切遲杜威 (CHD) 2020 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Church & Dwight First Quarter 2020 Earnings Conference Call. (Operator Instructions)

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 risks and uncertainties and other factors that are described in detail in the company's SEC filings.

I would now like to introduce your host for today's call, Mr. Matt Farrell, Chief Executive Officer of Church & Dwight. Please go ahead, sir.

Good morning, everyone. Thanks for joining us today. I'll begin with a discussion of the impact of COVID-19, followed by a review of the Q1 results. And then I'll turn the call over to Rick Dierker, our CFO. And when Rick is finished, we'll open the call up for questions.

I'll start by addressing the impact of COVID-19 on Church & Dwight. Our priorities right now are the health and safety of our employees, meeting the needs of consumers and retailers, helping the communities where we live, and ensuring the strength of our brands. I want to recognize Church & Dwight employees around the world for their dedication to keep our company going during the pandemic. Church & Dwight has 4,800 employees, and we are committed to each other's safety. We have 3,000 people reporting to work every day who are keeping our plants and warehouses running. We are protecting our employees through temperature checking, working in pods, social distancing and frequent sanitization of work areas, and we are sparing no expense to promote safety in our supply chain.

We have another 1,800 Church & Dwight-ers who are working from home using Microsoft Teams. We had already invested in the tools to work remotely, so switching to work from home proved to be easy. We are learning how to be a virtual company. We are supporting our local communities with monetary and product donations to local food pantries and shelters and donations of personal protective equipment and products to local hospitals, pet shelters and schools. And we are preparing to produce hand sanitizer at our U.K. plant for both internal use and for donations.

With respect to consumers and retailers, we understand the need for our products now more than ever. We have taken steps to increase short-term manufacturing capacity, and we are working closely with suppliers and retail partners to keep pace with increased demand in April.

Okay. Now let's talk about the results. Q1 was an exceptional quarter. Revenues, gross margin, earnings and operating cash flow all significantly exceeded our expectations. Our positive results were influenced in part by pantry loading in the month of March. Organic sales growth of 9.2% exceeded our outlook of 3%. Earnings per share of $0.83 exceeded our EPS outlook by $0.10. Reported sales growth was 11.5% and gross margin expanded in the quarter. Regarding e-commerce, more consumers moved online. In Q1, 10% of our consumer sales were online, and we have seen growth in all retailer dotcoms. We expect to easily exceed our target of 9% online sales in 2020.

Private label shares are always noteworthy. As you know, our exposure to private label is limited to 5 categories, and private label shares were unchanged in Q1.

Now to make sense out of March and April, let's take a look at consumption, shipments and use-up rates. Consumption grew 30% in March for our combined U.S. categories. For the month of April, the good news is that our combined U.S. consumption growth is still slightly positive. This includes both measured and nonmeasured channels. The brands with positive consumption in April included OXICLEAN additives, VITAFUSION and L'IL CRITTERS gummy vitamins, FLAWLESS women's grooming, ARM & HAMMER unit dose, ARM & HAMMER baking soda and ORAJEL oral analgesics. The brands with negative year-over-year consumption growth in April include FIRST RESPONSE pregnancy kits, TROJAN, SPINBRUSH, BATISTE and WATERPIK. All right. So that's consumption.

Now let's look at shipments. Shipments in March were up significantly across most of our categories largely due to pantry loading. For the month of April, shipments are tracking to be up 8% led by laundry, litter and vitamins for our combined U.S. categories and continue at elevated levels as we replenish retailer stores and distribution centers. Now with the backdrop of strong shipments in both March and April, we have attempted to determine use-up rates. We've been conducting weekly surveys to ask consumers if they are using more now than a month ago regarding categories in which we compete. It's not completely scientific, but here is what we learned. In April, our consumer survey showed an elevated use-up rate for household products, including laundry detergent, laundry additives and baking soda.

So for example, 20% of our consumers say they are washing more, which is good news for the near-term health of our laundry brands and stain fighter brands. The exception for household products was cat litter, where there is no reported change in usage. Regarding personal care, our consumers reported elevated usage of vitamins, nasal sprays and oral analgesics. Most other personal care categories, such as dry shampoo, condoms, pregnancy kits and toothbrushes, do not report an elevated use-up rate. So to the extent that those categories experienced higher shipments in March, it may take some time to work those off.

In the water flosser category, WATERPIK consumption was down 55% in April due to retailer closures, deprioritization of water flossers by some retailers and closure of dental offices. As you know, dental offices are closed except for emergency procedures. So there are no water flosser recommendations by dental professionals, which are an important source of first-time buyers.

FLAWLESS could be a bright spot with 10% year-over-year consumption growth in recent weeks in April. With the closure of salons, female consumers are focusing on what they can do at home. And our marketing team has moved quickly to change our marketing messages. FLAWLESS is one of our brands that could benefit from the at-home grooming trend, that the dramatic increase in the use of Zoom, Teams and FaceTime has contributed to the interest in FLAWLESS products so that women can be camera-ready.

Now turning to investments. In the months ahead, we intend to invest in our business. Innovative new products will continue to attract consumers even in this economy. There is no pullback in R&D spending or in new product development. With respect to new product launches, many of our new products began shipping in Q1 prior to the COVID impact, although some retailer resets have been delayed due to the virus. And with respect to acquisitions, we are always open to acquiring TSR-accretive businesses.

