Good morning, ladies and gentlemen, and welcome to the Church & Dwight First Quarter 2014 Earnings Conference Call. Before we begin, I've 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 forecast. These statements are subject to risk and uncertainties and other factors that are described in detail in the company's SEC filings. I would now like to introduce your host for today's call, Mr. Jim Craigie, Chairman and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

Good morning, everyone. It's always a pleasure to share our insights on the company's business results. I'll start up this call by providing you with my perspective on our first quarter business results, which you read about in our press release this morning. I'll then turn the call over to Matt Farrell, our Chief Financial Officer. Matt will provide you with his perspective on the financial details for the quarter. When Matt is finished, I'll return to discuss our earnings guidance for the year, and then we will open the call to field questions from you. Let me start off by saying that I'm very proud of my company for the first quarter business results that we achieved. Despite headwinds from continued weak U.S. consumer demand and a highly competitive environment, the Church & Dwight team successfully executed the first phase of our innovation-driven strategies by gaining incremental retail distribution for all of our great new products. As I stated on our last earnings release and at the CAGNY conference, we believe that innovation is the key to delivering strong sales and earnings growth in any economic and competitive environment. Innovation has been a key driver of our past success, as shown by the fact that over 25% of our sales in 2013 came from products launched since 2007. As promised, we launched a record number of innovative new products in 2014, across every one of our major categories and 3 new categories. This represents the first time in our company's history that we launched a great new product in every one of our major categories in the same year and the first time that we launched [ph] into more than one new category in one year. Our sales force did an incredible job in gaining incremental distribution from retailers…

Thank you, Jim. Good morning, everybody. I'm going to start with EPS. First quarter EPS was $0.73 per share, and that compares with $0.76 in 2013. That's 4% less than a year ago. The $0.73 was a little better actually than our $0.72 outlook for the first quarter. The negative drag of FX in the quarter reduced year-over-year EPS by 1.5%. Our reported revenues were up 30 basis points to $782 million on the organic side. Organic sales was up 1.2%, which was in line with our Q1 outlook of 1% organic sales growth. So of the 1.2% organic growth, approximately 4.4% is due to volume, with 3.2% negative product mix and price. And of that 3.2% negative price mix, approximately 2% is attributed to investments in slotting and couponing in our U.S. business, and this is behind our 2014 new product launches, which we showcased in February when we provided our full year outlook. Now let's review the segments. The consumer domestic business's organic sales increased by 40 basis points in the quarter, reflecting sales of OxiClean liquid laundry, ARM & HAMMER Clump & Seal cat litter and higher sales of our vitamin -- or Vitafusion vitamins. These increases were partially offset by lower sales of ARM & HAMMER and XTRA detergents. Volume contributed approximately 4.4% to U.S. sales, partially offset by 4% negative effect of product mix and price. With respect to negative product mix and price in the U.S., slotting and couponings behind our new products accounted for 2.2% negative price mix. International organic growth was flat year-over-year. The volume decreased approximately 60 basis points, while we had positive price mix of 60 basis points. Canada and Mexico contracted in Q1 net, which was offset by partially by a growth in -- year-over-year in the rest of…

Thanks, Matt. I'll finish up our portion of the call today with a few words on our outlook for the full year. As stated in the press release, we have updated our 2014 guidance to reflect the organic sales growth at the lower end of our 3% to 4% range, and we've tightened our earnings per share growth to 7% to 9%. These results, we've driven by our balanced portfolio of value and premium products, the launch of our innovative new products, aggressive productivity programs and tight management overhead costs. Our 7% to 9% earnings growth target is a tighter band than our initial 6% to 10% earnings growth target, but is still in the upper quartile of EPS growth targets in the CPG industry, consistent with our historical performance. And we believe we can deliver within that aggressive range despite the highly competitive environment and weak U.S. consumer demand. The majority of our annual earnings growth is planned to occur in the second half of the year, since the first half includes a significant increase in slotting, couponing, trade promotions and incremental advertising for our new product launches versus what we've spent last year. We are also aggressively pursuing acquisitions and a significant financial firepower to make them. As you know, we have a great track record of making highly accretive acquisitions, because we are very selective of the type of businesses we acquire. That ends our presentation. I'll now open the call to questions that you may have, which Matt and I will do our best to answer. Operator, please go ahead.

[Operator Instructions] Our first question comes from the line of Alice Longley with Buckingham Research.

