切遲杜威 (CHD) 2008 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Church & Dwight first-quarter 2008 earnings conference call. Before we begin I've been asked to remind you that on this call the Company's management may make forward-looking statements regarding, and among other things, the Company's financial objectives and forecasts. These statements are subject to risks and uncertainties and other factors that are described in detail in the Company's SEC filings.

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

Good morning, everyone. It's always a pleasure to talk to do you, particularly when we have good results to report. I'll start out by giving you a brief summary of the first-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 first-quarter results. When Matt is finished I'll provide some information on the factors driving our key business unit. And finally, I'll provide earnings guidance before we open the call to field questions from you.

Overall we are very pleased with our first-quarter business results. Reported net sales were up 7.5% versus year ago. Organic net sales, which excludes the positive impact of foreign exchange, were up 6% versus year ago. The strong organic net sales growth reflected solid gains in all three of our reported business units. These gains were driven by an improved pipeline of new products, increased marketing spending, excellent sales execution and cost justified pricing actions on approximately 20% of the Company's product portfolio.

On top of our strong organic sales growth we delivered solid gross margin expansion despite significantly higher commodity and energy costs. Our gross margin was up 160 basis points from year ago to 40.5% of net sales for the quarter. Approximately 100 of the 150 basis point improvement was driven by favorable timing issues and, as such, some of these costs will shift to future quarters of 2008. Matt will provide further details on this issue.

However, even if you exclude these timing issues, we still expanded gross margins by 60 basis points in the face of significantly higher margin costs. This reflects an extraordinary focus on reducing costs that actually began back in 2006 when commodity costs started to skyrocket. This effort enabled Church & Dwight to maintain a flat gross margin in 2007 versus 2006, but we were not happy with that result since it fell short of our corporate objective to deliver 100 basis points of gross margin improvement annually.

As a result we've stepped up our attack on cost savings starting in 2007 to make sure that we delivered the 100 basis point improvement in gross margin in 2008. Our Q1 results on gross margin are in line with our expectations to deliver that objective in total 2008. Finally, our earnings per share increased 23% over the year ago quarter to $0.81 per share. These excellent results have given us a strong start to what we expect will be another year of record sales, profits and earnings per share in 2008.

I'll provide more detail on our business units' results and my outlook for the year in a few minutes. I'll now turn the call over to Matt who will provide you with greater details on the financial results for the first quarter.

Thank you, Jim. Good morning, everybody. As Jim just mentioned, first-quarter EPS was $0.81 per share compared with $0.66 in 2007. The strong sales performance and gross margin expansion were the drivers of our first-quarter earnings results. The revenues were up 7.5%, of which 1.5% was primarily currency, so 6% was organic growth. Of the 6% growth approximately 3% was due to volume and another 3% is attributed to price and mix.

Now let's briefly review the segments starting with domestic. The domestic business had a strong quarter, revenues were up 3.5% and this was led by Cat Litter, ARM & HAMMER Liquid Laundry, First Response, ARM & HAMMER Powdered Laundry, XTRA Liquid Laundry and ARM & HAMMER Dental Care. We also successfully raised prices in February for condoms and baking soda and new product launches also contributed to the revenue growth.

International posted 5% organic growth as this segment performed well in many countries. The Specialty Products business had an exceptional quarter, as you can see in the release, due to strong demand coupled with a price increase for our diary products and higher volumes and pricing in the specialty chemicals side of the business. Specialty products enjoyed higher year-over-year prices in Q1 for most of its products.

With respect to gross margin, our first-quarter gross margin was 40.5%, that's a 160 basis points expansion versus last year. We like to remind everyone that we have four levers that contribute to our gross margin expansion and they are -- cost reduction programs, pricing, OGI manufacturing synergies and, of course, the benefits of concentrated liquid laundry.

Our cost reduction programs have been in place for many years and are embedded in the Church & Dwight culture. Those cost reduction programs include things such as product reformulations, plant automation, more sophisticated forward buying and optimization of trade spending, just to name a few. These are the levers that serve to offset higher input costs for resin, corrugated paper, liner board, diesel fuel and many others.

