切遲杜威 (CHD) 2017 Q4 法說會逐字稿

Okay, everybody. It is game time. I want to thank everybody for coming today. Lots of familiar faces in the crowd. We had a terrific fourth quarter and concluded another solid year at Church & Dwight. And our call for next year is 16% to 18% EPS growth. This is tops among CPG and it reflects the efforts of our employees as well as the team that's here today. We're going to have the whole management team up here at the end of the show. There have been mixed results of late in CPG, as you all know. And before we get into the formal program, I'd like to spend a few minutes recapping why we are a standout amongst CPG. So we have a portfolio of brands that consumers love, and we have employees who are committed to making those brands successful.

We have an evergreen model, which leads to consistency in a financially literate company. We are lean, we like to keep it simple and this enables 2 things. It's speed and our ability to adapt to change. I'm sure many of you heard us say in the past that we think change is our friend. And if you look at our portfolio, you get a little more granular. You'll see that we have a lower exposure to private label than most other CPG companies. And we also have a lower exposure to promotional categories.

And finally, we make really good choices when it comes to acquisitions. And that results in us riding waves. And those waves include dry shampoo, for example, gummy vitamins, hair thinning, gum health and you'll hear a little bit more today about alternatives to antibiotics. And these are the reasons why we expect to continue as a standout in CPG. And if you were investing in the consumer space, there is no better place to invest than Church & Dwight.

So now I want to get into the formal part of the program. First is the Safe Harbor act statement. I encourage everybody to read it. Here is the agenda. So I have a one page short story. I'm going to run through who we are, state of the business and what innovation we have coming in 2018. Then we'll have 3 members of the management team come up, talk about our digital capabilities, our continuing great story in International and also an educational part of the program today is our animal productivity story, which is a fabulous story. And then, we'll come back up, talk about how we run the company and Rick's going to wrap it up with the financials.

Okay, short story. So I hit a few of these upfront. Solid year. We have a lot of confidence in '18 and beyond. Terrific, terrific results. All 3 segments are healthy. And you see on the far right side, we're going to cover those 3 points later on today.

All right. Who we are. So we are a company with 11 power brands. Those 11 power brands drive 80% of our revenues and profits. All of our efforts are concentrated around those brands. And we have a balanced portfolio between household and personal care brands, and we have a thriving Specialty Products business. We also have a nice balance between premium and value products, 60-40. And now we're a small company, so we operate in the land of the giants, but that helps us. We are a very nimble organization. So 3 things that enables us to do.

We make quick decisions. Not a lot of bureaucracy in our company, easy communication and our ability to adapt. And we have a long history of growth through acquisitions.

You can see $1.5 billion in 2004, $4 billion we will cross in 2018. And 10 of those 11 brands that I talked about, they were all acquired since the year 2000. So we are regarded as an acquisition platform. So we're a company that can buy a brand, help that brand grow, bring some ideas and some operational efficiencies to the business, and we have a terrific track record with acquiring businesses, large and small. And we have access to capital, so we continue to do that.

And we're very fussy about what we buy. So this criteria, many of you and, particularly, our long-term holders, know this very well. So we buy #1 and #2 brands, high-growth, high-margin. They need to be asset light. If you go all the way over to the right, this is the way you can ride a wave. You've got to make sure you have a sustainable, competitive advantage in the business that you're buying. And in 2017, we bought our 11th power brand, Waterpik. So #1 power flosser, #1 showerhead replacement. So if there's one thing to remember, we're comping with 11 power brands today, we're looking for 20 tomorrow.

Now state of the business, which is terrific. So you all saw us in the release this morning, Q4 up 3.4% organically, double-digit EPS growth and a great quarter for cash.

All 3 businesses are healthy, that's Domestic, International and Specialty Products, all growing. And here's our report card. So we're pretty transparent about how we're doing with shares, show this to you every year. Seven out of our 11 power brands grew share in 2017. So a terrific result.

And if you look at measured channels and nonmeasured channels, look at category growth. So the [news] in the measured channels, we would say, account for 1.7% of our all-in category growth. But because nonmeasured channels are growing double-digit, that adds another point to what we would say is our all-in category growth. So we would say the categories that we're in on a weighted-average basis are growing, and that's a nice tailwind for us.

I mentioned earlier that we have a low exposure to private label. You can see 5 out of our 14 categories have private label exposure, but generally, they are very stable, not growing,

Now innovation. Always a good story for us. So SLIDE was a fabulous new product launch for us in 2017. So we're going to build on that in 2018. Also in 2018, for CLUMP & SEAL LightWeight, we are coming out with an unscented variant because unscented is growing. In detergent, odor is the new stain. So we're taking our odor blasters concept, and we're moving it across all of our variants in fabricare.

Next up is gummy probiotics. You know us as a gummy vitamin company. We're moving into gummy probiotics in 2018. First response pregnancy kit. So if you're a hopeful positive, you're going to check once, you're going to double check, you're going to triple check. So this product is doing extremely well; we just launched it.

And BATISTE is a juggernaut for the company, continues to grow. Not only has our share grown, but the category has been a rocket ship for several years now. And why, because 80% of women do not wash their hair every day. Waterpik's got a couple of new products coming out. This is a really good one. Convenience of whitening while flossing. And then if you have a dog, you know what it's like to wrestle a dog in a tub. So we have a Waterpik Pet Wand PRO. I encourage everybody to get this if you have an animal because it makes shampooing your pets a lot easier.

All right, now, I'm going to bring up Britta. Britta Bomhard has been with our company for 4.5 years. She ran our European business for 2.5 years. In January of 2016, she came over and became our Chief Marketing Officer. So she is going to have some fun with you now and update you on our digital capabilities.

Happy New Year, everyone, and particularly, for Eagles fans. So I'm going to talk a little bit about the digital capabilities we're building. And I thought I'd start by grounding ourselves. So first of all, in 2015, 1% of our sales was online. In 2016, we doubled that to 2%. And as you can see in 2017, we really accelerated and now 5% of Church & Dwight's sales are online, which from all the information I have, puts us in the top scale of our peer group. So you might wonder, what have we done, how did we get there? So how did we accelerate? First is, we are an invest where the consumer is. Secondly, we have a growing expertise in digital attribution models. And thirdly, we're developing our DTC skills. I'm going to take you through each of these topics one by one for you to understand more what we're working on.

So first of all, how long do you think U.S. consumers spend online? 5.5 hours. So a lot of you might think that's not me. But if you total up your phone usage, your computer usage, watching Netflix or being on the game console, that makes 5.5 hours an average every day. So what's important for us? We have to be where the consumer is. And what do the consumers do when they are online? So first of all, they want to be entertained. Secondly, they're looking for product, they're searching for product information and then they shop. So what we've done very deliberately is resource allocation. So now more than 35% of our advertising spend is digital. We make sure that every single one of our products has a great review, and we're aiming and the majority already has a 4.5 or above ratings. And we spend a lot of effort to bring more than 1,000 product pages to life so that when consumers are online, they get great information about our products.