I guess I'll try 2. You're saying your organic sales growth will be 3% in the second quarter, and that's better than the first quarter. Can you break that out to U.S. Consumer versus Specialty? I'm just wondering if that is going to be driven primarily by Specialty. Or will the U.S. Consumer be stronger than in the first quarter? And then my second question is on the SG&A ratio, which is down 150 basis points. And it's normally been, not just last year, but for several years, it's been more around 13% in the first quarter, and now it was 11.5%. Is that you scurrying around and cutting costs as much as you can to make your numbers? Or is the SG&A ratio permanent -- maybe for the whole year, down 150 basis points, and can it continue to go down in the following year?

That sounded like more than 2 questions, Alice. That's all. With respect to the first question, say, yes, right, in the first quarter, we were up 1.2% for the total company. And as everybody can see in the release, that the Specialty Products business was up significantly, with domestic up 40 basis points and the international business up -- actually flat year-over-year. In the second quarter, we're expecting a similar performance from the Specialty Products business, but that is not going to be enough to drive us to a 3%. My expectation is that the combined Consumer business should grow approximately 2% in the second quarter, and that the -- and that will be U.S. and international, and that the Specialty Products business might generate the rest. Those are round numbers, but that's the way to think about the second quarter. What was -- your next question was on SG&A, or do you have a second one on?

Well, first, with the 2% for Consumer, is the U.S. going to be up more or less than that 2%?

No, I wouldn't want to get a bit more granular than that. I think that the combined will be up 2% approximately.

Yes, and then the other would be SG&A ratio.

Yes. So SG&A, so in the first quarter, you saw we were down 160 basis points year-over-year. And we called out a couple of things that happened in the quarter. One would be the Avid transition expenses. So of that 160, 40 that was attributed to those 2, so 120 for the rest. I don't think it should be any surprise to anybody. We expect SG&A to drive our op margin expansion this year. Because remember, when we started the year, what we said was that we have flat gross margin and pretty much flat marketing, right? So we'd said 45% gross margin and 12.5% marketing, with all of our op margin expansion coming from SG&A. So that is as expected, and I wouldn't use the word scurrying around, there's not a lot of scurrying around here. We have a pretty tight plan with respect to where we're going to get to that save year-over-year, so we do expect that on a full year basis. We're going to be down probably over 100 basis points. So you probably sit in there trying to figure out how you're going to get to the midpoint of the range, and you work on your model. So I'll save everybody a lot of trouble. So if you're saying, "All right, the company said, the low end of the 3% to 4% range, but -- so then you'd be anywhere. Let's pick 3% organic sales just for fun." And we'll say organic -- we said gross margin was going to be 50 to 75 basis points down, so let's say down 60. That will mean your SG&A have to be down around 150 basis points to get 50 basis points of op margin expansion on a full year basis.

How about the marketing ratio for the year?

Say again?

Will the marketing ratio for the year still be flat or...

Yes, yes. So in my -- the way I'm talking you through it is, is if you had the low end of the range of 3%, and you picked the midpoint of that gross margin around 60 down; kept marketing where it was, 12.5%; and you say, "Okay, SG&A, down 110." That math gets you to 50 basis points of operating margin expansion. So -- and clearly, we have -- well on our way with respect to how the first quarter panned out.

Our next question comes from the line of Dara Mohsenian with Morgan Stanley.

So you guys have a great history of delivering the double-digit earnings growth historically. I know you're pretty proud of that history. I'm just wondering if -- as we think about this year and the high single-digit earnings growth, it seems like it's a pretty ambitious goal in light of the current competitive environment and clearly, repurchases and SG&A leverage are helping you drive that earnings growth. So I guess, it feels like you're stretching a bit more to hit goals. Is that a fair point? And also, as you think about the strong innovation pipeline, how do you kind of marry the need to invest behind the pipeline for stronger growth beyond this year versus potentially depressing EPS growth by investing behind that strong pipeline this year?

I would tell you to kind of think of this year as a year where we're investing for the future and yet, still delivering an earnings per share growth that I think is at the upper end of the industry. So I kind of look at it as a win-win. We always want to be in that top quartile in earnings growth. In this case, we're below 10%. So if it wasn't for foreign exchange, we'll be in double digits, but we're slightly below 10%. But more importantly, we're investing in the future with all the great new products and the strong advertising support. I would tell you to keep in mind, some of our competitors are actually cutting advertising. Procter's announced last year, they're going to cut $1 billion out of their marketing spending. And we're keeping our marketing spending strong. And we also told you previously, we're actually focusing that a little bit before -- more behind our 4 big mega brands. So we're very excited with the fact we got the best new product pipeline we've ever had this year. We're investing behind it. That's why the first quarter and the second quarter are down or flat versus EPS. So we've expect some very strong growth in the back half of the year. But investments is the right way to think about it, but still delivering very strong earnings growth compared to our competition.

