Church & Dwight Co., Inc. (CHD) Q3 2018 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Church & Dwight Third Quarter 2018 Earnings Conference Call. Before we begin, I have been asked to remind you that on this call the company's management may make forward-looking statements regarding, among other things, the company's financial objectives and forecasts. These statements are subject to risk, uncertainties and other factors that are described in detail in the company's SEC filings. I would now like to introduce your host for today's call, Mr. Matt Farrell, Chief Executive Officer of Church & Dwight. Please go ahead, sir. 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. Then I'll turn the call over to Rick Dierker, our CFO. And when Rick is finished, we'll open up the call for questions. So Q3 was an outstanding quarter for our company. Q3 net sales grew 7.2%, which reflects both strong organic sales growth and sales from prior year acquisitions. Sales growth is clearly a powerful earnings lever in an environment with rising input costs. Organic sales growth was 4.7%, which exceeded our outlook of 3%. Global consumer organic net sales have accelerated sequentially over the last five quarters, as price mix continues to improve. And this performance was a clear standout in comparison to our peers. Earnings per share was $0.58, which exceeded our outlook by $0.05. In the U.S., organic sales grew 4.7% with both volume growth and positive price. 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 four consecutive quarters, and beyond category growth, our share results are solid with 7 out of 11 power brands growing share. As we have said in the past, we have low exposure to private label, about 12% share on a weighted average basis. Now we're having success in the online class of trade. Global consumer online sales continue to grow. And we continue to expect it to exceed 6% of sales in 2018. With respect to the promotional environment, 8 of our 11 power brands had a lower percentage of products sold on promotion in Q3 compared to Q3 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 Q4. Our International Consumer business delivered 8.3% 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. Canada, Mexico and export had particularly strong quarters. The investments that we've made in new leadership, regional hubs, and our brand focus continue to pay off. On August 29, the company entered into a long-term cooperation agreement with Shanghai Jahwa, a respected and well established local Chinese CPG company. Shanghai Jahwa will be the exclusive omni-channel distributor for four of our categories, and they would be baking soda, toothpaste, dry shampoo and fem hy. And this is in Mainland China. This is an important step in our Asia-Pacific strategy. And we're very excited about the partnership, as Jahwa has demonstrated the ability to build strong brands for themselves and other CPG companies in the past in Mainland China. Our algorithm is 6% annual organic growth for the International business. And we expect to meet or beat that number in 2018. Now turning to specialty products. Q3 was another challenging quarter for us with a 3.3% decline in organic sales. And this of course reflects lower demand for animal productivity products from our dairy customers, who continue to be hurt by low milk prices. However, we still feel good about our long-term 5% organic sales algorithm, as a result of our acquisitions of businesses serving other species like cattle, swine and poultry. Now let's go back to the U.S. business for a moment to call out a couple of the big consumption winners in the quarter. In household, ARM & HAMMER detergent reached an all-time high quarterly share of 10.3%. And ARM & HAMMER unit dose consumption grew 31%. In personal care, BATISTE continued to gain share with 33.5% consumption growth in the dry shampoo category, while the category grew 26.7% in the quarter. Now BATISTE is the number one dry shampoo for the 11th consecutive quarter and continues to be the number one dry shampoo in the world. So to conclude, we had a terrific quarter. We have a sustainable evergreen business model, because we have brands consumers' love, our company is a friend of the environment, and that is important both to us and to our consumers, and our people make Church & Dwight just a great place to work. Next up is Rick to give you details on the third quarter and the outlook for Q4 and the full year. Richard A. Dierker - Church & Dwight Co., Inc.: Thank you, Matt, and good morning, everybody. We'll start with EPS. Third quarter adjusted EPS was $0.58 per share, compared to an adjusted $0.49 in 2017, up 