Church & Dwight Co., Inc. (CHD) Q2 2017 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Church & Dwight 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, Church & Dwight's financial objectives and forecasts. As you know, risk and uncertainties involved in Church & Dwight's business may affect the matters referred to and forward-looking statements. As a result, the company's performance may materially differ from those expressed and/or indicated by such forward-looking statements. Church & Dwight will be discussing their results as reported on a GAAP basis and also on a non-GAAP basis. The company believes the non-GAAP financial measures provide investors with useful supplemental information about the financial performance of its business, enable comparisons of financial results between periods where certain items may vary independent of business performance and allow for greater transparency with respect to key metrics used by management in operating their business. These non-GAAP financial measures are presented solely for informational and comparative purposes and should not be regarded as a replacement for corresponding GAAP measures. See the Appendix in this morning's press release for a reconciliation. I would now like to introduce your host for today's call, Mr. Matt Farrell, Chief Executive Officer of Church & Dwight. Please go ahead, sir. Matthew T. Farrell - Church & Dwight Co., Inc.: Good morning, everyone. Thanks for joining us today. I'll provide some color on the quarter, and then turn the call over to Rick Dierker, our CFO. And when Rick is finished, we'll have a Q&A session. We're happy with our organic sales growth of 1.8%. This was in line with our Q2 outlook of approximately 1% to 2%. The 1.8% organic growth was driven by continued strong performance from international consumer business and a return to growth in our Specialty Products business. We have delivered strong first half results and are on track to achieve 3% full-year organic sales growth and 8.5% earnings growth. In the domestic business, market share gains and 6% volume growth reflect the investments made in the quarter. We expected the domestics business to grow less than 1% in Q2, as we increased our trade and promotional spend. Our targeted investment spending translated into share growth as 6 out of 10 power brands exceeded or met category growth. Most important, we succeeded in promoting trial for our new product introductions, which makes us positive about our second half organic sales growth. Our international consumer business exceeded our expectations with 7.4% organic growth. The increase was driven primarily by the export business and strong quarters from Mexico and Australia. We continued to invest in our international consumer business to sustain our strong sales growth. Last year, you may remember we opened new offices in Singapore and Panama to support our export business, and then a few weeks ago, we established a new subsidiary in Germany to expand our European business. Our Specialty Products business had a strong quarter with 9.4% organic growth. The dairy economy is healthy with class III milk prices around $16.50 compared to an average last year of around $15. We're starting to get more traction outside of dairy in poultry and cattle, and in fact a few weeks ago, I visited our new employees at Agro BioSciences in Wisconsin which is the custom probiotics business that we recently acquired and I walked away more excited than ever about the future growth of that business. Turning now to some of our categories and new product launches, the laundry category grew 1.5% in Q2. Our laundry business grew over 9% in consumption. This past quarter we leveled the playing field and increased our trade promotions and couponing to be in line with our competitors. A chunk of the incremental investment was to promote trial of our new product introductions which are the Triple Chamber unit dose and the restage of OXI laundry detergent. We had high promotional effectiveness and we are the only major manufacturer to grow share in the quarter. And once again, ARM & HAMMER liquid detergent grew share for the 30th consecutive quarter. We restaged our OXICLEAN laundry detergent and gained share in Q2 with improved efficacy, claims and packaging. So we've given OXICLEAN laundry detergent a boost with a great new formula that we wanted consumers to try, so generating trial was our objective. And finally unit dose, behind our strong Triple Chamber innovation, our unit dose consumption has grown two times the category rate for the fifth consecutive quarter. Our total unit dose share now including OXICLEAN is at 4.2%. In litter, the clumping litter category grew 3.4% and ARM & HAMMER consumption grew 6%. So we gained share. Our new litter innovation SLIDE has already reached a 4% share of the clumping litter segment and we grew share 60 basis points in the quarter. Of the 13 new launches in the litter category over the past six years, SLIDE ranks number one in repeats after six months in the marketplace. So we feel good about the future of that product. The dry shampoo category grew 33% in Q2. The dry shampoo category is now $130 million in the U.S. BATISTE grew 9.6% to a 31% share. BATISTE has the strongest brand loyalty of any dry shampoo in the category, including brands with significant hair care heritage, with nearly 75% of BATISTE users using the brand most often versus the competition. Now turning to gummies. The gummy category grew 13% but our vitamin business was flat for the quarter. VITAFUSION, which is our adult gummy business is contending with significant competitive discounting, so there is lots of BOGOs going on in gummy vitamins, we haven't been engaging in that, so that's been hurting our business. The condom category declined in consumption by 3% in the quarter. TROJAN Condom share in measured channels was down 150 basis points. Although some of that is offset by online consumption, condom consumption all channels has been soft for the last few quarters. Our research suggests that young people are having less sex, some of the factors are demographics, young people living at home longer, and surprisingly the distraction of mobile phone usage. So, innovation is always a catalyst to category growth. Our new XOXO condom, which is geared toward women is going extremely well. We're focusing XOXO and our TROJAN advertising on digital to try to get the young people to spend less time on their phones and more time using TROJAN condoms. On the acquisition front, we recently announced that we signed an agreement to acquire Water Pik located in Fort Collins, Colorado. It's another great business. They're the market leader in Water Jet technology in both oral water flossers and showerheads. Water Pik will be our 11th power brand, and this transaction