We believe we are well positioned in an economic downturn given our balanced portfolio of value and premium brands and strong balance sheet. In times like these, it is natural to make comparisons to prior recessions for indications of how a company might perform now. In 2009, our organic growth was 4.2%. Today, 37% of our products are considered value, which is similar to 2009 when 40% of our portfolio was value. We have 12 power brands today compared to 8 in 2009. Although 2 of those brands, WATERPIK and FLAWLESS are more discretionary in times of recession, our vitamin brands, which are VITAFUSION and L'IL CRITTERS, are in great demand due to consumer focus on health. And the equity of our flagship brand today, ARM & HAMMER, is much stronger, especially in the laundry and litter categories.

Our international business is larger today with a more diverse portfolio and more opportunities to grow as evidenced by our 9% sales growth CAGR over the past 4 years. We are well balanced globally with more business in Asia Pacific, and we are less dependent upon more mature markets. In fact, the international business delivered 7% organic growth in Q1 and weathered the initial impact of the coronavirus in Asia.

But the 2020 economic downturn is not simply a more severe version of the 2009 recession. There are many differences that influence the path forward. We have social distancing, quarantining, government shutdown orders, retailer closures, the closure of dental offices and the decline in foot traffic at retailers, and there is always a risk of supply chain interruptions and the potential resurgence of the virus later this year. Because of the virus, consumer trends are emerging, which affect our business, including a focus on cleaning, personal wellness, new grooming routines and a spike in buying online. These consumer trends may endure over the long term, and we are well positioned if they do.

In conclusion, there are lots of reasons to have confidence in Church & Dwight. The great thing about our company is we are positioned to do well in both good economic times and in economic downturns. The categories in which we play are largely essential to consumers. We have a balance of value and premium products. Our power brands are #1 or #2 in their categories, and we have a low exposure to private label. We are coming off one of our best years in 2019 and are entering this downturn in a position of strength and with a strong balance sheet.

So finally, we have the resources, the common sense and the ambition to ensure that our brands perform well in the months ahead.

Next up is Rick to give you details on the first quarter.

Thank you, Matt, and good morning, everybody. We'll start with EPS. First quarter adjusted EPS, which excludes an earn-out adjustment and the gain on the sale of an international brand, grew 18.6% to $0.83 compared to $0.70 in 2019. The $0.83 was better than our $0.73 outlook primarily due to higher volume associated with the significant increase in demand for many of our products in March, better gross margins and lower marketing. Also included in the $0.83 is a $0.01 drag from FX as the dollar strengthened with the global pandemic and a $0.02 drag from a higher tax rate. We did not have a currency impact assumed behind our Q1 guidance. As we discussed in previous calls, the quarterly earn-out adjustment will continue until the conclusion of the earn-out period.

Reported revenue was up 11.5%, reflecting a significant increase in consumer demand for our products due to COVID-19. Organic sales were up 9.2%, more than tripling our Q1 outlook of approximately 3%. The organic sales beat was driven by our global consumer growth of 9.6%. We have taken several short-term actions to increase capacity, especially for laundry and litter, due to overwhelming demand. We were able to fast forward a planned capacity expansion for laundry, and we made the decision in Q1 to exit XTRA laundry detergent from the less profitable drug class of trade. And in hindsight, the decisions to exit private label vitamins and reduce promotional activity for OXI laundry were the right ones at a time like this so we can focus on our core products.

Now let's review the segments. First, Consumer Domestic. Organic sales increased by 10.2% due to higher volume and positive price/mix. Growth was led by ARM & HAMMER liquid laundry detergent, VITAFUSION and L'IL CRITTERS gummy vitamins. OXICLEAN stain fighters, ARM & HAMMER clumping cat litter and baking soda as well as BATISTE dry shampoo.

One question we usually are asked is can we bridge our 10% growth for the domestic business back to Nielsen? For this quarter, we have the unusual circumstance of Nielsen and our organic growth are comparable. And actually, there are 2 large offsetting adjustments. We had 400 basis points of on track channel growth largely due to the strong online sales Matt mentioned. So we would say consumption for the quarter was closer to 14%. Our organic growth, as I said, was 10%, so that means inventory at retail declined by 400 basis points as we couldn't fill all the orders in March.

One thing to keep in mind during this time is that while scanner data is usually a good barometer for us, the current pandemic has made online growth well exceed brick-and-mortar. With much of the online class of trade not measured in scanner data, Nielsen data is currently less of an indicator. For example, for the week ending 4/18, scanner data would indicate that we were down roughly 10% in consumption. While based on point-of-sale data across all channels that we have, which includes online retailers, our consumption was slightly positive.

International delivered a strong quarter for 7.1% organic growth, also benefiting from pantry loading. Growth was driven by ARM & HAMMER cat litter, liquid laundry detergent in Canada and CURASH baby wipes and FEMFRESH feminine hygiene in Australia, STERIMAR nasal spray in the U.K. and BATISTE dry shampoo in Germany.

For our SPD business organic sales increased 3.4%. Demand continues to grow in the poultry industry. On the other hand, there has been a reversal in the outlook for the dairy sector. Negative market impact from COVID-19 could result in lower milk demand and a negative impact in the dairy industry.

