Church & Dwight Co., Inc. (CHD) Q2 2018 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Church & Dwight Second Quarter 2018 Earnings Conference Call. Before we begin, I have been asked to remind you on this call that the company's management may make forward-looking statements regarding, among other things, the company's financial objectives and forecasts. These statements are subject to risks and uncertainties and other factors that are described in detail in the company's SEC filing. I would now like to introduce your host for today's call, Mr. Matt Farrell, Chief Executive Officer of Church & Dwight. Sir, please go ahead. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Good morning, everyone. Thanks for joining us today. I'll begin with a few comments on the quarter, and then I'll turn the call over to Rick Dierker, our CFO. When Rick is finished I will conclude with some final comments and we'll open up the call for questions. Q2 was an outstanding quarter for our company. Organic sales growth was 4.4%, which exceeded our outlook of 3%, this performance was a clear standout in comparison to our peers. Earnings per share was $0.49 which exceeded our outlook by $0.03. Our reported sales growth was 14.5% which reflects strong organic growth and prior year acquisitions. Sales growth is clearly a powerful earnings lever in an environment with rising input costs. In the U.S. organic sales grew 5% with 6.2% volume growth. Our categories are growing and our market shares are healthy; 11 of our 15 categories grew during the quarter, 9 categories have grown for at least three consecutive quarters. Beyond category growth our share results are solid with 7 out of 11 power brands growing or maintaining share. As we have said in the past, we have low exposure to private label, about 12% share on a weighted average basis. We're having success in the online class of trade. Global consumer online sales continue to grow and we expect it to exceed 6% of sales in 2018. And finally, I'd like to give you perspective on the promotional environment, 8 of our 11 power brands had a lower percentage of products sold on promotion in Q2 compared to Q2 2017, and still we grew. And this is the second quarter that we've seen this and we don't expect that to change in the second half. Our International Consumer business delivered 6.8% organic growth. As you know International has emerged as a growth driver for our company for the past four years. International markets are a bright spot for Church & Dwight, unlike many of our peers, the investments that we have made in new leadership, regional hubs and our brand focus continue to pay off. Our algorithm is 6% annual organic growth for the International business and we expect to meet or beat that number in 2018. Turning to Specialty Products. Q2 was another challenging quarter for us with a 5% decline in organic sales. This reflects lower demand for animal productivity products from our dairy customers, who are being hurt by low milk prices. There is a silver lining though, the acquisitions that we've made over the past couple of years, which got us into the poultry business have reduced our dependence on the dairy economy. So we continue to have confidence in our long-term algorithm of 5% organic sales growth for this business. Now let's go back to the U.S. business for a minute to call out the drivers of our outstanding organic sales growth in the quarter. Our laundry brands reached an all-time high 18.8% share of liquid laundry in the quarter lead by OxiClean. Oxi Liquid Laundry had its highest ever share of 1.9%. ARM & HAMMER unit grew consumption 28%. Consistent with my earlier comment, the amount of detergent sold on promotion in the category was down 500 basis points sequentially from Q1 and down 70 basis points year-over-year. vitafusion vitamins turned in a strong quarter with 6.2% consumption growth on the strength of increased distribution and velocity. Batiste continued to gain share with 36% consumption growth in the dry shampoo category and the category grew 33% in the quarter. Batiste is the number one dry shampoo for the tenth consecutive quarter and continues to be the number one dry shampoo in the world. Toppik and Viviscal turned in a strong quarter with 16% consumption growth. These outstanding hair care brands are growing because they deliver results to consumers with thinning hair. Turning to innovation, innovation continues to be a big driver of our success. We have new products shipping in several categories, all of which have been performing well. In fact sales of our new products are ahead of our 2018 plan. We launched ARM & HAMMER CLUMP & SEAL lightweight unscented cat litter with guaranteed seven-day odor control which builds on the success of our CLUMP & SEAL franchise. We expanded our Odor Blasters laundry platform, leveraging technology that helps eliminate tough odors. We introduced new vitafusion and L'il Critters probiotics gummy vitamins which support digestive health. Trojan has launched NIRVANA which is an assortment of sensation condoms in an exclusive package design. Batiste continues to expand distribution with three unique fragrances leveraging our number one share position. And finally Waterpik, Waterpik launched a really cool product this year. It's a water flosser to restore whiteness while flossing. Waterpik has been in the Church & Dwight family for a year now. The business is performing extremely well and we continue to expect high single-digit sales growth in 2018. We are looking at Waterpik as a global opportunity. The power of the combination of Waterpik and Church & Dwight is evident. We are laying the groundwork to sustain a strong growth rate in the future, particularly in international markets where household penetration is much lower than in the U.S. So to conclude, we had a strong second quarter, we had a strong first half. We continue to outperform the market because we have brands consumers love, we have right strategies to grow and our company is a friend of the environment, which is important to us and our consumers, and our people make Church & Dwight a great place to work. Next up is Rick, give you details on the second quarter, and the outlook for Q3 and the full year. Richard A. Dierker - Church & Dwight Co., Inc.: Thank you, Matt, and good morning