the damaging effects of chlorine. In fact, I'm so convinced that it's so good that I guarantee, Mr. Bruce Fleming, Steve Cugine, and even our CEO, Mr. Craigie, please show me how white your socks are, please, gentlemen? Powered by the air you breathe, and activated by the water you and I drink. This is probably the only time I'm ever going to do this, so I'm going to soak it in, OxiClean, the stain specialist. It gets the tough stains out, and it's not clean unless it's OxiClean. All right! Let's hear it one more time, it's not clean unless it's OxiClean.

Okay, all right, okay. He's just an obstreperous guy, I can't really say much about him. Human resources and legal, Jackie Brova and Patrick, can you please help me out here? I want to get through this presentation, thank you. Thank you, everybody. Okay, can we run the advertising now, please? [Presentation]

Yes, that's an important point. We're very fortunate we were able to get placement now of OxiClean in the bleach aisle, and I think it's going to be a positive win for both consumers and retailers. And 2014, across all our OxiClean variants, we can expect to see our advertising increase by 53%, and that's a pretty big number when you consider that we're the #2 laundry advertiser in the United States. It's what you do, what you have to do, when you're small, and what you have to do when you have a wonderful equity like OxiClean. Okay, I'm privileged to talk about our third mega brand, which is TROJAN. For 90 years, it's been known for trusted protection, and over the last 5 years, you've seen us introduce a lot more elements to the brand equity, especially those revolving around pleasure. So it's not only a product for protection, it's a product for enhancing people's sexual health and sexual lives. We've added products in that manner. We've also added communication that reinforces both those points. If you look over the last 5 years or so, there's been decent growth, but I believe we can do better, and that's why we’re introducing products into other segments. Steve's going to talk about innovation right now.

Thanks, Bruce. We did indeed experience strong success with the launch of our new TROJAN lubricants line in 2013. The insight behind this launch is that lubricants don't have to be about solving a problem, but can be all about making good sex great. As we develop the launch, every product package and communication decision was grounded in consumer research. And with the combination of a great concept, great packaging and outstanding product performance, TROJAN Lubricants was created. The result? TROJAN is helping make good sex even better. We introduced this line of lubricants in early 2013, and consumers love it. We achieved a 7.4% dollar share of the lubricants market in Q4 of 2013, and we're poised for more growth with the launch of 3 new items. 2 items in the premium tier and 1 item in the value tier, Arouses & Releases, lotion activated superintensifier that heightens the whole experience. Simply Pleasure, 2 simple preservative-free ingredients, providing long-lasting lubrication. We're also launching one new product in the large value segment of the category called TROJAN Explore, a gel lubricant that delivers excellent lubrication. Bruce, I'll turn it back to you for advertising.

Okay. So this year's tagline, TROJAN. Real. Good. Sex. I guess that's pretty simple. Clearly, it's been an evolution for us. We're going to continue to experiment with our communication, as I've said. And what we're trying to do is normalize the discussion about something that happens every day, and it's often about things people don't want to talk about, but we want to try to shape the discussion so it's in a positive manner. So what you're going to see, I'm going to show you the ad campaign across the 3 different products in our line. Some of you may really like it, some of you may say, it makes me uncomfortable, but that's exactly what we want to do. We want to be provocative, and that's what TROJAN will always try to do in order to build the business. Could you roll the tape, please? [Presentation]

Okay, let me talk about our fourth mega brand, which is our Vitamin business. This has been a fantastic acquisition. It's been great to work on, great to understand. I think, when the day is done, sometime in the future, it's going to be a case study for incredibly wonderful success in building a category and building segments of the category. We bought this business, it's already been growing rapidly. The Li'l Critters business, parents grew up loving Li'l Critters and their kids loving Li'l Critters, because some vitamins are hard to take. And some vitamins are easy to take, and Li'l Critters and Vitafusion are easy to take. They had an insight into the gummy form, and within 10 years, became market leader in the kids segment. It's our job to make that success happen in the adult segment as well. All those parents, they grew up loving Li'l Critters for their kids. And since 2008, there's been some very wonderful growth. I mean, 31%, 32% compounded annual growth rate, you don't see this type of growth often. So when we had the opportunity to buy it, we jumped on it. I'd like to talk a little bit about packaging, because as a marketer you always have to tinker with the packaging. But in this case, there's a strategic intent here. When we bought the business, we saw that they had a trademarked tagline, they really had never used, which was, "We make Nutrition Taste Good." And it really was a unique -- its own proposition for these businesses. So how were we going to try, over the next couple of years, to link these businesses, the Li'l Critters and Vitafusion businesses, so that they can build upon one another? One way is in a very small way, but in a very prominent way, right on the package, every day when they open the jars and they recognize that this is just not something that they do routinely. They look forward to their vitamins because it tastes good. So Steve's now going to talk about the innovation that we have for this year.