A couple of items also affected the quarter which we called out in the release. Slatting costs were lower in Q1 year-over-year and we had the benefit of having hedged a portion of our diesel purchases for the year. Those two items together added approximately 100 basis points of gross margin expansion.

We should all remember that the timing of slotting varies from year to year as it is dependent upon new product launches and also new distribution for existing products. So both of these items will have a bearing on future quarters. Nevertheless it is fair to say we are delighted with our gross margin performance in the quarter which was up a solid 60 basis points if you exclude the timing of slotting and diesel hedge. Looking ahead to Q2 we expect healthy expansion of year-over-year gross margins in Q2 as well as each of the remaining quarters in 2008.

Now marketing. Marketing spend was 9.7% of revenues. This is an 80 basis point expansion over prior year's spend rate of 8.9%. Marketing expense was about $7.5 million higher for the quarter than a year ago. This higher spending is a key driver of our organic revenue growth, along with our innovative new products which Jim will talk about in a few minutes.

Our first-quarter spend was about $54 million and we expect to significantly exceed that level of spend in the second quarter. In fact, we are targeting marketing spend in the second quarter to be approximately 13% of net sales.

Now SG&A. SG&A year-over-year was up $6 million due to $5.4 million of asset impairments, higher litigation costs, higher R&D and of course foreign currency changes. These increases were partially offset by a $3 million gain on the divestiture of a small Specialty Products subsidiary. SG&A as a percentage of sales was 14.1% in Q1 and this is consistent with a year ago. Looking ahead to Q2 we expect second-quarter SG&A as a percentage of sales to be comparable to Q1 due to much higher R&D spending as we continue to invest in new products.

Operating profit. The operating margin for the quarter expanded 80 basis points to 16.8%, again driven by the higher gross margins. Moving down the P&L, other income and expense includes a $2 million currency gain and reflects lower interest expense as both interest rates and our debt levels are lower than a year ago.

With respect to income taxes, you can see in the release our effective rate for the quarter was 35.7%. Remember that we started the year with an expected range of 36.5% to 37% so we're now forecasting the lower end of that range, an effective rate of approximately 36.5% for the full year.

EPS -- EPS of $0.81 is a 23% increase over the prior year. About $0.05 to $0.06 of the year-over-year EPS improvement is due to the timing of slotting and the diesel hedge gain. So all in all a very good quarter.

Free cash flow. We generated $56.4 million of free cash flow in the first quarter and ended the quarter with $208 million of cash on the balance sheet. Our total debt to LTM adjusted EBITDA per our bank agreement was approximately 1.9 at quarter end which puts us actually below our stated range of 2 to 3 times EBITDA. So we are in a very comfortable position to complete the Orajel acquisition in July.

Just a few comments on the balance sheet. Accounts Receivable are up $14 million versus a year ago and that's primarily due to higher sales in the quarter and the effects of currency. Inventories you'll see are flat versus a year ago and this is a result of our working capital management efforts.

In conclusion, a short summary for the first quarter would be 6% organic sales growth, good gross margin expansion, continued reinvestment in marketing and strong free cash flow.

A little bit of guidance now. With respect to guidance we have provided in the release an EPS estimate of approximately $0.61 for Q2 and this reflects strong organic growth, continued gross margin expansion, a significant increase in marketing spending, and higher year-over-year R&D spending reflecting our investment in new products. This would make for a very balanced year in comparing the first-half earnings and the second-half earnings.

So we'd have about 51% in the first half, 49% in the second half. That would be the split for 2008. We would end the second quarter with first half EPS up 14%, which is right on track for our full-year goal of 13% earnings growth in 2008. Now back to you, Jim.

Thanks, Matt. I'd now like to provide you with specific 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. Let's first talk about our domestic business unit.

Overall we're very pleased with the 3% organic growth achieved by our domestic business unit in Q1 driven by innovative new products, improved marketing programs, expanded distribution, improved merchandising and cost justified pricing actions.

On a productline basis the organic net sales growth was driven by sales gains for ARM & HAMMER Liquid and Powdered Laundry Detergent, ARM & HAMMER Cat Litter, ARM & HAMMER Toothpaste, First Response Test Kits and Trojan Condoms. In total the ARM & HAMMER Brand grew 10% in the first quarter versus the prior year reflecting the continued strength of our megabrand marketing campaign initiated in 2006.