18.4%. The $0.58 was better than our $0.53 outlook due to a stronger top line and a lower tax rate. Reported revenues were up 7.2%. Organic sales were up 4.7%, exceeding our Q3 outlook of approximately 3%. The organic sales beat was driven by our global consumer growth of 5.4%. We're extremely pleased with our results. This is the second consecutive quarter of global consumer product growth in excess of 5%. Now let's review the segments. First, Consumer Domestic, organic sales increased by 4.7%. As communicated last earnings call, we expected price mix to be positive in the back half of 2018, which is exactly what happened in Q3 with 2.1% price mix growth largely due to year-over-year couponing declines and lower promotional levels. International organic growth was up 8.3%, driven largely by BATISTE, VITAFUSION and FEMFRESH in the export business. We also had strong growth in Canada and Mexico. For our Specialty Products division, organic sales declined 3.3% due to lower volume as the dairy economy continues to struggle. Turning now to gross margin, our third quarter gross margin was 44.3%, a 100 basis point decrease from a year ago. This includes 160 basis point drag for higher commodities, a 70 basis point drag from higher transportation costs, and a 60 basis point drag from other manufacturing, offset by 100 basis points for our productivity program and 90 basis points of favorable volume and price. Moving now to marketing. Marketing was up $8.6 million year-over-year. Marketing expense as a percentage of net sales was flat at 11.6%, despite recent acquisitions which have a lower spend rate. For SG&A, Q3 SG&A decreased 20 basis points year-over-year. The $7.5 million increase was primarily due to acquisitions, including intangible amortization costs, incentive comp and IT plus R&D investment spending. Net operating profit, the operating margin for the quarter was 19.7%. Other expense all in was $16.9 million (sic) [$19.4 million] (7:49), primarily driven by interest expense and higher debt levels related to acquisition. Next is income tax. Our effective rate for the quarter was 21.9%, compared to 28.7% in 2017, primarily due to tax reform. We now expect the full year rate to be approximately 22%. And now to cash, we had a strong cash flow quarter. For the first nine months of 2018, net cash from operating activities was $568 million, an increase of about $145 million from the prior year due to higher cash earnings and a smaller increase in working capital. A bit of housekeeping here, diluted shares outstanding for the quarter were approximately 251 million and that is the expectation for the full year. So in conclusion, the third quarter highlights are 4.7% organic sales growth and adjusted EPS growth of 18.4%. Now, turning to the fourth quarter outlook, we continue to expect Q4 organic sales growth of approximately 3%. We expect fourth quarter earnings per share of approximately $0.57, a 10% increase over last year's adjusted Q4 EPS or a reported decline of 64% due to 2017 tax law changes. And now turning to the full year, we now expect organic sales to be approximately 4%. We continue to expect reported sales growth to exceed 9%. We continue to expect full year gross margin to be down 120 basis points, in line with previous guidance. And we are tightening our EPS range to $2.27 per share, or adjusted EPS growth of 17%. We're raising our marketing for the full year to be in excess of 11.5%, as we spend back any earnings beat to continue our momentum as we enter 2019. And with that, we'll turn it back over to Matt to discuss pricing before we open it up for questions. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Okay. Thanks, Rick. Yeah. Before we open up the line for Q&A, I am going to cover a couple topics. Few words about pricing and tariffs. So rising commodity and logistics costs have put pressure on our gross margins over the last few months. We've had discussions with our retail partners and made decisions on pricing. In several household categories and geographies we are raising list price in the high single-digit range. And the price increases will start showing up on shelves in Q4. And the pricing covers about a third of our portfolio. Other categories are being planned for early 2019. Too early to talk about those. Naturally if input costs remain high, promotional support in 2019 would be reduced. And that would be consistent with recent trends. And then beyond cost inflation, we are impacted by the tariff war, notably in WATERPIK water flossers. And as a result, we are raising price there as well to protect gross profit dollars in 2019. And with that, I'll turn it over to Q&A.