which is subject to regulatory approval and other customary conditions is expected to close in the third quarter. Next up is Rick to give you some details on Q2 results and the outlook for the rest of the year. Richard A. Dierker - Church & Dwight Co., Inc.: Thank you, Matt and good morning, everybody. I'll start with EPS. Second quarter adjusted EPS was $0.41 per share compared to $0.43 in 2016, down 4.7% after excluding a $0.12 per share charge related to the previously announced UK pension settlement. The $0.41 was better than our $0.37 outlook, largely due to our better margins in international and SPD business, some help from tax, slightly higher sales and lower SG&A spending. Reported revenues were up 2.3% to $898 million, organic sales were 1.8%, at the high end of our 1% to 2% range. Organic sales growth was driven by our international consumer business, and our SPD division. Now, let's review the segments. The Consumer Domestic business' organic sales were flat as couponing and promotional investments impacted net sales growth. Growth in ARM & HAMMER liquid and unit dose laundry detergents, OXICLEAN laundry detergent and stain fighters, BATISTE dry shampoo, and ARM & HAMMER cat litter was offset by declines in XTRA laundry detergent, FIRST RESPONSE pregnancy test kits and TROJAN condoms. We expect the full-year organic sales to be approximately 2% for the Consumer Domestic business. International organic growth was up an impressive 7.4%, driven largely by FEMFRESH and BATISTE in the export business and ARM & HAMMER liquid laundry detergent, STERIMAR, OXICLEAN stain-fighter in Mexico and BATISTE, VMS and FEMFRESH in Australia. So, just broad based growth across the globe. We now expect the full-year organic sales to be approximately 7% for the international business. For our Specialty Products division, organic sales were up 9.4%, due to higher volumes in the animal productivity business. Milk prices and U.S. dairy farm profitability remain at a higher level than a year ago. We are raising our expectations for the full year for the SPD division from up 2% to 3% to up approximately 6%. Turning now to gross margin. Our adjusted second quarter gross margin was 45.7%, an 80-basis point decrease from a year ago. This was a bit better than we'd originally expected, largely due to continued productivity improvements and better margin on the international and SPD side. The Q2 gross margin decline breaks out as follows. We had higher promotional levels in Q2, which resulted in a drag of 180 basis points, gross margin improvement of 70 basis points due to acquisitions and divestitures, and productivity net of commodities was worth about 30 basis points of improvement. Moving now to marketing. Marketing as a percent of revenue hit a recent high of 14.6%. Remember, at the beginning of the year, we said that we were beefing up Q2 marketing. Historically, big quarters were Q2 and Q4, this year Q2 and Q3 to better support innovation. SG&A as a percent of net sales was 17.4%, a 460-basis point increase primarily due to the UK pension settlement. On an adjusted basis, SG&A was up 13% – was 13% of sales up 20 basis points, primarily due to increased amortization from acquisitions. Now to operating profit. The adjusted operating margin for the quarter was 18.1%, which was 190 basis points lower than the prior year, largely due to the marketing shift and higher promotional spending. Other expense was $6.4 million, primarily driven by $9.5 million of interest. Next is income taxes. Our effective rate for the quarter was 33.1% on an adjusted basis. Turning to cash, we generated approximately $250 million of net cash for the first half, a $47 million decrease from the prior year, largely due to working capital, which was a function of a $30 million increase in deferred incentive comp plus higher inventories. This was partially offset by higher cash earnings. So, in conclusion, the second quarter highlights include strong share growth driven by our investments in our domestic business, continued strong growth in international and a return to growth in our Specialty Products segment. Turning to the third quarter outlook, we expect Q3 organic sales growth of 3.5% which reflects the consumer domestic business growing at approximately 3%. Just a remainder 2016 growth was heavily weighted towards the first half of the year, therefore the second half of 2017 will benefit from easier comps. On a two-year stack basis, the first and second half are consistent at around 5%. Gross margin is expected to contract in Q3 with increased levels of promotion and coupon investments. We expect marketing as a percentage of revenue to be significantly higher year-over-year, with the shift from Q4 to Q3 to continue our innovation support. We expect third quarter earnings per share of approximately $0.46, compared to $0.47 a year ago, or a 2% decrease year-over-year, which includes $0.02 of dilution from the Water Pik acquisition. The primary drivers of the decrease are higher marketing in support of our new product launches and higher consumer promotional spending. As we end the year, we expect strong earnings growth in Q4, as heavy coupons around new product trial peels off, and the marketing goes back to normal levels. And now, turning to the full year, and as I go through these metrics please keep in mind that we are excluding any impact from Water Pik. We're maintaining our expectations for organic sales growth of 3%, we maintain our gross margin improvement guidance of 40 bps improvement year-over-year. Our full-year marketing expectations is approximately 12% of sales consistent with prior years. Operating margin expansion of 30 basis points improvement, when adjusted for the pension and Brazilian charges. Other expense is expected to be around $31 million, primarily driven by interest expense, which does not include any interest expense from the Water Pik acquisition. And the tax rate is expected to be around 33%. On a reported basis, we continue to expect EPS to be $1.79, which includes the $0.01 negative impact from the Brazil charge and a $0.12 negative impact from the pension settlement and no impact from the Water Pik acquisition. Excluding those items, we expect to achieve 8.5% adjusted EPS growth or $1.92 per share. And as mentioned previously for the full-year, we expect no net impact from the Water Pik acquisition. To wrap up, we expect approximately $605 million of free cash flow, net of approximately $45 million of CapEx for the full year. This represents an excess of 120% free cash flow conversion. We also have some good news on the pension settlement front. We were able to beat our original expectations of settlement costs and we have no further pension risk or volatility to worry about as a company. So now Matt and I will open it up for questions.