Turning now to gross margin. Our first quarter gross margin was 45.7%, a 60 basis point increase from a year ago due to higher pricing and productivity partially offset by higher manufacturing costs, COVID-related expenses and FX. The gross margin bridge for the quarter is plus 140 basis points for price volume mix; plus 110 basis points for productivity; plus 10 basis points for acquisitions; less 180 basis points for higher manufacturing costs, of which COVID costs make up 30 bps; less 10 bps for currency; and then minus 10 bps for distribution costs.

Commodities have moved significantly, especially oil. However, for other commodities like ethylene and resins, such as HDPE, while they've moved down, it typically takes 6 months or longer for them to move in concert with oil. We entered 2020 about 60% hedged. No doubt, commodities will be a tailwind, but unfortunately, the COVID-related costs more than offset any commodity benefit. For example, in Q1, we were about $4 million of COVID costs, and that was primarily for the month of April.

Moving now to marketing. Marketing was down $1.7 million year-over-year. Marketing expense as a percentage of net sales decreased 110 basis points to 8.3%. Q1 is typically our lowest quarter for marketing spend as new products have yet to be launched. We delayed March spending to the back half with consumption in late Q1 and likely Q2 being primarily driven by demand related to the coronavirus and less by marketing activities.

For SG&A, Q1 adjusted SG&A increased 40 basis points year-over-year primarily due to intangible amortization related to acquisitions. Net operating profit, adjusted operating margin for the quarter was 24%. This represents 130 basis point increase over Q1 2019. Other expense all-in was $15.2 million primarily driven by interest expense. And for income tax, our effective rate for the quarter was 23.2% compared to 21.9% in 2019, an increase of 130 basis points, primarily driven by lower stock option exercises. This was a $0.02 year-over-year drag on EPS in Q1.

And now to cash. For the first 3 months of 2020, cash from operating activities increased 71.5% to $237 million or almost a $99 million increase from prior year due to higher cash earnings and a lower increase in working capital.

Our full year CapEx plan has gone from $90 million to $80 million, largely due to delayed start dates. Pandemic has limited access to plant locations, and IT upgrades are being delayed. Our liquidity is strong. We strive to maintain our credit rating, while expecting to be sub-2x by the end of the year. As we've previously communicated, we're experiencing a significant increase in consumer demand for many of our products, and thus, cash flow is stronger. Furthermore, during January and February, we proactively termed out our CP borrowings until the second and third quarters at favorable rates. Those actions eliminated the need for us to access the commercial paper market for the remainder of the year.

Our current cash balances exceeded $1 billion as we drew $825 million from our revolver, giving us ample flexibility. We're confident in our liquidity, which is why we haven't issued long-term debt even though the market is open for us. The great thing about revolver drawdowns is that they are quickly repayable.

Now turning to the outlook. The company previously issued its fiscal 2020 guidance on January 31, 2020, which did not include the impact of COVID-19. As you read in the release, due to the rapidly evolving situation with a high degree of uncertainty relating to the impacts of the virus, including consumer demand and the global economy, the company is withdrawing its fiscal 2020 guidance. As for the second quarter, the company's primary focus is ensuring the safety of our employees, a sustained supply to retailers to keep pace with higher demand and maintaining the strength of our brands. And that is really the extent to which we will comment on the outlook.

Wrapping up. Yesterday, the Board of Directors declared a regular quarterly cash dividend of $0.24 per share, a 5.5% increase versus a year ago, as the company's 477th regular consecutive quarterly dividend.

And with that, Matt and I would be happy to take any questions.

No questions.

(Operator Instructions) Our first question comes from Rupesh Parikh with Oppenheimer.

Congrats on a strong quarter. I guess, just starting out with flows, I mean, really surprising commentary in terms of the strength that you're seeing in April on the consumption side, even with some of your customers, also Bed Bath & Beyond with all their closed stores. So just any more color, I guess, in terms of are consumers now buying this product more online? I know you gave some more color, I guess, women using more Zoom and using your product more. But just really impressed to see those results and just trying to better understand what's driving that strength and where they're buying the product.

Yes. In fact, if you look at the weekly numbers, it went 0%, 10%, up 35% year-over-year. So it's been building through the month of April. And yes, you're right. If you go back to some of the things we said, we said we're going to expand our distribution points by 15% in 2020. So that's done, check. But you are right that people are moving online. So we've seen a big uptick in our Amazon sales. And of course, other retailers also have the dotcoms as well, but Amazon is up big time for us in April year-over-year.

The only thing I'd add to that, Rupesh, is about 20% of that business is in retailers that have closed down. So when we say those consumption numbers, that's even more impressive.

Yes, which is where you were going. It's remarkable considering that specialty stores are closed and yet they're up year-over-year.

Okay. Okay. Great. And then just from a, I guess, out-of-stock perspective, so clearly, you had a strong month of shipments in April. If you look at, I guess, across other categories, like are your products now fully stocked at all the retailers that want your product? Or if we go to stores, will we still find out of stocks in some of your, I guess, some of your key product categories?

Yes. I'd say if you look at that 8% shipment growth in the month of April, the big drivers there would be laundry, litter and vitamins. So that's where you would find more of the out of stocks for us as we got wiped out in March.

Okay. So there's still out of stocks even today at retailers, you're saying?

Yes. Absolutely. Absolutely right. So we're still playing catch up for those 3.