Okay. And then on the repurchase front, 260 million this quarter is a big step-up from recent trends. So can you talk about what changed here to make you more aggressive on that front? And does it signal at all that acquisitions are less likely? Because it didn't sound like that based on the commentary, but I'd love to get an update there.

No, I wouldn't say that acquisitions are unlikely. And with respect to share repurchase, the high watermark for the company in the past was around $250 million a few years ago. So we have been at that level before, and it's a way to think about what was built into the numbers and where are we now. So when we start the year, you're faced with question marks about retailer acceptance of our new products, consumer trial, the impact of Simply Tide. FX became topical even for us, even though we were only 20% international. So that's more of an issue for us this year than in prior years. And input costs have also been -- is also a question mark and then you come to share count. So you have some levers that were all in question marks with respect to that wide range of 6% to 10%, which we've now tightened. So our expectation was to purchase shares this year, up to around $250 million. So that's how we started the year, depending how things would go. So that's what we did in 2 pieces, $140 million in February, and we did a little bit more in March, $120 million. And then looking at it right now, we'd say, "Okay, we have $350 million remaining on our authorization." We don't expect to exhaust that, Dara, or even exceed half of the remainder. But we will do some more before the year's out.

Our next question comes from the line of Jason Gere with KeyBanc.

I guess I want to delve into a little bit on the consumer side, and maybe if you could talk about what you're seeing with consumer trends, the premium side versus the value side. So the laundry, I know right now, is challenged with some of the external factors. And even I think when you go to some of your key retailers, you're seeing some outrageous promotions out there, good for me, bad for you. But at the same point, with gummy kind of in that double-digit range, can you talk more about the personal care innovation that's coming out this year? Because it kind of feels like on the consumer side, maybe this is the swing factor to kind of delivering better than what you thought. Last year's innovation, I thought, was good. But excluding Avid, it only grew like very low single digits. So can you talk a little bit about that and how much of that is a bifurcation between premium and kind of the value consumer?

Yes, I'll be glad to, Jason. First of all, when you look at the first quarter results, we're in roughly 14 categories, and half of them were down, the half were up. So that's not great. We wish it was -- more than half were up. We're excited about the personal care side of our portfolio this year. We've got some great new products. Our FIRST RESPONSE pregnancy kits have -- the first and only pregnancy kit that tells you 6 days before your missed period. Every time, it's gone up a day, the first guy to have it usually benefits the category, so that's very premium-priced. So that's just launched, we're excited. On Nair, we have a whole new line of products going out under Argan oil, new moisturizer on the products, new ingredient. That's hitting market and off to a great start. On the vitamins, we launched a vitamin-plus line on both the kids side and the adult side. That's, again, got better-than-average company margins on it. We expect that to do very well and drive double-digit sales growth this year. Oral care is probably the best year we've had in a long time. We have a whole new line going out under the Truly Radiant name for both toothpaste and toothbrushes. It's got great new distribution. Our early share results are up there, and we're very excited about that. We had a lady -- the TV talk show, The Biggest Loser, who is our spokesperson. The ads are terrific, and that product's off to a very good start. And that's, again, all premium-priced products. And then TROJAN, we have some new condoms, vibrators and lubricants going out, again, very high-premium price in terms of margin in that. So now we've got a very strong portfolio on the personal care side of the world. And also, we told you before, the household side, the cat litter is our star for the moment because it's out the earliest and doing great, but we have new laundry detergent forms. OxiClean, as you know, which is, prior to the company average margins, has got lot of tough stuff out there. The laundry detergent, new bleach-like product, new dish-washing product out there. So our guns are loaded. We're supporting it. The advertising's very strong. And Matt told you before, the second quarter advertising is going to be the highest of any quarter of the year to drive the trial, and we've done stuff on the pricing side, as I say, to make sure we're competitive.

Okay. And then just on that point about you saying the marketing in the second quarter is the highest, is that dollar or percentage of sales? And does that imply, I guess, based on Alice's question that the second half marketing spending will be down year-over-year just on the comparisons?

Yes. So we got a front end -- it's more front-end loaded, right? So it's pretty much both on the percentages and the dollars that's been the highest for the year for Q2. And that means, obviously, we're pulling things forward to get behind the new product launches.

Okay, good. And then just a housekeeping, just with the buybacks, can you provide any color in terms of where we should model share count for the second quarter and just to the full year?