Thanks, Bruce. We learned that 84% of adult vitamin mineral and supplement users take a multivitamin plus at least one other product. Our answer to this insight is the introduction of Vitafusion multiplus line of gummy vitamins. These great-tasting gummy multivitamins contain all the essential vitamins and minerals you need, plus extra nutrition at the level recommended by the Institute of Medicine to support specific health needs. We are also introducing this multiplus approach to kids' vitamins, as you can see here. Li'l Critters, Gummy Vites, plus additional benefits of bone support, immune support and omega-3 DHA support. Now back to you, Bruce, for the advertising.

Okay, well we've got a great product, with great taste, and we just have to make people know about it, try it. Once they try it, we know they love it. So our targeting exercise here is really relatively easy. We've got an incredibly loyal amount of parents who have grown up with this brand over the last 10, 12 years. And now they're reaching the age where they need to think about their own health. In fact, they're not giving care to their kids, but they have to start giving care themselves, maybe getting care to their parents. So as caregivers, they start thinking of, "What else can I do, to make my life a better, healthier life?" And Vitafusion should be the answer, if we do our job well. I'd like to show the advertising. Could you roll the advertising, please? [Presentation]

Okay. So as you can see, we're beginning to try to tie the businesses together in a way that makes sense logically, and can hopefully build upon one another. They're great products, which we're convinced that if we get the adults, who have cared for their kids to use it, that it would be successful. Here's an opportunity for adults to love the product for their own good health, for the same reason they love the product for their kids' health. Nothing fancy about that advertising, very straightforward, very database, but tested very well, and we know that's it's communicating -- it's communicating well. And as a result, we're putting our money where our mouth is. As Jim has told you about your focus, our focus has been relentless. We're going to spend more than 37% -- 37% more on our vitamin advertising to drive that growth, which is already extraordinary. Go ahead, Steve.

So for 2014, we couldn't be more excited about our portfolio of innovation. We have, for the first time, major news and new products in each one of our 4 mega brand categories: ARM & HAMMER, OXICLEAN, TROJAN and Vitamins. However, we don't have time here to go through all of our new products, but rest assured that we have great new news on Nair, FIRST RESPONSE and Orajel and XTRA. We're very excited today, as we have this analyst call to talk about how much our retailers appreciate and love our new products, and they voted with their feet. We have strong trade acceptance of all of our product items for 2014. So, in summary, I think you could see why we believe that Church & Dwight has built a corporate competency for new product innovation. The new product innovation has been and will continue to be a critical driver of our organic growth. Innovation supports our mega brands growth drivers. 2014 represents the most significant portfolio of new products in the company's history. This portfolio of exciting new products represents platforms for growth and innovation that will extend multiple years into the future. With that, I turn it over to Matt.

Okay. You couldn't have sat through that presentation and not feel like there's something different about this year for Church & Dwight. So right, the numbers. Okay. So let's start with the 2014 outlook. So 3% to 4% is a very familiar target for us, so for top line organic growth. That excludes acquisitions, it excludes foreign currency. Gross margin, you see is flattish. As you heard Jim say, we do have a robust continuous improvement program called Good to Great. That's functioning well within the company. So absent the sliding that we talked about in the release, we would expect gross margin to have been up in 2014. Marketing is going to be flat, so it's going to be around 12.5%. That's where we ended 2013. We're expecting a lot of leverage from SG&A, and you see the operating margin up 80 basis points. Now between operating margin and EPS, you got taxes, interest, JV and others. So taxes, tax rate is expected to be higher, 2014, 34.5%. So that's a bit of a drag. On the other hand, the interest is going to be flat, but the JV income and other, expected to be up year-over-year, so that's all kind of baked into that range of $2.96 to $3.07. And as a result of raising the dividend, you can see we're at a 1.9% yield approximately right now. Okay, here's the history for organic sales, 3% to 4% is what we're targeting for 2014. And you can see we have 2% for '13, not necessarily happy with that result, and you can see innovation is going to drive the return to 3% to 4% in 2014. Here's the range, it's $2.96 to $3.07. And just -- I want to spend a minute or 2 on that. You saw…

So back here, so let me just recap myself, right, see all these hands to the crowd. We could have easily folded the tent this year. We could have -- we had a lot of headwinds, more competition than we've ever seen in the past, the categories and the economy are still sluggish. Foreign exchange has popped it's ugly head up in the past month or 2. We could've easily walked up here and said, hey we're going to fold back, but we didn't. We came out with the greatest product launches of history. We're still holding to a 6% to 10% range on EPS. We can tighten that range and we can do more. We just need to know more right now about actual shelving out there by retailers, what the competition's doing, what pricing is, merchandising, consumer acceptance on that. So give us a couple months to kind of understand all those facts. We don't have that right now, with all of these new product launches going out there. So we're very excited, very excited about this, and it's taking a full assault out there. So all right, questions? Bill?

It's to Matt, what -- would be [ph] quick to share count for 2014 is? And then 2, Jim, can you tell us a little bit more about the decision to move from -- sorry. First question was, share count for 2014. Second is, maybe a little bit more, decision on to move from 8 power brands to mega and power? And when I say that, like, what does it mean internally? Does it mean you're going to pull back on advertising and R&D and stuff on like some of the other power brands, or the remaining power brands? And structurally, how should we look at it going forward? Should we expect faster growth out of the mega brands versus -- how should we think about that?