everybody. I will start with EPS. Second quarter adjusted EPS was $0.49 per share compared to an adjusted $0.41 in 2017, up 19.5%. The $0.49 was better than our $0.46 outlook. The $0.03 beat versus our outlook is made up of $0.03 from a stronger top line, a $0.02 drag on margin due to an oral care withdrawal and then $0.02 from a lower tax rate. Reported revenues were up 14.5% to over $1 billion. Organic sales were up 4.4%, exceeding our Q2 outlook of approximately 3%. The organic sales beat was driven by our domestic and international Consumer business. We're extremely pleased with our strong volume growth domestically of 6.2%. And as expected, our negative price mix continues to move in the right direction as I mentioned last quarter. We expect that improvement to continue as we move through the year and for the second half we expect that to be flat to positive. Now let's review the segments. First, Consumer Domestic, the organic sales increased by 5%, primarily due to ARM & HAMMER liquid and unit dose laundry detergent, Batiste dry shampoo, Viviscal and Toppik hair care brands, vitafusion and L'il Critters gummy vitamins, and XTRA Laundry Detergent. International organic growth was up 6.8%, driven largely by OxiClean, Batiste, and ARM & HAMMER liquid laundry detergent in the export business. ARM & HAMMER liquid laundry detergent and clumping cat litter, and Batiste in Canada, and OxiClean Ultra Gel and Nair in Mexico. For our Specialty Products division, organic sales declined 5% due to the lower volume offset a bit by pricing. Turning now to gross margin, our second quarter gross margin was 44.3%, a 140 basis point decrease from a year ago. This includes a one-time 70 basis point impact from a voluntary recall and an FDA mandated withdrawal associated with certain oral care products. Other drivers were a 120 basis point drag for higher commodities, a 40 basis point drag from higher transportation costs, partially offset by our productivity program of 80 basis points and acquisitions of 10 basis points. Moving now to marketing. Marketing was up $5.5 million year-over-year. The good news is we didn't cut any marketing, even excluding acquisitions our spending was up slightly. As a percentage of revenue marketing was 13.3%. Compared to Q1 marketing increased 340 basis points. For SG&A, Q2 SG&A increased 110 basis points year-over-year, higher SG&A primarily due to acquisitions, including intangible amortization and higher IT and R&D investment spending. Now to operating profit. The operating margin for the quarter was 16.9%. Other expense all in was $18.4 million primarily driven by incremental interest expense and higher debt levels related to acquisitions. Next is income tax, our effective rate for the quarter was 21.7% on an adjusted basis compared to 37.6% in 2017. We now expect the full year rate to be approximately 23%. And now to cash, we had a strong cash flow quarter. For the first six months of 2018, net cash from operating activities was $322 million, an increase of $73 million from the prior year due to higher cash earnings and a smaller increase in working capital. Excluding prior year payments totaling $25 million for the UK pension plan settlement, and higher than normal deferred comp payments, cash from ops would have increased $48 million. So in conclusion, the second quarter highlights were 4.4% organic sales growth and adjusted EPS growth of 19.5%. Now turning to the third quarter outlook. We expect Q3 organic sales growth of approximately 3%. We expect third quarter earnings per share of approximately $0.53; a 2% reported increase year-over-year or an 8% increase on an adjusted basis. We expect marketing to be up in Q3 despite the acquisition mix impact I've spoken about. And now turning to the full year, to summarize our thinking, we now expect organic sales to be 3.5%, reported sales growth to exceed 9%, which offsets the headwinds we discussed on gross margin. Full year gross margin will now be 120 basis points down, reflecting the full year impact of the oral care charges as well as higher logistics costs. As a recap, our full year gross margin bridge is made up of a 130 basis points drag due to transportation and commodities, a 25 basis point drag for the oral care issues, a positive 35 basis points of price volume mix driven largely by volume and our full year marketing as a percent of sales will be 11.5%, reflecting the lower spend rates for recent acquisitions. In other words, absent acquisitions our marketing spend rate will be 12%, which again means our marketing dollars are up year-over-year. We are raising our EPS outlook to be $2.26 to $2.28 per share or adjusted EPS growth of 17% to 18% despite the incremental headwinds from margin and currency. This continues to be top tier among the entire industry. And finally turning to cash, we're raising our expectations for cash from ops to $690 million. And with that, I'll turn it back over to Matt for a few more comments on pricing. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah, before we open up the line for questions, I just want to take a minute to talk about pricing because I know it's on everybody's minds. So gross margin pressure has been felt across many industries over the past 12 months. We certainly have had our share of commodity and logistic cost increases and we have shared with you our actions to contain those costs, continuous improvement programs, hedging promotional efficiencies, just to name a few. Raising price is the other side of the equation, it's been top of mind this earnings season. So as you know, many CPG companies have already announced their intentions to take pricing to help offset their cost increases. We have reviewed our categories to determine if list price increases are cost justified and would deliver a positive financial result for both our company and for our retailers. And like our competitors, we have determined that in certain categories, pricing actions are necessary to help offset our cost increases. We are in the process of discussing those decisions with our retailers right now. We will not be going into specific details in this call in order to allow time for discussions with our retail partners to take place. But, we will report back with details in early November. We'll now open the line for your questions.