On the new product front we are continuing to see the benefit of a corporate new product team that was created in 2006 to deliver more innovative new consumer product with strong consumer appeal. Last year this group launched over 50 new products, a record for our company. This year the new product team will launch slightly fewer new products in total, but the revenue impact of these new products is expected to be greater than the new products launched in 2007.

The new product launches impacting 2008 sales include the following -- a new form of the essential subline of our ARM & HAMMER Liquid Laundry Detergent business which was first launched in 2006 and is formulated from environmentally sensible plant-based surfactants to deliver the same powerful cleaning capability as regular ARM & HAMMER Detergent.

We've had excellent sales results to date on the essential subline. We're now adding a new or month of essential called Free, that is dye and perfume free and which appeals to the growing segment of consumers that are both environmentally sensible and have sensitive skin.

We're also expanding the distribution of ARM & HAMMER Laundry Detergent with OxiClean stain fighters in both powdered and liquid form. This new cobranded product delivers premium laundry detergent cleaning performance at a value price. It started shipping in the fourth quarter 2007; it is on track to be one of our most successful new laundry products.

As I mentioned earlier, these new ARM & HAMMER products are being supported by more appealing and unified packaging, a trademark advertising campaign and increased levels of marketing spending as part of the new ARM & HAMMER megabrand marketing campaign that we started in 2006. This marketing campaign has driven net sales growth for all ARM & HAMMER brands from 1% in 2004 to over 6% in 2007 and, again, we did 10% growth in the first quarter of 2008.

We've also launched innovative new products in our other core categories including two new additions to the Trojan line called Thintensity and Magnum Thin, which capitalize on the growing thin segment of the condom category.

A new Nair depilatory product called Shower Power which enables women for the first time to use a depilatory product in the shower where the majority of women remove hair on their legs. This overcomes a key barrier to depilatory usage so that women can now enjoy the superior benefits of using a depilatory, being smoother legs and a longer time between hair removal.

A new SpinBrush toothbrush called swirl, which is a value oriented product designed to encourage manual brush users to trade up into the battery-powered toothbrush category. Finally, the First Response brand has launched both a digital pregnancy kit and a daily ovulation test kit.

At the same time as we are driving growth of our largest brands in core categories we've been successful in reducing the decline in our weaker categories, particularly antiperspirants and value toothpaste. Overall we are very pleased with the solid organic sales growth of our domestic business units. Our efforts to launch innovative new products supported by more impactful marketing campaigns and increased marketing spending is working.

Finally, I'd like to make a few comments on the industrywide initiative to reduce the water content in liquid laundry detergents by moving to concentrated offerings. The rollout of concentrated line extensions began last September in the southern half of the United States, expanded to the central and northwest U.S. in the first quarter of 2008 and the final wave for the eastern U.S. will be completed by the end of this quarter.

Church & Dwight has fully supported this initiative since the beginning and so far this rollout has gone very smoothly. The results are in line with our expectations in terms of reactions by our customers, our competitors and, most importantly, our consumers. All major retail customers have accepted distribution of the concentrated product. All competitors appear to have met the conversion timetable with the exception of private-label and a few accounts, but we understand those accounts will soon convert. And consumers have accepted the concentrated product, although some have a slight tendency to bypass our specific directions and overuse the product. If everything continues to go well this initiative will be a winner for our customers, our consumers, the environment and for manufacturers.

Now let me talk for a minute about our two other business units -- our international business unit and our Specialty Products division. Our international business unit, which represents over 17% of our total sales, also had a strong first quarter. Reported sales increased 15% over the prior year. When foreign exchange is excluded this translates into 5% organic growth. This increase was driven by strong results in many of our foreign subsidiaries, particularly Australia and higher export sales.

In our Specialty Products business unit, which represents about 11% of the total Company's sales, net sales grew 22% over last year's first quarter on a reported and organic basis. This significant growth was largely driven by price improvement in animal nutrition and specialty chemicals as the business aggressively pursued recovery of their increased raw material costs. However, the growth of these categories also benefited from continued strong demand for these products.