Let me deal with the mega brand question first. We are driven by share of voice versus share of market. We always look at -- no matter what you spend, it all depends. We're just kind of relative to competition. So as you look out there, the power brands that are staying as power brands and mega brands, we sold a very strong share of voice going into 2014 to support the new product. We have it. It's on the table here in front of you. But Steve and Bruce want to spend their time appropriately on mega brands. So we have great new products there and with the marketing spending we're doing on those brands, we expect, it will still drive good share growth gains there. The mega brand thing is just purely a very smart move. It's a very good, efficient move. How to best spend their money. Out there, we'll get a bigger bang for the buck for the money in all aspects. The marketing will drive more share growth that if we spend on the smaller brand. The organizational costs are less. So it's just again, it's not a revolution. It's an evolution of our strategy, it makes total sense. I think you see some of our big competitors out there, I mean Colgate's a great mega brands around the world as well. We see these 4 brands as the key driver of our future. Not the total, the key driver. The other power brands we have, we're spending the appropriate amount of money, we're doing the appropriate amount of new products to keep -- they'll keep delivering that. So we feel very good about that. This is a tweak of our strategy that's very smart, to drive good strong growth going forward. Matt, on the share?

Yes, I'm going to disappoint you, Bill, with respect to the share count. So this flexibility in the amount of the shares and the timing, which we would actually buy shares back. This year, we haven't bought any shares so far, for the first month of the year, but we do intend to buy some, but it is a multi-year program. So we'll update everybody when we -- end of the first quarter.

But is it -- any EPS guidance?

There's a range. Connie [ph]?

A couple of questions. First for Matt, on the fourth quarter. Could you discuss the dynamics -- sorry, could you discuss the dynamics of the household products business? Because it looks as though price mix was much more negative in Q4 than Q3. So I guess, I want to know like what's going on in the business? Were you selling out older inventory to ship in new products? So if you would discuss that along with the shelf space gains you're expecting or have got commitments from retail for the new products?

Yes, when -- at midpoint of the year, you may recall we had a 3% to 4% target for full year, and we took it down to 2%. And when we did that, we made plans to put a lot more trade promotion out in the second half. So that was in a knee-jerk in the fourth quarter, something we made the decision in the middle of the year. So if you went back and looked at the first couple of quarters, you'd see that, actually, the price mix is pretty tepid in Q1 and Q2, and was big in Q3 and Q4, and that's because we were disadvantaged on shelf, particularly in the litter category, and we had to correct that in the second half.

Connie, too, there's been tremendous pricing in the laundry category. We're not leading it. A couple of our competitors have pulled down their promotion prices, and so we've had to deal with that. So it did hurt the gross margin a bit. We're not going to start a price war, but we're not going to be left uncompetitive. So we did have to spend more on the promotional side in laundry, to stay competitive in the category. We'll still drive share growth. ARM & HAMMER liquid, it's just had its 16th consecutive quarter of share growth, 4 years of share growth. So we didn't want competitors who, some of them had nothing but price to deal with right now. They don't have innovations and they tried to pull the price lever and we made sure we were not on a price -- uncompetitive. So it did cost us some gross margin on the back half of the year. Alice? Alice, waiting for the monitor?

So in the -- your guidance for the first quarter for 1% organic sales growth, what in that is volume and price mix? Because I'm assuming volume's up quite a bit in there. And then for the year, could you break that out as well? And then I have a question about pricing.

Well, if you look at that -- we saw, what was the fourth quarter, we saw about a 5% volume and about 3% negative price mix. You expect to see something like that in the first quarter, it's #1. Number 2, it's 1% organic growth, is what you saw in the release for Q1. There's a 200 basis points drag from trade, coupons and slotting, in that number. So you've got a big boat anchor around the top line number. And if you look at the gross margin, which is, we were projecting it to be down 100 basis points, it's more -- there is more than 100 basis points of hurt from the 3 items I just mentioned, slotting, trade and coupons. So -- and you would expect that, and when you -- with all innovation that we talked about today, you would expect it to be a big investment in the front half of the year, and that's why, I mean and some people wrote that we have it back in a year from an EPS standpoint, not at all concerned about that, because we're putting investment up front.

Alice, we'll only get a partial quarter benefit of volume from the new products that is beginning to ship, so we take the full shot on slotting in the first quarter, so that's what Matt's saying that's having a drag on the organic number. But the second quarter, we'll have the full benefit of a quarter's worth of volume from that, and actually a reversal. You only have a slighter drag in the second quarter from continued slotting for the accounts that are later getting out there. Your second question, and then I'll ask Mr. Schmitz.

Okay. So you gave some indication of the price on the shelf of the new OxiClean detergent? I think you said, it could be about a 20% discount to what I guess is Tide. If -- could you give us that, the price of OxiClean detergent on the per-wash basis versus basic Tide? Because Tide has a huge range of prices, so is it going to be priced at a discount to basic Tide, on a price per-wash basis? That's my question.