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

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

Yeah. Congratulations on a great quarter. Matt, can we start on the detail, a little bit more color on the China agreement. How quickly can that ramp for you guys? What does that mean for the growth of the International business. That business has obviously been doing very, very well. What – why should we not think that this would lead to an acceleration above the 6% target at this point? Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Kevin, you're like, 6% is not high enough. Huh?

Yeah. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Hey, look we started making investments almost a year ago in Southeast Asia. You may recall we signed up with DKSH, earlier this year, they're a master distributor. And we've done a lot of training with their people early in this year. And that's starting to pay dividends later in the year in that part of the world. China is more of a long role too. I mean, this company has in the past been a partner with both Cow (12:13) and SC Johnson. And they're going to be our exclusive distributor in Mainland China. But we think it's going to be a slow build. But once again just like DKSH, we think Shanghai Jahwa is going to help make sure we sustain comfortably a 6% growth rate in the future.

Okay. All right. That's helpful. And then, just one more for Rick. Rick, can you talk a little bit, not that I'm not asking you guys to guide on fiscal 2019. But the higher input cost pressure that everyone is dealing with, higher freight costs that everyone is dealing with. Can you talk a little bit about how much visibility you guys have looking out to 2019 at this point in time? Maybe a little bit of color on how much you have hedged at this point. And then maybe even comment a little bit, if we kind of stay where we are at this point in time, what level of pressure should we consider on the company's gross margins, both with respect to commodities, freight, tariffs? So we can kind of ascertain that relative to what might be necessary from a pricing perspective, so that the company may or may not be able to deliver on its longer-term algorithm. Thanks. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, Kevin. I would just say that we don't really go into a lot of detail at this point in time on 2019. What I would tell you is you are very familiar with our long-term evergreen model. We aim to have gross margin expansion. We aim to have 3% organic sales growth and around 8% EPS growth. All that is kind of the framework in which we operate under. Yeah, as you know, commodity costs are high. But that is also why companies are leading with pricing decisions and also with lower promotional support. And we're also encouraged as our supply chain continues to build even more incremental productivity programs and progress. So we're not going to go into gross margin expectations now. I'd tell you, just like any year, we do have a big chunk of the portfolio hedged for next year. So we do have good visibility into what we think is going to happen. But we're doing everything we can to make sure we're in a great position for 2019.

Okay. I'll pass it on. Thank you very much.

Thank you. Our next question comes from Rupesh Parikh with Oppenheimer. Your line is open. Rupesh Parikh - Oppenheimer & Co., Inc.: Good morning. Thanks for taking my questions and also congrats on a really nice quarter. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Thanks, Rupesh. Rupesh Parikh - Oppenheimer & Co., Inc.: So on pricing, two questions. So first in the – I guess, the categories that you plan to take pricing in Q4. Are you seeing other players within your categories also taking pricing? And secondly, related to pricing, do you historically see a negative impact on volume when you have the price increases? Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah, well, first question, one of the obvious ones I'm sure is one of the categories, litter. And yes, it is. We saw earlier in the year that Clorox announced publicly that they were going to raise price. And we also know that Nestle has done the same with Tidy Cat. So that's one that we're following on. As far as how we plan these things, yeah, we're planning that conservatively that there will be some impact on volumes as a result of the price increases. And that's sort of baked into our thinking not only for the fourth quarter, but for next year. Richard A. Dierker - Church & Dwight Co., Inc.: And the only thing I would add to that, Rupesh, is these price changes are just hitting retail right in Q4. So it's too early to see or tell you if any private label or other competitors would be following. Rupesh Parikh - Oppenheimer & Co., Inc.: Okay, great. And then a second question, on the M&A front, there clearly – we're now in a rising rate backdrop. So from a Church & Dwight perspective, do you guys think you're better positioned in this type of environment on the M&A front maybe versus some of the other players out there? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. We absolutely do, Rupesh. I think, as you know we're significantly under levered, we're right around 2 times. We have a lot of firepower in the balance sheet. So I think we're in a great spot. Rupesh Parikh - Oppenheimer & Co., Inc.: Thank you.

Thank you. Our next question comes from Jason English with Goldman Sachs. Your line is open. Jason English - Goldman Sachs & Co. LLC: Hey, good morning, guys. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Hey, Jason. Richard A. Dierker - Church & Dwight Co., Inc.: Jason. Jason English - Goldman Sachs & Co. LLC: Thank you for squeezing me in. Congratulations on a great quarter. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Hey, Jason, you're the third caller, man. We're not squeezing you in. Jason English - Goldman Sachs & Co. LLC: I know, I'm sorry. I'm used to being squeezed in. It's just – you're right. It's just a matter of habit. No. Thank you, guys, for slotting me so early. I really appreciate this. This is special. Matthew Thomas Farrell - Church & Dwight Co., Inc.: That's more like it. Jason English - Goldman Sachs & Co. LLC: It's a special day for me. I had a question on M&A, the contribution from WATERPIK. You came in – you were looking for around $10 million of synergies. Where do you stack and rack on that? And you flagged some of the tariff risk going forward. Can you comment on where the profitability of the business is today? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. So two things. So yes, you're right, we had signed up for $10 million of synergies. A lot of that was also international growth, incremental international growth. And we're happy to say that we expect all that to come, which is great. And we really integrated the operations, part of the operations, part of the IT piece, and then largely international. So that's where we stand on integration and synergies. Your other question was WATERPIK margin. Yeah, it's right where we said it's been at for the last maybe year, year-and-a-half. It's right at company average, around 45%. Jason English - Goldman Sachs & Co. LLC: That's great. When we flow our best estimate of profitability on that business through, we're kind of landing at a organic profit line, EBIT line for you guys, it's been kind of flattish for the year, maybe down a little bit. Is – A, is that consistent with how you're seeing it? And, B, if so, can you unpack some of the headwinds? How much is commodities? And it's probably the vast majority of it. And how much of it's reinvestment? And as we think forward, clearly pricing has been in the news today. Do you expect that pricing, net of commodities, to be enough of a swing factor going into next year to accelerate the organic EBIT? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, a lot of questions there to unpack. I probably won't go back through our full year gross margin bridge. And early on we said we were getting a little bit of help from acquisitions and divestitures, not necessarily WATERPIK in nature, but some of the smaller bolt-on deals that we had done. I think from an EBIT growth perspective, again we decided to make some choices when we got a great benefit from tax reform. We felt like we were the one company out of many that let most of the tax reform benefit flow through down to EPS. If you look at our peer group, many people ended up spending that or competing it away. We did not, right? We're going to deliver around 17% EPS growth in 2018. So EBIT growth is – for the quarter was actually up as well. But remember, we made some choices to spend back part of that in things that will help us over the next two years, three years, four years, five years. And so we kind of went through that back in February when we gave original outlook, so I wasn't really going to go through that again today. Jason English - Goldman Sachs & Co. LLC: All right. Very well. Thank you very much. I appreciate it. I'll pass it on.