Yes, on a full year basis, where we are right now, it's round numbers, be 139 million shares, and you can -- for average shares on a full year -- if you want to use a full year weighted average number.

Okay. So then for the second quarter, we're looking for something in the high 130s then?

Yes. I just want to make sure that you understand it. So where -- when I say where we are right now, we bought back $260 million worth of shares, so your round number denominator would be 139 million shares to calculate EPS. And I already commented on how much more we might buy for the remainder of the year, so you can do the math on that and you adjust the 139 million downward.

Right, but in terms of incremental, what you might buy, is that in your guidance of 7% to 9% or not?

Yes.

That's in your guidance? Okay.

Right, but it's a range.

Our next question comes from the line of Joe Altobello with Oppenheimer. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: Just a couple of quick questions on the laundry category. You mentioned that it was down 5% in the first quarter. Can you remind us what that number was in the fourth quarter in terms of the category decline?

The total laundry category, including liquid powder and the unit dose, was down about 2.9% in the fourth quarter last year. And I believe the number, we're pulling it right now is -- because we often confuse liquid and everything else like that. I'm sorry, it was down 2.2% in the fourth quarter, and it was down 3.9% in the first quarter of this year, all types of laundry products. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: Okay, so a meaningful deceleration there. In terms of Tide Simply, curious what you're seeing from the impact, from that launch at this point? Is it still too early to tell, or are you seeing much in a way of any share loss there?

Yes, it's too early to tell, Joe. There's a lot going on with the category. Our new product launches, the couponing and trade spending by some of our competitors has clouded the water a little bit like that. It's just too early to tell. We're very happy we got incremental distribution on both our ARM & HAMMER and OxiClean laundry products. And now we started to drive quality, increase advertising and the trade and coupon spending. Joseph Altobello - Oppenheimer & Co. Inc., Research Division: Okay. And just one last one on Avid. I guess, the VMS category did slow down a little bit in the fourth quarter. There were some negative articles being written, I guess. Have you seen that category start to accelerate again in the first quarter? Or is that going to take a couple of quarters before that plays out?

Yes. No, you're right. There was some press out there that unfortunately got blown out of sight. The press was very narrow -- or actually, the studies done were very narrow about -- focusing on cardiovascular disease and cancer. The newspeople in the world kind of expanded that to be some very broad headlines that multivitamins weren't effective. So it caused a bit of dent in the category. We're happy and fortunate that we're on the growth side of the category, and we have some incredible -- with the gummy side of the business which has been and will continue to be the growth part of the business. So I think the category will respond. We did a lot of due diligence when we bought this business, and we were warned by the people in this business that these kind of things will happen. They'll be relatively short lived and the things go back. So I think there'll be a pretty quick bounce back in the category on this. As most people take vitamins to supplement their nutritionary [ph] needs, and most people have gaps in their nutrient needs, so I think this bad press will quickly pass through and the category will start growing again.

Our next question comes from Jason English with Goldman Sachs.

I was intrigued by the other press release you guys put out this morning, talking about Walmart's initiative on sustainability and the implications potentially on laundry compaction. Can you talk about how that's progressing in your dialogue with Walmart, what you expect going to go forward and what the implications could be for your business?

Yes, Jason. Yes, that's late-breaking news. We are very happy to see Walmart announce that initiative of at least 25% compaction by 2018. We're very strongly behind all this. We think it's great for the environment, and we'll be working very closely with Walmart to make this happen as soon as possible.

When they talk about compaction, do you think that includes the unit dose, or is that just referring to traditional liquid?

They're referring to traditional liquid.

And lastly, on unit dose, it continues to capture more and more share of the overall category, with liquid really driving it. Any plans for you to get into the liquid unit dose category?

Yes, Jason. I would take the question. What you said -- it's -- the category kind of flattened out around 8%. Procter launched their Gain version of it, called Gain flings. And so the unit dose is up to about 10%, and it's kind of flattening out there. So I think that's where we're going to see the category plateau at, and I don't care to comment about what we do in terms of new products in the future.

Our next question comes from the line of Wendy Nicholson with Citi Research.

I just had 2 follow-up questions, and I'm not sure if I just misunderstood. But on the guidance for the revenue growth for the back half, 2 things. The reduction was sort of leaning towards the low end of the previous guidance. That's all a price mix issue. And so if you had given us volume expectations for the year, that would be unchanged. Is that right?

Well, I can tell you what the expectations are for the year.

Well, the question is -- you're saying it's a more competitive environment, but does that mean that you expect less market share expansion or less category growth on the volume side?