So we are #1, for example, on Amazon, for baking soda, TROJAN, FIRST RESPONSE, BATISTE. That shouldn't be surprising because we're #1 for those product also in bricks and mortar. But we're actually also #1 on cat litter, which is much better than our bricks and mortar performance. And then we have brands where actually the consumer online matches so well with our target group and where we work hand-in-hand and partner and have great campaigns, like the New Year New Me campaign, and we get extraordinary results. So in VITAFUSION, our market share in the gummy category is more than 50% in Amazon, sets us apart from all our competitors. So online presents a great opportunity for us. 24/7 the consumer can get our products. And let me illustrate that with a little example. If you ever have had hygiene problem, you probably don't want to see -- be seen going in store and some hygiene products are not readily available, not all retailers have it. Whereas if you go online, that category is fully there. So great opportunity for us to get full distribution on all our products. Secondly, we learn a lot about the consumer in their online journey. You get great consumer insights and also with that insight, you can develop better targeting, better messaging and with that, better results.

Why should you believe me? We're actually at the point where we do predict this modeling, that's the lovely black box, and we've seen in the first couple of brands that we get sales improvement of up 12% versus last year. So I'm sure you would love to know what's in our black box.

Obviously, I can't tell you. But I will take you through the part that's visible. So coming back to the Super Bowl and our competitors, and you might have seen ads about clean clothes or about one type of stain, which was, I think, Avocado. Let me talk you through how we as the leader in stain management are actually targeting. Stains are much more complicated than you think. So now during Super Bowl time, you might have pizza stain, so you might have wet stains or whatever was on your Super Bowl menu. But when it comes to maybe March, April, better weather, you're going to actually have grass stains or dirt skirt stains. During the course of the year, different stains become more prevalent. And then, actually there are different type of persons. So some people here in that room know how annoying these makeup stains are. And some people in this room don't care about makeup stains at all. And if you've been and you're parents, you know that for once spinach stains and carrot stains start to dominate your life, things you've never dealt with before. So stains varies by the season, by the type of person you are and by your life stage. So let me see what I can show you on one stain what we do with that, which hopefully applies to lots of people here, red wine -- and it went dark, sorry.

So we have (inaudible) OxiClean, the great campaign, which can target every single type of stain. And because the product has such a great performance, consumers actually write to us and share their successes, and we turn that around into campaigns for our consumers. So let's have one of our campaigns.

[Video Presentation]

You're seeing a real consumer story, we've shared back. We equally have them with people who've discovered that OxiClean is fantastic for cleaning your boat or baseball stains and so on and so on. And in the digital world, you can even do hyper targeting. So we are able to target people who used to buy bleach and no longer are buying bleach because they are dissatisfied. So less bleach users and here I have another campaign for you. So this is actually digital online and as you know, lots of people watch it while they're supposed to be working. So this is silent, so your boss doesn't discover that you are online instead of working on that presentation.

(presentation)

So another great example of how we really target the pain points of consumers. And what have that produced? It has produced 2 great results for us. First of all, the category which has been down in the past is back to growth. So stain fighting for a long time now is invigorating and growing again. And secondly, we now have over 50% market share in that category, which is our all-time high. So dear OxiClean, thank you. Now that I've talked a little bit about this, I wanted to move on to the next topic, which was our direct-to-consumer.

Direct-to-consumer is a marketeer's dream. Because what I just talked about and we have the acquisition of TOPPIK and VIVISCAL, which helps us build that capability. Why is it a marketeer's dream? Because here there is no broken link in the data. So if you're selling bricks and mortar or even to Amazon, you don't -- you cannot follow one person from start to finish, whereas in direct-to-consumer you can. That means we're not only able to see which campaign got how many people to buy, but we can also see how often do they repurchase and how many years do they keep repurchasing. And I give you such a wealth of data it's just so exciting. We can try campaign A versus campaign B. We can actually try medium A versus medium B, and we can see all the way what it does to lifetime value of the consumer. So a lot of fun, great stuff, great learnings.

And then, we have also, I think, learned a lot about digital advertising and how it works. As I said earlier, it's all about entertainment. And one of the things in the past was all about features and benefits. So that's no longer the case. So we are now much more about emotion and humor, and I know I have probably have found a great targeting category for all of you because you all every day think about bathroom cleaning. I know you can't wait to learn features and benefits.

So let's see our latest campaign for Kaboom.

(presentation)

So if you want to have an oddly satisfying moment, there are Kaboom cans on your tables, and you can fight over them. So I can only say, we think the future is bright for Church & Dwight in online. We're #1 on online market shares. We're getting a growing expertise in attribution modeling. We are having great and growing DTC skills. And I think we're becoming more skilled in connecting consumers.

And with all of that, we're having lots of fun. So I think we are only at the beginning of a great journey of using digital to its fullest.

And with that, I would like to introduce Steve Cugine, who is our Head of International. He is actually the composer of our International strategy, the conductor of a fantastic International team, and I'm sure his presentation will be music to your ears. Steve?

Britta, thank you very much. I'm excited to be here today to share the International story. I am very excited about the Eagles winning. It's been a long, long time. And so 2 things to celebrate today. But I wanted to first ground us in where our subsidiaries are located outside the United States. So we have wholly-owned subsidiaries in Canada, and Mexico, Brazil, the U.K., France, Australia, and effective January 1 of this year, Germany, capitalizing on our strong growth in that country.

The International business has been a historic grower for the company, very consistent, performing at the high end of our evergreen range.

But in 2013, Adrian Huns, the former President of the division, was retiring. And I had a passionate belief that the International business represented a growth engine for the company that was yet untapped. That -- and the management team also felt the same way. They asked me to come in and develop a new strategic plan for the International business. We began to implement that new strategic plan in 2014. Q1 of '14, we had 0% organic growth. By Q4 of '14, we hit 7.4%, and frankly, never looked back. What I'd like to do is now establish a new evergreen target for the International at 6%, and we're confident that we're going to able to deliver that organic growth moving into the future, and I'll tell you why. First, let me unpack the box of our International strategy a bit for you today.

First, we differentiated developed markets versus emerging markets. We said that these markets are unique. The consumers in those markets need certain brands that are highly differentiated, and our go-to-market strategies are much different. So we identified and focused on these 6 brands across North America, Europe and Asia.

So differentiated strategy based on markets, focusing on a select few brands that will get our attention and disproportionate investment. We did the same thing in emerging markets to really capitalize on the expanding middle class in China and Southeast Asia, South America, Middle East and Africa. And you will see a slightly different set, smaller set for these markets. What we've seen the success of this strategy in that are markets where we have subsidiaries, we've seen increased growth across our subsidiary markets and certainly exploding growth in our export markets. This pie chart frames the difference between our subsidiary markets and our export markets. Our subsidiary markets represent 74% of our total, and export represents 26%. Export has been growing double digits in the past and will continue to grow double digits in the future. This is also a key part of our strategic plan shift that we implemented. Export used to be incorporated in -- as part of the subsidiaries. We separated this out, defined it as a strategic business unit for the International business, and we run it as a separate business. So combined, we found that with that focus and these new strategies our subsidiary markets improved their growth rates and we were able to really capitalize on a very fast-growing business called export markets.