Our first question comes from Kevin Grundy from Jefferies. Your line is open.

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

Matt, I wanted to start on sort of state of union with the laundry category, your results were great, but specifically around Henkel and the strategy there where it seems like they're really leaning (14:17) and little else where you see (14:19) on some of their other key brands really under quite a bit of pressure and declining year-over-year. And I'm not sure if you (14:26) specifically on sort of a key competitor strategy, but given your price point, you're positioning with ARM & HAMMER in the category. It would seem fair to say that the way their strategy is going really opens up quite a long runway for you to continue to source market share. So if you want to comment on that number one. And then number two, you know as you guys look at the data, is it fair to say that some of the strength in ARM & HAMMER, that you think it's coming from some of those brands that I just mentioned, then I have a follow up. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah, well, it's difficult for me to comment on Henkel's strategy, but if you look at where the money is being spent, there's a significant amount of product sold on deal for Persil on the high-end, the same for Tide. So those guys are slugging it out at the high-end of the category and obviously you have to pay for that. So you could say that they're shifting some of the spend from their deep value brands which would be Purex and Sun and shifting it to Persil. I can't comment on whether or not that's going to continue. We have both XTRA and ARM & HAMMER both grew consumption in the second quarter, in fact, all three brands were up. So I would agree with you that ARM & HAMMER has a lot of runway for many years to come, it has been the banner brand for this company, it's a $1 billion brand if you add all the categories. It's the only advertised value brand. So we have so many things going for us that suggest that the train is going to keep on running in the future. And, OxiClean we're encouraged by as well because it has its all-time high share, 1.9, in the quarter. As you know we've been trying to make inroads there into more of the premium end of the category. And XTRA – you remember XTRA last quarter stopped its slide, so it grew consumption last quarter and this quarter. So all three brands are clicking right now. So we feel real good about the laundry category.

And, Matt, just, we'll stick with that and then I'll pass it on, but a couple of other questions in laundry. How do you feel about pricing – frontline pricing, the category is benefiting from some favorable mix for the reasons we just talked about with Henkel leaning in on Persil. What's your view on pricing? We've obviously had episodic price wars over the years in the category; that doesn't seem to be the case now. If you can just comment on that and maybe the outlook for the balance of the year. And then also early observations on Tide Simply and Proctor's introduction there in unit dose? And then I'll pass it on. Thanks. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Well look, when it comes to activity in pricing, it's really a broader issue. So, it all goes back to pressure on gross margins. So, you know, cost increases have been seen for raw impacting inputs pretty broadly and you got a tightening labor market. So wages can also be a contributing factor. So, you got a lot of things going against you and everybody is dealing with this. And productivity gains have been outrun by cost increases and that's why you're seeing people reaching for – for pricing finally. And the commodity pressure has led to two quarters of year-over-year decline in the amount sold on deal. I don't think that's coincidental, that, I think that will likely continue. And I think the need for profits will likely result in greater reluctance to even deal back price increases once people implement them. Richard A. Dierker - Church & Dwight Co., Inc.: And, Kevin, it's Rick. I think one thing that we said last quarter and I want to repeat it again this quarter is our negative price mix trend in the Domestic business, right, in Q1 it was down 170 bps, in Q2 it is down 120 bps. We expect that to be flat to positive in the second half because as some of those promotions don't get repeated, or some of the couponings don't get repeated, not just in laundry but in general, in this environment we expect that to happen. Matthew Thomas Farrell - Church & Dwight Co., Inc.: And back to your question on the launch of Tide Simply unit dosed. So the unit dose category grew 4.3% in the quarter. I think it's the fourth consecutive quarter that unit dose as a category has grown less than 5%. And if the short answer is to how are we doing is, ARM & HAMMER unit dose grew 28% in the quarter. So I would say that the Simply Tide launch has not slowed down our growth.

Okay. Thanks, guys. Congrats on a good quarter. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Thanks, Kevin.

Our next question comes from Bonnie Herzog from Wells Fargo. Your line is open.

All right. Thank you. Good morning. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Hey.

Hi. I had a question on your strong Consumer Domestic organic sales. I guess, I'm wondering why there is such a big disconnect between your very strong results in the quarter and then the weaker Nielsen scanner data. Was the difference mainly driven by non-tracked channels or were there timing impacts from your shipments? And then going forward, how should we think about the contribution from non-tracked business? And then maybe finally, could you characterize the overall health of your inventory levels at retail? Thanks. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, I'll start with the last one first. It's Rick, Bonnie. But we track shipment to consumption data all the time. We feel like that's very healthy. It's right in line where it should be. So we don't think that's an issue. Your first question is really, help bridge the organic growth for the domestic division of around 5% back to what we would call the Nielsen tracked growth, which is around 2%.

Right. Richard A. Dierker - Church & Dwight Co., Inc.: So that's about 300 basis points. About 200 basis points is untracked channels whether that's e-commerce, you know e-commerce for us is growing you know 30%, 40%, which is really strong. As Matt said in his prepared remarks that's, for a company, for the consumer business to be in excess of 6% of sales, and then other non-tracked partners as well. And then, so that's around 200 basis points of that 300 basis points gap and another 100 basis points is just lower couponing, right, as we talked about before. We're lapping, for example, we launched a major litter innovation last year for trial, some of the coupon has come down in laundry as well. So the disconnect is really just from a net sales perspective.