I'm not sure I follow your question.

You're effectively lowering your top line, and I'm trying to understand why.

Well, we said that there's unprecedented price competition in the laundry -- our laundry category, so that's influencing the full year call.

So that's affecting your market share outlook or your pricing outlook?

It's pricing, not market share. As Jim said earlier...

So your volume outlook for the year hasn't changed?

Say again? Our share outlook for the year hasn't changed.

And your volume, your underlying volume growth outlook for the year hasn't changed?

That's correct, that's correct.

Got you. And my second question is, if the full year revenue growth, let's say, is going to be 3% on an organic basis, but it's only looking like it's kind of 1.5% to 2% in the first half, why exactly it's going to accelerate in the back half? Because I would think all of your new product shipments are actually happening in the first half.

Yes. Just kind of remember, we -- even in the first quarter, we had a 200 basis points drag on our top line organic, because of year-over-year incremental slotting and couponing. So all of that is -- it happens in the first couple of quarters of the year. And the absence of that have been -- that you remove that boat anchor in the second half.

Right. And the great trial we're driving behind all the great new products will pay off more in the second half of the year without the drag of the coupon and slotting cost, which heavily hit the first half. All that is netted in our sales numbers in the first few quarters.

Okay. So but for the back half of the year, you're looking for organic revenue growth close to 4%?

Yes, that's correct.

Our next question comes from the line of Steve Powers with UBS.

I guess, 2 more questions related to the laundry category. Aside from it being more -- there'd be more competition, more price intensity, is there -- has anything else surprised you in terms of the nature of that competition, who's driving it, which companies, which brands beyond Simply year-to-date? I guess...

Yes. I would say my perspective on it. It wasn't really a total surprise. I've been concerned about this happening for a while. As you know, the weak economy that we've had since 2009 has encouraged consumers in a lot of categories to trade down. We took advantage of that behind our great line of value detergents and some launching -- by launching great new products, increasing advertising support, particularly in ARM & HAMMER. That's led to 5 straight years of share gains for us on ARM & HAMMER. And now, like we've told you before, we're now the #2 laundry detergent company. So our competitors were getting frustrated. We saw that. I feel P&G kind of through the match in the gas by launching a half-priced version of Tide. We responded to that with innovations. We had a whole new line of all ARM & HAMMER pods [ph] called Clean Scentsations out there, and we launched the OxiClean laundry detergent. But unfortunately, a couple of our competitors, namely Henkel and Sun, responded by lowering some feature prices and dropping a lot more coupons at higher values out there. We would never lead such tactics, but we'll be competitive. So we responded to that in the second half of the year to support our targets, and that's where it is. But I think we are doing the right thing and -- by driving innovation initially and -- but like I said, we will not be uncompetitive.

Okay. And then I guess related to it, the second part is, what are your retailer counterparts saying related to all this price investment? I guess, their margins are benefiting from the trade spend, but category growth obviously is suffering. So what's their perspective on it? Are they getting frustrated as well? Is there pressure from that constituency to alter the game?

I think it's a good -- great question. I think it's too early to call that. Don't forget, there's 2 parts to it. They -- the retailers see the trade promotion dollars, and that affects their same-store dollar [ph] range, and that drives some of the category. What's not captured by the retailers, they don't get affected by it or by the categories, all the coupons. And all the coupons that are dropped through the papers and that have been pretty huge. Again, the retailer is immune from that because that doesn't affect the selling price that they get. So it's kind of a mixed bag there, but it certainly isn't good. We said in an earlier answer, the category was starting to rebound in the fourth quarter of last year, and we're rather excited about that and looking forward to a year being driven by innovation, and then the competitive actions to lower prices has kind of hurt the category short term. And I don't know how long it will last. I'm not sure. But we have the firepower to stay competitive on this to deliver our targets.

Our next question comes from the line of Bill Chappell with SunTrust.

Can you tell me a little bit more -- just on the gross margin side, you're taking out the pricing, marketing mix. Are there other initiatives going on? I mean, would you -- excluding that, see some meaningful gross margin expansion and maybe talk about it, we've exhausted everything out of Victorville? Or are there other initiatives on the horizon? And the kind of the commodity outlook, is that a headwind, a tailwind, any change in the quarter?

Yes, Bill. The -- with respect to the gross margin, the types of things, you get all the fanfare and the headlines are new plants. We built the York plant, and we built the Victorville plant. But even aside from that, we always have programs in place to expand gross margin, because we're always dealing with inflation year-over-year. So that continues to be a hallmark of the organization. So I wouldn't say that absent building plants, that we wouldn't -- going to have continued to focus and have meaningful initiatives in place over the next 3 years, so it will help us expand gross margin.