Okay. And then I guess my last question. Just as you look at promotional backlogs, there clearly has been less promotional lately, but just any thoughts in terms of what the environment could look like for the balance of the year.

Yes. Well, I can tell you what it looked like in Q1. If you look at the laundry category in Q1, the amount sold on deal was down 280 basis points. So everybody pulled back. So P&G, Henkel and Church & Dwight all pulled back in Q1. That's in the laundry category. In litter, litter was up about 20 bps for the category sold on deal. That was entirely driven by Tidy Cat (sic) [Tidy Cats] as ARM & HAMMER had pulled back on promotions as well as Fresh Step. It's really too early to tell right now, Rupesh. A lot of retailers just eliminated a lot of the promotions just because people were going to stores, in any case, buying product. So they were reduced in the month of -- end of March and early April. So I don't care to speculate right now with respect to what's going to happen in the promotional environment.

Our next question comes from Dara Mohsenian with Morgan Stanley.

I hope you're doing well. So Matt, was curious for your thoughts on potential consumer trade down as we move beyond the social distancing phase of COVID. You're in a fairly unique position, as you mentioned, with the mix of premium and value brands. So are you expecting significant consumer trade down? Have you seen anything so far that would indicate it's to come? And how do you think you're positioned for that?

Yes. It's too early right now to make any predictions with respect to trade down. Once all the shelves get restocked -- and we find that across a lot of categories, if you've spent any time in supermarkets lately -- that's when we'll be able to tell, okay, what's attracting consumers to move from, say, premium to mid-tier or to value. I mean your question, I'm sure, is more directed towards laundry detergent. It's one of our biggest categories, and we benefited greatly back in 2009. We still have the, what I would call, the unfair advantage that we are the only advertised brand in value. And the brands we compete with are Purex and Sun. So we still stand to gain should there be a movement down from premium to value laundry detergents. We feel like we're in a great place, because if you go down back to 2009, 40% of our products were value, and today, they're 30%. So we largely look just like we did back in 2009 as far as our portfolio.

And I would remind you that our organic growth in 2009, not saying that is what it would be, but as an indication of how we do in recessionary times was about 7% for the domestic business.

Right. Okay. That's helpful. And then specifically on TROJAN and BATISTE, you mentioned some weakness there versus strength in the rest of the personal care portfolio and some of the other brands. Can you just give us a bit more detail on the extent of weakness there? Is that a category growth phenomenon? And is that something you see lingering going forward? Or do you think that's more temporary?

Well, TROJAN and BATISTE did well in first quarter. So now, in April, a phenomenon. So they're down significantly in the month of April. And the simple reason is that people are staying at home. So if you look at what's going on with BATISTE, the -- when we did the survey with respect to use up, that's down. It was somewhat pantry loaded in March. And if you look at TROJAN condoms, as far as the impact of social distancing and quarantining, people are having less sex. So it's natural that TROJAN is also going to be down until those restrictions are lifted.

Our next question comes from Kevin Grundy with Jefferies.

I hope you're doing well. I want to start just on some of the tailwinds that have emerged this year and how you're thinking about investment and how perhaps those investment priorities may have shifted. So consumer demand, clearly significantly higher. Promo levels down significantly, at least for now, commodity costs, sharply lower. So a lot of things kind of going your way and understanding that you withdrew guidance, but perhaps even at a high level, Matt, just maybe talk about how you're thinking about investment and how that shifted perhaps over the past 2 to 3 months.

Okay. Yes. Well, I mentioned in my opening remarks that the annual spend on R&D and new products is unchanged. In fact, that would be one of the destinations we'd want to spend back this year. Rick commented on CapEx, and we went into the year with a $90 million plan. We're at $80 million right now. But for the simple reason that we just can't get access to the plants, neither we can get access to the plant or the third parties that might be helping us with the equipment installations. So we went from $90 million to $80 million. The other thing is part of that dip of $10 million was related to IT projects. Same issue there is limited access. As far as the trends go, I mentioned that some of the trends that I think are going to help us. One is cleaning, and obviously, we have some really strong brands there, not just ARM & HAMMER and XTRA, but we also have OXICLEAN. So OXICLEAN had a really big month of March and also strong in April.

Personal wellness is next. So obviously, we have 2 plants, 2 captive plants that make gummy vitamins, obviously, in great demand right now. So naturally, you would think the consumer before are more interested in the gummy vitamins that are directed towards immunity or to help immunity. So that would be a destination for us. And the new grooming routines is the other one. People wanted to be camera ready. That certainly benefits FLAWLESS. So that would be on a destination for marketing dollars. You put more money behind that because it is a new brand and it's one that we see a tremendous amount of opportunity and growth going forward, be another one to invest in.

And maybe one other one is just from a cash investment. We are investing a little bit more in capacity in the supply chain, right? We -- I said in my prepared remarks about a new laundry capacity. We're looking at cat litter as well. We're making sure that we're well positioned for the future in this surge, laundry, litter, vitamins as an example.

Yes. In fact, we have a new laundry line coming online right now.

And then also co-packers, right? We want to make sure we have backup supply, and so we're also investing in our partners.