It's a tough one. Our objective on OxiClean detergent is to offer the performance of the leading brand at about a 20% discount. And again, you're right. They have different forms. And in the end, we don't control pricing. The trade mix makes the pricing decisions. Procter has announced a kind of an implicit price increase. They've taken ounces out of their Tide line, and held the price, so that's going out also in the marketplace. So right now, and that's all just beginning to happen on shelf. So I honestly can't give you, at this point in time, an exact price per load answer like that. We need to see what happens on the shelf and how the retailers price the product and what happens. So -- but our goal was to be about a 20% lower on price, but equal performance, so that's kind of the target. That's what Church & Dwight is all about, great performance at a great value. So we think we have a great new laundry detergent. We want a piece of that premium tier, so offering that great performance but at a better value.

And where are you going to see it on the shelf? When are we going to see it on the shelf?

Literally, probably late February, early March out there. So it's going to be happening soon. Bill Schmitz?

Do you think the laundry category will grow in 2014? Because the crazy price you've seen in the last couple of months, all it's done is shrunk the category, right? So price mix is down and volume is still down.

Yes, it's a tough question, Bill. Because the category is starting to show little improvement. It was as bad as 4% down in the first half of 2013. It was down about 2.5% down in the back half of 2013, the fourth quarter. There's pluses and minuses going on. I think the launch of OxiClean could be a plus in the category, more of a premium price. You can probably assume that Tide simply will pull pricing down, because as Tide users switch, and I think I heard Procter say they thought as much as 40% of the users of Tide simply would come from base Tide. Well, that's about a 40% price decline from the base, so that will be a drag on the category. But honest, we don't know yet. I -- it's a very -- it's one of those questions -- I've said it before, where's the source of volume for the brands, what happens to the category. We're trying to grow the category, we're trying to bring innovation to the category, both with ARM & HAMMER and especially innovation on OxiClean out there and that, so. We're trying to grow the category, and we're not the ones driving the price down, so we want to see that category grow again. So that will be good for everybody, good for the retailers and good for us.

And I'll just follow up on the advertising spending. Obviously, when you have a hit, your net sales from your gross sales, the denominator, right, is lower? So your advertising ratio should come up anyway? And then you look at the back half of the year, is there enough flexibility in the earnings? Because you have these great launches coming out, and you're spending all this sliding, all this trade money, but you're going to have to support it, obviously, right, once they're going to get shelf space. So I thought it was a little bit odd that you said the ratio was going to be flat for the full year.

Well, the ratio was about flat for the year, but we're going to have our revenues going up, so the amount of money will go up. But probably the reason we're leaving a range too on the 6% to 10% is to leave us for some flexibility on marketing spending. For good news or bad news, if we see some of these businesses take off, we're going to put more marketing money behind them. If we see some competitive actions, we have to put some more to defend our businesses. So part of it again, there's a lot going on out there in the category, across all categories, leaving ourselves a little room to wiggle right now until we see more of the whites of the eyes of competition, what the trade does on that, so it's part of the reason why this year, last year, we called 14%, boom. From day 1, we delivered 14%, boom. Because we knew what our competition was doing. We had more stability out there in the marketplace. And now this year, a lot of things are up in the air going around, so we need a little room right now, especially with the greatest product launches we've ever done in our history with that, so. Stay tuned, we'll try to refine things a little bit more. As we get into the year, we see what's actually happening. But this point in time, we just need to have more of a range than we have in the past. Yes, sir?

So a couple of things. With the mega brands now then, sort of having the amount of new products, it seems as though this year relative to prior years, it really hits earlier in the year, in aggregate. Is that a fair way to characterize it?

No, there's just more. It's just more. We've never launched this many new products in the year to start with, so it's just the magnitude of the number of launches we're doing versus past years, that's it. It's not earlier, it's just more.

And secondly, so now with the greater focus there and the timeline that you set out, as far as the new product innovation, would it be reasonable to assume -- and actually let me take a step back. One of the other things we mentioned was the use of money-back guarantees on some of the products. I just wondering if you can take us through. There seems to be a lot of confidence in these products, but it seems to be something relatively new for you as a company, so I wanted to get some thoughts on that.

No, we've got a quite a lot of experience on that. We've had guarantees on our product in the past, so we have a good history on what the redemption rates on that are. We feel very comfortable with that, and we feel very comfortable about how great our products are. So that's -- we're not concerned about that. That's just really putting your money where your mouth is. And I love this part. If you're a cat lover, you've got to try this cat litter. It is by far the best I've heard. I've given samples out to friends, and they had to -- they would tell me the truth, and it's unbelievable. The laundry detergent's the same way, unbelievable. So we feel very comfortable. I just -- we try to convey to consumers, try this. We're so confident, you will love this, we'll give you money back, and we've done that in the past with some brands. And we know what the redemption rates are, we feel very comfortable with that. Is that your whole question? Or was there a part?

One last part. As far as the -- I noticed that a couple of the products, while you have some of the branding, particularly with ARM & HAMMER, sort of the yellow and what have you, a couple of products, Clump & Seal, and the I believe, sort of had the black, right? Is that more of a, sort of a call out to something, more premium? Or was there kind of a thought process?