And then just maybe a quick follow on to that because as I look over the last three quarters, it was more in line. So just thinking through the strength that you're seeing in online, was there a huge step up this quarter for your business? Because you didn't really see that kind of spread in the last few quarters relative to the tracked channel. So just trying to think through how your online business has been performing? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, I would just tell you that typically the untrack stuff is just lumpy; online in general is lumpy. So, I think anybody who gives you a forecast on trying to bridge for organic growth to what reported or Nielsen information shows you is just, is asking for trouble. It's just too lumpy to do that accurately. I would tell you there's always going to be a disconnect and in some quarters there's going to be larger than others.

Okay. And then, just maybe one final question from me on your Q3 EPS growth guidance, it seems a little light versus what you just printed and then what's implied for Q4, you called out stepped up marketing spend. So, I'm curious you know how much is maybe being pulled forward from Q4 and if so, why? And then also, you know, you're expecting commodity and freight headwinds, you know, are you expecting that to moderate by the time we get to Q4? Thanks. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. So, a couple, two good questions. The first one on just the timing. Remember first half of the year, on average, we're about 20% EPS growth. In Q3, we're calling 8% EPS growth. Behind that is we have a step up investment in marketing, we've moved some marketing from Q4 as an example into Q3. So, we're up on a dollar basis about $8 million to $10 million of marketing year-over-year in Q3, which is about another $0.03 and if you just kind of add that back then you're really up around 14% adjusted in the third quarter. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. And something else just to keep in mind, we've seen this phenomenon before. Sometimes, we have a front-end loaded year and the way we manage the business is to deliver on the EPS call that we gave in February. So to the extent that we're out running that, we're going to be able to spend it back. Richard A. Dierker - Church & Dwight Co., Inc.: And then in terms of your other question on distribution or commodities, in general, we gave you the full year outlook from gross margin and I did a bridge for you, about 130 basis points year-over-year for the full year. That's pretty consistent in the second half. You know as logistics costs have come through and I think you heard from Kimberly as an example, the pulp prices are up and diesel prices remain high.

All right. Thank you. Richard A. Dierker - Church & Dwight Co., Inc.: All right.

Our next question comes from Bill Chappell from SunTrust. Your line open.

Thanks. Good morning. Richard A. Dierker - Church & Dwight Co., Inc.: Hey, Bill.

Hey, I guess first one maybe just a little more color on Waterpik a year later and just kind of where that growth is coming from? And then, I would assume this is the one business that could be affected by tariffs. So maybe kind of any commentary on what you see on margins, pricing there. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Well, yes, the business has been, was growing well in 2017 and it's growing high single digits this year. And the formula is that 60% of the purchases are based on a hygienist or a dentist recommendation. And that continues, and one thing we've done is we've expanded the number of hygienists that we have calling on dentists in the United States with great success. That would be one element. The second element is international, this is just a huge opportunity internationally, and we're beginning to establish in a small way the hygienist program in other countries. And that's going to bear fruit for us for years. With respect to the tariff, this is kind of a global comment. It's, the tariff, with respect to China, the current thinking is the exposure's mainly batteries and electronics, but it's not anything that's material right now. The new layers of tariffs could impact a broad range of products, materials, but it's something that we'll just be monitoring closely in the coming months. But so far the stuff that is in place wouldn't have a material effect on us. And just while we're on the topic of tariffs, I know some people have some interest in Canada, and Canada, with Canada's retaliatory tariffs were a larger issue for some of our competitors because it's a very broad list of categories, including things like shaving products, automatic dish washing, products for deodorizing rooms, skin care products. For us, it had a minimal impact essentially on deodorizing products, so like Fridge Fresh would be one that would be caught up on that, it's like a 10% tariff. But really Canadian retaliatory tariffs and Chinese retaliatory tariffs are immaterial right now.

Got it. And then, and just going back to Waterpik real quick. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yes.

You say it's going to, two-thirds of the growth is coming domestic and one-third of that is coming in the international expansion, is that the right way to think about it? Matthew Thomas Farrell - Church & Dwight Co., Inc.: I'd still say that it's more skewed towards the domestic business than international.

Okay. And then just the other question, back on laundry, I actually was kind of surprised by Oxi's market share and kind of resurgence. Anything more, I mean is that sustainable, is there something that you're replacing? It seemed to be, I wouldn't say left for dead but it had been very quiet on Oxi detergent for quite some time. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Well, look, Bill, we're still fighting an uphill battle there, because you know we have formidable competitors there in both Tide and Persil. So we're still trying to make sure we have a sustainable beachhead going forward. And it has been, use the word lumpy, it's been a bit of a seesaw. We're up 1.9% one quarter, you're down – your share is 1.5% the next quarter, so we're still trying to break through there and we do that through both coupons, digital coupons, et cetera. So I wouldn't say that we're declaring victory right now.

Got it. Thanks so much. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Okay. I'm not hearing anybody. Wonder if we lost the connection. Richard A. Dierker - Church & Dwight Co., Inc.: Operator, why don't we go to the next caller?

Your line is open, sir. Matthew Thomas Farrell - Church & Dwight Co., Inc.: All right. Somebody bailed. Go to the next one.

Our next question comes from Steve Powers from Deutsche Bank. Your line is open.