And our first question comes from Dara Mohsenian from Morgan Stanley. Your line is open. Dara W. Mohsenian - Morgan Stanley & Co. LLC: Hey, guys. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey, Dara. Dara W. Mohsenian - Morgan Stanley & Co. LLC: So, two questions. First, I was just hoping we could discuss the promotional levels in the quarter a bit more. The domestic consumer business obviously price mix is down significantly by 6%. It seems like it's kind of a unprecedented level of promotional spending. So I just wanted to understand better the decision making behind that large a magnitude of higher spend or lower price and how much of that continues or lingers going forward? And has something changed here longer-term in terms of the competitive spending levels that's necessary or sort of the cost of doing business in the industry? Thanks. Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. It's a good question. I wouldn't look at that as a sea change at all Dara. I think, if you looked at historical numbers, you would see for us that we were actually on more on the sidelines when it came to the amount that we promoted on products, particularly in laundry. So, but we had two new innovations this past quarter, the Triple Chamber and also the OXICLEAN restage. So, we wanted to get behind those in a significant way, which is what we did in order to promote trial. And in my remarks, I said we had very high promotional effectiveness and what that means is that you're able to steal share from other brands to your brand as a result of your promotion. So, that's a good measure of whether or not they're effective, but you can't keep that up forever. You do that to promote trial, and the expectation is that you're going to get repurchase in the second half. So, it's – I wouldn't view it as a sea change. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. And the only thing I'd add to that Dara is, of the 600-basis point drag on a price mix perspective, about a third of that was to drive new products and trial. So, again it's not going to repeat forever. Dara W. Mohsenian - Morgan Stanley & Co. LLC: Okay. And it seems like you're pretty happy from a market share standpoint, yet sort of the overall level of growth and top-line growth in the consumer domestic business is pretty muted versus history for you guys. So, it implies that category environment is much more difficult in terms of growth we're seeing in the U.S. industry. Just was hoping for your perspective on that, is that just the competitive environment, or do you think there are broader issues with fragmenting consumer demand and perhaps the younger generation having different priorities as you touched on earlier in the condom business. So, just any perspective on what's been driving this slowdown in U.S. category growth and if you think it's more temporary or longer term in nature would be helpful? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. I'll let Matt talk about a macro perspective but for us it's also some of the comps Dara. In the first half of 2016 we as a company grew 4%. And so, in the first half of this year, it's around 2%. So it's the inverse of that in the second half, we grew at about around 2% in 2016, and 4% is our expectation in 2017. So a couple of our big categories like vitamin and laundry, that's what the comps are for the prior year. Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. From a macro standpoint, you may remember at the beginning of the year, we said that our expectation was that categories would grow 1.5% to 2%. So what we do is we take a look at all of our categories weighted, and so our categories weighted, it would be around 1.5% growth in the second quarter. So it's on the lower end of that, Dara, I'd say that there are certain personal care categories in particular that are somewhat depressed. So if you look at categories like the depilatories, oral analgesics, condoms, kits, battery-operated toothbrushes, all of those categories, those categories were down in Q2, year-over-year. So and again there's discounting across all categories. So that's one of the contributing factors to that. Dara W. Mohsenian - Morgan Stanley & Co. LLC: Okay. And is that something you think lingers more longer term as you look out to 2018 more temporary, just general thoughts on that? Matthew T. Farrell - Church & Dwight Co., Inc.: No, I think these things can be lumpy. I'd say that the condom thing has been more lingering, as my remarks were in the last few quarters, it seems like people are having less sex. And there's less condom usage, we've done some work around that, that could be with us going forward. But I wouldn't be alarmed about the other personal care categories just yet. Dara W. Mohsenian - Morgan Stanley & Co. LLC: Okay. Thank you very much.