That's exactly that. We -- the color black in packaging has conveyed premium in a lot of different categories out there, and we wanted these products to stand out in the shelf. So that's why we went that way. But you'll still see, it still has the famous ARM & HAMMER logo on it on that, so it still very identifiable as ARM & HAMMER, but these are premiums products out there, with premium performance, and we want it to stand out. We looked at both, honestly. It was very close. I'll tell you, the final testing was very close between the orange and the black colored packaging, and we decided in the end to go with the black, and we'll see. We'll have it [indiscernible] off, and I think it'll make these new products really stand out in the shelf, while still not losing the identity of the ARM & HAMMER brand on them. Right, back to this side?

On the full year organic sales outlook, you adjusted it down just a tiny bit, at least at the midpoint. So can you talk about what changed in that, is it a function of increased promo or are there different expectations in terms of volume? And then just a follow-up on Vitamins, you had mentioned in your presentation that Vitamins were up 20% in 2013. But growth has slowed somewhat in the track channel. So first is, the track channel's indicative of what you guys are seeing across the board? And it looks like competition has picked up, so can you talk a little bit about vitamins, overall, in terms of the competitive side?

Okay, I think I heard the first part of that dealt with the 3% to 4%, while we have a range on that. And what could affect that range?

Yes.

A lot of stuff. I mean, the categories to start with, I will tell you, our category growth assumptions overall next year, in total, across all of our 13 categories we're in, we're assuming that we're from flat to 1% growth. And I would assume that a category growth, so if that gets better or worse, that will do it. How well our new products do in the marketplace, we all think they will do great, maybe some will do greater than we think, some less. Competition, what's going to happen out there, pricing. So there's a lot more variability in the marketplace right now, and 3% to 4% to us is still pretty tight range. I think most of our competitors have a 2 or 3 point range on organic growth. So we feel pretty tight on that. Obviously, we hope can beat it, but I think that's, historically we've been in that kind of band overall, so we feel good. We talked about the vitamin category. Well, part of it's law of numbers as we get bigger, we had over 20% growth in business last year. A lot of that business is in unmeasured channels. Well over, I think, well Bruce, I think well over half of the business to us is unmeasured channels, through large customers, such as club stores and that. So part of the -- probably the Nielsen you see on that is not a true representation of what category growth is. I'll be honest, the category has taken a little hit just recently. You saw there was some negative press out there about the benefits of certain kind of vitamins, and the category has had a little hit. But I would tell you historically, we studied this very hard as we got in this…

Matt, could you talk a little bit about the SG&A leverage, because what's implied in the guidance is -- that being -- you always do a good job on leveraging your SG&A dollars, but this is bigger than I think we've seen, ever, maybe?

Yes. Well, you know that we make a big deal out about sales per employee, and overhead controls is a hallmark of Church & Dwight. And Jim had a slide, he had a few examples up there, of some things that are going on within the company. So for example, you saw a new health care program. We're probably one of the few large corporations that have moved to private exchanges immediately from 2014. A lot of people just kind of looking at it. We've always been very aggressive with respect with how we manage our health care costs. A couple of years ago, we went through a consumer-directed health care cost where the first $1,500 is paid for entirely by the company. So it would incent the employee not to actually get to the threshold. So you'd be more deliberate about how you spend your money. So information systems are up there, so the Avid business that we brought on, we went live mid-year on July for that entire business without a hitch, and we carried more people than we needed in the first half of the year and that kind of peeled off in the back, have a full year benefit next year. We also have a no headcount plan for 2014. So that 4,200 number you saw for headcount is what I'm looking for, for the end of 2014. And if you go back to last year, if you said, when I was up here, talking about 2013, we actually were calling at the time, a gross margin of flat. We turned out to be up 80 basis points, and then we spent 30 back on marketing. And at the time we were thinking, we're going to get the entire operating margin expansion from SG&A, we turned out, that we needed that. But this year, that's where the focus is, is on SG&A.

Lots of exciting innovation here today. One thing that we haven't seen hos been liquid PODs. Unit dose appears like it's here to stay. The consumer, based on market share data, would suggest that they voted for liquid as the preference. So looking forward, do you think you have a material portfolio disadvantage without liquid PODs. And if so, what's preventing you from going down that path?

No, I would dispute your numbers. The POD category, unit dose, as we call it, has leveled off at about 9%. I would expect it to up go a little bit with launch of gains [ph], new POD product out there, but still probably end up around 10% to 11% of the category. We're a player in that. We're in a powder POD. We have seen no issue with consumers accepting the powder side of it. And the second -- and then it's so -- one thing, honestly we've been deficient at is, we don't have larger size packages of the POD. So you're going to see that from us next year. We have more than our fair share of the smaller size of the category. We don't have a larger size, so we're going to be launching more of that, but it is -- it's here to stay. It's found a niche out in the business place. It's again, 9% now, maybe 10% or 11% in 2014. Let's not forget, liquid is 75% of the laundry category, so we're going to be competitive in POD, so our focus is getting back and growing the liquids side of the category. Again, that's 3/4 of consumers want liquid. That's where we're going to put our focus in the business. So a good question, but I think we feel fine on that, and we're going to fix the deficiency we have on larger size PODs out there.