Yes, that's a good point. One of the thing I mentioned is we always have the risk of the resurgence of the virus later in the year. And also, you have upstream risk with -- in the supply chain. So it's not just our plants, but you worry about suppliers of raw packaging materials and also co-packers. So we can make some investments to make sure that we have some redundancy across our supply chain should it resurge or get any worse later this year.

Okay. That's helpful. I'll ask just one more and then pass it on. From a capital deployment perspective, maybe talk a little bit about the timing there in terms of when you think, as best you know today, it'd be more viable to potentially transact? And then what are you seeing in the environment? We're all kind of watching the same trends. There's been an obvious shift to e-commerce. Working from home will become more prevalent? And then also, Matt, I'd be curious to get your -- with those trends, point number one; and then point number two, the past couple of deals, WATERPIK and FLAWLESS, longer replacement cycles, more discretionary, sort of less defensive. Does the current environment inform a view at all? Do you think perhaps we would go back the next sort of asset you'd look at would be more sort of daily use, consistent with sort of the core portfolio? I'll pass it on.

Yes. It's quite a list of my last question. Let's start with M&A, Kevin. In my remarks, I mentioned that we're open for TSR-accretive acquisitions right now. We have a very strong balance sheet, and so our -- the window is open. As far as WATERPIK and FLAWLESS go, yes, you're right. Those were 2 brands that have longer purchase cycles. FLAWLESS is a new brand, only been around for a few years. That's a shorter purchase cycle than WATERPIK. WATERPIK'S is about 3 to 5 years, FLAWLESS maybe more closer to 6 months or so because it's a less expensive product. I wouldn't say that we would preclude acquiring a device.

Those -- both of those brands met all of our criteria, that they were #1 or #2 brands, they were fast growing, they had high gross margins, and they were asset light. So whether it's a device or, as you say, a traditional brand, either one would be attractive to us. And certainly, WATERPIK is impacted disproportionately right now in comparison to prior years because of the closure of dental offices. That's a big source of recommendations for us for the use of water flossers. So once that is resolved, that should definitely help that business come back to life. I don't know if I hit all your questions, though, Kevin. What else did you ask?

Our next question comes from Lauren Lieberman with Barclays.

I just wanted to go back to the decision to draw on the revolver. I mean, Rick, your point is clear that it's easy to repay. But just given the fact that sales are coming through so strongly, right? You're talking about more certainly seemingly more positive than negative outlook. You don't have a need to tap into commercial paper. So why draw on the revolver at all?

Yes. No, it's a fair question, Lauren. I think it's all about uncertain times. And I think in my prepared remarks, I said we still expect to be levered less than 2x by the end of the year, so you can infer what you want from that. But it's really about uncertain times, and we just put the cash on our balance sheet. We have no plans to do anything with it, and it'll likely get repaid before the end of the year.

Yes. And the good thing about that is these things are easily repayable.

Yes. Okay. And then just thinking about just the trade down, I know you said, Matt, it's early to gauge. Just one thing I thought was interesting to look at is how much your market share in laundry have grown versus 2009, right? So it's like you, as you said, only advertised brand in that price tier, but you really capitalized on the opportunity back in the financial crisis and largely held the share that you gained. In the work that you had done presumably even pre-COVID, any thoughts on kind of the structure of the laundry category long term? Because I think there's an element of some categories, it feels like there ends up being a feeling to how the price tiers shake out over time, private label, value, premium. And any thoughts you have on what that could look like for laundry.

Yes. Yes. If you go back to 2009, laundry shares were around 7.5%. And today, they're 15%. So we're much bigger in laundry than we were back in 2009. The share donor over time has been the mid-tier laundry detergent, and premium has been winning and value has been winning. So consequently, we would expect that would continue over time. You saw Persil come into the high end, brought their product in from Europe, seeing an opportunity also presume it to grow share in the premium end. And then on the other end, I talked about back in 2009, we weren't even a national brand. We weren't in all doors and all classes of trade, even for ARM & HAMMER. So we're way, way stronger today and more recognizable as a brand. And I always say we have the unfair advantage of being the only advertised value brand. So I think we're positioned for growth and value long term.

Okay. That's great. And then one other question was the marketing spending. I was just surprised to see that you could adjust as quickly as you appeared to just even during the quarter. Now that may be because you book your marketing on a kind of sales curve basis, but I was just curious about that because it seems like -- it's not that it's not a smart decision, but very quick to be able to adjust intra-quarter. So I was curious about that too.

Yes. Well, Lauren, it's Rick. I'd say we were only a few million lower in March than we had originally planned to be. Remember, Q1 is our lowest quarter of spend anyway. Usually, Q2 and Q3 are higher numbers for us. So it wasn't that big of adjustment. And typically, we're pretty nimble. So we were able to react pretty quickly in March.

Yes. We moved really quickly in March to move Q2 out to the second half because we could see what was coming. So that [turned] to be a -- it was clairvoyant on our part to make that decision.

Our next question comes from Steve Powers with Deutsche Bank.

You guys mentioned tight inventories and that you're catching up, but do you have a sense when you think you'll fully close the gap? Is it 3Q best guess? And is it more at this point about your ability to supply to demand? Or is it about retailers' ability to focus across categories beyond like food, cleaning, paper and water?