Finally, I'd like to make a couple of brief comments on our recent signing of an agreement to purchase the assets of Del Pharmaceuticals. This acquisition, which consists mainly of the Orajel Brand, is expected to close in July 2008. We are looking forward to adding this number one brand into the Church & Dwight portfolio starting in the second half of 2008. We expect that this acquisition will be neutral to earnings in 2008 and solidly accretive in 2009 as we integrate these brands into the Church & Dwight infrastructure.

Now let me switch gears now and talk about the future. While we are pleased with the first-quarter results, as I often state, 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 and still delivered solid gross margin improvement and earnings growth.

We have a well-organized pipeline of cost-saving initiatives in the area of manufacturing, purchasing, distribution and trade savings that is being executed. We've announced price increases on about 25% of our company's product portfolio so far in 2008. These cost-saving and pricing initiatives have been bolstered by manufacturing synergies from the Orange Glo integration, liquid laundry detergent compaction and volume scale leverage.

The net effect of all these initiatives are expected to lead to further steady improvement in our gross margin throughout 2008 to deliver our target of a 100 basis point improvement versus 2007. This improvement in our gross margin should also enable us to increase marketing spending in 2008. We will focus this increased marketing spending behind our strong pipeline of new product innovations in every one of our core categories.

Finally, we are keeping a very tight lid on overhead costs. One example of this tight management of overhead costs is that in 2004 Church & Dwight delivered $1.6 billion in sales with 3,800 total employees. Four years later we expect to deliver over $2.3 billion in sales, over 40% more sales with no increase in the number of total employees.

Now let me translate all this into specific guidance for the rest of this year. In view of our solid organic revenue growth, gross margin improvement and tight overhead expense control we are confident that we can deliver our previously announced earnings per share forecast of $2.77 for 2008, a 13% improvement over 2007 despite a significant rise in commodity energy costs this year. In line with this annual earnings per share goal we expect a 14% growth of earnings per share in the first half of 2008.

I would challenge any of you to name one consumer packages Company that delivered our Q1 results and is promising what we are in 2008. We've delivered strong organic growth and we're promising continued strong organic growth. We've delivered strong gross margin expansions and we're promising 100 basis points of gross margin expansion in the total year. We've maintained tight control overhead costs. We're investing in marketing to drive our future organic growth.

We're making smart accretive acquisitions and all of this is adding up to 13% EPS growth despite significantly higher commodity costs. I'm not aware of one CPG Company that's doing that. With that that ends our presentation. I'll now open the call to any questions you may have which Matt and I will do our best to answer. Operator, please go ahead.

(OPERATOR INSTRUCTIONS). Bill Schmitz, Deutsche Bank.

Good morning. Can you sort of extrapolate what solidly accretive 2009 means for Orajel? Is it like $0.05 or is it like $0.20?

This is Matt. As you know, it hasn't been our past practice to be that granular. (inaudible) what the EPS is going to be, particularly when we haven't even closed on the deal yet; it's not going to be until July. But we took everybody through what the numbers were -- remember $28 million of trailing EBITDA and $10 million of synergies. And it won't be until the end of '09 that we can be confident that we'll have everything integrated into the Company.

So you'd assume then the run rate would be $38 million at some point. And we've said how we're going to finance it. We have financing underway now for $250 million worth of new debt plus $100 million of borrowings on existing, either our revolver or our asset securitization, and the rest in cash.

And a simple way to think about it is -- I think I may have said this previously -- just assume a 5% interest rate on the new money and then you can kind of figure out what the EPS accretion will be. But it's really too soon to tell when the integration will be complete.

Okay, that's fair. And then on the U.S. business, can you tell us what the volume growth was in the quarter?

This is for just the U.S. business?

Yes.

Yes, I think we can help you with that. Hang on a second. Yes, the volume for the first quarter for domestic will be round number 2%.

I had one last one. Can you talk about some of the gross margin drivers, what the impact of energy and raw material inflation was and what the offsets were?

Yes.

Just on the base, ex the slotting and the diesel hedge.