Yes, but I would chime in too. Keep in mind things we've heard about that are coming through the benefits are. We put a cat litter line into our York plant about a year ago, and that's paying huge benefits. And we're in the process of putting expanded capacity in for our gummy vitamin plant into our York facility, and that'll generate cost savings too. So we have good projects ahead of us. We have a 3-year pipeline of Good to Great savings we call ahead of us. So it's always been a hallmark to the company. We're extremely aggressive about it. It's in our -- it's in the -- 25% of everyone's bonus at this company is based on hitting the gross margin improvement targets. So a lot of focus on and around here and a great pipeline of projects and some big -- that includes some big projects.

Okay. And then on the compaction question, I know Walmart said by 2017, 2018. If it was sooner, like say 2015, when would you hear about it, and how quickly could kind of convert to that?

Bill, this is honestly late breaking news that's just come out there. Like I said, we totally support it. We believe it could happen sooner and bigger, but we have to work all that out with Walmart in that. So that's all to be seen. It's just late breaking news and we're again, just very -- we've always been a big supporter of compaction, and we will be in the future.

Our next question comes from the lind of Caroline Levy with CLSA.

This is Brian Doyle in for Caroline. I just had one on laundry. Within the ARM & HAMMER brand, specifically, I was wondering how much of an offset, even though it was down, how much of an offset was the new product line, and whether that will be maybe a bigger help over the balance of the year? And then my second question was just kind of on the model, bridging the 5% or mid-single digit EBIT growth to 7% to 9% on EPS. Is that largely -- I mean, I realize share count is doing a lot of the work there, but I was wondering if there's any other benefit from either the equity earnings or other income line that you're also expecting there.

Yes, Brian, I'll take the first one. If I recall that my number's right, the ARM & HAMMER brands, liquid laundry detergent share went up about 0.5 share point in the first quarter, and the new line, the new product line called Clean Scentsations, I believe, delivered about 0.7% share growth. So you can see it drove all the share growth and then some on the brand in the first quarter. Second question, let me toss that one to Matt?

Well, your question on -- your second question is with respect to if you wanted to get to the midpoint of the range, back to my earlier comments, what the impact of the line item JV and other income and interest expense would be?

Yes, just whether those 2 would get any better.

I don't they're not going to get any better. I think on a full year basis, I think a good estimate would be probably $6 million to $8 million improvement year-over-year.

On a combined basis?

Yes, all in, JV, other interest.

Our next question comes from the line of Olivia Tong with Bank of America Merrill Lynch.

Two questions. First, given that competition is accelerating and macros are getting a bit tougher, can you talk about what gives you confidence that things do improve in the second half? And how much of your changes sort of the lower end of the plus 3 is due to the category growth rates? I assume that if I heard you correctly, you expect your market share assumptions haven't changed. So is it all category growth rates? And maybe you could elaborate a little bit on that.

Yes. We're in a lot of categories. But overall, I would say we've always planned for the worst and hoped for the best. So we don't expect much improvement in the care category growth rates, much at all. We are -- our plan is heavily driven by the innovations driving improved share results. As I told you, our first big one out the door, that's -- the first market grows [ph] on cat litter, the results are spectacular to date, and we hope to see similar results like that because we think we have a great new product line. They've been tested thoroughly with consumers, consumers love them and we're putting our money where our mouth is in terms of spending to drive, first, the distribution in terms of slotting fees and now the trial with advertising and couponing and trade support behind them. So we're not counting much on all about category improvement. If that happens, that's terrific, but we're mostly driving the share of our products through our great new product innovations.

And then on the second half, talk a little bit more about what gives you confidence beyond the new products, given that the environment just gotten a whole lot tougher.

Well, first, I would say 2. We're holding up our advertising spending to where it was a year ago. And the word we have, our tracking measures all show is that almost all of our competitors have cut their advertising spending. So we expect our share of voice in the marketplace to switch. It always -- we measure our advertising spending by to be greater than our share of market, and that's the formula that we've had in the past and will be in the future to drive your business results. So we expect to be very competitive and actually be driving growth of our brands through our strong advertising spending. And then you put that behind a great new pipeline of products and you got it. So -- and our sales force has done an excellent -- the incremental distribution we got was tremendous. So again, the whole thing about Q1, the first step was getting incremental distribution, we got it. Q2, we're turning on the gas in terms of marketing spending, we got it. And I just think that's a great formula that'll kick in. And as Matt said in the second half of the year, we get relief from the fact of all the slotting fees and that, that we spent in the first half go away to help drive the gross margin which gets into the net selling prices positive. So this is an age-old formula, but it works and we do it very well and it starts with the great new products and then executing. And we've got a great sales force and marketing team to execute on it. And it's done it before, and we think it'll do it again.