And we wanted to invest behind this growth. So in 2016, we created sales and marketing headquarters in Panama, Singapore and the U.K., designed to support our distributor partners in region. I want to shift a little bit to the Asia Pacific region.

We have experienced very significant growth. So our Asia-Pac business grew 30% last year. And so we are excited about this growth and we -- by focusing more time and attention to this market, we expect it to deliver continued strong growth into the future. As we all know, this market is exploding. The middle-class consumers are growing quite dramatically, and that will continue. So we want to position ourselves for success in this market.

So I talked about adding regional sales and marketing headquarters in many parts of the world, but Singapore is one we established in 2016. We've been increasing headcount and investment in that -- in our Singapore office and in this region. As I mentioned, this region is growing 30% or has grown 30% in the past year. In the announcement, we also talked about our new relationship with DKSH, which is a leader -- one of the leading distributors in that Southeast Asia region and Hong Kong. And we just completed training 200 of their sales reps. So we are investing this year, 2018, behind increased distribution and additional marketing. So we expect very significant growth from these emerging markets.

But you can't talk about Asia Pacific without talking about China. We have a relatively small business today in China. That business doubled last year off a small base, and we are really evaluating our strategic plan to really capitalize on this for the future.

But I would say maybe the biggest news today for International and Church & Dwight is, we believe that we really have achieved critical mass. In 2017, we finished the year with over $600 million in sales, and we have, we believe, between our subsidiary markets and our export markets, a real global platform. And so we're going to leverage this global platform to drive growth of our acquired businesses. These 4 businesses will all see very significant growth in 2018, and we believe, beyond. Let me give you an example. So Waterpik, when we acquired this business, had 3 people in Canada, we have 100; they had 7 seven people in Europe and we have 280. So we have scale that we can really bring to these businesses, and we're excited about growing them dramatically.

So I believe the International business is well positioned for 6% growth moving into the future. Why? We have brands that have significant runway. For example, our ARM & HAMMER brand is our largest brand in the portfolio and it continues to deliver strong organic growth, and we believe that it's well positioned in emerging markets to continue to grow.

Exports, as I mentioned, has been growing double digits and we expect that to continue. We are investing significantly in Southeast Asia and China and that will be a growth engine for us moving forward.

Our acquired brands, all represent significant opportunity for growth. Last, but not least, we have some members of our International team present today, and so I'm proud to say that we've built a cadre of very strong leaders and managers that really understand their markets and are driving growth, whether they be in our subsidiary markets or anywhere where we export our wonderful products. So I'm very confident in our ability to deliver 6% or more per year moving forward.

Well, I'd like to introduce Scott Druker. Scott is 9 years with Church & Dwight, and he is the architect of our animal nutrition business. So with that, Scott, welcome.

So when you present, you're supposed to know what your audience knows. So by show of hands, how many people know what the animal productivity business is about? Eight, more than I would have thought. So if I accomplish nothing else, at least this video I'm about to show you should give you a good concept of what our business is about. So with that, if we would kick the video in.

(presentation)

So by confession, I'm not a farm kid. I was born and raised -- born in Princeton, raised in Philadelphia. So I stand here today, I'm a very proud Eagles fan. Hopefully, I won't get emotional over that.

But in addition to that actually, what I am is the guy that has the best job in Church & Dwight, all arguments aside. I get to come to work every day and lead an awesome team of people that are really passionate and dedicated to help and provide safe affordable food to the world. It's a team of trained sales people, most of which are in animal science degrees. We lead a team of vets, microbiologists, immunologists. So it's a really just awesome group of people that are very dedicated to what they do. So before I get into the details of the business, I thought I'd share with you 3 key trends that are really going on in the marketplace, that are creating opportunities for our business. The first is literally the amount of resources, we, as a species, are consuming. We are consuming our resources on this planet 1.5x faster than we're replacing them. Our current population today is roughly 7.5 billion. Projections have grown close to 10 billion by 2050. So we have some really significant challenges and opportunities when it comes to feeding a world population.

So improving productivity is a key and you could think of certain ways we could deal with these challenges. One, we could control population and fortunately, Church & Dwight has some products that can help on that end. We could change what we eat -- you've probably seen in some popular press some more promotion of the benefits of eating insects. I'm all for choice. I like my protein really from the traditional animals. But heck, go for it. And the real opportunity and this is the one where our business is, is really about leveraging technology to help drive productivity gains. So just to give you an example, I'm going to just walk you through an opportunity in the dairy market. But this story could be told whether in swine, chicken, aquaculture. In order to feed 10 billion people consuming -- in the future, consuming the same amount of dairy products that they do today, we would need to add 66 million new cows worldwide to produce enough dairy products. If we can just get the current population of dairy cows to produce a half a glass more milk a day, we don't need to add those 66 million dairy cows around the world. So what does that mean to us? That means we would be able to save the equivalent of 6,000 Empire State buildings worth of food that's fed to cows each and every year. It would save the amount of land that needs to be used for farming to raise feed for animals that's the size of Alaska every single year. And we would save the amount of water each year that could supply Germany, France and Great Britain. Productivity matters and it can really, really help improve the lives of people around the world. But it's not just about resources that's really driving and creating opportunities for our business. It's really consumer trends that's probably having the greatest short-term impact on our business. We in this room and particularly, the younger generation that's coming up, has made it very loud and clear to retailers. They want their food product to be free of antibiotics, added hormones, any chemicals. And the retailers have responded. I'm sure you've all seen in the news virtually every significant restaurant chain or supermarket chain come forward with a long-term sustainability plan and a commitment to get antibiotics out of the food. Now of course, that puts a lot of pressures on farmers today who have to look at alternate ways of raising livestock.

So it's a challenge to find technologies that are going to enable them still to grow healthy productive animals when some of these tools are being taken away from them. So what we've been as a business is, as the video showed, we got into this business in the early 1970s, and it was anchored around feeding baking soda to dairy cows. And we really put the science behind the benefit of feeding baking soda. And for those that may be wondering, it's basically Alka-Seltzer for dairy cows. It helps as they eat more and become more productive, they need baking soda to help, and that's really where we anchored our business. And then really over the decades, we really led and pioneered new innovations in feeding, mainly in dairy. We offer a product, Omega 3 or Omega 6 fatty acids to help with reproduction in animals.

In the early '80s, we introduced MEGALAC, which just celebrated its 30-year anniversary and it's still the #1 bypass fat fed to cows, and the fat is fed to help them give energy to produce more milk. So you could see, we really, over the years, built a lot of natural solutions, fat, natural amino acids, baking soda, all anchored around that ARM & HAMMER brand that we go to market as.

Then in 2015, we had an opportunity to add prebiotics to our portfolio through the acquisition of VI-COR. It's really exciting. These products, A-MAX and CELMANAX, are yeast-based products or cell wall-based products, and they're really targeted to help improve gut health in animals to help improve health, welfare and productivity in animals.