No. I think we're focused on our categories, the 3 categories that I mentioned. Vitamins got wiped out in March. And so -- and that's a big part of the shipment increase in 2000 -- pardon me, in April. But consumption is way up. We did that use-up study. We learned that consumers are taking far more vitamins than they were a month ago. So it's -- I wouldn't say it's going to take until Q3. That would be a long way out. We've got 2 months to go here, Steve. So we would hope to, by the end of the quarter, to be -- have resolved all of our issues in all classes of trade.

Yes. Based on what we know today and the incremental consumption.

Yes. Right.

All right. Great. And I guess on the topic of redundancy, which you also mentioned, I guess, as I think about the go forward, I guess 2 perspectives on redundancy: one is from -- on the topic of retail inventories, do you think retailers, when they build back those inventories, will actually build back more inventory to prepare for a potential recurrence in the second half or into '21? And how does that factor into your thinking? And then, from your own cost perspective, is there a way to size some of the supply chain redundancies that you're putting in place now from a cost perspective? And how much of what you're doing now is likely to be like a structural cost that we'll be thinking about into the future?

Yes. I'll take the second one first, it's Rick. I kind of alluded to what the COVID costs were in the month of March, and that would include things like co-packer upcharges or structural stuff like that. The capacity structure like for laundry and for vitamins and for litter, those are CapEx investments that we would be making anyway. And some of them have already been completed or underway. We would just be moving the timeline up on some of those things. So the -- I don't think we're ready to really frame out exactly how big that would be. I would just tell you that it was $3 million or $4 million in the month for March. And one aspect of that happened to be some co-packer upcharges, along with cleaning costs, higher labor costs internally, donations, even our revolver fees are thrown into that. So that's the second question.

Yes. And as to your first question with respect to retailers building inventory, we don't have anything conclusive on that right now, Steve. I did mention in my remarks that there's the potential for the resurgence of the virus in the fall. The good news for us is that we have, for example, laundry, we have 3 laundry plants, and we have new capacity coming online right now. So we can build some inventory in anticipation of that to be even in a better position to take advantage of it were it to happen. The same is true with -- for vitamins having 2 captive plants. We can be -- again, we can build inventory and we can be in a position should it resurge later in the year. So we like where we're sitting right now, particularly with respect to those 2 trends: cleaning and personal wellness. And the other one as far as the new grooming and home trend, FLAWLESS, early days, looks like they're well positioned as well. And even when everything opens up, I think people are still going to be doing a lot more Zooming and FaceTiming and using Teams going forward. So there will be a need for that product as well.

Our next question comes from Olivia Tong with Bank of America.

I just wanted to dig a little bit deeper into what you're expecting on the evolution of demand and your -- reviewing your ability to take share given more value-tilted price points as you emerge out of the stock-up phase and then obviously into recession. There's obviously a need to replenish at retail, but it seems like home pantries are pretty full now. So do you think that the fact that home pantries are as full as they are helps or hurt you in terms of your ability to grow share when we come out of the lockup?

Yes. Well, one thing, Olivia, is you're kind of assuming that all categories are fully pantry loaded. And what Matt said in his prepared remarks, I thought, were good comments. Like for some of our big categories like laundry and vitamins, it's incremental consumption. And you heard Procter the other day say that about 20% of incremental laundry consumption, and we would actually agree with that according to studies that we've seen. So part of it is there's incremental consumption. And like in April, we saw big spikes in consumption for laundry, and we're still seeing positive numbers in April. So that would tell you that the deloading isn't really happening. So it's real consumption for laundry, as an example.

Yes, Olivia, some of the things -- some of the brands I mentioned were -- that had positive consumption in April were OXICLEAN, additives, our 2 vitamin gummies, VITAFUSION and L'IL CRITTERS. FLAWLESS was up in consumption, ARM & HAMMER unit dose, baking soda and also oral analgesics. So all those had positive consumption. And remember, we did the studies we did with respect to the people using more. For personal care, we found vitamins and oral analgesics, which is ORAJEL, were elevated. And we also found that laundry detergent, laundry additives and baking soda were all elevated as well. So that's why I said in my remarks, you got to look at 3 things: shipments, consumption and, to the extent you can get it, some use-up rates. And it's not scientific, but it does gives you some indication of which categories will the pantry line work off -- be worked off faster than others.

Yes, here's a great stat on baking soda. I think in March, consumption was up 65% or 70%. In April, it was still up 55%, 60%. So as you can see, it's just consumption and consumption and consumption.

Great. That's helpful. And then can you talk a little bit about your discussions with your retailers about how they're thinking about some of the longer-lasting impact of this pandemic? Obviously, not sure even if those discussions can happen right now, [some are very still focused on keeping] shelves stocked. But as we come out of this, what's your expectation there in terms of any changes in terms of brands or carry? How many products they shelve, assortment, just thinking about affordability and also just how much -- how many brands they want to carry?

Yes. Well, look, I think we haven't had those sorts of discussions with retailers right now. If you look at some of the consumer trends and some of what's written about consumers is that well-known brands and bigger brands are more likely to do better than less well-known brands. And so that's real good for us because, as you know, we have 12 brands that are very recognizable, that are #1 or #2 in their category. So I think bigger brands, well-known brands will probably likely do better than the smaller ones right now since people will trust the bigger brands.

Yes. As you would expect, most of the conversations happening right now are about supply and stock and those types of numbers.

Our next question comes from Joe Altobello with Raymond James.