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

All right. Thank you. Good morning. I had a question this morning on your guidance. I'm wondering why you guys expect your Q4 organic sales growth to slow versus Q3 levels. I guess I'm asking this, especially considering the year-over-year comp is pretty similar and the fact that you're stepping up marketing expense in Q4, I guess I would think you'd expect to see some acceleration. So I guess are you guys just being conservative? Or does that have something to do with the pricing actions that you mentioned that you're putting in for the market? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. Let me try to take that, it's Rick. From Q3 to Q4 deceleration, so Q3 organic was 4.7%, right. Our implied organic growth is 3%, 3.5% in Q4. When you say the full year is a 4%. So that's a decline of about 130 basis points. And then if WATERPIK is growing around 10%, then that would imply that the base business is decelerating by around 200 basis points, 230 basis points. So that's probably the crux of your question. So around 20 basis points or 30 basis points is because of just, year ago comps, there's a little bit of deceleration, maybe 30 basis points or 40 basis points for SPD, further decelerating because of the dairy economy. But then pretty much the entire piece, around 170 basis points, is because we have lower promotional spending. It's our lowest trade quarter of the year. It's the lowest couponing quarter of the year. And so what we just saw in Q3 with 8 of 11 power brands being down on promotional spending, we just expect that to continue in this environment.

Okay, that's helpful. And then I had a question on your sell in versus sell-through. We're still seeing a pretty big gap in the Nielsen data, I think it's about a 300 bp difference in your consumers' domestic business. This came up on your Q2 call. And I think that part of the gap was attributed to certainly the strength you're seeing in non-tracked channels and then maybe a little bit from lower couponing. So just wanted to hear from you guys if those are still two of the key drivers of the difference this quarter? And then how should we see this gap going forward? Do you expect it to kind of close in the future? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, no, it's a good question, Bonnie. I think you're right, it's a recurring theme that we talk about every quarter. We were – I think measured channels were around 2%, if you look at Nielsen data. We report 4.7%, so that's 270 basis points. About a third of that is unmeasured channels. So whether it's online growing strongly or Costco or club, those types of unmeasured channels. And then two-thirds of it is coupon reduction and lower promotional spending. So what doesn't show up in Nielsen, as we talk about all the time, is couponing. And so a big chunk. If you go back to laundry even, and we use Nielsen panel data to – as an indication. People can use that as an indication. I think the category for laundry was down 300 basis points in couponing, Church & Dwight was down 1,000 basis points on couponing.

Okay. Thank you.

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

Hey, thanks. Great quarter, guys. Richard A. Dierker - Church & Dwight Co., Inc.: Thank you, Steve.

Maybe to follow up on Jason's question or build on that and also your comments in response, Rick. As you said, we started the year, you'd elected to reinvest a sizable portion of the tax reform benefits back in the business. Given the strength this quarter, obviously you're reinvesting further into year-end, which I think makes sense to set yourself up for next year. I guess I'm just trying to parse that a little bit. As we think about all the incremental investments that you've made in totality. Is there a way to frame to what degree they're more kind of one-year discretionary investments, that are likely to or at least could fall away next year? Versus the more structural investments that you mentioned, the ones that may carry a longer term ROI and be with us for the next several years? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. I would couch it as most of them are longer term ROI investments, right. Whether it's marketing spending, which is laying the groundwork for not just the next three months, but the next 12 to 24 months in the future, as we build brand equity. Incremental spending for R&D, right? As we lay the groundwork to build a new product portfolio that continues to perform great, like we have in Litter. Laying the groundwork, as an example we added a few heads around our productivity program and how we organize and really get the ideation sessions around that, in order to increase our productivity target long-term. So all these things are building as long-term investments is what I would say.