Thank you. Hey. So, more on pricing if I could. So, I know you said that 8 of 11 categories this quarter showed a lower percentage of products sold on deal versus 2017. And Rick, I think you even called out lower couponing in the quarter which is great. But how do we reconcile that with your overall price mix still being negative in the consumer domestic segment, despite lapping some extremely intense promotions in the year-ago period. That just to me, it doesn't all tie together and it's very surprising. So what's the missing variable? Is it that the breadth of promotion may be down, but the depth is still up or is something else going on that I'm missing? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, no, it's a good question. I think I want you to ask that same question next quarter, Steve. And I think a lot of the heavier promotion that we had was actually in Q3, not as much in Q2. So that's why we're expecting as we go through the second half to have positive price mix and a flat to positive price mix in the second half.

Okay. But I mean, okay, your price mix was negative 6% last year, that's pretty intense. You got some big launches, no in Q2? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. No. You're right. We had plus 6% on volume, minus 6% on negative price mix, but it wasn't all promotional spending. That was also, I think I talked about it last year, our household business was growing very fast. Our personal care business was actually in decline, all right. So there are other attributes besides just spending promotional dollars.

Okay. I mean, that's fair. But I guess I just want to press a little bit more and just and test it in the context of what we heard from P&G a few days ago. Because on the one hand, and others, but on the one hand, their intention to raise pricing in a couple categories, tissues, diapers, got a lot of attention and I think has prompted a lot of optimism, and I appreciate your optimism with respect to kind of net pricing going forward. But at the same time if I look at what they actually did, they spent a whole lot more than expected in the quarter on couponing and trade investments and essentially signaled that pricing would remain negative for them through the duration of the calendar year. And I just – it doesn't – it just it seems like there is a disconnect between what we're seeing in the quarter and that optimism and I just want to test where your optimism is coming from in that context. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, I have one or two comments then maybe Matt has something to add too, but in general we just went through with Kevin Grundy's question about how a lot of the spending in laundry between Tide and Persil has happened in the premium end, right. In general it's encouraging to say sequentially from Q1 to Q2 amount sold on deal's down by almost 500 basis points. So, yeah they might be up, they might be up, but the category was down even sequentially Procter, as an example, was down 770 basis points sequentially, in amount sold on deal from Q1 to Q2. In a world where commodities are rising, labor is rising; I think that promotional spending will come in line. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. The only thing I would add to that, Steve, is we've been jumping around here between Kimberly in paper products and back to Tide and detergent. I think, you know, when you are looking at a company, you have to look at what are the categories that we're in; we're in 15 categories. So, on a weighted average basis, our categories have been growing, you know, close to 3% for several quarters now. And, you know, that's what's, makes it so buoyant for us. And you know Rick's right in that, you can look at how, what the laundry war is going on in the premium end, but it's not going on in the value end.

Okay. All right. I will look forward to a positive number in Q3. Thanks.

Our next question comes from Rupesh Parikh from Oppenheimer. Your line is open. Rupesh Parikh - Oppenheimer & Co., Inc.: Good morning and thanks for taking my question and congrats on a great quarter. Richard A. Dierker - Church & Dwight Co., Inc.: Thanks, Rupesh. Rupesh Parikh - Oppenheimer & Co., Inc.: So, I have two housekeeping, I guess questions, to start. So first, is it possible to get the blended category growth rates in the U.S. and then with your full year guidance for this year, do you at all incorporate any pricing benefits that you expect to take? Richard A. Dierker - Church & Dwight Co., Inc.: What is the second one? Rupesh Parikh - Oppenheimer & Co., Inc.: For your guidance this year, your full year guidance. Do you – have you built in any pricing benefits for some of the pricing actions you're hoping to take down the road? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. We would make no commentary on pricing just yet, what categories we're, what retailers or what impact it may have. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah, more than happy to answer that, Rupesh, next quarter when you ask. Rupesh Parikh - Oppenheimer & Co., Inc.: Okay. Okay. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. You had another housekeeping question. Rupesh Parikh - Oppenheimer & Co., Inc.: Yeah. The blended, yeah I was hoping to get the blending category growth rates in the U.S. if you look at all your categories? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, well, I mentioned earlier that in general that the weighted average rate has been approximately 3% for the last four quarters, specifically it was 2.7% weighted growth in Q2. Rupesh Parikh - Oppenheimer & Co., Inc.: Okay. Great. And then, okay. Okay, great. Then in the Specialty Products business, so clearly the dairy side has been challenged lately. So what gives you confidence that you can get back up to that 5% type growth longer term? Richard A. Dierker - Church & Dwight Co., Inc.: Well, you know it has been a cyclical business historically. We do have some things right now that are exacerbating the situation with what our government is doing. So we have retaliatory tariffs being imposed on being imposed on cheese by Mexico. Mexico is the largest export market for U.S. cheese. So, our retaliatory tariffs by China on whey protein, that's another derivative of dairy industry. And China is the largest export market for U.S. whey protein. So, these duties are slowing the exports of U.S. products and the prices of all dairy products are expected to be soft as a result. We've got storm clouds right now. So, I do think that's going to clear at some point. What gives us confidence long term is the fact that we've now made three acquisitions that have got us into other species, meaning cattle and pork. And we do think that over time that's going to even out. And because those three acquisitions were in prebiotics, probiotics and also food safety, we think there's a lot of runway there and that because we've put those three businesses together and we can now go to food producers and offer control of bacteria both pre-harvest and post-harvest, we think we got a big runway, but we do have to even it out. We've got to get more balance between dairy and the other species in the future, but we're confident we're going to get there, Rupesh. Rupesh Parikh - Oppenheimer & Co., Inc.: Okay. Great. Thank you. Richard A. Dierker - Church & Dwight Co., Inc.: Okay.