And then most recently, in May of last year, we acquired Agro BioSciences, which is a really exciting business, brings probiotics into our portfolio of all natural solutions to help livestock producers grow their animals.

So talk a little bit about that Agro business because a really exciting business about it, and really is a unique approach that we have going about a business. So your typical probiotic company, whether they are selling to humans or animals, has a strain or 2 that they've done some testing to show its benefit to killing bedbugs or helping good bugs grow, and they go to market with those 1 or 2 strains. What we do in our business that makes us unique, is we have the ability to develop a customized or bespoken -- heard that one, right? Bespoke. Bespoke product, just learned that word last week, which is embarrassing, since I like doing crossword puzzles. But we have the ability to come with a customized solution. So here's what, I'll give you an example. I want you to think, CSI meets agriculture. So think if you're a poultry operation and you have challenges. We have the ability to go in, sample the feed that the chickens eat, the litter that they're raised in, actually swab the chicken itself, and get a full picture of the microbial diversity that's present, the good bugs, the bad bugs that are present. We're then able to screen through our thousands and thousands of proprietary probiotic strains to find the right mixture for that operation to kill the bad bugs and help the good bugs grow. And this really now is a tool that a lot of the livestock producers, whether in dairy, aquaculture, swine, poultry are looking for since these are really the alternatives to helping improving in animals health, as the antibiotics are being removed. So it really ties us all together with some really natural solutions that help drive productivity gains.

So the couple of recent acquisitions certainly, bought new products into our portfolio. But one of the things they really helped us do is become a more balanced business. If you look prior to 2015, we generated less than 1% of our revenue outside of nondairy. We finished 2017 with more than 10% of our sales from nondairy. And our outlook for 2018 is to continue that growth trend and see more than 15% of our sales coming from nondairy.

The diversification isn't just across species, however. Like we've heard on the consumer side, we've had an opportunity to grow internationally, 95% of the world population eats food outside the U.S., and we have been woefully underrepresented there historically, but we've changed that over the past few years. In 2015, less than 5% of our sales were outside U.S. and Canada. In '17, it was greater than 10%. And our outlook for '18 is continued growth there greater than 15%.

And as Steve pointed out, we're very confident for our outlook of continuing a 5% organic growth within our business as we look at '18. One of the key reasons our brand is really trusted in the marketplace, it's trusted, obviously, for just the recognition on the consumer side. But we're recognized as a science leader in our industry. Probably, the most important thing that gives us a lot of optimism and excitement is our product portfolio, as Matt alluded to, about riding a wave. We are riding a wave. We have the right product portfolio to capture a lot of the opportunity there with our natural solutions, whether they are the probiotics or the yeast-based products to meet the needs of consumers.

Clearly, our new products as well as some of our traditional portfolio has opportunities across species, and as I showed earlier, we started that and we're going to continue that pace getting into global markets and global species. And that actually wraps it up as well.

On the International side, we sell product now in over 70-plus countries. We have an excellent team of people Internationally to help drive sales for our business. So the future is very bright, and we're very excited. So hopefully, I accomplished one thing and you know a little bit more about our business today. So with that, Rick, I believe -- oops, Matt, you're up. I should've known that.

Okay. That was animal productivity 101 for everybody today. It felt like a Discovery Channel a little bit. I'm going to spend a few minutes on how we run the company and then we're going to have Rick up here and talk about the financials. So just a few words.

So we've 4 operating principles. One is we have #1 brands and we leverage those brands. Those are the 11 power brands that are 80% of our revenues and profits. Number two, we're an asset-light company. We're very focused on the relationship of cash earnings to our tangible assets. Third thing is people. We have fabulous people in our company. You've seen some of them present here today. We have a lot of passion for the company, for the brands. And you can't manufacture that, you can only feel it. So we -- if you take those 3 things, leverage brands, assets and people, you get good results. But then on top of that, the company has a competency to target and acquire businesses. We've been doing it since 2001. We're 16 years in. We know how to do it. And that's why we say if we have 11 brands today, it's going to be 20 tomorrow, just a matter of time.

And we focus on gross margin. This is a big part of anybody's financial model. Four ways to get it. First is your continuous improvement program, which is we call good to great. The second thing is supply chain optimization. Occasionally, we expand a plant, we invest in new capital equipment. Third thing is new products. You want to launch new products that have higher gross margin than the product that it's replacing. And finally, acquisitions.

Virtually every business we buy, we find ways to improve them and expand their gross margins. Our compensation structure is very simple. So it's 4 things: net revenue; gross margin; EPS; and cash flow. It's been like this for quite a while, it's 25% each. Everybody understands it and we keep it simple. And we also have an all-employee bonus, and 25% of that is tied to gross margin. So when you have a simple incentive compensation plan, it does promote financial literacy. People in our company know what cash flow is. They know what gross margin is, and it helps get it. All right. Now I'm going to bring Rick up here to wrap it up, and then after that, we'll have some Q&A.

All right, Thank you, Matt. I'm going to go through the outlook, talk about 2017 and how we finished that with a lot of momentum, and then we'll spend a couple of seconds or minutes on the evergreen model as well.

So just as a backdrop, right, evergreen model, 3% organic net sales growth. We've been doing that for quite a while, and that's kind of the bedrock of the model. Gross margin typically 25 basis points through expansion, and Matt just walked you through some of those details. Marketing, in terms of percentage, is flat, but in dollars is up typically year-over-year. And Britta walked you through how we're better targeting consumers in the digital space. SG&A, we leverage as the top line grows and we get about 50 basis points of operating margin expansion, which leads to 8% EPS growth before those acquisitions.

We talked about this within the last year a couple of times. You heard it again today. When we talk about 3% organic sales growth, we're saying 2% for domestic business, 6% for International and 5% for SPD. And of course, if anyone of those overdeliver, that falls to the bottom line. Okay, Q4 2017, you just read it in the press release this morning. We had a great finish to the year. Organic sales growth was almost 3.5%. Our outlook was 2.5%. So just far and away just great broad-based strength from across all of our brands. Now one to note is our personal care growth was up 4% organically, right. So just a lot of momentum there. Reported growth was 15% versus our outlook at 12%. About 1% came from organic, 1% came from the Waterpik acquisition and then 1% came from currency and some of the other smaller acquisitions.

Consumer organic was up 3.2%, and gross margin in a world of higher commodity costs, we're up 50 basis points for the quarter. Operating margin was up 90 basis points, and EPS was up 18% to $0.52. So as you can see to the bar chart, Q4 we exited with a lot of momentum, that's kind of the theme. 3.4% was the high watermark for the year. If you look at it from any angle, on a 2-year stack basis, again, Q4 was a really strong quarter, 6.7% for the consumer -- global consumer business.

Turning to the full year really quick. 2017, organic sales growth was 2.7%, almost 3%. Gross margin was up 10 basis points. Marketing was down slightly at 12%, which is a key number for us. SG&A was up largely because of some of these acquisition costs, right? We have noncash amortization. We bought -- some of these acquisitions have higher SG&A rates. We have some transition costs. So SG&A is up slightly. So that leaves the operating margin being down slightly. EPS is up 10% to $1.94. And then a hallmark of this company is cash flow and cash flow generation. So $637 million or 123% free cash flow conversion.