Okay. Fair. And then I guess just one quick follow-up, it's sort of nitpicky. But the WATERPIK pricing that you mentioned, I just, I don't have any familiarity with elastically in that business. So can you, just based on what you've learned about that business and what you've sort of learned from their past history, as that business has taken pricing to the extent – to the same degree that you're planning to next year, what's been the reaction of the brand in the market. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Yeah. Steve, it's a good question. We bought the business last August. Not too long after we bought the business, we did some elasticity studies with respect to pricing. And so we don't think there is going to be a significant down tick in volume. And it's a couple of intuitive reasons for that. One is the purchase cycle for water flossers is about kind of every three years. The second thing is that 60% of water flosses are purchased on a doctor's recommendation. And the last thing would be, we're kind of like 98% share of the category, so sort of are the category. So for those reasons, I think there is opportunity to increase price.

Okay, great. Thank you.

Thank you. Our next question comes from Nik Modi with RBC Capital Markets. Your line is open.

Yeah. Thanks. Good morning, everyone. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Hey, Nik.

Hey, Matt. So just two quick questions. One is on just the M&A environment. Obviously you guys have a very good balance sheet with some capacity to do some stuff. So just curious on what you're seeing out there. Looks like at least from the publicly traded companies, valuations are coming down. I'm wondering if that's also happening in the private world as well. So that's the first question. And then the second question is, most companies this quarter have had really good numbers in the U.S. And maybe you can just provide some context around, is this just category growth picking up all of a sudden? Or is the fact that Walmart, which is typically everyone's biggest customer, is having some pretty good same-store sales numbers? Maybe any color around that I think would be really useful. Thanks. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Hey, Nik, in my remarks, one of the things I said was, in the U.S. our categories are growing, and they have been growing. We have 9 categories out of our 15 that have grown in last four quarters consecutively. So and then if you look at our 15 categories on a weighted average basis, we're over 3%. And last quarter was, I think we said it was 2.7%, the quarter before that was 3% plus as well. So when you look at companies, you have to say, what categories are they in? So we're all not the same. So we happen to have categories that have strength, and we also have strong brands as well. Now your question on M&A would be, obviously we do have a strong balance sheet. But we're very fussy about what we're going to buy. So you need to be number one or two brands, right, they have to have corporate or higher gross margins, got to be able to grow, and they need to be asset light. So it does knock a lot of things out when we start looking at things, but we are always in the hunt. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah.

And just on the... Richard A. Dierker - Church & Dwight Co., Inc.: And as this...

Yes, sorry. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, I would just add, in terms of your value question, Nik, as interest rates continue to go up, then you're right, valuations tend to come in. I mean, that's overarching what happens over time.

Great. Thank you. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Okay.

Thank you. Our next question comes from Bill Chappell with SunTrust. Your line is open.

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

Hey, just back on WATERPIK, just trying to understand. I think you walked a little bit through its impact to organic growth. But is there a thought that – I mean I'm just trying to understand how it's infecting international business? I know it's all kind of classified in consumer domestic. But maybe you can help me understand if that's a driver of the International business? And also from the International, like is there a region – I know you had invested in three different regions over the past few years. If there was one that was kind of exceeding expectations? Or they were all kind of consistent? Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Let me take a swing at that, Bill. So we have this 6% algorithm. And when you look at the 8.3% organic growth in the quarter, we're over 6% without WATERPIK. So we're not going to actually call out, well, what – how many basis points. But International is healthy and hitting its algorithm without WATERPIK. But obviously it did become part of our organic in the quarter, so that helped to pop it a bit.

Got it. So it is split for Consumer Domestic and International in terms of the organic... Richard A. Dierker - Church & Dwight Co., Inc.: Yes. WATERPIK goes... Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Richard A. Dierker - Church & Dwight Co., Inc.: ...into both divisions. I would tell you, just to expand on Matt's comments, it was – it went organic for about a month, maybe a month and a week. And actually I think with or without WATERPIK, the rate for International would've been the same in the quarter.

Okay. And I mean just sticking on that theme, I mean was there anything else International? Like is BATISTE continuing to do extremely well in the UK? Or is there any other key driver? Or is it just kind of across the board steady? Matthew Thomas Farrell - Church & Dwight Co., Inc.: No, if you think about the International business, some of the businesses that are doing really well are, in export, it would be BATISTE, VITAFUSION and FEMFRESH, which is a feminine hygiene product but not sold in the U.S., but outside the U.S. But we've had strength in the countries as well. So if you want to know, in Mexico, it's pretty much ARM & HAMMER across the board, ARM & HAMMER products, so ARM & HAMMER laundry, ARM & HAMMER dental care, ARM & HAMMER baking soda in Mexico doing extremely well. And Canada, BATISTE and VITAFUSION, similar to export, but also ARM & HAMMER litter. You may remember a few years ago, we took litter up into Canada, and that continues to grow. So we've had strength in the countries as well as strength in export this quarter.

