切遲杜威 (CHD) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Church & Dwight third-quarter 2007 earnings conference call. Before we begin, I have been asked to remind you that on today's conference call the Company's management may make forward-looking statements regarding amongst 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. Jim Craigie, Chairman and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

Thank you, operator, and good morning everyone. It's always a pleasure to talk to you particularly when we have good results to report. I will start out by giving you a brief summary of our third-quarter results. I'll then turn the call over to Matt Farrell, our Chief Financial Officer. Matt will provide you with the financial details of the third quarter. When Matt is finished, I will provide some further information on the factors driving our key business units. Finally, I will provide earnings guidance before we open the call to field questions from you.

Overall we were very pleased with our third-quarter business results. Reported net sales were up 12% versus year ago. Organic net sales which exclude the effects of acquisitions and foreign exchange, were up a strong 6% versus year ago. The organic net sales growth reflects solid gains at all three of our reported business units including record quarterly sales for our international and Specialty Products businesses.

These gains were driven by the improved pipeline of new products, increased marketing spending and excellent sales execution which led to record shares across many of our key brands. We are also beginning to reduce the drag on organic growth caused by some of our smaller brands through a stepped-up effort to slow the rate of decline.

Gross margins were up 40 basis points from year ago to 39.5% of net sales for the quarter. The improved gross margins in the face of significant commodity headwinds reflect our continuing focus on managing costs, implementing price increases, and leveraging scale. And finally, our earnings per share increased 32% over the year-ago quarter to $0.75 per share.

These excellent results have put us in a position for another year of record sales, profits and earnings per share in 2007. I will provide more detail on our business unit results and my outlook for the year in a few minutes.

I will now turn the call over to Matt who will provide you with greater details on the financial results for the third quarter.

Thank you, Jim, and good morning, everybody. I will start with the headlines. Third-quarter EPS was $0.75 per share compared to $0.57 in 2006. The exceptionally strong sales performance is really the biggest driver of our third-quarter earnings results. It's also noteworthy that results include approximately $0.04 of earnings from a property sale in Canada and $0.02 of tax benefits which lowered our effective tax rate below 36%.

Start with revenues, revenues up 12% of which 1% was due to foreign currency changes, 5% due to the OGI acquisition -- if you will recall, we acquired it in August of 2006 -- and a 6% organic growth. Now about 1% of our organic growth may be attributed to the initial shipments of concentrated liquid laundry detergent in September but all things considered, this was a very healthy quarter for organic growth.

I'm going to say a few words about each of the segments. The domestic business had a strong quarter led by ARM & HAMMER liquid laundry, cat litter and SpinBrush. Trojan, ARM & HAMMER, carpet deodorizer and ARM & HAMMER Dental Care were also up year-over-year. However, offsetting the quarterly growth were declines in other toothpaste and antiperspirants.

The international performed well, led by Canada, France and Brazil and finally, Specialty Products business had a solid quarter due to strong demand coupled with a price increase for our dairy nutrition product and also higher volumes in pricing in the specialty chemicals business.

And now gross margin. Our third-quarter gross margin was 39.5%. That's a 40 basis point expansion versus last year. Cost reduction programs in pricing contributed to margin expansion despite higher costs for material input such as resin, corrugated paper and diesel, just to name a few. Looking ahead to Q4, we again expect year-over-year gross margin to expand as we realize the OGI manufacturing benefit. I'm sure we will spend more time on that during Q&A.

And now marketing, marketing spend was 12% of revenues. That is comparable to the prior year's spend rate of the 12.1%. The marketing expense was up about $7 million over the year ago partially driven by the OGI acquisition. A portion of our planned marketing spend has shifted from Q3 to Q4. This is in part to match our advertising with the expanding distribution of our new products. Our third-quarter spend was about $70 million and we expect to easily exceed that level of spend in the fourth quarter.

Now SG&A. SG&A was down year-over-year due to a $3.3 million gain on the sale of property in Canada. If you exclude that gain, our SG&A as a percentage of sales declined 100 basis points to 12.8%. And this reflects continued cost control and leverage from the OGI acquisition.