I just want to go back to something you just said, Rick, about what's truly incremental, right, in terms of usage. If you look at your U.S. business, for example, the organic number was plus 10% this quarter. That's been trending plus 3% to plus 5%, let's call it, over the last 2, 2.5 years. Is there a way to quantify how much of that delta stays with you for the rest of the pandemic? For example, how much of that was truly just pantry loading?

Yes. We tried to do it back of the envelope, Joe, and it's really a best guess is what I'll caveat this as. But we would say, for Q1, our outlook was 3% organic. We were tracking to probably 4% organic pre the outbreak. Our best guess is that part of the laundry incremental sales and vitamins has incremental consumption in there. So maybe around 6% or so would have been our organic in terms of consumption driven with this -- with the virus. And then the balance of that going to 9% would be the incremental for pantry loading. That's just the back of the envelope, and that's our best guess.

Okay. That's very helpful. And just secondly, on shelf space, you touched on this a little bit earlier, but it seems like consumers are gravitating toward bigger brands, leading brands, and I imagine retailers are focusing on that more. Would you guys expect to come out of this with more shelf space than you had going in?

Well, that's the dream. For sure. I think the ability to supply can influence shelf space. So to the extent that you have voids and you have other competitors that may have difficulty in producing product or getting access to product, we stand to gain, right? So for example, in laundry, and we'll get this new capacity coming on, to the extent there are upsets for any of the smaller brands, we will be able to fill those.

Yes. And maybe one other comment on your -- on the pantry loading that we talked about last question, Joe, is for a lot of our value portfolio for lower-income consumers, they don't -- they can't afford to pantry load. So it really is a lot of consumption, especially for the value brands.

Our next question comes from Andrea Teixeira with JPMorgan.

I hope all is well. Just coming back to the CLEAN & SIMPLE launch expense. So how are you tracking and could you say how did the displays work out amidst the pandemic? And then I have a follow-up on the bridge to the second quarter.

Yes. We're super excited about ARM & HAMMER CLEAN & SIMPLE, Andrea, thanks for asking. So that started shipping before we -- COVID-19 hit. And we have spread out. We've gotten actually more distribution at one retailer, in particular, than we expected, and also as a result of COVID, that we were able to spread out even more. So that's really good news. It's still early. Obviously, the retailer traffic in stores is way down. So to the extent of spending money on the displays, et cetera, it's probably not a good spend right now. But it is on trend. This is a detergent and has 6 ingredients, and most detergents have 15 to 30. So we're well positioned and on trend for the consumers that believes less is more.

And you are in New York, Andrea. You saw how big of a deal we thought it was, and we think this is one of the biggest launches that we've done, period.

No, that's helpful. And just a follow-up on trying to bridge the consumption and the shipments, and I know we're [getting] that both in the comments for the second quarter. You said the consumption outpaced shipments by 400 basis points our channels in the U.S. in the first quarter, and you're looking for 800 basis points shipments in April. So like just trying to bridge -- and you called out in the prepared remarks that you expect the destocking in May and June. So just trying to think about how the puts and takes into the second quarter. So you're looking at a negative shipment trend in May and June? Or are you still going to be elevated because of what you mentioned in terms of consumption?

Yes. I mean, that's -- it's a pretty detailed question, and we said we're not going to give an outlook. I would just tell you, if you do the math and even if shipments are 0 in May and June, you still have positive shipments for the quarter is kind of what I would tell you. But again, we're not going to get into the trying to forecast the next 30 days or 90 days because it's just too volatile right now. We can just tell you that retail inventories are low. They need to get back in stock. We're going to have higher shipments. And some of the Nielsen reporting that you might have -- may have seen over the last couple of weeks were just flagging negative consumption, and we wanted to say, well, that's not really true. It's actually slightly positive because of all the untracked channels that there's no visibility to. So it's actually a little bit better.

Yes. And we thought that providing some shipment information for April would be helpful so everybody could understand kind of where we are. And that 8% number is a U.S. number. International is more around 7%. And even our Specialty Products business is running ahead for April.

So really encouraged about the start for Q2.

Yes. But can't make any predictions with respect to May and June.

Our next question comes from Steve Strycula with UBS.

Congratulations on a good quarter. So my question would be on the decision to withdraw guidance, a lot of companies are doing it. So no real surprise there. But I really want to just understand, is this a function of achievability or just a wider range of scenarios? And I asked this in the context that as Q1 was strong, you have very little emerging market exposure, commodities are deflationary, and the portfolio tends to do well during a recession. So if you could just help me through the mindset as to why -- how you push back against someone saying, well, isn't your guidance still pretty achievable? And I have a follow-up.

Yes. Okay. Well, here's -- if we knew the answers to the following: Which would be what's going to happen with government shutdown orders? And how long will social distancing continue, quarantining in different parts of the country? Which retailers are going to remain closed? When will they open? What will be their store hours? What kind of foot traffic do we think they're going to have? And when are dental offices going to reopen? There's just -- none of these questions have ever been asked. None of these conditions have ever occurred in a prior economic downturn. So we looked at those, and we said there's just too many other factors right now that we can't predict. So consequently, the sensible thing to do is just withdraw guidance.

Yes. If you would have seen this more like 2009 and it was higher unemployment or financial recession, we would have definitely just kept guidance out there.