Our next question comes from Olivia Tong from Bank of America. Your line is open.

Hey, good morning. First, just a point of clarification actually on price mix on international, because that moved – that was a pretty big change relative to Q1, the one – the down 1.4% versus a plus 5% in Q1. And the things you cited last quarter don't seem like things that would whip around that much. So, was there any rollback on the pricing in Mexico or a big step change in the mix of products or if you could just give a little bit more color on that dynamic between Q1 and Q2? Richard A. Dierker - Church & Dwight Co., Inc.: Sure. Hi Olivia, it's Rick. In general it was two things. Everything we said last quarter is still true right, going direct to the German subsidy helped in a positive way, price mix for example. But it was overshadowed by a couple things. Now we have heavier trade promotion in the UK and Australia, we have good volume growth there too, but just heavier trade promotion in those two countries and then in Mexico we also have our household business growing very quickly and so that also hurt the mix impact a little bit. And so in general for the balance of the year we expect it to look, actually, a lot like Q2, high volume growth and a little bit of price mix.

Got it. Thanks. And then just in terms of the second half organic sales growth obviously it implies, if you're going to get to 3.5% for the year, for growth to decelerate. Obviously, you don't want to get too far ahead of your skis, but what are some of the key factors driving a potential slowdown in second half growth versus first half, because you seem to downplay the benefits from Henkel's challenges, you're obviously feel quite bullish about laundry. Would assume that you expect price mix to improve based on the comments that you cited earlier. So, just trying to understand whether that's just healthy conservatism or something that you see coming down the road? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, I think you need to take a step up a little bit, Olivia. It's more, we think we have momentum going into the second half at or exceeding our first half. And the way we look at that is we just look at it on a two year stack basis and really if you remember domestic growth in the first half of the year, last year was really low, the second half it was stronger. So on a stacked basis, the first half the year is 6.2% for example and we expect to exceed that you know 6.3%, 6.4% in the back half of the year. So again it's, just look at it on a two year basis. So it's more of a comp story.

Fair enough. Thanks. Richard A. Dierker - Church & Dwight Co., Inc.: All right.

Our next question comes from Joe Altobello from Raymond James. Your line is open. Joseph N. Altobello - Raymond James & Associates, Inc.: Thanks. Hey, guys. Good morning. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Hey, Joe. Joseph N. Altobello - Raymond James & Associates, Inc.: Just want to go back to pricing, not surprisingly, in terms of the pricing that you're contemplating. I know that you know you don't want to get very specific here, but is that mostly U.S. or will that be an international component to it? Given the move in the dollar I would think that that might make that a little more challenging? Matthew Thomas Farrell - Church & Dwight Co., Inc.: Well, look the – here's what I can say. I mean this is internationally we have raised price already in 2018 in emerging markets; that would be places like Mexico and Brazil as well as our Latin export markets, and that's both for household and for personal care products. So, that's one thing I can tell you that's been in place in 2018. I wouldn't make any comments about 2019 or even second half changes for international. But look, the U.S. is 80% of our business, right. So obviously it's going to be a pretty important lever to affect price increases in the U.S., but no comment on percentages or categories. Joseph N. Altobello - Raymond James & Associates, Inc.: Okay. Okay. And in terms of whether you guys are leading or following, I imagine most of these categories will be situations where you're following somebody else or could you be leading in categories like condoms, for example? Matthew Thomas Farrell - Church & Dwight Co., Inc.: No, you know what, we're starting to play 20 questions. So, no – good try, Joe. But I think we really don't want to comment any further that. We really want to give ourselves a chance to have our conversations with retailers. Joseph N. Altobello - Raymond James & Associates, Inc.: Okay. Okay. And just one last one, this is a little bit easier I think. Are you guys surprise you haven't seen more competition and in more new entrance in the dry shampoo category given how fast it's growing? Matthew Thomas Farrell - Church & Dwight Co., Inc.: No, actually there have been you know some new entrants. So for example you know J&J showed up with OGX, right, OGX dry shampoo. And I know in Germany, Nivea has got a dry shampoo that they launched. So, yeah, I mean it's attracting a lot attention. But you know the category grew, in the U.S. grew 33%. Our brand grew 36%, so this is even with new entrants, so... Joseph N. Altobello - Raymond James & Associates, Inc.: Still taking share despite that obviously. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah, yeah. Right, right, right. So it's a fabulous brand, it's just, it really delivers a great consumer experience and I think that's the reason why we continue to grow. Joseph N. Altobello - Raymond James & Associates, Inc.: Okay. Great. Thank you, guys.

Our next question comes from Lauren Lieberman from Barclays. Your line is open.

Great, thanks. Good morning. We've covered a lot already, but I was curious one point, Rick, you said earlier that the, that online sales were going to be and have been pretty lumpy. And I was just curious why. Like, I can certainly understand untracked channel sales being lumpy whether it's club or whatever else. But I just, I would think online would be sort of steady rate of demand. So if you could just explain a little bit why that would be the case just as for my understanding? Thanks. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah, so Lauren, this is Matt. You may remember at CAGNY we talked about this at one point where we woke up one Monday morning and none of our litter products were being offered. Amazon decided that they weren't making enough margin on that, so they were gonzo. So the online retailers do control the shelf and they can with a keystroke they could pretty much take you off. We have been making some adjustments in some of our categories as far as what SKUs we offer online. In some cases, we say you know what, we're a little bit too broad and we pare back. So, if we say, let's say we had 40 SKUs in one particular category and we say, now we're going to go down to 10, you could have a loss of online sales for that particular category. And the inverse is true as well. So, it's a shift from the online, from the bricks-and-mortar to online, but it doesn't all, it's a little choppy at times.