Got it. Thanks so much. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah.

Thank you. Our next question comes from Steve Strycula with UBS. Your line is open.

Hi, good morning. I'm not going to ask a WATERPIK question. But wanted to ask you on your consumer products pricing announcements. Wanted to make sure I heard everything correctly. Did you say you're taking 30% – or sorry, high single-digit pricing across 30% of the portfolio. Is that math correct? Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah, we said – I said a third. But yeah, you're right.

Okay. And that's on top of the reduced couponing. So I think that this is – this announcement is incremental to kind of the success we saw in 3Q? Matthew Thomas Farrell - Church & Dwight Co., Inc.: Correct.

Okay. And then if we kind of like roll that through to think about what that implies for volume, you're still implying that volumes are going to be up slightly for the fourth quarter. Is that the right framework? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. That's correct. We think we're going to have balanced positive volume and positive price mix for Q4.

Okay. And then the last one would be for the marketing spend. It sounds like you guys feel pretty encouraged and are putting some more back into the business in Q4. What specific brands are you seeing the most responsive to with the ad spend in the marketplace that you felt like taking that up? Thank you. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Well, we have over 80 brands, but we have 11 brands that represent 80% of our revenues and profits. So we'd be ploughing these back into the power brands.

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

Great. Thanks. Good morning. I have two questions around SG&A. First, in terms of the marketing spend increase plans. Are there specific categories where you've decided you want to push the spend? Or is it pretty much across the board, since you have that capability at this point? And then in terms of the SG&A leverage – or the SG&A for Q3, I'm surprised that you didn't get a little bit more leverage off of a pretty strong top-line beat. So I was wondering if you could go into that a little bit? Because your results were pretty impressive. But obviously you didn't see too much leverage on SG&A. Thank you. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. So the first question, Matt just answered that from Steve, Olivia. I don't know if you didn't hear it when he was in queue. But really saying that we have 80 brands, but we're going to be spending back the marketing incrementally on the power brands that matter. Your second question on SG&A. We're actually thrilled that we did leverage it, all right? We're down 20 basis points from a leverage perspective. And this whole front part of the year, we haven't been leveraging SG&A, because of all these small deals that have higher SG&A rates. And so just the fact that the WATERPIK amortization kind of rolled, we're comping that now, as an example, in a large way. It just gives us great confidence that our model is intact, once we get through this transition 11, 12 months.

All right, thanks. And then I'm interested in this China agreement that you referenced earlier in your prepared remarks. I mean what's the plan there? Is it going to be more around personal care brands versus household? And just a little bit more color on that would be great. Richard A. Dierker - Church & Dwight Co., Inc.: Are you talking about the Jahwa partnership? You kind of broke up a little bit.

Yeah. Yeah. Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. So we did reference it in our prepared remarks. Matthew Thomas Farrell - Church & Dwight Co., Inc.: You mean the categories, are you interested in? Yeah.

Exactly. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. So it's – yeah, it's ARM & HAMMER baking soda, ARM & HAMMER toothpaste, BATISTE dry shampoo and feminine hy products would be FEMFRESH. Those will be the four categories.

Got it. Great, thank you.

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

Thanks. Good morning. I was hoping you could just talk a little bit more about China. Because I know I think it was about 1% of International back in 2016. So I was just kind of curious why these are the four categories you chose to go with? I don't really know anything honestly about the baking soda I guess category, or sort of the Chinese view of baking soda as an ingredient. So just anything you could offer on again these four categories and what's already in the market? Because I know it was a little small piece of the business before this announcement? Thanks. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. So before going forward and picking a partner, we did a lot of homework on what categories would resonate most with the Chinese consumer. And one in particular we thought was very important, it was ARM & HAMMER baking soda. So ARM & HAMMER for our company is $1 billion of our $4 billion dollars in sales. And we've had some success with going internationally with ARM & HAMMER. And we thought that was an important one to set as a foundation for the future in China. And then the other categories we picked like toothpaste, dry shampoo and fem hy, again, because of our market studies, we thought that we had products that would resonate with the Chinese consumer. So that's why we picked those. And our partner is pretty excited about taking those to market for us.

