切遲杜威 (CHD) 2007 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Church & Dwight fourth-quarter and full year 2007 earnings conference call. Before we begin, I have been asked to remind you that this presentation -- that in this, the Company's management may make forward-looking statements regarding, among other things, the Company's financial objectives and forecast. These statements are subject to risk and uncertainty 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.

Good afternoon, folks. My name is Jim Craigie. I am the Chairman and CEO of Church & Dwight and if I can get my Chief Financial Officer to stop talking, I will start the presentation here. Seriously, it is a pleasure to be with you today in New York City. I knew our business results were great, but I really have to thank you for that ticker tape parade.

Seriously, I honestly view my company very much like the New York Giants, which I am a huge fan of, which is why I have the jersey here. We are major underdogs to competitors like Procter & Gamble and Colgate, but we have a great team. We have a winning strategy. We have great momentum. I feel as confident about my company's future success as the New York Giants felt when they walked on the field Sunday night. We will talk about that today.

First of all, I have to tell you this presentation, as they all do, contains forward-looking statements. They represent our plans and expectations, but the actual results are subject to risks outside of our control, so listener beware.

We have a four-part presentation today. I'm going to kickoff, for those of you who may not be familiar with the Company, with a little history of the Church & Dwight company and I'm going to talk of our future vision. Then I'm going to turn it over Matt to take you through some details of our 2007 financial results and I'll get back up here and talk briefly about our 2008 earnings guidance.

For those of you who may not be aware of the Church & Dwight company, it actually start over 160 years ago. Dr. Austin Church and John Dwight got together, their families each had a large baking soda business and they put their businesses together and had a monopoly on the baking soda business, and they converted to the Arm & Hammer name. That was the beginning product of the Company. Today, that brand name has been diversified into many different product lines and one fact I love to say is that no other brand covers more aisles of the grocery store than the Arm & Hammer brand. You can see all the different categories that we are in.

On top of that, we have had a lot of acquisitions, particularly since 2001, so you can see we've added businesses in the laundry detergent business, in personal care, with underarm deodorants and Nair, depilatory -- Nair is a depilatory, underarm deodorants like ARRID, the Trojan condom business, the First Response pregnancy business. We picked up toothpaste brands. We brought the Crest SpinBrush business just two years ago and most recently, we bought the Orange Glo company, which had the Oxi Clean brand.

Consumers love our product and this is a very fascinating slide we put together. You can see from this, there's a lot of facts on there, but you can see we are used to bake over 688 trillion chocolate chip cookies. We are involved with 450 million loads of laundry every year and we enable 520 million safe sex acts. So that makes us a very integral part of your lives and it just tells you how deeply-immersed our product lines are in peoples' lives.

Our portfolio has also had very rapid change as a result of the acquisitions. You can see here in the year 2000, we were largely a household product company and then the acquisitions we've made since then have changed the whole profile of our company. I will tell you we have a very well-balanced portfolio between household and personal care, very much like Procter & Gamble, and honest, that is a great advantage. That makes us very ambivalent about future households businesses that we acquire. We have plants in households. We have plants in personal care. As long as the acquisition meets our targets, we will buy in either side of the slate.

We have achieved very consistent and top tier earnings per share growth over the past five years despite commodity cost pressures. Our EPS growth is driven by a combination of solid organic growth and acquisition synergies. We expect to continue this trajectory in the future through solid organic growth and future acquisitions.

You can see on this slide that we have more than tripled our market cap since the year 2000. We are TSR junkies. I know you have a lot of choices to make about the companies you invest your money in. We know you were almost required to look at the large cap players like Procter & Gamble and Kimberly-Clark, but if you look at our history, we've delivered a tremendous amount of total shareholder return to our shareholders. We have actually been a better investment over the last 10 years than every company on this list. $100 invested in Church & Dwight 10 years ago would be worth $510 today. In contrast, if you've got a median return of the companies on the list, that would be about a 7.5% return and that $100 today would be worth about $206. That's quite a difference.

Let me talk about our future vision. To start with, the most important thing is we have a very strong portfolio of leading brands. You can see in this chart the brands that we want to be a number one or number two brand. If we're number one or number two, we want to have a very defendable niche like we have in the laundry business, with a very solid value position. Our vision is quite clear. We are focused on organically building those number one or two brands. We are explicitly focused on total shareholder return. Our goal is to deliver shareholder return that places us in the top quartile of the S&P 500 over the long turn.

You can drive -- you can tie the main drivers of shareholder value -- being growth, margins, and free cash flow -- directly to our strategic priorities. In that context, we're going to continue to being focused on improving the positioning of our brands in the marketplace; accelerating the rate of innovation of new products; entering new global markets and expanding our business in existing markets; driving costs out of our system, both the supply chain and overhead costs; and pursuing TSR-accretive acquisitions to build upon our strong foundation.

I want to spend a few minutes talking about each of these TSR drivers. Let's start first with improved brand positioning. We seek to drive strong organic growth through a combination of factors. We try to put out marketing, more impactful marketing every year. We see bigger and better new products, improved sales execution. We focus our spending behind our key brands and we want to minimize the decline of our weaker brands. I'll give you two case examples of this. First, our biggest brand, the Arm & Hammer brand, which represents about 35% of our total portfolio, this is a brand consumers love. You can see from this ranking against other brands out there, it's one of the most beloved brands in America.

The good news is 75% of U.S. households purchase at least one form of Arm & Hammer. However, the majority of households, being almost 50% of that, only purchase one form. And we ask why? They honestly just aren't aware of the other forms Arm & Hammer, so that's a great opportunity for us to get people to try other forms.

A big part of the problem was, if you went back before 2005, the Arm & Hammer brand was what you would call a dysfunctional family. It had to the different packaging graphics among the forms. There was minimal new product news, it had different advertising message for each of the forms and there was minimal efforts at retail to join the products together. Well, since then, we have made a great effort to change this dysfunctional family into a highly-performing family. You can see on the packaging side what we looked like before and we look like today. The productline does look like a family and a very pretty family with very attractive packaging.

We have also launched a SKU of new products out there. I'll talk about these over the course of my talk today. Two examples to start with is we took our oldest product, Arm & Hammer baking soda -- it has been out over 160 years -- and two years ago we relaunched in a form that looks like a hockey puck, that kind of attaches to the side of the refrigerator. By getting it up off the shelf and up in the air on the side shelf, it gives better odor elimination in the refrigerator and keeps your food smelling fresher longer.

We have also launched some other great new products. We have started a subline called Essentials. It is a line of products made largely for natural ingredients that appeal to a rapidly-growing segment of environmentally-friendly consumers. This is available already in several forms Arm & Hammer, laundry detergent, and the fabric softeners and you'll see it in more forms in the near future.

I also want to say we've unified the advertising. Now I'm going to show you for a second one of the commercials that has unified the brand. Please play the commercial. (video in progress)

This effort is working. This brand was growing at a rate of only about 1% in 2004. It is now growing at a rate of 7% this past year, so we are very proud about that.

Let me talk about our second-biggest brand, Trojan. This is a great example of brand positioning with us as a number one brand that is facing opportunities out there to double or triple the size of this business. Here's the problem. The United States has the worst statistics on sexually transmitted disease of any developed nation. You can see the facts up there. There's literally 65 million people, almost one in five people in this country, have an incurable sexual transmitted disease. The rates of people getting that are growing very rapidly. You can read the rest of the statistics there. It's a very shocking situation. Other than abstinence, the only way to stop a sexual transmitted disease is use a condom. Seems simple. Three-fourths of the time, people aren't doing it. The situation is when two people are having sex and they don't know each other's sexual health situation and the only way, again, to stop disease is a condom, three out of four times people are not using a condom. Three out of four times they're risking getting a sexual disease.