So the theme there is just a lot of momentum. And so not only did personal care grow, but a couple of quarters ago, and we talked about this last quarter on the call, the promotional environment, right. In Q2, price/mix was negative 600 basis points for us in the domestic business. It was minus 490 in Q3. It was minus 100 in Q4. So that environment is improving as well in those key categories.

Okay. Turning to the outlook. 16% to 18% adjusted EPS growth in '18. That's just head and shoulders above our peer group. Reported sales growth is around 8% with the acquisitions. Organic sales is 3%, very consistent to what you just saw in the previous page. Gross margin is flat. We can unpack that a little bit, but in a world where you hear from all of our peers about negative gross margin, we're actually proud that this is a flat number. Commodity headwinds and transportation headwinds of around [50] or 70 basis points, offset by productivity and some help from volume and mix. But again, gross margin being flat for the year. Marketing flat. SG&A is up year-over-year. That's really what you saw in Q4, the acquisition, full year impact of those dollars. Operating margin, slightly down as a result. Other expenses, minus $70 million. That's largely the interest expense from the $1.4 billion that we took out earlier in the year. And then the effective tax rate, 24% to 25%. That's a range with the new tax act, and there is a range there because, as we go through the year and regulation becomes clearer, we will tighten that range.

And then EPS is 16% to 18%. I just want to be clear on this slide because I know there are some questions, but absent tax reform, we would have been 9% EPS growth, right. Just wanted to be clear on that.

Okay, looking at the track record. From 2013 to 2018, 3% or higher typically organic sales growth in 2018 is no different. Focus on gross margin, we've had a steady run up over the past few years. We have a great productivity program. We think that's going to continue to pay dividends in the future. I talked about commodities a little bit, but resin and surfactants we said maybe a quarter ago that we felt that we're going to have recovery in the back half. Resins and surfactants are up around mid-single digits for us. Diesels are up in the teens. The polypro Is an example, a type of resin, up 20% on a spot basis. So there's some headwinds there.

Transportation, you've heard in a lot of different calls as well. Just the industry, in general, is tightening, right? Capacity is tight. So these costs are headwinds. But as I said before, we think that with all the great work we're doing internally that we're going to make sure the gross margin is flat year-over-year.

Marketing spend is a key that drives consumer behavior at the end of the day, and we make sure we invest a lot of money there. Remember we're one of the 18 -- the top 20 largest advertisers in the U.S. SG&A management, we haven't lost our way. This is the hallmark of the company. This is in our DNA. SG&A management is really important to us. This is really mostly due to acquisitions and noncash charges, and this is what the next slide shows. We're largely flat as you go through history, if you strip out some of those noncash charges.

So the end message is a great one. Strong adjusted EPS growth, double-digits, 16% to 18% in 2018. One thing that some -- many of our long-term investors get is how much cash flow we do generate. If you look at revenue, we're always I think one of the smaller companies, around $4 billion in 2018 in the peer set. But if you turn and look at cash, free cash flow conversion, we're typically near the top of the chart. And so we've had a great ability in the past, and we think we have a great one in the future too to generate cash. We do this a few different ways. Cash conversion cycle, our working capital management has gone from 52 days to 18 days over time, right? So we continue to believe that we have goals of 0 working capital.

We have a strong balance sheet. Despite doing acquisitions this year, we're still around 2.5x. We have a belief that by the end of '18 that we'll at or below 2x levered. And so when you hear that, #1 prioritized uses of cash flow is a TSR-accretive M&A. And as Matt said, today we have 11 or 12 power brands and we're looking for 20 in the future. So #1 is accretive M&A, #2 is debt reduction, all right? We've moved that up the list as we bring that net leverage ratio down. New product development, CapEx and then return cash to shareholders. We're not a capital-intensive company either. We're about 1.7%. It bumped up a little bit in 2018 in the outlook as we bought Waterpik.

And then in addition, we have good news on the dividend, a 14% increase in the dividend in 2018, 117 consecutive years so just a bedrock. And with that, I'd like to invite the rest of the management team to come up, and we'll answer any of your questions.

Okay, let me tell you who is with us here today so you can -- if you want to direct your questions that you got. You know Rick; you know Lou Tursi, who runs our sales organization. We have Carlos Linares, who runs R&D. And we have Rick Spann, who runs supply chain. And here we have Patrick, who is our General Counsel; Britta, you know is our Chief Marketing Officer; Judy Zagorski, Head of HR. We have Scott, who presented on animal productivity. And you know Steve runs International. So the floor is open for questions. Okay, Kevin?

Kevin Grundy with Jefferies. I wanted to start, Matt, with your take on the pricing environment. There's been a lot of discussion on it in the marketplace. We've had a lot of disappointing results from some of your peers. Your quarter is actually quite good in that respect. So a couple questions related to that. How are the pricing discussions going? I understand that you guys often don't lead in terms when pricing is taken in the industry. But I guess what investors are wrestling with, has something changed here within the construct of private label within what's going on with Wal-Mart and Amazon? Is there less ability to take pricing? Do brands seem to matter less? Is that was causing some of the, perhaps, reluctance to take pricing at this point? And then, maybe you could just sort of wrap into that how much pricing, if any, is baked into your 3% guidance for fiscal '18?

I'll try to remember your 6 questions so I can get them in order. We'll, for starters, you've heard Rick comment about the trend in price, if you look at our organic number. So it's a big price in Q2, less in Q3, less in Q4. So the trend is fair. Second thing is commodities. When you have that kind of commodity pressure, that should tamper everyone's appetite to drive price and to compete on price. Third thing I would say is that, in general, when it comes to price, you really need to have a pretty significant position in a category. So for baking soda, we have a 75% share; condom 70% share. Those you might expect you might be able to take some price. But generally, you need a story behind it. For condoms, it would be -- would have to be latex cost. It's -- you get the idea. So I wouldn't -- if you look at us, I said earlier on that we don't have as much exposure to private label. On a weighted average basis, we're on a 10%, 11%. But we don't have the same story as others. And I'll ask Lou if he wants to comment about any conversations we're getting from our retail partners.

Yes, I mean, Kevin, what I would say is the environment really hasn't changed all that much. It's never easy to take price in any year, I would start by saying that. I would agree with everything that Matt said that sequentially between Q2, Q3, Q4 the promotion environment has gotten better. For all the reasons Matt said, we're expecting in '18 nothing much to change as far as the promotional environment goes. I would say that it's still high, right? It's not low, it's still high. But sequentially, it's gotten a little bit better. And with the commodity cost going up, it should temper the situation and kind of calm it down a little bit.

And the only thing I'd add is from the outlook perspective, it's largely volume-driven in terms of organic growth.

Okay, Jason?

Maybe talking on the gross margin a little bit. The confidence you have in the flat gross margin outlook. So I know we've talked about -- maybe talk about where you're locked into some of your commodity costs, the Good to Great program. And then is pricing, kind of dovetailing off of Kevin's question, is that still an option if commodity costs still run a little bit higher? So just looking at the HPC landscape and the confidence you have that flat is the right number?