Thank you. And our next question comes from Kevin Grundy from Jefferies. Your line is open.

Thanks. Good morning guys. Richard A. Dierker - Church & Dwight Co., Inc.: Hey, Kevin. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey, Kevin.

So question on the guidance. Just wanted to make sure I was clear in terms of how the year is progressing here. So it seems like international momentum continues. That's now expected to be a little bit better. Specialty looks like it's going to be considerably better and consumer domestic a bit worse. And then to bring this back to the EPS guidance, it looks like on an FX neutral basis that comes down by about a point. So Matt, is that just around – is it higher investment levels than you anticipated? I think, category growth maybe slowed half a point, maybe a function of mix with personal care probably not coming in quite where you expected year-to-date and that being a higher margin than the household side. So just – can you maybe quantify a bit that point that came down on the FX neutral guide? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. I'll take that, Kevin. It's a couple of things, really. You're right. Domestic, we brought down slightly. Personal care in the front half was negative in the quarter especially, but we believe that's going to turnaround because of the comps and other category growth in the back half. So we feel good about that. To the degree that we get any benefits from FX, remember we're typically spending that back. So to be blunt, our marketing line will probably go up slightly versus our previous expectations. We're not changing anything. So we just reinvest that if we need to. So I guess, that's a short answer.

Okay. That's kind of what I had figured. Just one follow-up from me and then I'll pass it on. Just getting back to the promotional intensity in laundry, and it seems like Procter ramped its level of trade spend pretty significantly through mid July. Matt, would you care to comment on what you saw in the back half of July? Did you see that level continue? You guys obviously ramped pretty considerably. What's sort of the expectation with respect to laundry here for the balance of the year and do you have enough in the guidance to sort of combat any level, should it remain this elevated? Thanks. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. Kevin, I'll take the first part maybe. P&G and everybody always continues to, it's a promotional category, laundry is always a promotional category. But in the long term, if you take a step back, what's happening at the end of the day, the premium tier usually wins with innovation and the value tier wins because of value and the mid-tier shrinks. I would say that's no different than what's been happening for the last 52 weeks, 26 weeks and 13 weeks. And so, if they promote a little bit more, that's usually the higher end. Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. So, to answer your question, Kevin. As far as July goes yeah. I mean if you talk to Lou and our sales guys, you'll see that things have heated up with some of the other brands, but we always expect the worst. So, I would say that that's in our guidance, we always expect it's going to be tougher in the second half, especially after we took things up in the Q2.

Okay. Very good. Thank you, guys. Good luck.

Thank you. And our next question comes from Stephen Powers with UBS. Your line is open.

Hey, thanks. Just to, I guess press on that a little bit. The laundry couponing obviously you just said it was targeted at new products. But we also saw significant activity around the core ARM & HAMMER brand. In the whole category it looks like volumes accelerated led by your brands. And I guess out of that a few questions. So just – I just want a little bit more color on why be so aggressive, so broadly aggressive at a time when everyone's kind of on pins and needles with respect to this category in particular with the Henkel change and what P&G is doing and it just – it feels like the risk of provoking a continued cycle of retaliation is especially high, so just some color there? And then your confidence that the trial you've generated will translate to repeat once the couponing subsides? And lastly, just your sense of the pantry inventory you may have created, just because again it feels like the volumes sold this past quarter likely outpaced consumption by a fair degree? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, okay. So, I've got three questions here. I'll take the first one. Really, it's all relative to your perspective, Steve. I mean for us, we aren't outspending the competition, and I'll give you a couple of facts. For the quarter, our amount sold on deal for laundry detergent was 36%. On average the category was 35%. For couponing, this is more of a limited measurement, but our data says we're around 30% and the category is around 27%, 28%. So, maybe we're a basis point two or higher. For a long time, we've kind of held back, but I think we are not making the situation worse, we're just getting up to par with our competition. Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. So, and the other question Steve. So, we have unit dose and we have OXICLEAN restage. So, I mentioned, our promotional effectiveness is an important measure as to whether or not your efforts are working. So, we expect that we're going to – it's a little early to tell now, but we do expect that we're going to get some repeat purchases in the second half for OXICLEAN laundry detergent. And remember on unit dose, which is the Triple Chamber, we are the only value detergent, only value unit dose that's out there. So, we have an advantage, so to the extent that we get people to trial the unit dose our research tells us that people, it will stick. And if you noticed that our unit dose share grew 40 basis points in the quarter and we've been growing twice as fast as the category, the unit dose category for the past five quarters. So, we've juiced that a little bit. And so we want to accelerate the stealing consumers and bringing them over to our ARM & HAMMER unit dose, particularly the Triple Chamber.