Our SG&A for the past two quarters has been about $74 million to $75 million per quarter. That excludes the Canadian gain from Q3. The fourth quarter however, will be much higher due to the charge related to a reorganization of our Canadian business which is mentioned in the press release and also several R&D projects that require heavier spending in the fourth quarter.

Moving now to operating profit, the operating margin for the quarter expanded 140 basis points to 14.7% excluding the gain on the property sale. And the operating margin expansion is driven by higher gross margins and SG&A leverage. Now other income expense decreased primarily due to translation gains caused by the decline in the dollar during the quarter so the weakening U.S. dollar also contributed to earnings in Q3.

Next is income taxes. As you can see in the release, our effective rate for the quarter is 34.7% which is lower than the expected 36% rate. This is due to the reduction of tax liabilities at one of our foreign subsidiaries. And while I'm on the topic of effective tax rate, we are forecasting an effective rate of approximately 36% for the fourth quarter.

Now free cash flow. We generated $123 million of free cash flow so far in the first nine months of the year. Our total debt to LTM adjusted EBITDA for our bank agreement was approximately 2.3 at quarter end so we are comfortably within our long-term target range of 2 to 3 times EBITDA.

If you looked at the balance sheet, you can see that we built our cash position in the third quarter rather than reduce our term bank debt. We ended the quarter with $179 million of cash on the balance sheet and this affords us more flexibility in making bolt-on acquisitions without needing to access the credit markets.

Turning now to other elements of the balance sheet, accounts receivable are up approximately $23 million versus a year ago. That is primarily due to higher sales in the quarter and the effect of foreign currency changes. Same is true for inventories. Inventories increased about $13 million versus a year ago; the biggest reason for that again would be currency. It is also noteworthy that we have now transitioned the manufacturing of OGI products from co-packers to our plants.

So in conclusion, a short summary for the third quarter would be 6% organic sales growth; 40 basis points of gross margin expansion; good SG&A leverage; successful new product performance; and strong free cash flow. Now back to you, Jim.

Thanks, Matt. I would now like to provide you with details on each of our three key business units, our domestic business unit, our international business unit and our Specialty Products business unit to give you a better sense of what is driving the Company's results. Please note that when I mention consumption, I'm talking about all channel consumption, which includes the traditional food and drug channels as measured by Nielsen, plus our actual retail consumption results or actual sales results in other sales channels not measured by Nielsen such as Wal-Mart, dollar stores and clubs.

These nonmeasured channels are growing faster than the measured channels and they represent almost 40% of our Company's total consumption and even greater than that on some of our brands. Thus what you see as Nielsen share and consumption results is often a misleading indicator of the actual total consumption occurring for some of our categories and brands.

Okay, let's first talk about our domestic business unit. Total net sales in this business unit grew 10% in the third quarter over the prior year period of which about 6% was driven by the impact of the Orange Glo acquisition and 4% was organic. Organic net sales were driven by sales gains in liquid laundry detergent, cat litter, condoms, ARM & HAMMER toothpaste, SpinBrush, carpet deodorizers and depilatories. These sales gains were partially offset by declines in powdered laundry detergent, antiperspirant, and value toothpaste.

Overall we are very pleased with the organic growth in our domestic business unit driven by innovative new products, improved marketing programs, expanded distribution and improved merchandising.

On the new product front, we are beginning to see the benefits of our corporate new product team that was created in 2006 to deliver more innovative consumer products with strong consumer appeal. Last year this group produced great new products like the new ARM & HAMMER fridge fresh refrigerator deodorizer and the ARM & HAMMER high-performance cat litter made from natural ingredients. These new products are continuing to experience strong sales gains in 2007.

This year the new product team's efforts has resulted in a record number of new product launches, 50 in total, including the following; ARM & HAMMER essential liquid laundry detergent which is formulated from plant-based surfactants and baking soda to deliver the same powerful cleaning capability as regular ARM & HAMMER detergent. This new product has shown very strong appeal among environmentally conscious consumers. We've expanded this concept in the fabric softeners, with the launch of ARM & HAMMER essentials fabric softener sheets which is also off to a strong start.