Well, I'm going to let, Rick, Rick, the 2 Ricks comment on that. But I'll begin by saying that we have a very robust Good to Great program. So our continuous improvement program, we're already working on 2019. And we could tell you what programs we have in 2019. Sometimes when you do debottlenecking things, you have to do one thing before you do the next. So we know going into the year that we have things to offset commodity increases. The second thing is yes we do have a hedging program, and I can ask Rick to comment on that.

Yes. From a gross margin perspective, we're about 50% hedged on our key commodities. We have 7 of them that we track all the time. I walked you through some of the movements in key commodities. But the other tailwind we have is some of the mix is I think going our way with -- as the Personal Care business has continued to improve over time. So that's going to help. And I'll let Rick opine on the G2G program, but we've had some great incremental steps in our productivity program.

Rick, maybe you can comment on opportunities in the supply chain.

Yes, sure. So we are certainly renewing our focus on the Good to Great program. We are exploring areas that where we felt as though the pipeline had run dry. But now with some changes in our focus, we're able to dig into new areas to increase our delivery on Good to Great. So as Matt said, the pipeline -- we're looking at a pipeline through 2019, and of course focusing this year on bringing home a good delivery of savings in '18.

Okay, Bill?

Bill Chappell, SunTrust. I had 2 questions. One on the International. Just maybe a little more color. I don't know what the old evergreen model was for International. But maybe you didn't change your overall model. So maybe help me understand where you come up with 6% from developing versus developed? And then how does that affect, is that assuming that the U.S. consumer, maybe is it slower than it used to be over the long term? And then the second question, just on new products. I guess, in the past, the presentations have been much more focused on a pretty robust, big new products everything from the CLUMP & SEAL to Oxi Detergent to what have you. This seems to be a year of maybe more smaller innovation. Is that the right way to look at it where you're putting more of the marketing behind just kind of the brands and categories versus big new innovation?

Okay. I'll comment on the evergreen model. I'll have Steve and Britta comment on both International and the new products. The evergreen model once upon a time was 3% to 4%, if you went back 10 years. And that a couple of years ago became 3%. So that was evergreen model 1.0. So we're a lot more granular now with respect to how we're going to grow in the future. And we have the luxury of having an International business growing 6% and a more balanced animal productivity business that can grow 5%. That takes a lot of pressure off the U.S. business. So that's why the way to think about is U.S. is 2%; International, 6%; and Specialty Products is 5%. I'll let Steve comment further on his confidence in the 6%.

Well, I'm certainly very confident in the 6%. I made several mentions of that. But I think back to Matt's point, they were banging around that 4%, 4% plus over time. But -- and I think that simply because the U.S. represented such an opportunity and was growing much faster. And so all of the time and attention largely went to the domestic business. Not until we really changed the strategy do we say, "Geez, we really think we can really fundamentally change our participation in the International marketplace and really get behind very strong growth." And we wanted to prove that one to ourselves first that we had strategies that we could rely on and depend on and then build enough scale that really is material for the company. And so I think we've done that. To your question in terms of certainly emerging markets are going to play a much bigger role in driving growth, our Asia Pac business will be growing very strong. We expect that for next year and beyond. Certainly, the developed markets, the traditional markets, Europe for example, is not going to grow nearly as strong as whether it be any of our Lat Am businesses or Asia Pacific businesses. So it is going to be weighted that way.

Back to your question about new products. The one thing you got to keep in mind if you go back to what we said, so SLIDE was a fabulous product for us in 2017 and took share. So we're going to ride that even harder next year. And you talked about laundry detergent. We are rocking in pods. So what happened in pods the last 2 quarters? We had a 3% growth. We're going double-digit in pods, and we have a lot of runway to go there. So we know -- we had some new products in 2017 both in litter and in detergent, and we see a lot of good things ahead for us in both those categories. Brit, you had anything to add for new products?

Well, I definitely want to add something. So mea culpa, normally at this point we're showing you the TV commercials of the new product, and that's maybe why you have the impression that we are not giving it the same full support. Mea culpa because we haven't got them ready yet. So what you will see soon is exciting news and TV commercials for the new product, which I hope will reinforce your confidence that we give it full support. We're very excited. Odor Blasters will be a blast.

I'd like to build, too. So I wouldn't look at it kind of the way you worded it. I would look at it more this way. Every once in a while, you get surprised with innovations, SLIDE would be one. So now we're expanding the distribution of SLIDE year 2. We launched Odor Blasters in laundry detergent last year and didn't really fully capitalize on how big of an idea that was. BATISTE is a growing monster and we have a lot of distribution to continue to gain. So those are examples that I would say there's a lot of opportunity through the innovation that we've launched on how we can expand that moving forward.

Okay, Joe?

So both you and Rick mentioned earlier today that ex tax, you guys would be growing the top line 3% organic and EPS 9%. I guess, the delta in terms of the investment that you're investing back in the business is about $0.10. So a, why aren't we seeing faster growth this year? I know there's a lag time between those investment's investor growth. Or b, is it that you have to reinvest that $0.10 every year going forward to still get that 3% top line?

The way you should look at that is -- and if you're listening today, we have a lot of opportunities here to reinvest. So you heard about International and you heard about digital. We're maintaining our marketing spend of 12%, it would naturally be lower because Waterpik has a much lower spend. You heard about animal productivity and our expansion there. So that spend is a permanent spend. So that's going to help fuel us in the future. And in a way you answered your question, Joe, and that it takes a little bit of time. But healthy companies can approach the Tax Cut very differently than others. So it gives you degrees of freedom. And sort of looking ahead, not to '18, but '19 and '20, and that is how we're looking at it. And if you'd listen to the things I just described where we can put the money, we will make the right choices to sustain our model going forward.

The analogy I use sometimes is M&A. And sometimes people whose -- who have a base business is going backwards have to do a bad deal. And they have to reach for something. And so that's never been the case here. Our business is performing very well, we just had a great quarter, great end of the year. And those are investments with the same concept is we want to make sure the algorithm is bulletproof 10 years later.

Okay, Steve?

So I mean, to build on that, though, should we be thinking about this is an extra investment in '18? Is that insurance policy against '19, '20 and beyond? Or should we expect return on this investment such that we get an acceleration of the algorithm in '19, '20? Question one. Question two is free cash flow conversion expectation for next year, that would be helpful. And question three for Lou, is if the categories are growing, I think it was 2.73%, you're growing with those categories presumably maybe even a little bit faster than -- at the shelf, but you're also getting distribution gains. Why is the call 3% and not better? Those are my 3.

Okay. If you look at our history, this is not a company you want to bet against. So we deliver on our commitments. And our commitments to our shareholders have been that we're going to drive that evergreen model year after year after year. So we're going to make investments this year. We're going to accelerate investments, and we might have done over maybe the next 2 to 3 years. We're not prepared today to say suddenly we're changing our model and now we're going to have much higher top line and bottom line. The people who invest in this company are taking a 5-year view and they have confidence that we can nail that for the next 5 years, and that's why they invest in us.