Okay. That helps a lot. Thanks. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah.

Our next question comes from Jonathan Feeney from Consumer Edge. Your line is open.

Good morning. Thanks very much. Question for Matthew, and a question for Rick. Matthew where, obviously with the price and value dynamics, where do you think in terms of household penetration, size of the category, unit dose in laundry peaks and maybe both for yourself and for the category? You referenced the slower growth in unit dose over the past few quarters. Just curious your thoughts on that. And for Rick, what dynamics are allowing for the better cash flow realization particularly seems like better payables performance so far this year? Thanks very much. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. I'd say this, when unit dose was first launched, I think a lot of people look to Europe and say okay, there's more prevalence of unit dose in Europe and that comes in different forms and if you're including tablets and said well, hey there's one country that 30% of the laundry detergent is a unit dose. The other analogy is, dish washing detergent in the U.S. that's 30 and higher percentage of product is unit dose. So that was sort of the going in expectation, but it has plateaued for the last four quarters. It's in 17% and then went up to 17.4%, 17.6%, maybe it's 17.8% right now. And what we have found over time is that when unit dose was first launched, there was a decline in the liquid laundry detergent category. And the reason for that was because overdosing really stopped with the use of unit dose. But then the growth restarted and liquid laundry has been growing alongside a unit dose for several years now. So, I don't have a crystal ball, but it's not obvious that there's a path to 30%. Richard A. Dierker - Church & Dwight Co., Inc.: And then to follow on your second question, just what's leading to our great cash flow generation. I think even the raise that we just talked about, the incremental $10 million, typically it's half cash earnings and half of that's working capital. Over the long term we've done a phenomenal job on working capital, talked many times about how we've gone from 52 days to in the 20s on our cash conversion cycle. And that has been lead – we're top tier in inventory. We're right in line with everybody else on DSO or receivables. And then, we still have some room to improve on payables and so that does continue. So hopefully that gives you a flavor for it.

Thank you.

Our next question comes from Andrea Teixeira from JPMorgan. Your line is open.

Thank you, and good morning, everyone. So my questions are like just two clarifications. First on the pricing as it relates to guidance. Should we assume reducing couponing the third quarter (45:15) and list pricing more into the fourth quarter and also are you expecting to increase prices on the private labels you manufacture as well or this is mostly on the branded products? And second, on the taxes, your new guidance is around 23%, if I understood it correctly from your prepared remarks for the year. So that is to imply because your taxes were so low in the first half of the year, so that is to imply about 24% on the second half. So if that is the case, are you expecting really like this whole pricing situation and lapping a lot of the components you mentioned before and also with increased marketing spending into the third quarter and then that's going to ease off. So your operating results are really going to have to be very strong in the fourth quarter for you to meet the guidance. Thank you. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Okay. Part one, let me try to take those in order. First of all on pricing, we said we're not going to comment anymore on pricing, so we're not going to comment on private label, on branded, on list price. Come back next quarter and we'll go through any impact that may or may not have on the outlook. You asked about couponing. When I said positive, flat to positive price mix on the organic line for the Consumer Domestic business in the back half, yes it's promotions are lower and couponing is lower year-over-year. That's a fair comment to make. On the tax outlook, yes, it implies a 23% for the year implies a 24% rate in the back half. We had a lower than 24% rate in the front half largely because of option exercises, and that number is volatile and that moves around, and it's difficult to forecast. But in general, we said approximately 23% now for the full year. And then, you did allude as well to marketing shifts, I talked about that in Q3, higher marketing spending Q3, coming out of Q4 operating results are going to be just as solid as they were in the first half, in the second half. So, we – you should see our confidence in our guidance, because we raised our outlook.

Okay. Thank you.