We are attacking that problem. We're doing it in every form of media you can out there, from traditional TV and print and magazines to websites, online, in-school, in-store. We have also increased over the last several years our advertising spending by over 50% and we're trying some very provocative campaigns. I'd like to show you this one that just broke last June. Please roll the commercial. (video in progress)

We're trying to appeal to your psyche. We all know what women call men who don't care about them. They call them pigs. We're trying to impress women, who are 60% more likely to get an STD than a guy to be careful about who you want to go home with. Do you want to go home with a guy who cares about you and is going to protect you or do you want to go home with a pig? So we'll see. It in process and the early read on that is very promising and people are starting to become more aware of the risks that they are taking.

We've also taken the brand into new adjoining categories, launching vibrating rings out there and we only sell those with a condom and we have also just recently launched in the finger vibrators. And it's working. You can see here that the share history of the Company since 1985. We've had terrific results and even, you know, when you get to the point where you are 50, 60, 70 share, you kind of believe you can't keep growing share, but we have. We've grown just in the past year our share by over two points.

I mentioned earlier about focusing our marketing efforts as part of the brand repositioning, and we have done that. We have focused our marketing spending behind our largest brands. After all, a dollar is a dollar and a dollar spent on a larger, more powerful brand will generate more revenues and profits than on weaker brands. You can see these are our key powerful brands. We have increased the spending behind them and we have had terrific consumption results as a result of that in 2007.

That doesn't mean we're giving up on our weaker brands. We do have some weaker brands in categories like antiperspirants and value toothpastes. They represent about 10% of our total business, so we changed the way we go to market on those brands. It's much more retail focused, much more account by account. This effort, led by a new team that we assigned these brands to, has actually slowed the sales decline of these brands in half in 2007. So we are very happy with that result.

Let me turn to the next TSR driver, which is accelerate new product development. New product development has had a very big impact on our success. We created a new product team focused just on new product development in 2006. This year -- this past year, 2007, they launched a record number of new products. This generated very strong organic growth, you can see there, of 5% and they've developed a very strong pipeline of products for future growth. Here's a few examples. In late 2007, we launched Arm & Hammer laundry detergent with Oxi Clean that combines the deodorization and cleaning power of Arm & Hammer detergent with the powerful stain fighting benefits of Oxi Clean. This terrific cobranded product delivers premium laundry detergent cleaning performance at a value price. We are supporting this new product launch with strong marketing programs and it's off to a fantastic start. It's on of our most successful new product launches ever.

In cat litter, in mid to late 2007, we also launched a product called Odor Alert, which is the only cat litter that changes color when the cat soils it, so the consumer can see and remove the soiled product before they smell it. This is also off to a great start, led to some record double-digit share gains and volume gains in our cat litter business and we're continuing to grow the distribution on this business in 2008 for further growth.

Some products that are brand-new coming to market, this first one is new First Response Gold. This is a pregnancy kit that uses what we called gold technology, making it more sensitive than other kits and gives you accurate results within five days after you -- before your missed period. This brand is on fire. We gained market leadership on this business in pregnancy kits last year and we exited the year with great moment and this product will help us keep that moment in 2008.

Our Trojan business, as I told you the story before on that one, but we are capitalizing the momentum in that business. We're going after the thin segment, which is a growing segment of the condom category, which provides obviously greater sensitivity. We're launching two new products this year, Trojan Thintensity and Magnum Thin.

In oral care, we have two terrific products. First, a product we called Arm & Hammer Age Defying Toothpaste, which protects and rebuilds enamel. Secondly, kind of a unique concept in toothpaste, this is what we call a whitening booster and this a tube that looks like toothpaste, but you basically will apply this on top of your toothpaste. You put your toothpaste on your brush first and you apply this on top of it and it gives you two times the whitening power of the leading whitening strips. You know if you've ever used whitening strips how messy and inconvenient are, so this is a very much more convenient and less-messy way of getting -- of whitening your teeth.

Also in the depilatory line, we have a new product called Shower Power. This is quite unique. Most women like to shave their legs in the shower using razors. You couldn't do that before with depilatories because they would wash off before they had their effect of removing the hair. Well, this product has been reformulated. It's now thick enough a woman can put it on, get in the shower, take her shower, and two to three minutes later when she's finishing her shower, she can then take a sponge and wipe it off and you get the benefits of depilatory versus razors. Razors kind of leave you with lots of nicks and cuts and scrapes. Depilatories leave you skin smoother and the time lasts longer between shaving because they cut the hair off lower on the sensitive skin. So it's a great benefit that we hope will grow the whole depilatory category.

Let me talk next about the next TSR driver, which is increasing global leverage. As you can see here, our international profile changed a great deal over the past seven years largely as a result in the acquisitions we've made. We went from 2% of our net revenue in the year 2000 to now 17% of our total business. This is a very, very important part of our growth. The international business represents, like as I said, 17% of our net sales and now it represents 13% of our operating income and that's almost all personal care products, which have higher margins. So good potential.

We've got very steady growth in our key subsidiaries. As you can see there, Canada, Mexico, UK, France, and Australia. We are also entering some new large markets out there. We have a fast-growing business in Brazil behind our depilatory business, which we bought a business down there to help that. In China, we have Oxi Clean and SpinBrush and we have recently launched Trojan via some distributors in China. So that's off to a good start and we're also -- we export our products to 70 other countries.

Next, let me talk about the TSR driver of achieving lower cost. We have consistently grown our earnings over the past three years despite commodity pressures and the key driver of that EPS growth was gross margin. We have a very laser focus on organic cost savings and acquisition synergies. You can see from this chart, we expanded gross margins by 900 basis points since 2003 and even years like 2005 and 2007, which were shocked with significant cost increases, we were able to hold gross margin in those years as a result of our cost-cutting machine. And we expect to continue to increase gross margin by 100 basis points a year starting again in 2008 despite significant cost increases. That'll be driven by a finely-tuned companywide productivity program, acquisitions synergies, laundry compaction, and pricing. Matt will talk more about that in a few minutes.

As a company, we set a goal for the future. Our goal is to get to a 50 gross margin. We're going to do that at a rate of 100, 125 basis points a year. We see half of that coming from organic cost savings and half of that a coming from acquisitions. There's a lot of sources of those organic savings. We have a very effective cost-saving program that's been in place for years. We'll be selectively pricing brands to offset commodity costs. We reduced our trade spending, reduced our SKUs. This past year alone, we have cut our SKUs by 39%, enabling us to close a warehouse and save a lot of money. We also see us investing in state-of-the-art manufacturing facilities to help reduce our costs.

Last but not least, the TSR drivers creating value through mergers and acquisitions -- sorry about the button here, must have been a Patriots' button here -- can't quite operate it right. We're very disciplined about the acquisitions that we make. We will make only TSR-accretive acquisitions. We will buy the brands at reasonable prices so we can capture value and we will drive significant cost energies out of the businesses we buy by integrating into our company's strong foundation. I will just give you a fact on that, a little factoid as I call it. Four years ago when I entered the Company, the sales in this Company were $1.5 billion and we had slightly over 4000 employees. Four years later our sales are $2.2 billion, 50% larger, and there are 3800 employees in our company. So we have done 50% more sales with less employees and that's what we seek to do.