Question. The $12 million increase in slotting fees, I thought slotting fees across retailers are coming down as there's traffic shifting to online and whatnot, so what's that $12 million getting you? Because I know you commented that you're not sure whether you get incremental shelf space or not for the new products.

It's literally an age-old thing. The -- still the predominant number of retailers demand a slotting fee to take on a new product, whether it sells more or less, that's -- their attitude is, that's your problem.

Even if it's replacing something else in the line?

It could. That's where final shelving is one of the big things we don't know yet. We know -- I could show you a chart, I won't, but I could show you a chart, we've got great, very good acceptance, they want the product. Whether it takes the place of our product, where there's incremental shelving, is still to be determined out there. We feel good, but we don't know. We don't control that. And we -- the retailers are often dealing with new products from competitors and that, so -- the next step is what the shelving on the set. The set after that is how do consumers react to that all. So 2 big decisions to come, we literally -- again, because we don't control it, we've made very compelling cases, so they like the product, we feel very good that they've accepted all these new products. We don't know whether it's just going to be -- one in, one out as they say, or that we get incremental shelving from these things. We're still waiting to see it answered, and then bottom line, how the consumer reacts. Still to come.

And then just, on the advertising, you talked about huge increases, percentage-wise for OxiClean and for Avid. I think those were the only 2 numbers you gave us. But overall, advertising is flat. So what -- where is it coming down? Which brands are pulling...

It goes back to my share of voice share market. We have shaved a few brands where we felt we were spending -- I'll give you one example, on TROJAN last year, we spent a tremendous amount of incremental advertising to launch Lubricant, and that was purposeful in that. So it was a major, massive launch into a new white space category. And so we're pulling back on that a little bit. We would have done that any way, so we're doing that, where we have major new news. We put bigger money behind those and we're able to do that while still maintaining a bigger share of voice in the market and our share of market in the condom side of the business, especially. So we feel confident. This is why, one thing about our company too -- Bruce Fleming controls all marketing spending of the company. It's not -- I grew up in another company. There were 12 divisions, all 12 divisions had their separate pots, and they wouldn't exchange money at all. Bruce will move money by the day, by the week. As he see things happening, whether good news, put more money behind it, or bad news, needs to be defended, or whatever. So he constantly watches that, he constantly pulls the money left and right between all different businesses we have out there, so we have the best bang for the buck. So that's my promise -- right now, we made a decision, as of this moment, where the brands go. As we see things happen in the marketplace, we'll make assessments on it, and shift money as appropriate. But we think, it all starts with share of voice, the share of market. We feel we have at least a strong -- and in many cases, in the mega brands, our share of voice will be 1.5x our share of market, and we believe you've got to be, kind of be at those levels, to grow your share. That's us through history, so we studied this intently, we don't want you to bore you with the details today, but we watch that very closely, that ratio. Jason?

Can you talk about the growth of the personal care segment, excluding Avid, so how you saw -- there was a lot of innovation that came through in 2013. And obviously, you're talking a lot about 2014 as well. So I guess, it just seems that on the premium side of the equation, that's where, I think, a lot of people are still uncertain about the consumer that's out there. So can you just talk about how much reliance you need on that? Personal care -- is innovation really the work to kind of be, come within your implied guidance?

Yes, we feel good. I mean, we had a positive year of growth for TROJAN, as a total brand. We had a good year on, actually, toothpaste. We are one of the fastest-growing toothpaste businesses out there percentage-wise. We're still a small player, but our toothpaste business did very well. It was not a good year in NAIR, the weather really hurt the NAIR business, any kind of a seasonal business. So that business was a step back. And on the pregnancy kit business, we hit an all-time record share on FIRST RESPONSE this time. So overall, the personal care business is doing just fine. We're very happy with Avid, and then of course, we consider Vitamins more on that side of the equation too. And so, the personal care business is doing fine, with some little lumps on the road caused by seasonal activity. So that's why you didn't see. ARM & HAMMER Truly Radiant toothpaste, best toothpaste we've launched in a decade. We're launching a toothbrush along with it. That'll be big, and Nair's going to be a whole argan [ph] oil line coming out, which is very hot out there, very good trade acceptance on that so far. We didn't even talk about it. FIRST RESPONSE, we are just launching the first pregnancy kit that has a 6-day claim on it. We could tell you, 6 days before your missed period, if you're pregnant or not. Nobody else has 5 days. It took us over 3 years to get clearance on that through the FDA. We're the only one in the marketplace with that. Every time there's been a day improvement on that thing, the brand has had it. Has delivered tremendous growth. So again, we didn't even talk about that today, but it's the best new pregnancy kit out there that'll help that business, so a lot of great new news across it. I'll tell it to you, you can't, don't forget, one thing about OxiClean we love, the base powder business, it's a household business with personal care margins. The margins on base OxiClean are plus 60% on the business. So it's a category, it's a household category, and has personal care type margin structure to it. So -- brand, so you can't just categorize stuff. It's just household with "lower margins", personal care with higher margins. Even some of the household businesses have very large margins. But overall, feel good. But overall, feel good about the business. Joe [ph]?