Our next question comes from Jason English from Goldman Sachs. Your line is open. Jason English - Goldman Sachs & Co. LLC: Hey, good morning, folks. Thanks for squeezing me in. Richard A. Dierker - Church & Dwight Co., Inc.: Hey, Jason, there's always room for you man. Jason English - Goldman Sachs & Co. LLC: I appreciate that. Congratulations on the great volume this quarter. It was impressive. I wanted to come back. I have two questions, one on price and one on gross margin. Imagine that, another price question. But I wanted to come back and just re-ask Steve Powers' question, because I thought it was a good one. You're lapping some promotions. You've got 100 basis point benefit from couponing in price this quarter. Personal Care is now mixing higher 8 of 11 brands, power brands promos down. Why is price negative? I still don't understand that. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. I mean, we have incremental trade spending in a couple of our categories, right. We have – that's probably in essence the easiest way to say it. That's why price mix is still negative in the Consumer business. It's a competitive environment. Although, it is getting better, I think people forget context sometimes. Back in Q3 of 2017, also goes back to your question, Q2 of 2017, price mix was minus 630 bps; in Q3, it was minus 490 bps; in Q4, it's down to 130 bps; and in Q1, we're down 170 bps; in Q2, we're down 120 bps. And so, the curve is coming down in the right direction. We're seeing the macro stuff support that and that's why we have confidence in the back half to continue to improve. Jason English - Goldman Sachs & Co. LLC: Very good. I appreciate that. And then, quickly on gross margins. I guess there are a few moving pieces, I could throw a few questions at you, but I'm going to try to stay focused on one. Commodities and freight, you're calling for a 130 basis point headwind for the full year, I think it was 100 basis point last quarter, you were 85% hedged, suggesting you're seeing movement on that 15%, is that right? And given the hedge position and I know if you go through you 10-Q, you've got a lot of commodity derivatives that historically you haven't really had. Should we be – should we be concerned that as your hedges sort of roll off you've got another step higher of inflationary pressure as we roll into next year? Richard A. Dierker - Church & Dwight Co., Inc.: No, good question, both of them were good questions. On the first one, I would tell you, let me try to simplify it; our outlook was 80 basis points of decline in margin. We've moved to 120 basis point decline in margin for the year, that's two pieces, 25 basis points was really because of the oral care withdrawal and then about 15 basis points is logistics. And logistics, just to give you a sense of what that really is, now we're – we saw some more inflation on inbound freight as an example that gets rolled through on material pricing. And we also are seeing, you know that we have shipments that go from the U.S. to Canada, there is a higher spot pricing because truckers don't want to come down from Canada into the U.S. in a more regulatory environment with all the new labor laws and whatnot for truckers. So there's a little more spot pricing there than we expected, nothing that material. So in general commodities are still and distribution is about 130 basis points year-over-year drag. I guess that's the big picture. Your second question Jason, can you remind me with that was? Jason English - Goldman Sachs & Co. LLC: 85% hedged as of last quarter, lots of derivative contracts in the 10-Q that we haven't seen in the past, what's the risk of you sort of these rolling off into a higher cost environment into next year? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, yeah. Really, the biggest hedges we have out there are really for and you'll see this in the 10-Q are for surfactants or ethylene for HTPE for resin and for diesel, and net-net as they're close to washing. I mean it's nice to have certainty and now we're 88% hedged and we're already hedging 2019 in some cases in order to again have predictable movements on our cost structure. But in general, I'd say those net differences aren't that material. Jason English - Goldman Sachs & Co. LLC: Helpful. I appreciate it, I'll pass it on. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Thank you, Jason.

Our next question comes from Mark Astrachan from Stifel. Your line is open. Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: Thanks and good morning, everybody. Wanted to go back to Olivia's question, just as a clarification first. So I still don't necessarily understand the back half commentary, especially as you have Waterpik hitting the organic base, so that would suggest if you sort of backed that away, that the two-year gets somewhat worse. So I guess are you being conservative or are there things that you're baking in there from a geopolitical standpoint that you're expecting potentially to worsen, maybe just a little bit of color in that context? And then just secondly, separately, the growth in the untracked channels online specifically. How should we think about the opportunity or white space to put more product into those channels going forward, meaning sustainability of that relative to not the overall category growth, but just incremental in terms of putting more product there on the virtual shelve. And then just what about the broad level of support or spending for brands in that channel versus track channels, meaning is it lower, is that rate increasing sort of normalizing versus traditional brick-and-mortar? Any sort of help there will be useful. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Okay, I'll take a swing at the online class of trade and then Rick will comment on your second half sales question. So, the online class of trade sales grew 40% in the quarter year-over-year. So, that would include both our direct-to-consumer business as well as anything we sell in the online class of trade. Now, all of that as you know is not incremental. So, you essentially have consumers moving from one class of trade off from bricks-and-mortar to the online class of trade. You had a question about the cost associated with that and it is more costly to serve the online class of trade, because you do have to create web pages, you have to maintain them to your; so the maintenance part of it is expensive. It can be less expensive for digital marketing, because I'm sure you've heard that over the past couple of years that the number of impression is less expensive online than actually going through television for example. So, it's a bit of mix there. We had 1% of our sales were online in 2015, it was 5%, 2017. We expect to easily exceed 6% this year. So, it is going to continue to grow. The gross margins right now are somewhat comparable between the online class of trade and bricks-and-motors, so it's not really hurting us from a profitability standpoint on the gross profit line. But it is more expensive to serve that class of trade from an SG&A standpoint. I hope that helps you. Richard A. Dierker - Church & Dwight Co., Inc.: And then in terms of the second half dynamic you're asking about and Olivia did as well. Again, on a stacked basis, we have a strong first half and we have even higher second half. And yes, Waterpik is a tailwind, but let's drill into the volume for a second. First half, volume domestically on average was around 3.5%. And last year, volume on average was 5.5%. And so, we've told you a couple of times that we don't need to spend as much on coupon as an example in the back half of the year because we do have all these tailwinds that we've talked about. So, in general, we think the momentum was very strong and we feel good about it. Is that it? Mark S. Astrachan - Stifel, Nicolaus & Co., Inc.: Yeah. Matthew Thomas Farrell - Church & Dwight Co., Inc.: All right. That concludes the call today. We'll be talking to you again in November after the end of the third quarter. Thanks for joining us today.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may disconnect and have a wonderful day.