We've also launched a highly innovative ARM & HAMMER cat litter called Odor Alert. This clumping cat litter contains crystals that change color when activated by the cat's urine so that consumers can see and remove the soiled cat litter before they smell it. As our new commercial for this product states, if your cat litter doesn't change colors, then it is time to change your cat littler.

These new ARM & HAMMER products and being supported by increased levels of marketing spending behind the new ARM & HAMMER megabrand marketing campaign that we started in 2006. This marketing campaign in combination with the innovative new products has driven net sales growth for all ARM & HAMMER brands from 1% in 2004 to over 5% in 2007. This improved sales growth reflects record market shares in 2007 on our ARM & HAMMER laundry detergent, baking soda and cat litter businesses.

We've also launched innovative new products in other core categories including a new Trojan Intense Ribbed condom, a new subline of Nair depilatory products called Pretty which is specially formulated for the more sensitive skin of young girls in their teens and 20s. And also three new SpinBrush toothbrushes including a unique two-speed version to enable both gum massage and brushing and our first rechargeable SpinBrush.

The new products and marketing programs have enabled us to maintain category leadership in battery-powered toothbrushes, regain leadership in the depilatory category and expand our category leadership in condoms.

Our new product team has also quickly applied its skills to our latest acquisition by developing and launching two new OxiClean products. First, a new OxiClean portable stain remover that instantly dissolves most stains. The portable instant stain remover segment is a new and fast-growing segment and we expect that the launch of this new product under the popular OxiClean brand name will have strong consumer appeal.

Second, we're in the process of launching an ARM & HAMMER laundry detergent that includes the stain-fighting benefits of the OxiClean brand. This new cobranded and premium priced product builds on the category trend towards two-in-one products. It will be available in liquid and powder form and delivers premium laundry detergent cleaning performance at a value price.

Trade acceptance to date has been very strong and we plan to support the launch with significant levels of dedicated TV and print advertising starting this fourth quarter. The OxiClean brand has achieved record shares in the first nine months of 2007 as a result of improved merchandising, increased distribution and continued strong marketing support on the base OxiClean business. These two new products are expected to continue to drive record sales and share results on OxiClean going forward.

As mentioned earlier, the solid growth that we achieved in the first quarter on laundry detergent, cat litter, condoms, ARM & HAMMER toothpaste, SpinBrush, carpet deodorizer and depilatories was partially offset by declines particularly in antiperspirants and value toothpastes. These are tough categories in which we face exceptionally strong competitors with significant scale advantages.

However, about six months ago we created a new team of gorilla marketers and a supporting cross functional team to stem the decline in these categories. This team was too new to have an effect in the first half of 2007 since that timeframe was driven by customer decisions made before the team was formed. However, this team was able to begin to reduce our sales decline in these tough categories starting in the third quarter and is expected to continue to reduce the decline of these brands in the fourth quarter and in 2008.

Overall we are very pleased with the solid organic sales regrowth of our domestic business unit. Our efforts to launch innovative new products, supported by more impactful marketing campaigns and increased spending is working. However, we are not satisfied. We expect to launch bigger and better new products in the future to keep up with the demands of our consumers and to stay a step ahead of our competitors.

Finally I want to mention that Church & Dwight is fully supporting the industrywide initiatives to reduce the water content in liquid laundry detergents by moving to concentrated offerings. The roll out of concentrated line extensions began this September in the southern half of the United States. So far this roll out has gone very smoothly and the results are in line with our expectations in terms of reactions by our customers, our competitors, and most importantly, our consumers.

If everything continues to go well, this initiative will be a winner for our customers, our consumers and for manufacturers. We will complete the national launch to all retailers by mid 2008.

Now let me talk for an minute about our two other business units, our international business unit and our Specialty Products division. Our international business unit which represents over 18% of our total sales had an excellent third quarter and broke through the $100 million level in net sales for a quarter for the first time. This represents the 13% increase in total sales over the prior year. When acquisitions and foreign exchange are excluded, this translated in a 3% organic growth. This increase was driven by strong sales results in Canada, Australia, France and Brazil.