We're very focused on finding brands that are bolt-on number one or number two brands or defendable niches. They have higher growth, higher margin brands, and they have sources of sustainable competitive advantage. And our last two acquisitions was in the size of about $300 million. That is about the size we seek to make. Our competitors can have the $1 billion brands. We will be very happy to have a number one or number brand in a 300 to $400 million category and grow it very successfully, as we have with businesses like Oxi Clean.

Let me give you an example of that. This is the -- what's called the Orange Glo company. It's key brand was Oxi Clean and that was owned by the Apple family, kind of the fruitcake situation there. But we bought this company late 2006. It had several appealing products, the largest of which was Oxi Clean. And this is a great example of what we do it as a company. Now, here was -- Oxi Clean was a premium-priced household brand. It was in a growth category. The additive -- laundry additives category was a $1 billion category. This was the number one brand. It's got what you love about household products, which is a high purchase frequency, and it bolted on beautifully to our businesses. We already made liquid and powdered detergents and this product was being sourced out of copackers at high margins. So we bought a number-one brand. We bolted it on to our laundry business and took a lot of costs out in the process. We also had more muscle at retail than they did, so we closed a lot of distribution voids. We increased the in-store merchandising support. We increase the advertising support. We launched some innovative new products, like the little spray stain remover up here, that kind of leveraged what the success Tide had gone with the Tide to Go stain pen, and we drove a lot of synergies out of the cost supply chain.

The results have been terrific. We have gained over nine share points in this business in just 18 months and it already was the number-one brand in its category. We have delivered over $20 million in synergies and we usually took this brand, as I mentioned before, we have cobranded it with Arm & Hammer to create a terrific new laundry detergent that offers premium laundry performance at a value price still.

Now, before I turn the program over to Matt for a few minutes to talk about our results, let me talk about our experienced and motivated management team. Our company loves to attract people and I am an example of that, but my whole staff is too. We have been trained at the giants. We have been trained at the Procter & Gambles, the Krafts, Reckitt Benckiser, Johnson & Johnson. Then we have also gone out in the private equity world and we have learned how to work in turnaround situations with nickels and dimes versus the $100 bills you have in the big companies. We love this environment. It is a small environment. You can really control the company and what you do and you have a big impact on the company from your performance. You're not just one of a thousand people like you.

We are also pretty stingy, I hate to say. We don't have company cars. We don't have company planes. We don't have club memberships, but that's just fine.

We are also committed to creating shareholder value. Our net worth only increases with your net worth, because our bonuses are tied to the factors that drive the business and our equity is 100% stock options. So if that stock doesn't go up as what you want, we don't get rich, you don't get rich, so we are in the same boat. We also have significant skin in the game.

Alright, let me turn it over for a few minutes to Matt, who is going to take you through the 2007 financial results and I will come back up and talk about the earnings guidance. Thank you.

Hello, everybody. I'm going to do four things and we're going to spend a few minutes on our business model. Then I'm going to in Q4 and the full year, I'm going to spend a little bit of time on the balance sheet. Then I'm going to conclude with our priorities for 2008 and then I'm going to turn it back over to Jim, we're going to talk about the guidance a little bit.

We have a pretty simple formula. So if you're new to Church & Dwight, what you're going to hear us talk about constantly if the following -- its pretty simple, we focus on the three things. It's topline growth, 3 to 4% annual growth, so this is an evergreen target within the Company. The second thing is margins. It is common knowledge within the Company what we try to do every year is to expand our gross margins 100, 125 basis points and increase our operating margins 70 basis points. The third thing is free cash flow.

Two things about this company is it's like a lot of CPG companies. It's not capital intensive, so we're pretty vigilant about how much we spend in the plants as well as our working capital management. I'm going to take you through some of those stats later on and free cash flow conversion is important to us as well, so quality of earnings matters.

Okay, next slide is important, too. You can tell a lot about a company by what gets talked about internally. So we used this line before, and we use this internally as well as the last slide quite frequently with employees. If you look at the right-hand side of this slide, it's these tactical programs. So what do we mean by all these various programs?

So we'll start with the top on the P&L sales. So new product development, we have a new product development team -- you've heard Jim talk about it -- that was formed is in early 2006. So it has really bore fruit in 2007 with 51 new products that we launched.

In 2008, we are going to have 35 new products coming out, fewer but bigger. If you go down a page now, trade spending, what's meant by that? We spend several hundred million dollars a year with the trade. So this is an amount that is netted in our net sales amount.

So we're constantly asking ourselves, okay, what kind of lift are we getting from the money that we are spending in trade? Continuing down, cost reduction, SG&A, we try to grow the SG&A line -- we actually don't try to grow it, but if it's going to grow, we try to grow it at a slower rate than our topline, so say 2%.

As far as procurement goes, we are a much bigger company than we were a number of years ago as a result of acquisitions. As Jim said, 2003, this was a $1 billion company. Today it is a $2.2 billion company. So we're trying to take more advantage of the kind of leverage that we should have as a result of that size.

Marketing spend, spend over $2 million a year in marketing, so we're constantly asking ourselves, hey, are we getting the return on what we're spending in television and print? The same is true for R&D, we spent $50 million in R&D in 2007. The same question, that's 2.3% of sales. Are we getting the return on that?

Then M&A, you know we acquired Orange Glo in August of 2006, so the constant drumbeat is, hey, are we getting the synergies that we expected? We expected $20 million of synergies, $10 million from SG&A and $10 million from cost of goods sold. Now cost goods sold benefit, we got a little bit of it in the fourth quarter. We are going to get three-quarters of it next year, but I would say more about that in a moment.

Then finally, cash. I'm going to cover this a little bit later on, but you see the trends in this company is we're pretty consistent with respect to how much we spend on CapEx as a percentage of sales. And there's also how much working capital as a percentage of sales that we allow.

Okay, 2007, terrific year. We had 19% EPS growth. We had 5% organic growth. That was a little bit supercharged by the results in are Specialty Products business. And we got our targeted 70 basis points of operating margin expansion. And we did get OGI integrated into the Company, so we now not only are -- obviously shipping and billing, but we have all the copackers that we've taken out of the game and we're now producing in-house as of the fourth quarter.

Then finally, free cash flow, we have a record $200 million of free cash flow in 2007.

Now we're going to roll through the fourth quarter, the headlines. So EPS $0.46, $0.36 last year; 9% organic growth. Operating margin is 160 basis points and free cash flow of $77 million.

So, now let's look at some of the pieces. We'll start with the domestic business. So the domestic business had terrific topline growth, lots of contributors there. Cat litter, as Jim talked about earlier, had a great quarter. Trojan, SpinBrush, had terrific quarter as well. Loss of displays out there. Pregnancy kits and also Arm & Hammer toothpaste.

So all that combined to have a 70 basis point expansion in gross margins, and something to keep in mind there is that we have all the commodity headwinds that all the other CPG companies are dealing with. So we had to overcome that as well as the transitional costs that we experience as a result of liquid laundry concentration. So it terrific quarter for the domestic business.

Now moving to International, it had a nice quarter as well at 3% organic growth in the quarter, then finally the Specialty Products business. You see that number, you see 31% revenue growth. That is obviously a pretty supercharged number, so what is driving that? What's driving that is primarily our animal nutrition business. You heard Jim mentioned that the animal nutrition business primarily serves the dairy markets, so what's going on in dairy? What's going on in dairy is there's tremendous demand for milk worldwide, particularly in developing countries. So that combined with a weak dollar has made exports just explode. If you are a student of this market, you probably also know that inventories are have been declining over the past three years, this is powdered milk inventories. So what that means is that historical production actually wasn't matching demand. So this bodes well for this business going forward.