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

Thank you. Our next question comes from Joe Altobello with Raymond James. Your line is open. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Thanks. Hey, guys. Good morning. And I think I could say thanks for squeezing me in by the way. Appreciate that. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Wow, I didn't know you guys were so sensitive to the queue. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: No. Just kidding. It's all good. So first question I guess is on guidance, and if you look at the third quarter you beat your guidance by about a nickel, you're effectively keeping your full year unchanged. And I know you mentioned you're spending a lot of that upside back in marketing. And I'm sure there is probably some conservatism baked into that as well. But beyond those two items, is there something else that sort of changed materially from 3Q to 4Q? Was it really just the higher marketing and conservatism? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah. Not really. You're right. It's predominantly higher marketing. We might spend a couple million bucks more on R&D again to lay the groundwork for the future but those are – marketing is the bigger one by far. Matthew Thomas Farrell - Church & Dwight Co., Inc.: And, Joe, you know at the end of the second quarter we had a beat as well. And we said we're going to – to the extent that that continues for the year, we're going to spend it back primarily in marketing or any other areas we think can help us long term. And people who have followed us for years know that's consistent with our past practices. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Got you. Okay. Is retail destocking still an issue at this point? Or is sell in and sell through sort of converging? Richard A. Dierker - Church & Dwight Co., Inc.: Yeah, Joe, you can go back and look at the script for the last in perpetuity. We've never called out retailer destocking as an issue. I think it is an issue sometimes in different competitors or different categories, but it just so happens in our categories, we've never really called that out as an issue. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: Okay and just last one, SPD, how big is dairy for that business, given all the acquisitions you've done (38:01)? Matthew Thomas Farrell - Church & Dwight Co., Inc.: It's kind of round numbers we have, it's a $300 million business. You could see that in the K. And the simple way to think about it is, it's two-thirds, one-third; one-third is bulk sodium bicarbonate, two-thirds is the animal productivity business and that is largely the dairy business. But wouldn't go into too much more detail than that. Joseph Nicholas Altobello - Raymond James & Associates, Inc.: That's fine. Okay, thank you, guys.

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

Hi, good morning. Thank you. So on the organic sales drivers, can you update us on how Trojan performed during the quarter? So historically, you've seen some share losses, but has it stabilized recently? And how are you thinking of the way to reposition the brand to go back to market share gains and potentially grow the category again? And on a separate basis, I was wondering how you did so well in laundry? And you – and Rick commented on couponing being less of an issue. I was wondering how the pie as in total in the U.S. has expanded. So I wonder how, if you can comment on the category from the second quarter to the third quarter, how it expanded. Thank you. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Okay. With respect to Trojan and condoms. So the condom category has been under pressure now for many, many quarters. And the reason for that is because a lot of other alternatives that are out there, like Plan B, for example, and the resurgence of IUDs, etc. So we are the category leader. The good news is that in our most recent quarter, we gained share, although consumption is down in the category, our consumption was not as down as much as in the category. And more recently things have been turning more positive for consumption of Trojan condoms. And this is largely due to we have a new Trojan campaign, and we have a new Trojan Man. So I encourage everybody to go out there and look for it. And the new Trojan Man is promoting, it's a big sexy world, so you want to protect yourself with a condom. So the condoms like I said is, there's some secular changes that are going on there with respect to other alternatives. But it is up to us to drive the category. And we think we have a really great campaign right now that's going to help us do that. With respect to laundry, yeah. So the laundry category is less promotional that it was. It's down 130 basis points year over year. As far as in liquid laundry, the liquid laundry category grew 1%, ARM & HAMMER grew 5%. And in unit dose, unit dose category grew 9%, so that sort of reaccelerated. In previous three or four quarters, unit dose only grew – the category only grew 5%. But this quarter up 9%. But we grew at – ARM & HAMMER grew 31%. And ARM & HAMMER now has a 4.4% share in unit dose, so it's up 70 bps. So ARM & HAMMER had a really spectacular quarter. The other two brands, XTRA. We have – in the prior years, XTRA was declining in share. Last quarter it actually held, was up a little bit. And this quarter down 10 basis points. So we think we've stabilized XTRA. OXICLEAN on the other hand, there was a pullback in the quarter for us. And we found that OXICLEAN does well when it's promoted and less well when it's not. So we've kind of been banging around between a 1.1% share when we don't promote, and 1.8% or 1.9% share when we do promote. So all-in, I mean ARM & HAMMER was the star in the quarter. OXICLEAN fell back. And XTRA was – pretty much went sideways.

No, that's very help. And, Matt, just to make sure I – it's, all your comments on the percentages, it's all-in dollars, right, I'm assuming? Category growth in dollars. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. That's consumption. Yeah, consumption dollars.

Oh, perfect. All right. Thank you. Appreciate. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Okay.