Well, we typically do that on an annual basis, Bill. We try to break out what the impacts are or the cost inputs and the impacts of our cost reduction programs. It's fair to say that it's our cost reduction programs which are the biggest drivers for us. And that's true every quarter, every year and that's part of the backbone of the Company. So we're no different than anybody else; we have significant price increases up-and-down the line, some single-, some double-digit increases for resin, diesel, liner board, corrugated, the works. And we're able to overcome those. So we probably have comparable increases to other companies, but we wouldn't call it that right now.

Okay, great. Thanks so much.

Bill Chappell, SunTrust Robinson Humphrey.

Good morning. Just want a clarification -- on the slotting fees in diesel, did they represent an upside surprise to you in the quarter or they're just the difference between last year and this year in terms of earnings growth?

It's a year-over-year comparison, Bill, and we weren't surprised by the diesel because we put the hedge and in January so we knew it was coming. So we hedged at significantly lower than what the spot price is right now so that was a windfall for us in the first quarter. But obviously that doesn't help you in future quarters.

And with respect to slotting, that's just timing. If you want to think about some of the things that impact slotting, so it's going to be the timing of your first ships to the accounts, the shelf resets will vary by account. Mix can affect it as well, slotting costs are much higher per household versus personal care, etc. So it's a lot of factors that will influence when it's going to hit, but they do hit eventually.

And does the hedge carry over and give any benefit in the second quarter?

No, not unless diesel goes to $5.00 and then it really rockets.

Let's hope not. And I guess this is a nice way of asking, with you beating my and the Street estimates by $0.08, $0.09, are we that bad at modeling or was this better than expected and your forward guidance is just being conservative with everything going on in consumer spending?

No, there is no way with respect to TheStreet estimate, which we have a casual interest in. It was maybe about $0.06. If you said -- if we came in at $0.81, and $0.06 worth is the timing of slotting and the diesel edge, then it is a lot closer to what TheStreet estimate is.

But is still $0.03, $0.04 better than expected.

Yes. Yes, it is. We had a very good quarter.

No, I agree. Then I guess looking, Jim, can you maybe talk a little bit about the quarterly trend January, February, March? Do you see any changes in ordering patterns and are you seeing any kind of trade-down from the higher priced products to maybe some of the ARM & HAMMER products?

The quarterly pattern wasn't that unusual. We had a couple of strong months, one little soft month. Q2 outlook is pretty much in plan with what we expect. We are noticing across some categories some category softness, which I just think reflects that we are in a recession. We are noticing a little bit of growth of private-label in some categories, but I think we've always told you we kind of feel our company is pretty recession resistant in some sense.

We do have some premium brands we worry about like OxiClean and SpinBrush, but we also have a fair number of value-oriented brands being our laundry business, our biggest business. We have value test kits that are doing well; we have value toothpaste doing well. So we are very conscious of the economy out there. We are very conscious of what is going on. We think consumer spending will take a hit.

That is why we have been so aggressive as we have in managing overhead costs and cutting costs we can on the manufacturing side. We think we're pretty well set up to handle that. Of course, I just saw a Goldman Sachs estimate today that oil can go to $150 to $200. We're not set up for that. I don't think anybody is, but I think we are pretty well positioned to handle what the current outlook in the environment, given our product portfolio.

And like I said, Bill, we have been bunkered down for almost a year on cost as we somewhat thought the commodity cost would continue to spiral. And it's paying off right now in terms of the ability to grow gross margin, while most of our competitors are not.

Just finally on that, did you see a net benefit from compaction in 1Q and will you in 2Q?

Yes, we did, Bill, but it wasn't the biggest driver. In fact, a lot of times when we put the release together, we try to give some order to the factors. And if you will notice, we had concentration as a driver of gross margin.

Bill, we had told you because of the rollout timing, the benefit of compaction will grow quarter to quarter to quarter. By the third quarter this year, the whole country will be in compaction. So that will help us deliver, as we have said, continued gross margin improvement as we go across the year.

Okay, great. Thank you.

Joe Altobello, Oppenheimer.