Just going back to marketing for a second, you mentioned that it's supposed to be up this year, in terms of dollars, but flat as a percentage of sales. And I know it's distorted a little bit by specialty. But given the move to the mega brands, is there a change to get more efficiency in that number actually trends down over time, in terms of a percentage of sales? And then secondly, in terms of gross margin, how much is left on Good to Great?

On the marketing side, we honestly, again flat on dollars, flat on percentage, up on dollars overall, with more, I think I said, 80-some percent of total marketing, what the slide said, on the mega brands. You could, Joe, fall into that argument that you could reduce spending over time but we don't see it. We want to just keep increasing our marketing. And I hope you're blown away by that chart today. Church & Dwight's the 13th biggest advertiser in the U.S., bigger than companies that you would never think spend less than we do on that. What's the other part of the question?

The other question was, where is the end of the road for Good to Great? And in our company, there's no end to that road. So if you look at what happened in 2013, we had somewhat benign commodity inputs. And so the efforts of the Good to Great folks popped, right, at 80 basis points, so it's margin expansion. And the fact that we were able to hang on to our margin for the last wars is a tribute to the Good to Great program. Now, we can't depend on commodities being benign. In fact, we're expecting some moderate inflation in '14 versus '13, more than we saw at '13 versus '12, and it's also baked into our assumptions. But I would say, we always approach Good to Great over a 36-month period, and we can only de-bottleneck in a linear fashion. Once you de-bottleneck one thing, or you improve something, something else becomes the next target. So I wouldn't call out a number and say, okay, this is the maximum we can get to, so I wouldn't underestimate the talents of the people. Wouldn't try to gripe, but we approach it every year, we're going to try to expand gross margin.

Yes, I want to emphasize a point I mentioned too, 25% of all employees' bonus in Church & Dwight is based on the hitting the gross margin target. We studied incentive compensation structure. Of all of our competitors, nobody else has gross margin as the specific bonus target. We started that about 5, 6 years ago. It's been a key driver of our great results, so trust me, you have every employee in Church & Dwight focused on gross margin. It's as important a driver as the revenue. It's as important a driver of EPS. It's as important a driver of the cash flow. So that's what Matt said. It's an all-the-time focus on doing it, and people know. They can help us on gross margin. It generates better earnings, where we spend more on the marketing side. So I'll tell you, my marketing team, I think Bruce would agree with this, probably spend as much time working with operations on how to improve the gross margin as they do with their advertising agencies in how to improve the advertising, that's Steve's put on new products, because we made it, equally as important as that. And that's why we've had the great results I showed you on gross margin as part of our bonus structure. I'm actually amazed nobody else has it, because gross margin can drive a lot of opportunities in the company to be able to spend more money on marketing or drive more earnings on that. Other companies don't want to deal with it, but it's very, very -- we watch everything from trade promotion spending to how to cut cost in our products without degrading the quality, massive effort going on, 365 days a year. Next time, we're getting better acoustics in this room.

Two quick questions. On the gross margin, is the innovation driving any of the flatness in gross margin? Are you innovating up the gross margin value chain or not?

Well, again, our policy overall is that new products must have a higher gross margin than the product it replaces, but as Matt said, you get all these products out. The slotting fees are offsetting some of that margin improvement in the products in that, so. And sometimes, there are startup costs on the new product which may pull the gross margin down short term. But long term, they'll have higher gross margins. So that's good news. Question two?

And it just seems significant that you've had all these years of double digit earnings growth, and this is the year where you're not necessarily expecting that. That just seems like a big change.

Well, I'd still say, we're kind of late announcing our earnings versus everybody else. 6% to 10% in my eyes, still puts us in the top quartile of what people are promising in earnings. And we get the same issues they all do with currency out there, the economy and everything else there. So we feel very comfortable that relative to our competition, our goal is always to be in the top quartile of earnings performance. So we feel 6% to 10% still puts us in the top quartile, deal with the same issues they're dealing and then, having to support all the launches which we're doing in our eyes more product launches across our portfolio than everybody else. So we still feel they're very good, we're top quartile performance, and we did say 6% to 10%, so stay tuned.

Okay so, but also, just thinking about '15 then, if you probably, this could be a peak innovation year, in terms of just the big -- the mega brand launches, do you think '15, all things being equal, would be back to double digit?

Well, we won't be able to top it as far as more launches, because we're launching every category this year. But don't forget, we'll only get about 3 quarters, maybe 50% of the year benefiting these new products. Next year, we get the full benefit of the new products. And one thing Steve Cugine's been charged with, we don't want just a 1-year wonder out of these products. He showed a chart earlier that 1/3 of our volume today is driven by the new products we launched the past 5 years. That's sticky factor. We want these products to stick, and to be able to build upon them going forward. So we get a full year benefit of all these product launches next year, without the hit of slotting fees that we put behind them out there. And we may launch different versions of these new products, as they stick and hit the ground. So the number of new products now, you couldn't possibly top what we're doing this year, in terms of number of new products, slotting fees should be less next year. And hopefully, we'll have a full year benefit of these new products going forward, because they are just awesome. They should really have some long-term stickiness and be able to grow share up in the marketplace.