On the international front, I also want to note two important initiatives. First, we recently launched the Trojan brand in China and distribution is growing in key accounts and pharmacies. Second, we are reorganizing our Canadian subsidiary to streamline our total Company within North America. The Canadian organization we will be structuring will incur a fourth-quarter charge of approximately $0.04 per share but will generate cost savings in 2008.

The approved organic growth, market expansions, and organizational restructuring in our international business unit reflects improved coordination between all functions in our domestic international units to leverage new product innovations, improve marketing campaigns and supply chain best practices.

Now in our Specialty Products business unit which represents about 11% of total Company sales, net sales grew 22% over last year's third quarter on a reported and organic basis. This significant growth was driven largely by strong demand by dairy farmers for our animal [nutrition] products despite recent price increases. Specialty Products also benefit from increased sales of our products in Brazil driven by the strengthening Brazilian economy.

Now let me switch gears and talk about the future. While we are pleased with the solid third-quarter results, we are never satisfied. First in terms of dealing with issues, we've been able to absorb an unprecedented level of cost increases for raw materials, packaging and transportation since 2004 and still deliver solid growth margin improvement and earnings growth. We have a well organized pipeline of cost savings initiatives in the areas of manufacturing, purchasing and distribution that are being executed and along with price increases taken in 2005, '06 and '07, have enabled us to more than offset the commodity cost increases.

As we look forward these cost savings initiatives will be bolstered by manufacturing synergies from the recently completed Orange Glo integration, liquid laundry detergent compaction, volume scale leverage, and planned price increases on selected products in 2008. The net effect of all these initiatives will lead to further steady improvements in our gross margins in the fourth quarter of 2007 and will enable us to achieve our annual gross margin goal of 125 basis points of growth in 2008.

The improvement in our gross margin will also enable us to increase marketing spending in the fourth quarter of 2007 and in 2008. We will focus this increased marketing spending behind a strong pipeline of new product innovations in every one of our core categories. As I stated earlier, these new product's increased spending have resulted in record sales and shares in 2007 and many of our key categories. We are very pleased with the results but we know that we must continue to improve on all fronts and continue to [send] the decline in categories where we are weak.

We will also continue to drive growth in international markets by leveraging our new products and marketing programs into all applicable worldwide markets while at the same time improving the efficiency of our worldwide supply chain through implementation of best practices.

Now let me translate this into specific items for the rest of the year. In view of our solid organic revenue growth, gross margin improvement and overhead expense control actions in the third quarter, we are confident that these trends will continue into the fourth quarter. As a result, we are raising our previously announced 2007 earnings per share forecast from $2.34 to $2.36 to $2.42 to $2.44. This goal includes the $0.04 per share gain in the sale of property in Canada. The $2.42 and $2.44 earnings per share forecast is equivalent to a 17% to 18% increase over 2006 results.

Now before I close, I'd like to comment on Unilever's announcement that it intends to sell its North American laundry business. Generally we do not comment on specific acquisition opportunities. However, in this case, I want to remind you and inform of the other following.

We will adhere to our practice of making business decisions that we believe are in the best long-term interest of our Company. We have a great record with the acquisitions that we've made. We've been very successful in growing our laundry detergent business both organically and through acquisitions such as the recent purchase of OxiClean. And finally, we are extremely confident that we will be able to continue to properly grow our laundry business regardless of the future ownership of Unilever's North American laundry business.

In summary, we are very pleased with our third quarter and first nine month's results for 2007 and we feel confident that we can deliver our new EPS forecast for the year.

Now that ends our presentation. I will now open the call to any questions that you may have which Matt and I will do our best to answer. I do want to mention that due to travel commitments, Matt and I are in different locations so we may have to call a few audibles on the phone as to who takes the lead in answering your questions.

Operator, please go ahead.

(OPERATOR INSTRUCTIONS) Alice Longley, Buckingham Research.

Good morning. First of all, the quarter was clearly an upside surprise and you had warned us about the cost of shipping to compaction. Can you tell us what in the quarter if anything was ahead of your expectations?

Yes, Alice, this is Matt. I think that anybody who is looking at our performance in the quarter is going to see that we had outsized earnings. But I think that we had pretty high expectations for sales in the second half because remember we said that we thought that we would be able to hit our 3% to 4% full-year earnings target. And there may have been some skepticism with respect to that externally. But from our point of view, we expected to get there and right now we're on track to be there for the full year.