Thanks. Good morning, guys. It is actually nice to hear that you have a casual interest in our estimates, so it is heartening. Anyway, in all seriousness, the $0.05 to $0.06 boost in the first quarter, how much of that reverses in the second quarter and how much in the second half?

It is not that academic, Joe, because again, the slotting costs are going to be a function of all the things that I described. But some is going to hurt us in the second quarter but also second half. It is not all Q2.

Okay, so roughly one-third, one-third, one-third; is that fair to say?

No, I didn't say that. I said it can be as much of all of it or half of it.

Okay, fair enough. Then in terms of the inventories, the inventories were flat year-over-year and they were flat sequentially. And I had expected them to start to build ahead of the new product launches, particularly given that slotting fees it sounds like will be bigger in 2Q, given the timing of the launch.

So I am curious why -- you mentioned that your working capital controls are doing very well, but I was just curious why the inventories didn't build this quarter a little bit?

You have probably heard us say that we are cash flow junkies, and we are getting a lot of traction with respect to our working capital management. And I think it is still yet to come out of the balance sheet, particularly in inventories.

Okay. Then last on destocking, are you seeing any destocking activity in your major categories from retailers?

I would say we are seeing a little bit, Joe. We've seen a little bit in some categories. It is very typical for the retailers if they expect less consumer demand to be carefully managing their inventories. It has been a little but not much, and it is part of the reason we're being so careful on our inventories too, but we have managed it quite well. Our consumption is very strong. So to whatever extent they lower inventories, they're going to have to buy back, but it has been very minor.

Okay, great. Thanks.

Connie Maneaty, BMO Capital Markets.

Good morning. Let's see, you said you were going to be expanding ARM & HAMMER with OxiClean stain remover. Does that mean you are already adding new SKUs since the thing just shipped in the fourth quarter, or are you getting new distribution?

No, it is just new distribution, Connie. We launched it in both liquid and powdered form, and it is driving growth of both the liquid and powder detergent businesses. The latter hasn't happened in a long time, so it has been helpful on that side of the business too, and it is just getting better and better distribution out there as we grow.

We don't have the power to get full distribution in a short time period like some bigger companies are, so our distribution growth takes a little longer.

Okay, so you are not at 100% [ACD] yet?

No.

How far along are you?

Pretty well, pretty well. We have started advertising, so we are more than two-thirds of the way.

Okay. Do you think ARM & HAMMER -- the 10% growth for the megabrand in the first quarter is pretty impressive. Does that last for the whole year?

I don't think we'll keep up at that level, Connie, but we got it up into the 5 to 6% level last year and I think we feel pretty comfortable in that for the total year.

Okay. And then finally, I don't recall that you used to give quarterly guidance. Have you changed in the way that you talk about the outlook?

We did that once before, Connie, at the end of the first quarter last year. We thought we'd give people some help so we did the same this year. But we're not going to make a habit out of this.

Okay, thanks very much. That's all I have.

Alice Longley, Buckingham Research.

I have gross margin questions. When you say your gross margins are going to be up 100 basis points for the year does that include the 160 basis points in the first quarter?

Yes.

Okay. And if we take out the special items it was 60 basis points. Will -- from that point will we get increasing gross margin expansion through the rest of the year, like 60 to 70 to 80?

Yes.

All right. Of the $0.05 to $0.06 from the special items in the first quarter, was half of it diesel cost hedging?

Well, $0.02 of it was diesel.

$0.02, because that doesn't reverse, right?

No, that's a big windfall in Q1 and then you wind up having higher costs thereafter.

Okay, so that basically does reverse?

Yes, if you think about it -- in your words maybe.

Maybe. And within specialty, how much of that 22% increase was pricing?

More than half of it.

Okay.

We had price increases in virtually the entire portfolio in Specialty Products. Remember, we also had that surcharge that we put in place last year in August, so that's carried forward too.

So out of that 25% it's probably -- 20% is price.

Okay.

So it's huge.

Now with that pricing are gross margins up for that specialty business or are they still down?

They're not down, they're flat year-over-year.

So that means the consumer business gross margins were up even more without this?

Yes, that's correct -- absolutely right.

All right.