Yes. The -- and another comment I'd add to that is we always measure ourselves versus our peer group as well. And so ex tax reform, if we're around 9% EPS growth then the peer group is 4.5%. If post tax reform morphs 15% to 18%, then peer group is 6.5%, 7%. So we feel very happy and very satisfied with where we're at on that sliding scale. Your free cash flow conversion question, on average, we've averaged around 120% free cash flow conversion. That will dip down because of the new tax law, right? Cash tax and book rate converge over time. So if I was doing a model, I'd probably model us to around 110%.

And on the shelf, I would go -- and doing this for 14 years, I think hopefully you'll agree that we live by the commitment almost like the Eagles, where we're the underdogs and we like to deliver. Building on what Matt said, there's -- you'd never hear me talk about destocking. You never hear me talk about hurricanes. You never hear me bring up anything like that. We're consistent. We put a number out there that we believe we can hit under all conditions and we deliver it.

Okay, Caroline?

Just thinking through your margin. What is the impact of International and the animal feed growing faster than your -- the base business? That's number one.

Yes. Well, the good news is, over time, those gross margins are converging on -- actually the company gross margin. So it's not that different for International to the corporate gross margin. The productivity business -- the animal productivity business does have a little bit lower gross margin. But it's one of those recent deals we've done -- have margins in the 60s and 70s, right? And so those are really the fast-growing business as well. So I'd say minimal impact overall, those 2 divisions growing faster.

And then if I just could ask on Waterpik. How much of the business is the sort of onetime purchase of the equipment? And how much is recurring to sort of replacement blade idea? And how do you see that changing over time?

It's on CapEx?

No...

I'm talking about the consumer purchase the blade and razor idea? Are you with Waterpik selling...

Today 100% of that business is just the equipment. The example that they showed on the screen, the whitening one and maybe, Britta, wants to talk a little bit about that. That is the first entrance into like a refillable type of scenario.

Yes, so we're learning lots about Waterpik. And I think we would struggle with exactly the questions you have. So actually different households act differently. We have a few people, maybe some of them in the room, they buy it once and that's it. We obviously also have a lot of dedicated families where we can see the first family member has one and then they actually extend it over the family. So if you look at households, there is repeat purchase. And then of those people who actually get into the habit of using it, we also see that people renew the models. There's a constant upgrade and improvement. And also we are branching out into areas which you might have seen the latest models are extremely slick and elegant. There is something like bathroom aesthetics. So people buy those. We're now launching a model which is a travel model for those people who cannot be without that fresh and clean feeling. So there's lots of opportunities to either extend into more households. Household penetration currently is only around 16%, electric toothbrushes is around 40%. So huge household penetration opportunity. Secondly, more devices per household. Thirdly upgrades per household. And then as I said, fourthly, this is early days. My expectation, and I have some background in razors and blades, is that the first product we launch will not be the success on the replenishing model. But over time, we will get it right and then life gets real exciting.

My last question is most important. Can you scrape our bodies the way you do the chickens and figure out how to give us the right probiotic?

I'm sure somebody's working on that.

I have a question on your probiotic or vitamin business. You guys put a slide up there where you showed that you've lost share, and it's the first time in the last few years. So could you drill down a little bit more on what are the key drivers of that share loss, the competitive environment? And then what's your outlook for that business this year? And is your goal to stabilize share? And how do you expect to accomplish that? Is it through innovation, stepped-up spending, promos, for instance, behind that business?

You're talking about the Gummy Vitamin business?

Yes.

Yes.

Yes. So let me just start, and I'm going to hand it over to you, Britta. The way to think about that is that the category continues to grow at double-digit. And although we may not be growing at double-digit, our consumption continues to grow, so the business continues to grow. When we bought that business, it had 6 competitors. Today, it has 30. So there are a lot of people that are piling in there. So it's a growing category, grows double-digit. We continue to grow. I think what will happen over time, frankly, is that there'll be a shakeout. It's not going to happen this year or the next year. But generally, retailers can't sustain that many brands on the shelf. Britta, you're going to add to that?

Yes. So building on that, what you saw was AOT shares, Nielsen. Nielsen is a category and it covers 70% of the market. I just talked about how much we have market dominance in Amazon. So actually, if you put those together, our share picture would be much more positive first of all. Second, we do have innovations. And third, we are actually confident we will grow that.

Okay, over here.

Rupesh Parikh, Oppenheimer. So maybe just going back to the International segment. I was curious, clearly, you guys are doing well with Amazon in the domestic segment. Are you able to leverage your Amazon relationship and maybe some of the other retail partners as you grow internationally?

Yes, I would say that we're doing just that actually both in Canada and Europe where Amazon is making significant investments. And we're taking the learnings that the domestic team has and applying them in our International markets. I would put Costco in that category as well, strong global retailer, and we're very successful with them in many parts of the world.

And then, second, just going to the slide before on your online sales growth. I think your online sales are now 5% of your sales. As your online penetration continues to increase, are you seeing any impact on your gross margins?

Yes, the good news is across the portfolio, largely gross margins online and in bricks and mortars are very similar, so no we're not.

Olivia?

Olivia.

I was wondering if you could talk a little bit about the latest and greatest in the laundry category? And then also in terms of 2018, can we talk about the components of volume versus price mix? And then just lastly, in terms of M&A, you talked about gross margin and the importance of that. But both Waterpik and vitamins were gross margin dilutive. So can you marry some of the comments around M&A and the importance of gross margin?

Yes, you started off with the laundry category. So the laundry category in fourth quarter was flattish. It was less promotional, frankly, sequentially. So that's all good news. If you look at the brands in the categories that are doing really well, one would be ARM & HAMMER. So we've grown no surprise ARM & HAMMER grew in the fourth quarter and also on a full year basis. So that is our flagship brand in detergent. Within the category, deep dive, it's struggling. So that would be brands like our brand XTRA, Sun and Purex. So all 3 of those brands lost share last year. So that's -- so XTRA is a leaky bucket for us. But the combination of our 3 brands ARM & HAMMER, OxiClean and XTRA, we grew share in 2000 -- I think we're up 50 or 60 basis points of share all-in in the laundry category. And pods I mentioned earlier. I said pods had slowed down quite a bit in the last 2 quarters. We continue to grow double digit.

In terms of price mix and volume for the organic call, I kind of touched on that before. It's largely volume-based. I'm not going to go into too much more detail. But it's largely volume-based. We probably have some positive mix also (inaudible) price as personal care continues to do well. And then, I think your third question was the gross margin with acquisitions with M&A.

(inaudible)

Just our aspiration in the gross margin accretion from every M&A deal we do, all right? That's definitely the goal. Waterpik is, I would say, largely neutral to gross margin. We think over time, right, when we said when we made that announcement in August that we were going to spend around $10 million in 2018 to get $10 million of synergies in 2019. So I'd expect in 2019 for some of the gross margin to be a little bit more accretive for Waterpik. So remember, just like the Avid deal when we did it, vitamins, when we bought the business, it was a 38% gross margin and we got up to 45% over 2 years. And that was part of -- in that slide on how we extend gross margin and just the runway for productivity.