Our next question comes from the line of Bill Schmitz from Deutsche Bank.

Jim, like this laundry battle that's going on right now, is this like an all Friday, is this a conflict that will last a couple months or is this just like a full-out war? Because you go back to historical battles like this, even the cereals stuff in like the '90s, and it was like a 2- or 3-year period where people got really stupid. And there's no end game, all it was sort of like zero sum and this like trajectory down. So yes, maybe some commentary on how long you think it will last and like what the sort of end game is for everybody to kind of do this?

Yes, Bill. I really -- I mean, I don't control that all. Obviously, I just had my side of it. I don't know. I can say one point of view that the actions by the competitors were simply to take their users out of the marketplace before our great new products hit and some of the Procter products hit, so it could've been a short-term defensive action to just try to pull aside their users. But as I've said to you before, if they want to continue this out, we will not lead it. But we'll be right there with them, competitive, and we'll see what happens. And I really can't go any further [indiscernible] issue for both competitive and legal reasons.

Got you. And so -- I mean, would you go nuclear [ph] though and then abandon the EPS algorithm if it kind of persisted?

I would never do that.

Okay, all right. And then just a follow-up. I'm trying to do 2 questions in one so you don't hang up on me. These OTC deals like the Merck, Bayer -- the Bayer thing, I'm not sure they want the sun care and Dr. Scholl's business there. Was that something you guys would be interested in at all? And then lastly, how much of that SG&A reduction is going to be reversed in incentive compensation accruals? Because I know gross margin is a big component of your payout and obviously, you're not going to hit it this year.

Yes. Bill, on M&A, you know we can't comment on things like that. We have very defined criteria for finding deals and looking for products that are #1 or 2 or in their categories. And the higher gross margin in our category, have future growth capability, NRIs and have -- asset light, that's what we prefer. That's what we comb the marketplace for. We're very aware of everything going on out there. So we're always open at looking at stuff and we'll make judgments, but I hope the Street and our shareholders respect the fact we're very diligent and disciplined about how we look at acquisitions, and we'll continue to be that way. So that's, that.

Yes. Your other question that was probably for the benefit of the 3,500 employees that are listening, incentive comp...

[indiscernible]

It's a little -- you remember, we have 4 components to our incentive comp, right, sales, gross margin, EPS and cash. And as we pointed out in the release, expected a record year for free cash flow or cash from operations, I should say. So look, it's still early, Bill. So we wouldn't be making comments on that at this point.

Our next question comes from the line of Michael Steib with Crédit Suisse. Michael Steib - Crédit Suisse AG, Research Division: My question relates to Avid. Jim, you traded your double-digit sales growth outlook for that business for the full year in your prepared remarks, and you called out specifically significant distribution gains. I wonder, what are these, as yet untapped distribution opportunities then that you still have? And is that really the main driver of the business' growth at this point?

Thanks, Michael. It's not -- it's one of the key drivers. We bought this business. We saw that it was way underdeveloped in terms of distribution. The company we bought it from was a wonderful little family company. They didn't have a lot the resources. They largely had one salesperson. That person largely coverages 5 accounts, and they didn't have the time to get out to the hundreds of other accounts out there, particularly in the food and drug trade. So we have a full-scale sales force supported by brokers, and we have leveraged that to get the full product line out there in all channels of distribution in that. So that's been a big plus, but also, we've been -- I told you we doubled the advertising last year. We're going to take it up at least north of 30% this year. We're putting out new product lines on both the kids and the adults, and we're doing -- driving tons of trials through sampling in that, because our -- the big opportunity for us is really on the adult side. We already have over a 50% share of the kids business. And the adult side, we're #1, but in the share position, but the issue is it's a very small piece, like it's only 6% of all adult vitamins out there. And I think the adult category is 20x the size of the kids category. So -- and our view, it's more like Coca-Cola, there's -- only x percent of the world drinks colas. We look at the fact that only 6% of adults who use vitamins use gummy vitamins. So we believe the upside is 94% to go because I haven't found one person ever in my life who's tasted a gummy vitamin and hasn't preferred it to the hard pill they take. So we're just all about that. It's great upside we're chasing with the -- getting the distribution out there, getting the advertising, getting more new products out there and driving that. So it's -- we love the business.