Okay. Fair enough, fair enough. And I if I could just squeeze in one question unrelated just on the new subsidiary in Germany, just some color there. It's obviously a large market, but it's also historically been pretty tough at least a tough one in which to make some money. So, just your approach to targeting Germany? Matthew T. Farrell - Church & Dwight Co., Inc.: Well. Look the – we have a subsidiary in the UK and one in France. So we have – and then and that's it in Europe. And all the other countries we served through distributors historically. Germany was unique in our minds because it is the largest economy in Europe and strongest economy in Europe in a well. And so we felt that's a place that we should be. So, that was the logic behind it. And obviously, we do have sales into Germany today through distributors, so, we have a base of sales in Germany. So, we are not going in with a donut. But we do think that that our brands are going to resonate there, and we're going to be able to generate some sales growth there.

Okay. Thank you very much. Matthew T. Farrell - Church & Dwight Co., Inc.: Okay.

Thank you. And our next question comes from Lauren Lieberman from Barclays. Your line is open.

Thanks. Good morning. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey Lauren.

Hey. First of all, could you talk a little bit – you mentioned specific of the e-commerce growth in the release, but talk a little bit about e-commerce what you're kind of doing proactively strategically to do that. Primary retailers where you're sourcing that growth, and then also same kind of conversation around club and the performance there? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. We're working with all of our retailers on their dot com sales. So we have – we took somebody, one of our more senior people in the company and dedicated her to working with all of our retailers to drive their online sales. And obviously, we have a structure behind her as well. Amazon is the big dog, I'm sure that's true for virtually every CPG company. So we continue to grow with them, but Wal-Mart you probably know this more recently started in-store pickup or experimenting with in-store pickup, online ordering and in-store pickup on the East Coast. So it's kind of a wait and see to see how that's going. They're naturally integrating Wal-Mart and Jet.com right now. So we'll be working closely with them, but all the retailers have an interest in getting our products online on their dot coms. So we've been working with them to set up the pages.

Okay. And then, I know, Rick you shared that, you said about a third of that 6% price promotion drag on consumer domestic was related to trial and couponing if I heard you correctly. But that's still – I mean 400 basis points is still a big number, right. And it does sound like, I mean last quarter, you were very clear around the promotional environment, you gave a little tweak to the outlook for Q2 and in general to account for that. But it does feel like something picked up intra-quarter on that front. So can you just talk – just address that. I mean, was it reactionary? Was it pressure from you? We know that there is incredible price pressure among – competition between and among retailers. But it does feel like it's worse. If you can talk a little – address that and why that – anything I've said is incorrect? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. It's probably two things, one is just mix. As Matt said, some of the personal care items are down. So it just looks like the negative drag on price mix because some of our household businesses have higher trade rates. So I think that's part of it. I think and the other part, it's probably some of these trial activities are very enticing for the consumer. And so, when that happens, the volume goes up, but also price – the negative price mix goes up right along with it. So, that's kind of what happened I think in both cases.

Thanks.

Thank you. And our next question comes from Bill Chappell of SunTrust. Your line is open.

Thanks. Good morning. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey, Bill.

Hey, just switching to cat litter, I mean certainly fine performance of – good performance in the first half. I guess one is, is cat litter a growth category, I mean I don't currently own a cat, but I know plenty of people do, but I mean the whole category is growing 3.5% its outperforming most CPG categories out there. So, I mean is that something that's sustainable, is everybody kind of playing well in the – I'm not going to go there, playing well in the sandbox. Or do you think you should see more competitive pressure there as we look to the back half? Matthew T. Farrell - Church & Dwight Co., Inc.: No. In fact, if you go back, Bill and look at the last few years of 2014, 2015, and 2016, the clumping cat litter category actually grew faster than 3.4%. So, that has been a perennial grower for a number of years. So, we don't expect that to change. Pets are the new, they're like children. People are happy to invest in them and innovation and price has driven a lot of that growth over time.

But you're not seeing Nestle or Clorox get, trying to win, I mean last year it was much more competitive. It seems like it's eased per se this year? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. No. In fact, the amount sold on deal was 21%, it was 22% in the first quarter. So, it's pretty level.

Okay. And then on the vitamins side, this is the first time I've really – I think, really heard you say that there has been more discounting more BOGOs. I mean it's been more of the category has had its ups and downs, but now it sounds like everybody is jumping into the gummy side. Is that something that you just kind of step back and let it play out, or I mean is there anything you can do to really push your brands and kind of differentiate yourself? I mean how should I look at that especially as we move into not only the back half of the year, but into 2018? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. So we've been on the side lines with respect to the buy one, get ones. So what, our focus is on the brand equity. So it is a sea of brands, there are 30 gummy vitamin brands with all the gummy vitamin brands. So the game really long-term is they're not all sustainable. And so over time what will happen is the retailers will pull those back. So the long game is to win with the brand equities that connect with consumers. So you'll be seeing us being very focused on differentiating our brand versus the other brands. And of course I won't tell you how we're going to do that.