On the downside, one of the key ingredients in this business is something called palm fatty acid distillate. The thing that you really need to know is that simply that that has been driven up because of demand for biofuels. So a terrific quarter from the topline, both volume and price, but certainly on the cost goods sold line, we got hammered from the increases in palm fatty acid distillate. So what that did was drove the gross margins down, so we have a mix issue in the fourth quarter. So this is the business that drove us -- the margin percentage down year-over-year.

Okay, here are the numbers for the fourth quarter. So you see going down the page, we had 9% organic growth. Gross margin, I just talked about, that was largely driven by the results in the Specialty Products business. Marketing, a lot of spending behind the brands, 13% of sales. SG&A, we got nice leverage year-over-year, so that all combines to expand our gross margins by 160 basis points. You also see that we overcame a very different effective tax rate in 2007 versus 2006. You may recall in 2006, Congress passed the R&D tax credit very late in the year, so we got the full-year benefit last year in the fourth quarter. So all in all, a very nice quarter for the Company.

Now here's the full year, up 19% to 246, 207 last year, 5% organic gross. Again, we get the 70 basis points margin expansion and $200 million of free cash flow. Again, similar slide as before, we're growing through each of the businesses, first domestic. So domestic growth driven by OGI, of course, so we had a full year of OGI in our numbers for 2007, but also Super Scoop, Arm & Hammer Liquid Laundry, Trojan, SpinBrush all had terrific years and we were able to hold gross margins in spite of the commodity headwinds and the transition cost of concentration.

International also delivered organic growth, so their organic growth was over 3%. And we also we had gross margin expansion.

Finally, Specialty Products, a nice year with respect to volume, but also the issue of palm fatty acid derivative drove their margins down year-over-year.

Okay, here are the numbers. So 5% organic growth, gross margin flat year-over-year. The marketing is an interesting trend. If you went back to 2005, we spent 10.6% of sales on marketing, so you see a 50 basis points incease '05 to '06, another 50 basis from '06 to '07, and we should see a similar trend in 2008. SG&A, a very nice trend there, down year-over-year 120 basis points. Then operating margin of 70 basis points expansion. And finally, EPS up 19%.

Little more detail on productline here, so you can see the break-out between household products and personal care, so that 20% is -- that's driven largely by the Oxi Clean business, our Orange Glo. Remember we had 12 months of that in '07, but also Arm & Hammer Liquid and Odor Alert driving that. Personal care driven by Trojan, SpinBrush, and Nair, but I think there's one thing to keep in mind here is that that is net of the value toothpaste businesses and the aerosol antiperspirant business, which had problems for us and been declining year-over-year. So that is a really nice result for personal care on full-year basis.

Now, here are the quarters. Just another very interesting and telling slide, so you see in Q1 when we started the year, we were down 1% and that is because we had a very difficult comp year-over-year. But then you can see that the organic growth really accelerated in Q2, Q3, and Q4, so strong last three quarters of the year. We ended above our three to 4% target. Innovation is a big driver of this, but also I think a lot of good things happened in packaging, some of our marketing is working, we're getting some additional distribution as well. And the results of our Specialty Products business, they're up tremendously year-over-year. That drove us to the way over our range of three to 4% up to 5%.

We ended the year with a lot of momentum, so you run your eyes down the page here, you'll see these are very important products to us and we have record marketshares. So this is a very good sign for Church & Dwight as we enter 2008.

Now here's the balance sheet. Just kind of a brief look here, the numbers are a little bit smaller. But if I call your eyes to the middle of the page, you see net debt right now is $606 million. That is the lowest it has been since September of 2001. It is very, very low right now for the Company. The second thing is working capital, so that number in the first line of 2p5, where we calculate that is we have simply inventory accounts receivable and accounts payable that's tracking around 13% of sales. It's similar to where we were in 2006. So very consistent.

This is capital investment, so you can see, historically, we will spend about 2.2 to 2.4% of sales on CapEx. We spent around $49 million in 2007, expectation would be around $55 million in 2008, so enough said there.

Okay, one of my favorite slides is free cash flow conversion. A very good measure of earnings quality is cash flow conversion, so we generated $200 million of free cash flow. Our definition of free cash flow, by the way, is cash from operations minus CapEx, so that's before dividends. So 118% conversion rate.

What's notable here is that we have had 100% or better now three years in a row. So free cash flow conversion, it's just a very important contributor to shareholder value.

EBITDA, just one more illustration of EBITDA. This is defined by our bank agreement. You can see that that the CAGR here is about 21% of his period of time.

So now our financial capacity, very strong balance sheet right now. You can see we're sitting on a lot of cash, $250 million, net debt, as I said before, around $600 million. We're in a very good position to be acquisitive, with the debt to EBITDA of 2.3 -- our stated target is two to three times and that's total debt to EBITDA. If you look at it from a net debt standpoint, we're well under two right now.

Now the uses of free cash flow. What this slide is intended to do is to give everybody a handle on how we intend to deploy free cash flows. This is an import decision and one that is of great interest to shareholders. We regularly evaluate what is the best way to use our cash and they are prioritized for you on this slide. If you saw this slide last year, you see debt reduction was at the top of the page. That is because we had a goal to drive our debt to EBITDA down to the low end of the range, which we have done right now. So our M&A is moving up on our list as a result of the debt ratios being now in a comfortable comparable range. I would say, just moving down the page, we are going to -- we responsibly investing in new product development as well as maintain our current CapEx levels to protect our brands. Debt reduction, if you have listened to our earlier calls in the year, you know that we've started to stockpile cash starting in June of 2007 when the credit markets went off a cliff. So we will probably continue to do so in the foreseeable future. The reason we did that is because our credit facility is largely term debt. So you know if you pay down term debt, you don't get to borrow it back. We don't have a big revolver in our credit facility.

Finally, return of cash to shareholders, that is last on the list right now but that is something that we evaluate periodically with management as well as the Board. But the Company's focus right now is growth, so consequently there is no intention of a share buybacks at the moment. Last -- I get this question quite frequently, but we have not bought back shares since 2001.

Now priorities for 2008, there should be no surprises on this page. Obviously three to 4% topline growth. I mentioned earlier that we have 35 new product launches planned in 2008. Most of those will go out the door in the first six months of the year. Second on the list is 100 basis points of gross margin improvement. These will fall differently. I'm going to show you that on the next slide. We have OGI manufacturing synergies. As of October, we start manufacturing all the Orange Glo or Oxi Clean products in our plants. We had one quarter of benefit in Q4, we're going to get three-quarters next.

Second on the list, price increases. You probably saw in the release we had price increases planned for Trojan, baking soda, as well as cat litter. It's also true we're going have price increases in International and also in our Specialty Products. Again, and an obvious question might be what might be the average price increase for just 20% of the Company? That would be around 5%. The thing to keep in mind, though, is that typically when you have price increases, you also have some hits on volume. So we clearly do not expect all of that to fall down to the gross profit line, but we would expect a good piece of it to fall. The benefits of concentrated liquid laundry, you probably know that the first wave is complete. The second wave started on Jan 21. The third wave starts to April 21. So as we exit 2008, we're going to start getting the full benefit of liquid laundry compaction. But in the meantime, there are transition costs not only that we experienced in Q4, so we will have a bumpy ride initially along the way, but the benefits of liquid laundry, it's going to be a net positive for us in 2008 and it's going to help us expand our margins.