Because we have a growing SPD business with 22% margins. So consequently the consumer gross margins -- if you want to do the math, if you said -- if I took out the two timing items, right, slotting and diesel, and said okay, the Company was up 60 basis points year-over-year; then if you took the Specialty Products business out of the equation and said, okay, what did the consumer business worldwide expand? And you'd say it was 110 basis points. So it would be 110 minus 50 for SPD gets you to 60 which is the 60 number we've been talking about on the call. So -- excellent quarter for consumer.

Okay, great.

And so obviously that delta that helped us in Q1 would have some reversals in future quarters, but you can see the consumer business worldwide was over 100 basis points up.

Okay. And the final question, you made a little comment about you see private-label up in some categories and you said your premium brands might be a little vulnerable and you cited OxiClean and SpinBrush. Where do you think private-label gained share and are you seeing any slowing in OxiClean and SpinBrush?

We're seeing private-label gain share in laundry. We've seen a little bit in cat litter, we've seen some in pregnancy kits. But in each one of those categories our consumption is up very strongly, so so far private-label is not affecting us because of our new product innovations and our marketing spending. But it is a concern, we're watching it; it's typical in this kind of an economy right now, but we feel just fine.

We had record shares this quarter on cat litter, record shares on Trojan, record shares on our pregnancy kit business. So again, we're doing what you have to do versus private-label which is launch innovative new products, be product differentiated and support them with strong marketing support and keeping our price gaps appropriately.

Don't forget, laundry we're value oriented to start with so that's a good place to start versus private-label and we also have a value pregnancy kit in the brand called Answer which is getting strong growth on top of the growth of First Response. So we're watching it carefully, but so far we're handling it, we think, very well.

So just to get more on that, is First Response pregnancy test kit also gaining share?

Yes, it is now a market leader on a brand basis alone.

And are you gaining share in laundry?

Yes.

Okay. And how are OxiClean and SpinBrush doing?

They're both doing fine. OxiClean had a very strong quarter consumption growth; that's a category that really isn't private-label you worry about, Alice, you more worry about people -- it's an additive product which people don't have to use quite honestly. They can just use their laundry detergent, they don't have to use the additive. So the concern there isn't private-label at all; it's more that people just forego using the product.

And SpinBrush also had sales growth in the quarter, but there again, people could trade down to a manual toothbrush for less. But there again, I had mentioned to you we're launching a new product which will be the lowest priced SpinBrush ever introduced in the marketplace.

So just like we have the Answer brand for pregnancy kits, we're going to have a lower-priced SpinBrush. So we hope that not only will keep driving our volumes if there's any kind of pricing concern, but actually will get people who are buying manual toothbrushes to convert over to power toothbrushes and then from there trade up to even the better products in the category.

Okay, thanks a lot.

Jason Gere, Wachovia.

Good morning. Just I guess -- one question first just on the marketing spending. Can you talk about where that spending is going? Are you looking into more non-traditional means like online or are you sticking more with cable and print?

Jason, we're making a little bit of shift, but for smart reasons. We're making some shifts on brands like Trojan to go more online just because it's a more appropriate forum to reach the younger target audience. Other than that, no, we're largely sticking to our traditional world. We spend about a quarter of our money in print and a fair amount of the rest in TV and radio and other vehicles. So I would only tell you, on the Trojan business, it's the only one you'll probably see a more significant shift into online and probably starting in the back half of this year.

Is there anything that you're seeing -- because I guess the scatter rates have been going up on advertising -- in terms of the number of impressions? Have you seen any change there?

I can't leave you the details on that. I would just say I expect the market for media to be very soft going forward and be a buyer's opportunity. And we feel fortunate to be in a position to invest in marketing so we ought to get even a bigger bang for our buck in the future quarters.

Okay. And then I guess the last question, I just wanted to talk about the trade spending and obviously you guys have been focused on efficient trade spending. I'm just wondering what you're seeing out there in the channel. Certainly you see a lot a deep discount promotions out there and I just was wondering what you're seeing from your competitors or in the categories, especially when they're slowing at this point? And do you think this is a year that maybe you shy away from the efficient gains and you see more of the gains coming back maybe in the next few years once we're out of the recession?