And just a quick – I thought you were rolling out a lot of new, a lot more SKUs there. Did that have the impact on growth that you were expecting or is it, the overall category slow down is offsetting that? Matthew T. Farrell - Church & Dwight Co., Inc.: No, no, no. The gummy category is growing. So we're going sideways because we haven't been engaging in the BOGOs and competitors have been doing the BOGOs and we have not. I mean it's as simple as that.

Okay. Matthew T. Farrell - Church & Dwight Co., Inc.: The new products are doing well. So we have Simply Good, this is one of our new products we've got an energy gummy vitamin, but that's not enough to offset the BOGOs. So we've lost some sales to other brands.

Got it. Matthew T. Farrell - Church & Dwight Co., Inc.: But it's not something you want – you don't want to follow that one down the hole. You got to take the long view on it.

I understand. Thanks so much. Matthew T. Farrell - Church & Dwight Co., Inc.: Okay.

Thank you. And our next question comes from Joe Altobello with Raymond James. Your line is open. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Hey, guys. Good morning. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey, Joe. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: So, first question just want to go back to your outlook for category growth for this year, I guess early in the year was plus 2%, and first half you mentioned it's been plus 1.5%. That 50 basis points delta, that's all price or is there any volume slow down that you're seeing in some of those categories in the U.S.? Matthew T. Farrell - Church & Dwight Co., Inc.: Well, look, I'd say it's both, I wouldn't say it's all one or the other. I mentioned there were five categories that were in personal care that are down between 2% and 5% in the second quarter. And I don't have any stats for you for the full year, but that is one of the drags that we're dealing with there. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay. So, it's a little bit of both. In terms of the gross margin outlook, you're sticking with plus 40 bps this year, that's what you've done in the first half, but it looks like second quarter obviously well below that. How much confidence do you have that the improving mix and things like that will help you in the second half, and how much are you counting on and easing of the promotion environment to help drive that second half? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. I think we're very confident in the gross margin outlook, Joe, I mean part of it is like I said before the comps right for example in the first half our vitamin business was up 5% in 2016. And our second half was flat, right. And so we did a lot to win back the consumer in the first half of 2016, and that's what we're comping over this year. So, we expect to have some good tailwinds on the personal care side in the back half, and we also have some good productivity projects in the pipeline. So, we feel really good about our Q4 number and our full year number for gross margin. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay. And just one last one, the timing of the closure of Water Pik, any guess as to late in the quarter? Matthew T. Farrell - Church & Dwight Co., Inc.: It'll probably be sometime in this month. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay, great. Thank you, guys.