Okay, can you tell us how much pricing was in the organic number as a percent?

Yes. It's mostly volume because we do have some price increases and decreases in [the net]. But I'd say in general that 6% is largely driven by volume year-over-year.

Okay, so maybe 1% to 2% pricing in there?

No, it wouldn't even be as high as 2%.

Okay. And are you planning any further -- what are your pricing plans for next year?

Well we estimate that we will be pricing about 20% of our total revenue base in 2008. And this could go higher based on where commodity prices settle out and what competitors actions are.

But for the time being, we should assume 1% to 2% pricing for next year too?

No, I wouldn't call it that way. I would just say this 20% of our revenue base that we're looking, you can translate that any way you want. The percentage of the price increase will vary from one category to the next.

Okay. And are OxiClean sales coming in, on, or ahead of your expectations or below, I guess?

The OGI acquisition is performing extremely well. It's done many measures at that or above our expectations.

Okay and I guess my last question and then I will give up will be in compaction, are you seeing price per load holding up or coming through as you had expected in the shift to compaction?

Alice, this is Jim. We pretty much have seen it come in as we expected and it's holding up very well. I think sometimes people get fooled by looking at which is the normal merchandising taking place out there but as far as we see on average, it's holding up with expectations in where it was.

Okay, thanks a lot.

Jason Gere, Wachovia Capital Markets.

Good morning. Just in general going back on compaction, can you just talk about how you feel in general with the first wave? I know the costs initially ran a little bit higher maybe two quarters ago than what you were anticipating. So as you go to the second wave, can you just give a little bit more color on the whole process?

Jason, this is Jim. It's going very smoothly. The retailer reaction has been excellent. They are in the process of resetting shelves which varies from retailer to retailer. The manufacturers are all supporting it, pricing is holding as we see it and the move is going very well. Second wave starts in mid January of next year; a third wave, the final wave starts in mid April. Consumer reaction so far has been pretty much in line with what we expected and based on test markets. And everything seemed to go well.

As we said, this is one of those moves which everybody can win on, both the consumers, the customers, and the manufacturers. And everything so far is very much in line with what we expected.

Can you quantify what I guess what the transition costs were in the quarter? Are you able to break that out?

Yes, Jason, this is Matt. I wouldn't say that we're -- our systems are so fine that we can quantify that. But there is a fair amount of expense internally as you ship from one process to another within our detergent plants. I wouldn't hang a number on it.

Okay. And then just in terms of commodity costs, can you break out what the actual impact on gross margins were in the quarter going to material costs?

I think a better way to do it might be if you think about what we -- our evergreen target has been 125 basis points of expansion on an annual basis. And that is something that is not going to change in the future. I think next year our goal is going to be 100 to 125 basis points. But within this year, a logical question would be why were we unable to get or did we say we could get as high as 125 basis points.

And the number one reason would be compaction. The second thing would be that the -- actually the number one reason is commodities. Number two is compaction. It comes later than we originally expected. But I'd say it's easy to see that the lion's share of the miss between our evergreen target and where we think we're going to come out will be driven by commodities.

Okay, and then last question. Certainly intrigued by Trojan in China. And can you talk about the marketing there? And I guess what do you think is going to be more difficult, getting on prime time in the U.S. or reaching out to consumers out in China?

Definitely the latter will be, Jason. Actually there is no TV advertising allowed in China on condoms by the government. So it is much more point-of-sale type marketing going on over there. So right now we're in the base to a distributor building our distribution base in key markets over there. And marketing in the best way we can within the rules and limitations of the government there.

Okay, great. Thanks a lot, guys.

Bill Schmitz, Deutsche Bank.

Good morning, guys. If you look at your peer group, everyone had some pretty tepid growth in North America and you guys came out and had some pretty strong numbers. On the laundry side, is there a trade down going on? Are people trading down for more of the premium stuff to some of your brands?

That's a good question, Bill. We can't quantify that. Certainly when you are in the value side of any business you're hoping when the economy is getting pretty rough out there you might benefit from it. But we can't put our finger on that but we would hope that might happen.