The only thing I would add too from a retailer shelf standpoint. As powder continues to decline, the powder shelf space will continue to decline and liquid and unit dose is doing well. So you'll see it expanding. The powder space will move to unit dose and liquid.

Okay, a couple more over here.

Jonathan Feeney, Consumer Edge. Wal-Mart's made a lot of noise for a lot categories about on time and then for how they're managing their logistics. Could you comment about why, maybe -- about logistics broadly for 2018, those costs? And any particular categories you've had to think differently about deliveries, maybe extra expense? And maybe why you don't seem to be as impacted as some others? I know Clorox was pretty big impact, and they weren't able to get a lot of product to market. Why are you able to succeed so much better and presumably as you're talking about 2018 continue to do that?

Well, I'll say a few words and if there's anything Rick wants to add, he can. As far as trucking and shortage of truckers, that's pretty much common knowledge. So we got ahead of that in November and we worked with our carrier partners to ensure that we were going to have trucks available and be able to keep up our fabulous record and on-time performance. So -- and we would expect to do that again in 2018 with our transportation partners. Louis, do you have anything to add to that?

Yes, the only thing I would add on that is that we have over 100 carriers that we work with. But 10 of those deliver 80% of our product of our volume. And so we are able to partner very closely with those 10, and we've been able to ensure that we had adequate supply of containers and drivers. So we've been ahead of the curve there as Matt said.

Okay, thank you. Jason?

Jason English, Goldman Sachs. Congratulations on a good quarter. I had a couple of questions. Maybe the first for Britta or Lou, I'm not sure which. Personal care had a bit of a tough year but finished on a really strong note. Can you give us some of the underlying drivers of what drove the acceleration of fourth quarter and lay out maybe where your expectations are as we head into the new year?

Well, if you ask me, of course, it's great advertising. No, I think what we did do, so yes, absolutely, I think, one of the things we are finding is we talked about category growth early as well that, a, some of our categories like condoms where we took for a long time, young people are (inaudible) number declining, are having less sex. We've heard all about that I think several times, and they're moving online, right? So these are things that are difficult to scale. I think we have great campaigns in place now. Same for vitamins, I think we've seen a clear uptick on our vitamin campaign, vitamin better. So I would say we are driving those sales, particularly, in the later quarter. And we've also put some investments behind it.

I'd just echo what Britta said. It was really broad-based in the Personal Care business. It was across many different brands, just a good combination of innovation over the long term and great advertising.

Do you have a second one?

I do -- I wanted to come back and try to beat the gross margin horse again. First, can you help us maybe unpack the fourth quarter a bit? It was pretty strong. Your 60 basis point full year commodity drag, I think, suggests maybe around 140 basis point drag in the fourth quarter. Is that kind of right? And do you expect something similar into next year? And then the last couple of quarters, not the fourth quarter because we don't have the detail. I know M&A was a positive 100 bps contribution third quarter plus 70 bps in the second quarter. What if anything did it add in the fourth? And are we looking for a similar sort of contribution to help us sort of bridge our way to flat in the face of what looks like it's going to be a fairly owners commodity environment next year?

Yes, a lot of details in there. I'd say, in general, in Q4, I think we had around 70 basis points held from acquisitions offset by maybe price mix of minus 30 and minus commodities of -- not 140, but maybe 40 or 50 and then positives from price mix -- I mean, mix really. You're right, we've had some benefit in 2017 from M&A on the gross margin line. And conversely, we've had some negative help from the SG&A line for these -- for these same acquisition. So I think it's kind of neutral on an operating margin basis. In 2018, we expect 0 to 10 basis points from M&A. So it is not a tailwind in '18. What I talked about earlier was personal care, the fact that we've hedged, the fact that we have a great productivity program. So those are kind of what's going on.

Andrea Teixeira from JPMorgan. So wanted to just go back to Jason's question. As you're looking to outlook for 2018, you mentioned like M&A would not be a tailwind. But I wanted to basically if you can put it in as a ranking. Let's say, you mentioned that the mixed International wouldn't affect you that much. So maybe like you're going to be reinvesting more in innovation coming this -- this coming year or you're seeing more of your raw materials hedge rolling over into 2018? So we're going to see more of the impact of the raw materials into 2018. So if you can kind of help us elaborate? Or on an EBITDA basis, you actually would see margins expand so excluding the noncash charges? And the second question would be on sexual health. I think she alluded to improving trends. But if you can comment on the 3%. It appears to me, market share gains. Market share will actually improve on a total channel basis when you -- including also Internet.

Maybe I'll take the gross margin and you could take the revenue.

Yes, maybe I'll do the sexual health one, and you can think about the (inaudible) and in gross margin. (inaudible) So as far as sexual health goes, so you probably heard us talk about in previous calls that people are having less sex. And also, there's also prevalence of other alternatives. So for example, IUDs, Plan B, et cetera. So all of that is contributing to the category. So that's the -- another thing I would point out is demographics. If you look at the 18 to 24-year-old population today versus where it was, say, 4 or 5 years so, it's smaller. And that's not going to turn around until 2021. So there's lots of things that are influencing the sales of condoms in United States. But we have a 70% share, so we certainly like our chances in the future, and we're in it for the long term. And Britta, do you have anything to add to that?

I just want to add, I think, actually our toy business is going very well. So those people who are having sex having more fun.

Did I give you enough time, Rick?

Yes, a lot of folks on gross margin, I guess, right? In the industry, there's a lot of pressure on gross margin, so I get the question, right? I would have said back in August if I gave you gross margin outlook, it would have been positive 30 or 40 basis points. So we're well-positioned, and all those things are structural, right? All of the G2G productivity programs we've had in place for years now, that are coming to fruition now. We were hedged last year about 50%. We're hedged this year about 50%. There's no turnover that's happening on resin per se that's causing us any flux.

(inaudible)

Yes. No, it's a fair point that if it was that material, then yes, that would happen. But resin, I think, sometimes is overblown for Church & Dwight how material it is. It's not like a Clorox and a Glad trash bag business. We have resin in laundry bottles, yes, we do. But it's not as exposed as I think we get asked about it. So it's one of the 7. It's probably one of the top 4, but it's not the #1. So I don't know if there was any other question besides that. But really, we have a lot of confidence in the '18 margin because of the productivity programs that we've gone about for a year or 2 because of the personal care mix coming. We still launch accretive new products. We haven't changed that. We still aim to launch accretive new products and -- with innovation, right? SLIDE is a great example. CLUMP & SEAL is a great example. We're moving up the litter category, units aren't really going up, but the price premium for the consumer is.

Okay, I think we've been at this for a good while now. We only have the room for so long. I just want to thank everybody for coming today. The team that you see up here is representative of the kind of talent that we have at Church & Dwight. And we are very confident in our future. And I think you would all have to agree that what we're calling for 2016 is head and shoulders over our peer group. Thanks for coming.