Thank you. And our next question comes from Jason English from Goldman Sachs. Your line is open. Jason English - Goldman Sachs & Co.: Hey. Good morning, folks. Richard A. Dierker - Church & Dwight Co., Inc.: Hey, Jason. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey, Jason. Jason English - Goldman Sachs & Co.: Thank you for sliding me in. I suppose I want to take up on the gross margin line of questioning. Certainly, some of the algorithm for ongoing evergreen gross margin expansion for you guys has been predicated on healthy business mix shifts. What I'm hearing you describe today is a more challenging environment for the personal care sleeve of your portfolio, condoms lower, pregnancy test kits lower, vitamin category fragmented becoming more competitive, and obviously it's kind of played out in results with personal care lagging. Meanwhile, the household side really, really aggressive. How do we think about the enablers of margin on a go-forward and also while we're at it maybe you can give us a few of the puts and takes that contribute to margin this quarter? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, sure. I'll start with that one and then go into the, kind of the outlook again, but in my script I said we had a drag of about 180 basis points on promotional spending, with negative price mix, mainly negative price. We had a 30 basis point drag from commodities, plus 60 basis point on productivity and then we had around 80 basis points of help from acquisitions and divestitures to get to the minus 80 basis points for the quarter. And so we're essentially flat to slightly up for the first half. I think as you look at the second half, there's a few things going on. Number one, some of that new product trial, the deep couponing kind of that peels off as you get the repeat purchases without all the promotional activity. So, that's a good thing for gross margin. I think our productivity pipeline continues to improve. Commodities, the drag gets a little less in the second half as we start to lap some of the negativity we had in the back half of 2016. I think, the personal care question you raise is a fair one, but I think more than anything, it's more of a comp analysis. Again, a good example of that is just this, the VMS business was very promotional in the first half of 2016 as well because we were winning back the consumer because we were out of stock in 2015. And so we don't have that level of promotion. Is the category maybe a little bit more promotional, yes. But, year-over-year it still won't comp that. So, hopefully that helps. Matthew T. Farrell - Church & Dwight Co., Inc.: Hey, Jason, if you want to take the long view. So, in a lot of these personal care categories we are the number one brand. So, you wouldn't be privy to what launches we have prepared for 2018 or 2019. But innovation is always going to be the winner here. And also with respect to margin, the other thing that expands it for us is our Good to Great program which is a continuous improvement and the other kicker is always acquisitions that we take on that have higher than corporate gross margin. So, that's why we felt good about calling next year for 3% organic top line growth and 9% EPS growth. Jason English - Goldman Sachs & Co.: That's helpful guys. And one more then I'll pass it on. I want to build off of Lauren's line of questioning, but from a slightly different angle. She probed on e-com, you guys clearly have a lot of great momentum and are investing behind it. There has been a tremendous amount of consternation. It's been primarily anchored on the food side of staples these days about retailer retaliation, trying to sharpen price points, kind of suck some of the oxygen out of the air as discounters move in and as encroachment from Amazon builds. Lots of pressure for price concessions and clear evidence of using private label as a lever. Stepping into the HBC world, where these categories are further afield online and arguably have more potential going forward. It would seem like your categories are equally susceptible to sort of the retailer pressure. So my question is just that, are you seeing it? Are you seeing evidence of retailers trying to push to get those price points sharper to help fend off some of the channel shifts that may be beginning to build moment? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. Is your question specifically about our bricks-and-mortar retailers squeezing CPGs more than in the past because of online pressure? Jason English - Goldman Sachs & Co.: Yeah. That's a nice distinct summary of it, yes. Matthew T. Farrell - Church & Dwight Co., Inc.: Okay. Well look, the retailers, this is not a new phenomenon, this has been going on for several years now. So every year the retailers are aggressive with respect to our price concessions and this year is no different. I think whenever you're negotiating with a retailer you certainly want it to be a win-win and that's how we approach it. So if in fact, there are some things they want us to do, there's something they'll do for us in return with respect to shelving, or endcaps, et cetera, so. And we've been able to perform really well under these circumstances and we don't view that as we're going to be any more susceptible than any other company. In fact, we think we may be handling it better than others. Jason English - Goldman Sachs & Co.: Got it. Thanks a lot, guys. I'll pass it on.

Thank you. And our next question comes from Andrea Teixeira from JPMorgan. Your line is open.

Is it fair to assume that your guidance for the balance of the year, you're assuming the $0.02 drag from Water Pik in 3Q, but it would reverse again in the fourth quarter because you had said before that it would be flat or neutral for fiscal year 2017 – I am sorry for fiscal year, yeah so for this fiscal year 2017 just to make sure that I have the right number here? And then related to that, so then if I take the $0.53 of the fourth quarter, you would still take that, those $0.02 accretion, then you'd imply as to meeting (41:54) rebounding year-on-year on EPS. So, I was wondering, if you can help us bridge that. So, as you're talking before and if I understood it correctly. The 4 percentage points drag in pricing, you said obviously and that's your couponing, that is still kind of a category drag. You're assuming the category drag goes away in the fourth quarter or in other words perhaps people are just going to use their stocks or destocking and then you're going to have a pickup in repurchases after they've tried your product, is that the way we should think about it? Richard A. Dierker - Church & Dwight Co., Inc.: Okay, Andrea. So, there is a couple of questions in there. The first is on Water Pik, you're exactly right. It's flat for the full year. We have a $0.02 drag in Q3, largely because of the transactional and transitional expenses and not a full quarter worth of earnings. And then a plus $0.02 for the fourth quarter and flat for the year. Your second question, so that implies with our Q3 outlook, that implies a 20% growth rate in earnings in Q4. You're exactly right, that's really two things, 20% is around $0.09 and that's really two things. One is that half of it is the shift of marketing that we've been talking about all year long, right we said we're going to move a lot of our Q4 spending into Q2 and Q3 to better line up with our new product launches. That's about half of it. The other half is, as we've mentioned before we have a better organic growth rate in the back half of the year, so and some gross margin improvement. So, those are the two things driving 20% growth. And then the third question you had was a 400 basis point drag in couponing. Now remember a year ago – that's not just couponing by itself, it's also couponing trade spends and plotting and what not. So, it's a little lumpy in 2016 compared to 2017. I'd tell you that we have some promotional spending throughout the balance of the year, but it's not like we're pulling everything back and we hope we're going to continue to do great without spending. Like we said before, we're hitting our levels right at our competition.