Okay, are there any plans in place to kind of encourage that?

Yes, stick right where we are.

That was helpful. And then you said 20% of the portfolio is taking pricing. Can you tell us what brands are going to take pricing?

Bill, this is Matt. We wouldn't call that just yet simply because we'd have to notify the trade in advance. So we wouldn't talk about that on an earnings call.

Okay. Because it seems like the most impact is liquid laundry obviously. Can you take laundry pricing in light of all this compaction change going on with the consumer?

Well, we're not specifically focused on laundry but certainly that would be high on our list because as you point out, the commodities are affecting laundry more than any other category. The two biggest swingers for us are resin and diesel and they are the two that are most unpredictable. But obviously we would be reacting to what our competitors do as well in pricing and in laundry.

Okay, great. And then just on the Unilever thing, the Unilever laundry business. It was sort of cryptic what your prepared comments. I think from a synergy perspective, obviously it makes great sense and I think you guys could take tons of cost out. I mean is that something you would look at? It wasn't really clear in your comments.

Yes, but we would not comment on M&A activity. I think that was just some general comments and they were meant to be general by Jim.

Okay and the point again is that you are okay with it, you are okay without it, kind of? Because I didn't understand why the comment was in there?

That was it, Bill. I just wanted the world -- we've done very well in acquisitions in the past and I wanted to make sure everybody understood that we will be doing well with or without the Unilever acquisition.

Okay, great. Thanks so much. Oh, sorry, tax rate for next year. Is it 36 probably the right rate to use in our models?

Yes. For now. But we will update that in February when we come out with the 2008.

Okay, great. Thanks a much.

Bill Chappell, SunTrust.

Good morning. I guess first on the specialty business, its a little bit tougher one to track or forecast. But would you expect the trends on terms of topline growth to continue for the next few quarters?

It's a tough one to call, Bill. It's highly dependent on the dairy farmers and the situation out there. There's been some significant price increases. But generally I don't know if they will be as high as they were recently but generally we see some positive momentum there.

Bill, just to add to that, keep in mind that there is some pricing that is driving that as well, but the pricing is simply enabling us to catch up to some significant increases on some of the inputs that would be palm oil-based.

Sure. Would that business be part of the potential 20% that took pricing next year?

Yes, it could be.

And then am I right in saying that there is no real advertising promotion related to that business, is there? So you get some good leverage in the quarter from that growth?

Yes, that is true. There is very little marketing in SPD. But their margins are half what the Consumer Domestic business is.

So it could -- the growth would also bring down the gross margins too.

Yes, that is true. Yes, that has a negative effect on the consolidated gross margins as SPD, as the Specialty Products business growth.

Okay. As you look at A&P and your comments of stepping up in the fourth quarter and into next year, is this something that all along you've planned or you're running ahead of schedule now so you can reinvest more in the business, or you are seeing something out there where you feel like you need to put your foot on the gas a little bit more?

No, that is a good question. You may recall that earlier in the year, we thought that Q3 and Q4 might be more level, and that is not the case right now. There are a few reasons for that, but I mean the number one would be marketing. If you looked at the first couple of quarters of this year, you would see that our marketing spend as a percentage of sales increased year-over-year. That did not happen in the third quarter, and the reason for that is, frankly, we are just trying to time our advertising spend with the distribution that we're gaining on lots of our new products.

So it makes a lot more sense for it to have shift from Q3 to Q4, so that is prudent. But the other things that are happening, why Q4 would be far lower than Q3, is you have the timing of the marketing spend; we have some R&D projects and big ones that are concluding in the fourth quarter. And we normally have a fall-off in sales from Q3 to Q4. So if you go back historically, you will see that as well, and that is the total company. And the last thing would beat we have the charge in the fourth quarter for Canada.

Bill, this is Jim. I would also add to that, we accelerated the launch of ARM & HAMMER laundry detergent with OxiClean because of the test results were so terrific that we wanted to get that out there as fast as possible. So that was one thing that wasn't quite in initial plans, but we put that out there early to get a go, and we're going to be spending some significant marketing dollars behind that.