Cost reduction programs, those things that we do all the time, they're ongoing. Last on the list is free cash flow conversion. When we meet again next year, we would like to have continued our streak of 100% free cash flow conversion. We do some opportunities to reduce our international inventories and SKU reduction is something that we are very vigilant about as well.

This is just to burn it in, the comment I just made a moment ago, how to think about the catalysts for gross margin in 2008. Another way to think about this, there are four levers that we have. Two of them are ongoing, that most companies who are going to avail themselves are, that's cost reduction and pricing. There are two others that are specific to Church & Dwight. Those would be the OGI synergies and laundry compaction. Timing of those are going to be little bit different. Cost reduction programs obviously hit throughout the year. The pricing, and domestic being our biggest business, is going to start February and beyond, so we'll get more of the benefits after Q1. The OGI synergies are really going to be Q1, two and three, because Q4 we're going to lap it year-over-year. And laundry compaction is just ongoing throughout the year. So we would expect gross margin expansion in each quarter, the lightest quarter being Q1, but we would expect it build as we move through the year.

That concludes my remarks. I'm going to bring Jim back up here now to wrap it.

Thanks Matt. Can I have the clicker back? Good handoff.

This is generally the shareholder return model we've used historically and Matt kind of took you through the pieces. I would just say to you that we are very confident to achieve all these metrics, including the gross margin expansion, despite the significant commodity headwinds out there. As Matt said, we will be raising prices at this point on about 20% of our business and every day we pick up news from some of our competitors. So we might even price beyond that in 2008 as we pick up news. And we are going to be increasing our marketing spending, as Matt said, and all to deliver to that operating margin improvement of at least 70 basis points.

This is the official release you saw up there and basically it says at this point in time, given what's going on in the environment, we feel comfortable at raising our earnings per share target by 13% over 2007 to a target of $2.77. That'll be driven by very solid organic growth. Gross margin expansion of at least 100 basis points, and that'll be driven, as Matt said, through the combination of pricing, the OGI synergies, laundry compaction, and ongoing cost savings throughout the Company. We'll also be increasing our marketing spending.

So let me open floor now the questions and also I'd ask when you ask a question, please state your name and your company, so the people listening in on the conference can answer.

Alice Longley, Buckingham. My question is about Unilever detergents. I think everybody knows that they are up for sale, I guess, and could you outline why Unilever detergents might be a good acquisition for you? Why that might not be good acquisition for you? In particular, talk about the market share losses in those Unilever detergents. Why would you possibly want that business, given that they keep losing market share, aside from the cost synergies?

Okay, I would love to talk about acquisitions, but I legally can't. Just speculative, right. Well, the Patriots were a 12-point speculative answer and that didn't work out either. I would just say, Alice, I said before, we are very ambivalent about between buying household and personal care. Our last acquisition was a household business, actually a laundry business, so we look at everything in those categories. It would be awful nice to pick up a nice chunk of the laundry business. The OGI acquisition was tremendously beneficial to our company.

So I would just say, like other players, we're looking at it. There are pluses and minuses to the deal, but I honestly, I can't go into, even for competitive reasons. But it's a big thing out there right now. We're definitely looking at, I will tell you that. I shouldn't even tell you that, but I can't tell you anymore than that.

Can you compare it to the acquisition of the Unilever toothpaste, which continued to lose share after you bought them? Do you think this situation is different and you could possibly stop market share losses in those detergents?

I shouldn't say anything. I would just say to you those were night and day. Those toothpastes, they were honestly the one deal we wish we had never made. Those brands in much worse shape. They were really old, declining brands. These are not. There are some very good brands in that portfolio of Unilever laundry and in much better shape. So they have been declining, but nothing near what the Unilever toothpaste brands were.

Carla Casella, JPMorgan. Aside from laundry, are there any specific parts of your portfolio that you think you need to fill holes with acquisitions or any ancillary businesses that would be attractive to combine with what you've got.

It's a good question. I don't think we have any holes, quite honestly. I think there's always ways to strengthen. Laundry was our biggest business and we strengthened it by picking up OGI with the Oxi Clean brand. Not only did we pick up a brand that we grew, but, like I said, we cobranded that with Arm & Hammer to even help our Arm & Hammer brand. So that was a home run. We just love acquisitions like that, where we picked up a number one brand and I think we even shocked ourself a little bit. We're grown the share from like a 25 to 34 in just 18 months. We've grown the margins. We've cut costs, it has just been a beautiful acquisition.

So like I said, but we are ambivalent. I have seventeen plants worldwide that make households products and personal care products. I can fill bottles with liquid. I can fill boxes with powder. I can fill tubes. I can fill creams and lotions and things like that, so honestly, it puts us in a great position to look at businesses. Now, I will tell you we are very picky. We are sticking to our guns, we want number one or number two brands available out there or a brand that has a very unique positioning that may not be number one or two. We want ones we can bring in-house and knock a lot of cost savings out, either through the supply chain or through SG&A and generally be good.

Now, we would love them to be bolt-ons to our existing categories, but we will look at new categories too. If we hadn't done that, we never would have bought the Carter-Wallace business back in 2000, which brought us a condom business we weren't in, brought antiperspirants we weren't in, brought us depilatories we weren't in and brought us pregnancy kits. And the bulk of that franchise has grown dramatically over time, so -- expanded our business, so, again, we prefer bolt-ons to existing businesses, which we have a lot. One of the issues our company talks about a lot is complexity, we're very complex for a little company, but the advantage of that is we can pick up acquisitions in those categories, because we are in a lot of businesses and have a lot of different manufacturing techniques. We have people who understand a lot of those businesses.

So we are very, I say, agnostic when we go look at acquisitions, but we are very quick, too. If they don't meet our criteria, I probably reject an opportunity a week because at the moment we see them, we look at it versus our criteria. It doesn't need it, we just stop looking. I don't care how attractive it, it isn't. Or what the investment bankers tell us it is, it isn't. I will make a comment. I am very stunned at some of the acquisitions recently by some of our competitors. I won't name names, but I stunned in what should be a buyer's market, honestly, right now, since the private equity world has plenty of money, but the banks won't loan them any money, so they are pretty much out of play. It should be a time where opportunities to acquire companies goes at fair values, but not ridiculous values. I think there have been paid some very ridiculous prices recently for some good properties, but very at very high multiples. So I will not pay those kind of multiples, so, honestly, if the world stays that way, we will be fine in driving the results we showed you organically. If the sellers believe in fair prices, we will be doing some acquisitions. If they believe they can get the prices of some companies recently sold, then they going to have a nice day, because they're not going to be talking to Church & Dwight.

Then are there any categories you would all out avoid?

All out avoid, there probably are. Honestly, the antiperspirant category is a crazy category. There's 23 brands in that category, which are about 15 too many. We are one of the 15 too many. It is a very tough category dominated by four or five players who spend an enormous amount of money and the other 15 spend 20% of that. You just can't compete unless you buy one of the big five. So I probably would not enter that category -- unless I could get one of the big five -- because the category dynamics are such that you just can't win, where it's so different between the big players and the small players and just too many players. So I don't think you'll see us buying any antiperspirants brands.

Because that's what we do, we look at the categories? We have to believe we can successfully compete in the category and do it. I would say, too, we prefer smaller categories. I love being the number one brand in a $500 million dollar or less category. Because guess what? There's a guy in Cincinnati who wants billion dollar brands. Well, you can't have a $1 billion brand in a $500 million category. That math doesn't compute, so they can have all the billion dollar brands they want. I will take the $300 million number one brand in a $500 million category that has growth potential, and that is where we are very successful. The Trojan businesses, the pregnancy kit businesses, laundry additive businesses, things like that, that's where we find our success is greatest. So that's where we care to play.