Our next question comes from the line of Connie Maneaty with BMO Capital Markets.

Just one question. Could you just discuss the strategy of taking Oxydol -- sorry, OxiClean into 3 new categories this year, in auto, dish and bleach, as well as detergent? And why you didn't choose to keep it to detergent this year with maybe greater focus on it on it? I'd like to get your perspective.

Yes. Thanks, Connie. Yes, OxiClean is probably -- there are -- of all the brands we have, we have over 80, but of all the brands we have, it probably has the greatest consumer loyalty than any brand we have. People just rave about OxiClean. I told you to start with there's been nothing but gaining share in the laundry additives category, bigger than the next 4 players involved, and those next 4 players include people like P&G and Reckitt and we just keep growing it. We saw that loyalty. We actually did, 2 years ago, go into the dish-wash additive category over there. It did quite well, which proved -- that had license to expand the dish-washing, all behind the brand. The brand is an -- the incredible strength of that brand is fighting stains, which are key in these sort of 2 other categories. Obviously, fighting stains was key in laundry because we're the #1 laundry additive, and we just saw -- as we just saw -- we saw a hole. We thought that people weren't really talking about that laundry detergents. What they're all focused on other things on the side, and we just thought we're the kings of fighting stains. We thought we have the right to take that into a full-scale laundry detergent because the additives aren't used by everybody out there. So that made a logical choice to go do that. Like I'd said we tested our toes into the auto dish world 2 years ago, got great results as auto dish additive, so we went there. And the bleach, well, where we are today, the additive side, is very close cousin to the bleach. We often say on our own advertising, we're better than bleach because you don't run the risk of staining clothes if you accidentally have bleach in there with colored clothes. So that was a natural for us. So we just see this brand as our next great mega brand, and we thought, "Let's just take it all at once in these categories," and made total sense for as far as with the equity of that brand is, which is great stain fighting and just pound that home into logical extensions. We tested the depth, it made total sense. The products are terrific. Consumers love it, and we just let it loose this year.

Our next question comes from the line of Kevin Grundy with Jefferies.

I'm going to head back to M&A, I guess ask it from a little different angle, Jim. I guess, so you still, I guess, sound a bit less bullish than you did going back to CAGNY. I guess, maybe you can talk a little bit about the pipeline. I guess, we spoke during the quarter, and you said some M&A, some of the valuation multiples from an M&A perspective seem, I guess, a bit full, given what the implied multiple is from Merck's consumer health assets, at least in terms of being reported. So I guess, a, kind of what are you seeing? Are you more or less bullish than you were back in February? I know the multiple is still looking a little bit stretched from an M&A perspective.

Kevin, I really can't say much. I would just say I think you see, overall, the M&A market is heating up out there with lots of deals happening. That's generally a positive thing, because sometimes, companies buy other things, they don't want the entire portfolio, and we bought brands in the past off that. But we're always looking, always scouring, but I'll go back to what I said a few minutes ago. We're very diligent and disciplined about this. I mean, we are protectors of the shareholders' capital, and we have sets of rules we follow and we're doing -- I just promise you, we're looking everywhere and looking for the right deal. And when the time's right and everything else is right, we'll make that deal. We have plenty of firepower, even with the share buybacks. So we're in a position to have our cake and eat it too as far as buying back the shares we've done and still have the firepower to make a big acquisition.

And how high would you take the debt leverage? And would you be willing to issue equity for the right deal?

I think that would be very unusual for us to issue equity. As Jim said, that we have the ability to borrow a significant amount of debt and up -- over $2 billion of debt and still be able to hold on to our credit rating. And by the way, the share buyback is not being funded by debt. That's being paid completely out of -- starting the year with $500 million of cash and generating close to $300 million of cash after dividends and CapEx. So we have a great ability to lever up and maintain our BBB+ credit rating, largely because historically, what we do is we do take the leverage ratio up, we immediately direct all of our free cash flow to reduce our leverage ratio and the rating agencies are well aware of that practice, and we would follow it again in the future.

Okay. Folks, I have an Analyst Shareholders Meeting coming up here shortly. So I want to thank you for your time this morning. I just want to leave you with a message. We're very excited. First quarter is right on track for us. We accomplished what we want to do in getting all of our great new products out there and a great distribution, and we're all set up to continue that momentum into the back 3 quarters of the year here and right on track to make our targets, so very excited. Year of innovation, think about innovation, we've got the best innovation portfolio out there, and we're putting our money behind -- where our mouth is and supporting it. So we feel very confident in making our targets. So thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a good day.