Okay, great. Nice quarter.

Joe Altobello with CIBC World Markets.

Thanks. Good morning, guys. Just one question actually for Matt. If we go back to sort of where guidance was earlier this year, the $2.34 to $2.36, you guys have talked about 3% to 4% organic growth, and you probably will be at the high end of the range, assuming a 6% organic number let's say in 4Q. So you are in that range. The gross margin looks like it's going to be down versus the 125 bits obviously that you talked about earlier this year.

So it seems like you guys are making a lot of progress on the SG&A front, much lower than what I was looking for. Could you just get a little color as to what is going on in that line to basically drive the earnings growth that we are seeing?

Are talking about specifically SG&A --

Yes, I mean beyond marketing, obviously.

Frankly it simply vigilance with respect to holding the line on SG&A. It's as simple as that. Part of our model is to keep a lid on SG&A and to grow our top line much faster than a rise in our SG&A and we aim to achieve that this year and in the future.

I mean clearly it seems like you guys are doing much better than at least you anticipated as early as May?

Well, no, we expected to do very well on the SG&A line this year because we have a lot of processes in place to monitor that within the Company.

Okay. And lastly if I could, just -- this is probably a small number -- but what are Trojan sales in China at this point?

As you know, we don't quote sales of any of our brands that specifically.

Okay, great. Thanks.

Connie Maneaty, BMO Capital Markets.

Good morning. About the Canadian streamlining, is there one charge or will there be charges next year? And how do you quantify the benefits and what is the date for completion?

Okay, Connie, that is just in the fourth quarter and what it relates to is we're going to be more closely integrating the Canadian business into our U.S. apply chain. So sales and marketing will still be handled locally up there. We're also going to be exiting some distributor agreements up in Canada. So we will have some census reduction and the charge will relate to both census reduction and to the exit of the distribution agreements and we expect that to have a pretty good pay back say within 18 months.

Okay. I'm sorry -- you are exiting distribution and what was the other thing, census reduction?

No, I said we're going to be taking some people out in Canada so that is part of this reorganization.

Okay. On compaction, in the markets where it has been launched, what are you seeing in terms of repeat purchase or have consumers just loaded their pantries with the old stuff?

It's pretty early to call that, Connie. But so far, we are seeing pretty normal repeat purchase but it is difficult right now because there is still in some cases both non-compacted and compacted product on the shelf. So we are not expecting any stampede to the shelf to buy the compacted product.

Okay. What is the market and China for condoms like at the moment? Are there a lot of local brands? Is there any one that is dominant? What do you peg the market potential of the category to be?

That's a hard one, Connie. It's mostly a government supplied market. The premium side of the business is relatively small but as that country is rapidly changing as we all know, we see the premium side and the branded side growing rapidly in the future. So I don't want to give a number but we all know the potential if that continues to happen. That's why everybody is rushing to get over there and we've taken our best brand which has significant opportunity there.

But it is way too early and I think it was Jason's earlier comment, I would not say this is going to have any kind of significant impact on our earnings certainly for -- not for next year.

Okay. And do you have any early thoughts -- I mean you started to give some thoughts on 2008 but can you give us a sense of your outlook for organic sales growth, commodity pressure, things like that?

Hey, Connie, this is Matt. We normally provide all that guidance in February. But it is fair to say that we have been pretty consistent in what our corporate goals are in that we annually want to have a target of 3% to 4% top line. And I think with respect to gross margins, 100 to 125 basis points expansion. I think those are two things that will probably not change and that will be our targets for 2008. But we will be far more specific in February.

And then I guess just one follow-on question. With the roll out of ARM & HAMMER with OxiClean, should we expect that marketing spending would be very heavy not only in the fourth quarter but also the first quarter of '08?

Yes, that is accurate. So I think we'll see a lot more marketing spend in the next two quarters, Q4 and Q1.

Okay, thank you very much.

Alice Longley, Buckingham Research.

Could you tell us what your organic growth was in detergents if you put the liquid and powder together? Were the detergents up in line with your 6% organic growth?

I don't know that I have it that fine for you, Alice. But those categories are up as well. But I wouldn't peg it at 6%.