Could you please talk about the competitive intensity of the adult gummy vitamins versus other branded as well as private label? And then secondly, if people see a great advertising and want to buy your products online, what's the easiest way for them to get it?

Yes, the adult gummy category had certainly picked up with intensity. Products have been launched by major brands like One A Day and Centrum, but we welcome that. That's great news, because again remember my fact, only 3% of the adult category is gummies. 97% is hard pills. You see the guys who dominate the hard pill side, going to gummy, to me, it just tells adults, hey, gummies are great. As they come to gummies, we still feel we have the best tasting gummy product out there. I taste them myself all the time. The competitive product, some are brittle, like Skittles, some are not as chewy and sweet as ours. We really have some proprietary processing knowledge that I don't believe anybody else has, so. We're bringing people in. There's 97% of the business to be had. If there's more competition, it's only great to me, because it's just telling everybody, gummies are not a kiddie thing. They're for adults too, when you see the big brand names go out there and get into it. We do have manufacturing advantages. We're the only ones that make our own gummies. The other guys go through co-packers. So we have a lot more flexibility as to what we make, and to keep up with demand out there. And because we were first in the category, we have really strong relationships with the trade. They love us. They just love our products. We want to keep selling them. Our guys are doing a great job, coming out with new forms. I think this whole plus line, both the kids and adult side, is a very smart move. Because people, Steve said, the number was like -- 84% of people buy a multivitamin and then buy a supplemental vitamin for again, heart, bone, hair, skin and nails, we put them together. Now you just need to buy one product. And I'll tell you, it's not so easy to make a product that tastes great, and so it's the gummy form with some of the ingredients that are put into those, but our guys are just phenomenal. So it's a great testament, so -- but I welcome the competition. I really welcome the competition. I hope to sit here next year and say, the gummies' 10% of the category, because that means there's still 90% to go, but people are coming over. We're not happy until we see over half of all adult vitamins be in the gummy form, and we're still going to be a leader in that, so tremendous growth opportunity. Come on, way in the back.

So on capital allocation, Matt, my first question is sort of why now, with the buyback, I guess, the balance sheet's in great shape, but it has been in the past, and you guys have generally been reluctant to pull the trigger on repurchasing the stock. Jim, for you, I'd be curious to get your thoughts on the M&A pipeline. That will be helpful. And then getting back to gummies for a moment, do you still think you can do double-digit growth this year, given some of the slowing that we're seeing in the data?

Yes, on the buyback front, just recall, when we have $0.5 billion of cash on the balance sheet, so that's probably our high watermark, for us. And as we continue to grow the amount of the free cash flow we generate annually, we have -- we need outlets for the cash, right? So there's a couple ways to go: dividends, buybacks and acquisitions. And being a BBB+ rated, we have access to the capital markets. The reason it's a $500 million program, is we had remaining $220 million on our existing program. So rather than have another small program, we extinguished that, and so let's have one $500 million, multi-year. And the Evergreen program that we announced, was in addition to that, that's simply to remove share creep. So last year, there were 1 million shares that were exercised, so you could expect about 1 million plus shares on an annual basis that we would be acquiring under the Evergreen program. The $500 million is there to reduce the total amount of shares outstanding, some of which we will do this year. We just haven't -- we haven't said anything about the timing or the amount.

And the gummy side, we definitely believe we can do double-digit growth. I mean we, over the course of 2013, we landed a lot of new distribution. That's one of the things in buying a company. This company's a very small company we bought. They didn't have our sales muscle out there, so our sales force has done a great job in getting the products that already had in better distribution, that we're launching a new plus line, I feel good. We're taking the advertising up 30-some percent. We promise you, we bought this business, it was only advertising about 6% of net revenue or 5% in advertising. We're now in the double digits on the advertising, having more than doubled the advertising spend in that category, so we feel good. Let me just end with one comment because you've been very patient and wonderful today. I'll just tell you, I mentioned earlier, about M&A market is very active on there today. You can't count on anything until the calorically challenged seller sings. So we're working hard on that, and -- but no promises, but it's more active than I've seen it in prior years, which is good news, and we have a lot money. We have a lot of dry powder out there, but we're very selective. We've always known if we find a great acquisition, we can grow it. We're not going to buy junk brands, old, dead brands that are not 1 or 2 in their category, but I'll just tell you we've been very, very active out there. But again, I can't promise anything. It's not built into our numbers, but the good news, is we have lots of dry powder. And also, we have the organizational time now. We're through the big absorption process of the gummy business. We're seeing a lot of focus to integrate into our systems, everything else. We're through that, and my team's hungry and ready for the next big acquisition. So let me -- if you have more questions, please give us a call later. Again, I thank you for your patience, and thank you, who came today. I thank you on the line who are listening. I can't tell you how I'm excited. I've been waiting for this day for 6 months, because I've been -- you've all been asking questions along the way, of what we're going to do, what we're going to do, and I just couldn't tell you, I didn't want to tip off the competition. Well, now, the cannon's been fired. We're going to have a great 2014. We're excited, and stay tuned. It will be great. Thank you, all.