Rick, just what I meant the 400 basis points is that out of the 600 basis points that you had as a drag in price mix, 200 bps was related couponing and then the balance would be industry trends or as you guys were mentioning five categories being very negative. So, I was just wondering if you're assuming that the industry embedded in your guidance that the industry stabilize in the fourth quarter, because I understand the couponing that you had in the fourth quarter or the second half of last year was very mild, it was like 35 bps drag. So, I was wondering if, 50 bps drag – I'm sorry. So I'm wondering if it's mostly related to the industry, that you believe it will stabilize or it's probably that right, so if you... Richard A. Dierker - Church & Dwight Co., Inc.: Right. I understand. The biggest driver is actually mix right. We've said in the first half of the year, part of that 400 basis points drag is personal care, right. And so we expect personal care to be better in the second half right. My answer to Lauren was part of the reason we have a negative price mix, when you look at organic growth is because we have more household increase and then personal care declining. And so just as that naturally balances back out that will improve the negative drag on the price mix line too.

Okay. That's fair. Thank you so much, Rick.

Thank you. And our next question comes from Olivia Tong with Bank of America. Your line is open.

Great. Thanks. First, I just want to follow up on an earlier question around pantry inventory. Given all the couponing and the promotion. Do you think that you're just pulling forward demand like has it – in your view, has there been pantry stocking on the part of consumers, because of all the promotional activity. And then as commodity prices continue to move, how do you think that – will that impact levels of competitive promotion going forward? Matthew T. Farrell - Church & Dwight Co., Inc.: Well pantry loading is always a matter of a conjecture, right. We cannot – if you look at the amount of promotion in the quarter, as we said before, it's 36%. The fact that we – it shifted from other retailer stocks. Remember, we were the only manufacturer that grew share in the quarter. So everybody lost share to us, I wouldn't say that there's pantry loading broadly as a result. Richard A. Dierker - Church & Dwight Co., Inc.: And the laundry category is only up around 1% or 1.5%. So it's not like the consumption was sky high.

Got it. And then just in terms of like the track versus untracked growth, it seems to be moving around quite a bit. I mean, last quarter you were well ahead of track. This quarter it went the opposite way. I mean is this just a function of lapping some of the recent gains you've had in the untracked channels and now you're sort of lapping that or has your thoughts on promotion in channels shifted in some way? Richard A. Dierker - Church & Dwight Co., Inc.: No, Olivia, we still have growth in untracked channels, we're not lapping any big gains or anything like that. We still have growth, it's just the biggest driver is between the Nielsen data and even when you add in the untracked stuff is the negative drag from couponing. And there is a little bit of retailer inventory shifts but the primary driver is the gross to net couponing stuff.

Great. Thank you.

Thank you. And our next question comes from Bonnie Herzog with Wells Fargo. Your line is open.

Thank you. Good morning. Matthew T. Farrell - Church & Dwight Co., Inc.: Good morning.

So, there has been a lot of questions on your promotional spending in the quarter. But I guess – I just wanted to circle back on something. I was hoping you guys could compare the magnitude of your incremental couponing and promotional investments in your tracked maybe versus non-tracked channels. I guess, I'm trying to get a sense of how much you're driving growth in non-tracked or maybe online, via promos or is that just, that growth really just coming from the long-term structural shifts we've been seeing out of the brick and mortar channels? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. It's a simple answer, it's primarily bricks and mortar. So, it's just – don't think of it as – that it's online promotions.

Okay. And then another question on BATISTE, it continues to have great momentum. So, I guess I'm wondering what you guys think the real opportunity is for this brand. And then what the opportunities are to leverage the brand further into other adjacent categories. And essentially how quickly could you guys execute on this, I mean. And then finally I guess I'm curious, if you think there is any risk that your momentum in dry shampoo could fade over time due to some of the momentum from the hair care, heritage brands, as the category grows in the U.S.? Matthew T. Farrell - Church & Dwight Co., Inc.: Actually, the simple way to think about the opportunity for dry shampoo for us is – this originated in the UK and in the UK the value of the category is $60 million, and they have a little over 60 million people in the UK. In the U.S., with 335 million people, the category size is only $130 million right now. Now it's growing rapidly, I think it grew 30% in the second quarter. So, it's growing like a rocket but ship but it has a long it with ago. The category size could double over the next few years. And we would enjoy a tremendous amount of growth as a result of that, because we have the number one share and we're in the low-30%'s.

And then what about the opportunity to further leverage the brand? What are your thoughts there? Matthew T. Farrell - Church & Dwight Co., Inc.: Yeah. That's always an opportunity to go in adjacencies, because the BATISTE brand is so strong, particularly with young users, but we wouldn't telegraph what we might be thinking about doing there.

Okay. Understood. Thank you. Matthew T. Farrell - Church & Dwight Co., Inc.: Okay. Thank you. Is that it? Matthew T. Farrell - Church & Dwight Co., Inc.: Okay. I guess we're done. Thanks for joining us today. And we'll talk to you at end of the third quarter.

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