So maybe the two together are growing slower than that but the shift is to liquids with higher margins than the granular?

Yes, that is right.

Yes.

That would be the way to look at it?

Yes.

Okay and then this OxiClean portable stain remover, is that different from the pen?

It is the same kind of performance as the Tide to Go pen. It's different technology. They have a pen type application; ours is a spray type application.

Hasn't that been out awhile?

It's been fully building distribution for about the last three to six months.

Okay. And then on this Unilever detergent business. Is there any reason you would want to buy them? Just theoretically, given what has happened with your buying fair value toothpaste?

No correlation of all.

So there would be a potential that you could stabilize those brands or turn them around in your opinion?

I don't think we can speculate on that.

Okay, thank you.

Bill Schmitz, Deutsche Bank.

Sorry to queue back in. Can we have some more color on the OxiClean ARM & HAMMER combination when it ships? Is that going to be compacted? Kind of what the outlook is for? And you said you had some pretty good feedback from (inaudible). Can you just elaborate on that a little bit?

Yes, Bill, it started shipping in September. It's a compacted product. It's got outstanding cleaning performance, equal in whitening to the category leader. It will be a value price but it is premium price per wash load or per ounce to our other ARM & HAMMER brand so it will be line priced though to support line merchandising. But we will make premium margins and pricing off of it.

So it is just a really outstanding laundry detergent that leverages the stain-fighting benefits of OxiClean mixed with a great freshening and cleaning benefit of ARM & HAMMER. We are really excited about it.

Okay, great. Thanks a lot so much.

Bill Chappell, SunTrust.

Just a quick follow-up on cash on the balance sheet. I mean at what point do you have too much cash on the balance sheet and do you start putting it to use in terms of debt pay down or other things?

Yes, that's a good question, Bill. We have almost $180 million of cash on the balance sheet. In my remarks, I pointed out that we're 2.3 times levered total debt to EBITDA right now. So we do on a regular basis evaluate what is the best use of cash. To date, it has been the pay down of debt. We did decide 90 days ago to stop paying down debt primarily because of the turbulence in the credit market.

So we essentially built more of a warchest because as you know, that we are focused on our bolt-on acquisitions. You can't always predict when they are going to come. But we certainly are in a very good position to do OGI size acquisitions without accessing the credit markets. But that said, you can't predict when that's going to happen. So it's a quarterly thing that we do. We evaluate what is the best use of our cash and there's no more I can say on that topic.

I guess following on that, are you seeing anything different on the acquisition landscape in terms of with the credit markets more things coming off, less things coming up for sale or is it pretty quiet?

We have a pretty active M&A program. As Jim pointed out, we are pretty fussy about the types of acquisitions that we will pursue. But as far as the number of properties that might be available, we're still seeing a pretty healthy inventory. But again because of the criteria we set for ourselves, that would narrow it down to a very small number of potential targets.

Okay, great.

Connie Maneaty, BMO Capital Markets.

I do have a follow-up question on the composition of the sales in Church & Dwight. Over the last couple of years you've gone to great pains to let us know that you've been pleased with the shift in the portfolio away from household products into personal care even mentioning that if we were to look at it, your sales split would now look pretty much like what P&G has.

So with that as background, are there any reason why we should think that you would alter that composition of sales within the portfolio with an acquisition in household products?

Will, Connie, this is Jim. I mean honestly, we did that when we bought OGI which we paid $325 million for about a $200 million business. And it has just been an incredibly successful acquisition. So we've always said we're agnostic when it comes to as far as whether it's household or personal care businesses. When we see a great deal come along that we think would be very accretive for our Company, we will make it. And we don't care whether it is in household or personal care.

In the same hand, we're not going to make a deal that would hurt us just because we want to enhance one side of the portfolio or the other. So like I said, our last one was household based. It's terrific. We're very happy with it and we will just look at what comes along the landscape and be patient.

I do wish -- I do think some people out there are making some crazy deals and overpaying so we're going to be patient and wait for the market to come to us if it has to.

Okay, thank you.

This concludes the presentation. You may now disconnect and have a good day.

Thank you.