Mr. Schmitz?

Sorry about that, Bill. It's Jason Gere with Wachovia Capital Markets. Just a question about the pricing that you are taking. Can you talk, one, about the competitive response? I think you said that most of it will fall through, so can you talk may be a little bit about the balance of trade spending and advertising? I know trade spending is an area that you want to cut back rather than increase, especially in kind of fears of the U.S. recession, can you talk maybe a little bit about the balance between the two this year?

Very good question. On pricing, the generally lead in categories we're number one and we follow where we're not number one, so that is just a simple rule of thumb. The price increases we are taking are just helping us to offset, for the most part, the cost increases, which have been, again, dramatic what is going out there in corrugate and resin and diesel are just -- we thought we had one shockwave in late 2005 and it is another shockwave coming through. So that's -- it's largely how we look at it. We don't -- we are not trying to do anything but kind of recover our cost structure there.

A far as trade spending, we are very vigilant about that. We've had a Seibel system in place, a very technical computer system that analyzes every trade deal we do. We've been trying to cut back on that at a rate of about $5 million or plus a year on trades spending, where we think it's just totally inefficient. It sometimes hard -- it is hard to cut trade spending when you're taking price increases. It is almost like a double price increase. If you go to the trade and say I'm taking prices up 5% and taking trade spending down 5%, that's a 10% price increase.

So in years like there was in 2006 where there was a lot of price increases coming out of 2005, we generally backed off on taking trade spending reductions. So you might see us this next year backing off a little on trade spending reductions because price increases are going on and it's just too much to absorb all at once.

But we are -- we analyze over 10,000 deals a year and figure out which one's work, which one's don't. If they don't work, we try to work with the trade to rework the deal or cut the deal. It has been effective in helping -- that's part of our gross margin expansion opportunities.

I can't talk to you until you get a microphone in your hand.

Bill Schmitz, Deutsche Bank. Just as a bonus formula for you guys, I think 75% doesn't really have a capital charge on it, so it is almost like encourages you to deals every single year. Have you noticed it? It's like sales growth, gross margin and operating profit and there's really no capital charge except for the free cash flow? Is that intentional?

No, okay, first of all, our plans are built with known acquisitions, so if there's new acquisitions, our targets would all change.

Okay, the resets if you --

The resets are (multiple speakers)

Okay --

You should notice too -- I didn't mention this, but our bonus structure changed slightly this year. It used to be 40% net revenue, 40% operating margin, 20% cash flow. This year because gross margin is so important, we've changed it to 25% net revenue, 25% gross margin, 25% operating margin, 25% cash flow. I honestly call 2008 the year of gross margin and I've got some -- it's working so far because I've got marketing people talking about gross margin before they are talking about their marketing budgets, because it is very critical with all these cost increases to drive that gross margin north. So we made it a bigger part of our bonus structure.

Just in terms of sort of the timing of the charges that are coming off from last year, like the transition costs on detergent, and also you had pretty big growth in that spread in the first and second quarter of last year. I think this year, you said it's going to be fewer, but bigger launches that's there.

Yes, that's our goal. We had over 50 new product launches last year. Every new product launch costs a lot of money to get the product on the shelf and so our goal, we did really good. We had a really great year. We hit over $100 million of net revenue from those new product launches, but we're seeking to do almost twice as much net revenue growth, but try to do it through, as you just said, fewer but bigger new products. We think we have that in our portfolio, so we are being more vigilant. We have had more than we would like of product launches that were just one to two to $3 million of net sales and that doesn't cut it anymore. We will not launch something even if it is net positive at that rate because it's just too expensive and too time-consuming. So we put the onus on the new product team to step up the ante and make sure the product launches we're doing are bigger, even if it's fewer. Because, like I said, I think we can do twice as much revenue growth off those new products with fewer if they are bigger ideas.

One thing to add to that, when we launch new products, we have slotting. So typically the slotting hits in the first half of the year and in 2007 versus 2006, we have way more slotting in the first half. You remember, we might have been talking to that about '06 going to '07. So '07 going to '08, we're going to have slotting again, similar level of slotting in '08 versus '07.

So there's not favorability because there's fewer, so you probably --?

Yes, right. Exactly.

Okay, then how about the transition cost from -- I know you're going to get $7.5 million from Orange Glo synergies next year, correct? Somewhere in those lines?

Yes, the way so everybody -- the right way to think about that is we have about $10 million of synergies from bringing Orange Glo into plants, so just by math, if you've got one quarter, you probably got about seven or 7.5 in 2008, so that's correct.

Okay, then how about the transition costs from concentrate? Are you lapping that next year? I think probably the big upfront costs already happened. Is that fair?

No, not necessarily, because one of the things when you're starting to make big bottles and small bottles, right, concentrate and nonconcentrate, we have two plants. So we got one in Missouri, one in New Jersey. So we have transition expenses, frankly, cross shipping, trying to get it right, where going to make the concentrate stuffed, the non-concentrated, so we got some hits from that in the fourth quarter. The other goofy things that could happen too is if somebody's got big bottles, they want to move them, they want markdowns from you, so that's going to hit your gross to net as well. So you're going to have that happen now in wave two and wave three, but as you get into the back end of the year, there's going to be way less of that.

What happens all of these excess filling capacity, right? Because you have these big tanks and big filling facilities, the bottle is smaller, you're putting a lot less liquid in. It seems like you're right to massively excess capacity except that through the bottleneck filling part of the line.

Technically there is, Bill, but there was a lot of before. There was a lot of excess capacity before this happened, so we just have to expect the industry to act rationally. And I think it will. I mean, I hate to say it, but one benefit of commodity costs going higher if you're in a businesslike laundry, which is very commodity-sensitive, you're not about to do ridiculous things on pricing when you've got -- you're facing higher costs.

When this effort started, oil was about $70 a barrel. So now it's about $90. So some of the benefit's compaction had been eaten up by the higher commodity costs. Just to add-on to what Matt said to you, the first wave of compaction, which was the southern half of the United States, which started last September, that only was about 35% of our national volumes.

So to your point, this year we've got about 65% of our volume will convert between the first and second quarter and then by the back half of the year, it will be one 100% conversion. I would add, too, come the first waves are a little easier in some sense for national retailers out there. They could move large sizes from areas being converted to areas not converted. By the time you get to the third wave, there's no place to stick full bigger bottles. So there might be a little bit more cost to get rid of the older, bigger bottles.

So the good news is by the third quarter of next year, the whole country will be converted to small bottles. I will give you a little update on what we've learned so far on compaction. The category growth has been -- there's been just some slight category growth as a result of it. Unit pricing is holding, which is good. Shelf space is holding, which is good. I would say you our sales are up a nicely in the compacted markets, so we are happy.

So overall -- and overall, I think the industry is very happy and I think the retailers are very happy with the compaction rollout, which has been, as we have often said, a win-win-win for everybody, because we will win because it will be -- cost us less to make and ship these products. The retailers will win because it will cost them less to ship the product from their warehouses to their stores. The consumer wins because they'll get the same number of wash loads in bottles that take less space on the shelves and less waste for their garbage removal services and things on that.

So it is really a terrific effort going out other. And I think you're going to see it go across other categories. There's no need for retailers or manufacturers and retailers in this country to be shipping water and I'll be honest if you, the old laundry bottles, the non-compacted size, which you'll still find in stores around here in New York because this is the last wave that will happen in March, about 80% of that bottle is water. And it's everybody, not just us. So there's no need to be shipping you, you know, eight-tenths of what you get is water. You can -- the washing machine will add the water, so a good initiative, a very smart initiative.