Yes. I was with the company in 2009, and we did not withdraw our guidance and we had a good year. I think the company's organic sales were 4.2% in 2009. And the U.S. business, I think, Rick, was up around 7% in 2009. So it's -- this is not just a more severe version of 2009. It's different.

Okay. And in that vein, is there any way to help us just think about, if we drew a T bar about like what you put in like parts you feel pretty confident about and maybe what are like more of the left tail type of scenarios, what would you kind of say that because you have added some businesses to the portfolio relative to where we were in 2009? Any perspective there would be helpful. And then, Rick, can you comment on what percentage of the portfolio is now hedged through 2020 and so we can think about what's locked in versus exposure for 2021?

Yes. Well, in 2009, we had 8 power brands. Today, we have 12. And the 4 that we added were BATISTE, vitamins, WATERPIK and FLAWLESS. And if we just took those, we see vitamins is a terrific place to be right now compared to 2009. In 2009, what was really pulled the train for us was value laundry detergent because it's a big trade down. Right now, we still have value laundry detergent. It's way stronger than it was back in 2009, and we have vitamins, which is a second engine to help us pull the train through an economic downturn. Yes, it's true that WATERPIK is down right now big time because of the dental offices' closures, but there is a therapeutic need for water flossers. So we think -- expect that should start coming back.

I don't know when those dental offices will open up, those recommendations will start again. But that will happen at some point. FLAWLESS looks like, in recent days, we could benefit from. I mean, obviously, that was a brand that's off to a rough start when we first purchased them, but we feel real good about the signs that we're seeing more recently in the month of April. So we -- when you have more brands and you have more categories, you actually spread your risk more. So we're actually, we think, in a better position now than we were in 2009. We've got a lot more degrees of freedom and a lot more weapons.

And then in terms of hedging, I said in my prepared remarks, I think we're about 60% hedged in 2020, and we're about 25% hedged for 2021. But you will likely see us not do a lot of incremental hedging. And in times like this, it's best to let demand play its course to see what happens in the commodity market.

Our next question comes from Bill Chappell with SunTrust.

A couple of things. One, just on costs. I know it's still early, but any kind of thoughts on resin surfactants as we move over the next few months? I realize you're hedged, but just kind of the long -- would it change how you hedge out as we go into 2021?

Yes. No, it's a fair question. A little bit of what Steve said or asked. I'll start with that first. We're 25% hedged into 2021, and we're not going to layer on, in our opinion, much more hedges because it's really demand game right now for those markets, and demand is down. So we're going to wait and see how those commodities shake out. But by and large, I'll give you some examples. Oil is down 50%, but ethylene is down 9%, and HDPE is flat. Polypro is down 7%. That's just spot pricing from February to March. And that just shows you, what we've said for a long time, is it's disconnected from oil unless oil stays down for a long time. So when I say long time, 4 to 6 months. So that could be a tailwind, but we have to wait and see how that plays out.

Got it. And then just on the marketing advertising near term, I guess, a question of are you seeing or expecting some changing trends as we come out of this? You may have heard my state of Georgia is moving a little bit faster than others. And as people go back to malls this weekend or just regular stores, be it pregnancy kits, be it vitamins, be it -- do you change some of your marketing advertising to kind of -- to adjust for some near-term trends? Or do you really just kind of push everything towards the back half?

Yes. No, that's a great question, Bill. Yes. No, all of our marketers have been very busy adjusting all of our marketing messages to be contemporary in recognizing the change in consumer behavior. You have an advertising: Now that you can't go to the salon, fill in the blank. Now that you can't go to the dental office, fill in the blank, right? These are things you have to communicate to the consumer that recognizes circumstances that they're in. So we have been racing to do that for all of our brands. And because the consumer is moving online, we're spending a lot more money changing our digital messages, and we think we'll probably going to spend more on digital media as a percentage of total this year than we have in the past.

Our last question comes from Mark Astrachan with Stifel.

I wanted to ask on e-commerce adoption. So you touched on just how much bigger it seems to be. I think we've seen that across a whole bunch of companies thus far coming out of what's going on. What would be your expectations on how much of those consumers buying online stay that way and away from stores? And specifically to your business, how do you think about your online position and share? And how do you capitalize on kind of that opportunity, especially in key categories?

Yes. I would say it's a permanent change. It's a permanent step-up in online sales. I think a lot of people who had not purchased online, late adopters have discovered it now because of quarantining and requirements to stay at home. You see a big uptick not just in online sales but also click and collect. So buy online, pick up in store is up huge as well. So these have all been discovered by consumers. So I think that's a permanent change. And then we probably got a few years of development in a couple of months for online sales. So that's good. How -- we would look at that as a good thing. In 2015, we had 1% of our sales online. Last year, 8%. This year, we'll -- we had a target of 9%. We'll probably well exceed that. So we've done a lot of work over the last few years, putting ourselves in a position to be a formidable competitor online, and I think we are. So we think that we're fine with that trend were it to happen.

And that does conclude today's question-and-answer session. I would now like to hand the call back to management for any closing remarks.

Yes, I think we're in a great position going forward. As I said earlier, we performed well in good times and in bad. We got a terrific balance sheet, lots of cash, strong brands, and we think we're well positioned for what's coming. And we'll talk to everybody again in August.

Ladies and gentlemen, thank you for participating in today's conference. You may now disconnect.