Thank you. Our next question comes from Caroline Levy with Macquarie. Your line is open. Caroline Levy - Macquarie Capital (USA), Inc.: Thanks. Good morning. Two questions. One is you talked about being price sensitive on M&A. But I'm just wondering what the quality of the deals that you are being shown is like compared to history? Are you seeing things that are very interesting, and it's a price issue? Or you're just not seeing anything that interests you? Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Well, look, we would never comment on what we're looking at or what categories. But we have huge discipline with respect to what we'll buy in the company. And as you know, Caroline, we don't – we look at what the fully synergized multiple is when we pay something. So I mean for example, we bought OXICLEAN, we paid 17 times trailing. We bought ORAJEL, we paid 13.5 times trailing EBITDA. But when you look at – so you might say, wow, those are expensive. But when you look at after we've owned them for a year and after we've increased distribution or share or taken out costs, you find that we've paid close to 10 times for these. So I would say there's always something to buy. And so you can only buy what's for sale. But there are plenty of things for sale right now. Richard A. Dierker - Church & Dwight Co., Inc.: And as Matt points out, his comment is really valuation hasn't been the biggest hurdle for us in our past. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Caroline Levy - Macquarie Capital (USA), Inc.: Okay. And you had a couple of categories where you didn't gain share. And not to take anything away from really spectacular results for the whole year, but what do you think the challenges are in those categories versus others? Is it anything systemic? And was vitamins one of them? If you could just update us on vitamins, because it was an area where there was a lot of private label. How are you doing there? Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Even though you got 7 out of 11 brands that grew, it's always what's not going well. So of the four, yeah, vitamins is one of them. But the good news is vitamin continues to grow. So it is a growth area for us. It's just that we're not growing as fast as the category. And there's certainly been – there are a lot of entrants into gummy vitamins, and that's okay. But we're – even though we didn't grow share in – we didn't grow as fast as the category, we are growing. So that's the good news, Caroline, on vitamins. Caroline Levy - Macquarie Capital (USA), Inc.: Thank you.

Thank you. Our next question comes from Mark Astrachan with Stifel. Your line is open. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: Thanks and morning, everybody. Two unrelated questions. One just back on the specialty business. I think you said at the Investor Day, non-dairy was going to be a little more than 15% of the business. I guess you sort of directionally answered that to Joe's question. I guess the question there is, dairy production certainly seems increasingly competitive. How do you think about where you are in that business at this point? Maybe even relative to where you were 12 months ago or the future competitiveness of it? Or does it need to shift a bit towards other animals, other categories within it? Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. Well, we've made three acquisitions over the last three years to get us into other species. And you saw we were down 3% organically this quarter. We would have been way down if we had not gotten into these other species. So that is the good news. As far as the dairy industry goes, the trade war has made things far worse for pricing than we had expected. And so you may know this, is that Mexico is the number one importer of cheese from the U.S. And China is the number one importer of whey protein from the U.S., all from the dairy industry. So that's put a lot of pressure on exports, being – particularly to China. Hasn't hurt as much for Mexico. Now the – those retaliatory tariffs have not come down yet. All that stuff has to be ratified before they're going to come down. So they're still in place. But we do expect dairy prices to recover next year. And it is a cyclical business. So we've seen this movie before. But because we're getting into these other species, we think that over time it's going to flatten out. And we'll have sustainable organic growth of around 5%. Mark Stiefel Astrachan - Stifel, Nicolaus & Co., Inc.: Great. That's helpful. And then shifting to WATERPIK, kind of unrelated to some of the other questions. I guess just thinking about it more holistically. So what are you learning so far in selling a product that's a bit different than the other products that you're selling? And can you lever the platform for other similar type non-staple-y products? And then sort of related to that, the innovation you introduced with the whitening tablets, which does seem a bit more staple-y, how has that performed relative to expectations? And kind of what does that mean for the future in terms of what you can do with it? Matthew Thomas Farrell - Church & Dwight Co., Inc.: Yeah. The opportunity for WATERPIK is both U.S. and international. You may recall when we bought the business that household penetration outside the U.S. was in the mid to low single-digits. And the company had hit upon just a terrific strategy in how to reach hygienists and dentists. And that was by having a large number of hygienists, not employees, but more third parties, calling on hygienists and dentists, promoting the product. So in the U.S. we reach about a quarter of all the dentists in the United States in that manner. And we're replicating that model outside the U.S. right now, both in Europe and in Canada. So early signs are that the model works outside the U.S. as well as it does in the U.S. So I hope that answers your question about how we expect to grow this in the future and where the growth is going to come from. We still think we have plenty of runway in the U.S. as well.

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Matt Farrell for closing remarks. Matthew Thomas Farrell - Church & Dwight Co., Inc.: Okay. Well, thank everybody. We'll be announcing our fourth quarter results in early February. As usual, we'll be down at the New York Stock Exchange when we do that. And we'll hope to see you all then.

Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.