Connie Maneaty, BMO Capital. I'm trying to figure out how the quarters are going to flow this year. And as I'm looking at the organic sales growth, it seems that your second half of 2008 had some really tough comps where -- you know, 6% increase in the third quarter, 9% in the fourth. Are you budgeting for sales increases in the second half of the year or does most of the sales growth come in the first half from all the shipments of new products?

No, we're definitely building on share increases -- share and volume increases across all four quarters. We really feel we've got great momentum exiting this year and we've got great new products coming online. The new products will come online mid to late second quarter, so really the second half of next year gets the bulk of the benefit from the new products I talked about. That's why -- a fair point, we've got some difficult comps to go over, but I think we can do that.

So I'm very excited. The new product team has done a great job in putting out some exciting new products. We haven't told you all those new products, by the way. We only will tell you new products that we've announced to the trade. There's more to come.

So the slotting allowances, do they hit in the first or the second quarter?

More in the second than in the first, Connie. The other thing to think about when you're thinking about the quarters, Q3 of 2007 you may recall was a big quarter for the Company. We had a lot of help where we had a gain on a sale of property in Canada. We had a tax benefit. As I said, it was about $0.06 of help we got in the third quarter that obviously was not going to repeat in 2008. So that is probably the toughest comp is Q3.

Then also what is it that's going on in the specialty business? Why shouldn't the gross margin contract early in the year from whatever's going on with that raw material if it got hit so hard in the fourth quarter?

Well, we've got price increases going on in that business. So we have this surcharge where we're trying to pass on the increase of that particular raw material dollar for dollar. We just haven't been able to catch up to it as fast as it's been going up. But we think that it's going to -- it will level as we move through the year.

The price of PFAD has also started to drop a little bit, so that will help.

Dara Mohsenian, JPMorgan. Getting back to compaction a minute, you mentioned topline benefits earlier in the early markets. Can you quantify exactly how much topline benefit you have seen?

Then second, can you run through the longer-term cost savings you're expecting from compaction?

It's early on that. I would say we're seeing low to mid-single digits growth from that. It happens with most compaction efforts. The category is benefiting because consumers, although we're very explicit as to usage instructions, which is to use half as much as you're used to, they are overusing the product. And then our brand is driven by the new product news, mostly. The Arm & Hammer with Oxi Clean was launched in the fourth quarter of last year, right in the brunt -- right in the first initial wave. So that has been very helpful in growing our results.

So that came out as one of the compacted forms. So we are benefiting both from industry trend and also from some new product news that we had going out there. So low to mid-single digits, but it's still early, but I would rather have that than a sharp stick in the eye.

And the cost savings longer-term?

We won't comment on that. You know what, you tell me what the price of oil will be. Like I said, it's gone up $20 a barrel from where we started. If I had quoted you a number last August just before we started this, I would have said X and you would be sitting here telling me, well, you didn't get X; you missed it. Yes, but I had to absorb $20 a barrel of oil.

Resin costs have gone up since we've launched. So it is -- and the resin prices change almost every day. So it's hard to put a number on it. I will just tell you it's net positive -- assuming oil doesn't go out of sight further. It's like it will be a net positive move for us in terms of do all very on the increasing costs. Diesel, what is the cost of diesel? That's what we've got to ship it. A lot of variables go into it, but it will be a net positive move if there's no further significant move in commodity prices.

Okay, then on the gross margin line, it looked like the long term gross margin expansion in one of the slides it said 50% organic and 50% through acquisitions. Did I read that correctly? And does that mean the organic assumptions are lower than they were previously and what's driving that?

No, it's just saying to you -- I think first of all, to call a 1000-point increase in gross margin, which is what I'm basically doing, I'm saying we're roughly 39, 40, and our goal is to get 50. You look at companies like Proctor and Colgate, there 50 to 55 and Colgate just had, I don't know what, a 56 or something gross margin.

Part of that is they're -- they have advantage in that they are all leading brands with high margins out there. We have a part of our portfolio which is value like laundry, which isn't going to have the same margins. But we honestly believe we can over a course of eight to 10 years increase our gross margin at a rate of 100, 120 basis points a year through a combination of organic. That's a lot. That's saying 500 basis points of organic growth and the other combination would be through buying gross-margin-positive acquisitions that are higher than the company average to start with.

So I think it's a very lofty goal to say I'm going to grow my gross margin by 10 points. I don't think anybody else in industry's going to claim that right now and I think we can do that in the face of high commodity prices right now. I'm just being honest with you, if it wasn't for acquisitions, I would tell you 500 basis points I think is very achievable through organic. I am just saying I think I can add another 500 through acquisitions. I don't know what they are, Alice will tell me, but I am working on it.

So next question?

Shahzad Ali, SunTrust. Last week one of your competitors also announced price increases in powdered detergent. Do you intend to match that?

That was old news and we have taken price increases through sizing and compaction in powdered laundry, which are hitting the marketplace. Beyond that, we would look at it. I have also heard they have announced price increases in liquid laundry, which is brand-new news. And I have not had time to get the details on that to know how to react.

So yes, I'm just telling you it's a wild time out there with commodities right now. We're doing our best to stay on top of it. Like I said, we lead in categories we're number one. We follow in all other categories, so we pick up the news sometimes as fast as you do and read very careful. We take a look at it. We don't just automatically follow in every case. If we don't think it's good for our business, but when we think it's smart, we will follow in a smart way too. We won't just automatically match what they do because sometimes you do want to cross certain centiles where your volume with take a massive hit if you cross this. We have to study it and give-take a little bit, but my team is pretty quick and nimble, but we're just literally picking up some new news, as you might be, about stuff out there. So if you have details about our powdered laundry price increase, I will be glad to take it afterwards.

Nik Modi, UBS. Jim, can you talk about the international business? Any plans there to accelerate growth from here?

Yes, as I told you before, international developed 70% of revenues, 13% of operating income. We have had nice growth. It's mostly a personal care business. We have got good situations in Western Europe, North America. We are starting to get some penetration in South America and just starting to get entries into China. We are careful.

I would tell you within that mix, the biggest opportunity surprising us are in North America. Our Canadian and Mexican subs are doing very well. So we're pushing that hard and then we're just -- we're carefully exploring new markets. China is a huge opportunity, but it can also be a huge place to lose a lot of money in the short-term. So as I said, we have three of our best businesses in there right now. We picked up business there when we bought Oxi Clean. We picked up business there when we bought SpinBrush. We just entered China through distributor relationship with many distributors, because there's no one distributor in China, to launch are Trojan condom business at the premium end of the condom category.

So we're placing our bets, but I would still tell you we still have tremendous growth opportunities throughout North America. In the U.S. I still have probably more opportunity than most consumer packaged goods companies. We are still closing distribution voids on some of our major brands, like Oxi Clean, SpinBrush, even Arm & Hammer has voids out there we're closing and as our brands grow with great new products and strength, the devoids that are left we're closing. You won't find -- some of the bigger players are out of easy layups like that out there, but we still have those and we certainly have even bigger growth opportunities in Canada and Mexico. I don't want to go into details, but there's some our core businesses in the United States our not as strong in those two markets and we believe we can get them there by launching and better supporting the products up there.