No, Jason. Quite honestly we're not seeing more aggressive promotion activity to date in the categories, particularly important our largest category, laundry. The whole move to compaction has kind of made that -- it made a big change going on and we haven't seen promotional spending go up in that category which is very pleasing to us. We're seeing prices stay at the current levels.

And honestly with the price increase in some categories we're still keeping normal levels of merchandising. And they're really -- the retailers -- we've not seen the pressure that you might expect in recessionary times. So we are continuing to try to carve out inefficient trade spending at this point in time going forward.

Okay. And then just a last question. If you can just give a little more color on the two more challenged businesses, deodorant and value toothpaste, how you're managing these brands in a softer economy? Thanks.

Yes, those businesses represent a little less than 10% of our total sales. We, about a year ago, put a very aggressive team in place to manage those businesses and change the whole approach going to market with them; went from a national advertising basis to much more of a retail focus, working with the key retailers who control the majority of that business and working for a lot of in-store promotions and in-store activity and it's been very successful.

Those brands were declining at a low double-digit rate and now we've got that down into a mid single-digit rate decline and continued to work on that. So it's been a big improvement on reducing what you might call a drag on our company to actually have those brands declining at a much slower rate.

We've actually had some positive progress, a couple of businesses like Aim and Pepsodent actually had positive sales growth in the first quarter because, again, of the programs we're doing at retail. So the team's done a great job. But it took a total different approach to managing those businesses with the marketing spending they had.

And actually at the same time we shifted some of the advertising support from those businesses over to our core businesses, our larger brands, and it's driven even stronger growth on those brands. So the combination has been a big factor in the solid organic revenue growth we've had as a company and we continue to expect that going forward.

Bill Schmitz, Deutsche Bank.

A couple things. Jim, just on the compaction stuff, have you seen some consumer pantry loading? Because some of the stuff we've seen is that people are kind of confused and so they go about buying the 100 ounce even though it's compacted?

That's a good question, Bill. We've read a little bit about it; we've actually read people doing that just in general because of the recession, running out there and buying products, I guess probably more food-oriented than maybe household and personal care. But honestly, we can't put a number on that.

We haven't really seen anything measurable to date because honestly, as I said, all of the competitors are following the timetable. We haven't seen anybody try anything like loading excess inventories out there to drive more into the pantries. And consumers will pick up a larger bottle before they pick up the smaller bottles. But everything has been going smoothly with the trade on that, so I really don't think it is any kind of measurable impact on the business.

Matt, just on the hedge, if it was a cash flow hedge, shouldn't it be on the other income line? Why is it flowing through an operating item, or am I just totally off?

No, it goes through cost of goods sold.

Okay, but I thought hedges typically ran through the other income if they are cash flow. This was like an operating hedge, right?

No, it relates to an item that is an input in cost of goods sold, so that is the appropriate place to match it.

Okay. Then on the other expense line that also came down year-over-year, did you say why that was?

Yes, we had an FX gain in there of $2 million, plus interest is in there. So interest expenses is way down year-over-year; lower rates, lower debt.

Okay, great. Thanks so much.

Connie Maneaty, BMO Capital Markets.

I was hoping you could share some observations of how the process for the sale of the Unilever detergent brands is going?

I know nothing about -- no. Honestly, Connie, we are in no position to comment on that. That is being run by another company, and we are in no position to comment.

Okay, just thought I would ask.

Okay. Anyway, I want to thank you all for taking the time to tune in with us today. Again, I would tell you we are very pleased with our first-quarter results. We think we are very well positioned in this very tough economy right now going forward. And as we've said before, we expect the year to have good, solid organic growth. We expect to deliver the 100 basis points of gross margin improvement.

We expect to keep tight control of our overhead costs. On top of all of that, invest in marketing behind our brands to drive the organic growth. We are continuing to look for smart accretive acquisitions out there, and we are committed to deliver the 13% EPS growth in the year, despite the significant increase in commodity costs. And with that, I will say goodbye. Thank you.

Thank you for your participation in today's conference. This concludes our presentation, and you may now disconnect. Have a wonderful day.