So that is a lot easier to grow your business in North America than it is overseas, where there's a lot more difficult trade situations or costs and things like that, and our brands aren't as strong in some of those markets, but I feel good. International has been a very good grower, very good contributor. As we look at acquisitions, again, we are agnostic. If there's good acquisitions overseas, we'll make them, but I am not -- I won't say my first priority is international acquisitions. It's not. I just want great number one or number two brands with the opportunity to grow and to plug into our system. Where they fall, what countries, I will just take them as they come and only do the ones that make sense.

Joe Altobello, Oppenheimer. First, how does trade react when you basically expand gross margins in your consumer businesses this quarter? Talk about a 1000 basis points increase in gross margins over the next few years and then turn around and try to take pricing in some of these categories.

They are capitalists also. As I told you, they will benefit from the laundry compaction big time from all the shipping costs they will save. So, you know, we are all capitalists and we all do that. We're working with them. Trust me, growing their gross margins is usually the first priority in their eyes, so we work with them on ways to do that. That just works. It works. Believe me, we're not going to grow 1000 points in one year. It's just going to be through a lot of initiatives over time and I think we are entitled to keep the ones where we save the money on our products and we help them out on saving money on their end too. So it's a good relationship between the two sides and we have great relationships with almost all of our retailers out there.

You're going to see us bring to market some new ideas, which I think will really change the rules of some categories out there, which the retailers would truly appreciate. I don't want to go into any more news about that, but we know -- you've heard about this sustainability trend out there. It's huge. I was at a conference in Washington recently with the Grocery Manufacturers Association that was all about sustainability. That is the environmentally-friendly world. They expected 200 people to attend. They had over 600 attendees from every major CPG company, every major retailer. A lot of suppliers there. It's just unbelievable what's happening.

The bottomline, what's happening is sustainability or environmentalism has gone from a world of the tree-huggers, where you had products that cost a lot more to make and didn't perform as well as mainstream products. It's going to a world now where the manufacturers have figured out how to make products that are environmentally-friendly, but are just as good in their efficacy as initial products and only cost a little bit more. The population just loves it and we're been shocked by this Essentials productline we launched, which is at the request of -- the laundry detergent -- which was at the request of one of our major retailers. We launched it and the reaction was unbelievable and we've taken that idea now, we're spreading it across the entire Arm & Hammer line. And we're looking at other areas.

There's some shocking news, some facts that I just love. If everybody in his country, everybody, changed all the light bulbs in their house traditional incandescent light bulbs to the little curlicue ones, you could close a power plant in every state. Safeway has already converted 25 of their stores to solar power. The entire roof of the store is solar panels. Safeway, who is very progressive in this area, has already converted their 1000-truck trucking fleet into biodiesel trucks just recently. It'll save them a lot of money. So there's a book out there I would encourage you to read called Green to Gold and that's what it is. Green is the new black and the green -- the environmental move is very hot. And it's finally because it's a way to do it that we're all environmentally conscious, socially conscious, but there's a way to do it to be good capitalists also.

So everybody's figured out how to go green and make more money, so the manufacturers love it, the retailers love it, and the consumers love it, so it's a very hot trend. I think it will be around. It won't just be on one year wonder. I think you're going to see this go on for some time now and you're going to see an explosion of green, or as they say, environmentally-friendly products in the marketplace that are truly as good or better products than what is out there right now. They might cost you a little bit more, but the consumer is willing to pay that little bit more for a better -- for a product that's more environmentally-friendly. So we are hot and heavy on that trend. We're already into it and you'll see a lot more coming out this.

Second, back in December, you and I had this discussion about the consumer and their ability to take additional price increases given the economy. It seems like since then, the data has been worsening, not getting better. What is your sense of how the consumer today is going to be able to handle this round and maybe another round later this year?

I think shocking. I saw -- I'm just repeating something you might have seen, the Wall Street Journal Tyson the other day reported they have had to take some major price increases and they said that the average food bill for the average family in America is going up $400 next year just from higher food costs out there. I don't know, Joe. It is concerning. I will just say, I told my company if there's a recession, we're going to choose not to participate. So, we're going to do it -- look, thankfully we have products which everybody uses every day, so we're not in the fast food business. We're not in the expensive apparel business. And I'm very happy to be in the everyday-product-needs business and keep the supplying people with great things.

But we haven't really seen an effect so far, but I may be -- I actually am glad to be in the value side of the laundry business. If people want to shave a few bucks off their laundry bill, they can buy Arm & Hammer or Extra laundry detergent, they're great products and they cost a lot less than the guy in the big orange bottle. So anyways --

Could you to quantify pricing in the organic growth of 9% in the fourth quarter and 5% for the year?

Yes, the 9% would be eight and one, roughly.

Yes?

8 in 1, just rounded. 8% volume and 1% would be price.

And the five is --?

On a full year basis? Yes, it would be more -- actually we would do price/mix and we're not that fine that we can cut it's just price, so that nine, eight being volume, the one is price and the mix that's baked in there. Yes, and you're also talking about the five for 2007.

Right, I guess --

Full year.

Zero price mix?

No, there'd actually be some pricing -- negative price mix in that number, in the five.

Like one negative?

Yes, roughly.

Just a follow-up. The specialty division, how much of that 31% in increase is price?

The way to think about that is half of it is volume, so, let's say, 50%. Another 25% is just regular prices and the other 25% is that surcharge I talked about related to PFAD.

Thank you.

It's Connie Maneaty again. I have some -- I was hoping you would comment on what's going on with resins. Are you a believer that new capacity that's coming on the will cause this to moderate? Secondly, have you increased your number of resin suppliers? Are you writing shorter contracts now than you did when resin was in very short supply?

The last two are going to be tough to comment on, Connie, because we wouldn't announce publicly how many suppliers we'd be talking to nor what our tactics would be with respect to not negotiating.

As far as the first question goes, there is a great belief, frankly, that because there's new capacity coming on in the Middle East in 2009, some think it will be online in 2008. That when that begins to decline in Asia that the ability for U.S. companies to export will be diminished to Asia just as resin.

The second thing is that because the economy has fallen off, automotive, housing, etc., less demand for resin, as a result is going to -- so less demand is going to give them less of an ability to negotiate. So we do think there's some hope with respect to what we have been experiencing is just a steady increase in resin prices over the past year or so. We do think it will abate eventually.

Any benefit in 2008 or is it more 2009?

No, as Matt said, right now, literally, the huge slump in housing and automotive is causing a big -- causing a significant enough drop in demand that there's news of some resin price increases being rescinded and stuff like that, so it was actually some -- that was -- those were increases we weren't planning on when we started the year, so if they start to come back, that will just get us back to where we were starting from. But that is the recessionary impact of the slump in those markets could help 2008.

All right.

Have we worn you out? One more thing from --

Connie, I thought we were going to get little more in the weeds there on something else. And I haven't been asked about what's the tax rate for 2008. So I don't have 10 people ask me when we conclude, the tax rate for 2007 was 36.2. When I stood up here last year, we were estimating 36 to 36.5, so not bad.

So what we're using for 2008 is 37%. The reason for that is because you probably know that, once again, the R&D tax credit has not been approved by Congress. We're in the exact same position that we were in in 2006. That's A, and, B, just expect higher profitability in the U.S. That's where we have the highest tax rate, so I would expect that if you wanted a range it would be 36.5 to 37. We'd more likely be in the high end of the range.

I'm going to thank you. I just want to summarize my company is doing great. We've got great moment exiting last year. We've got a lot of the good things going on this year and we're really optimistic. And if the Giants win the Super Bowl again, we will be back here next year for another ticker tape parade. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.