切遲杜威 (CHD) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Church & Dwight first quarter 2009 earnings conference all. Before we begin, I've been asked to remind you that on this call the Company's management may make forward-looking statements regarding among other things, the Company's financial objective and forecast. 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 is always a pleasure to talk to you, particularly when we have outstanding results to report. I will start out by giving you a brief summary of the first quarter result. I will 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 will provide earnings guidance and some further information on the factors driving our key business units, before we open the call to field questions from you. As most of you know, our initial business forecast for 2009, reflected out concerns over unpredictable risk to our business related to the impact of the deepening recession on consumer purchases and increasing retailer support of their private label brand. My team is now more optimistic about our 2009 business forecast based on a better understanding of consumer purchasing trends in this recessionary economy and detailed discussions with retailers asserting their support for our brands over the remainder of this year.

In particular, the Company's outstanding first quarter business results are living proof of what I have been telling you for some time, that Church & Dwight is the best stock to own within the consumer packages industry, because we have been able to deliver the best growth of any CPG company in any economic environment and we aggressively manage our gross margins and overhead costs to deliver superior earnings results. I will translate what all of this means in terms of revised earnings guidance for 2009 in a few minutes. After Matt and I discuss the first quarter results.

Overall, we were very pleased with our outstanding first quarter business result. Organic net sales, which excludes the impact of foreign exchange, acquisitions and divestitures were up 6% versus year ago. The strong organic mixed sales growth reflects solid gains in both our domestic and international consumer business units. These gains are driven largely by the strong consumer appeal for our high quality, value oriented products, which now comprise approximately 40% of our revenue base and solid performance by our premium brands, which represent the remaining 60% of our revenue base.

The strong organic sales gain also benefit from the carry over effect of 2008 pricing actions, new products and a significant increase in marketing spending. On top of our strong organic sales growth, we delivered significant gross margin improvement of 330 basis point excluding plant restructuring charged. The significant increase in gross margin reflects the benefits of lower commodity costs, the carry over benefit of 2008 pricing actions, the impact of liquid laundry detergent concentration, the benefits of cost reduction programs, and higher margins associated with the recently acquired Orajel business.

We took advantage of this gross margin improvement to increase our marketing spending by 170 basis point, at a time when most of our competitors are cutting spending to drive their earnings. This higher spending enabled us to increase our market share on six of our eight power brands, which represents over 80% of our revenues and profit. And finally, we continue to maintain tight control of our SG&A costs, which declined to 13.5% of net sales, a 50 basis reduction versus year ago. When you combine the 6% organic growth, the 330 basis point i,improvement in gross margin and lowe SG&A cost, you get record earnings per share of $0.92 before restructuring charges, representing a 13.6% increase over year ago. These excellent results have given us a strong start to what we are forecasting to be another year of record sales, profits, and EPS in 2009.

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

Thank you, Jim and good morning, everybody. I am going to start with EPS. First quarter GAAP EPS was a record $0.88 per share compared with $0.81in 2008. The current year quarter included a $0.04 charge for restructuring cost related to the closing of our North Brunswick complex. Excluding this item EPS was up 13.6% from a year ago to $0.92. The strong sales performance and gross margin expansion that Jim referred to were the drivers of our first quarter earnings results which included a significant uptick in year-over-year marketing expense.

Reported revenues were up approximately 5%. If we add back the drag of foreign exchange which reduced revenues by approximately 4% and then deduct revenues from acquisitions net of divestitures which increased revenues by approximately 3%, we arrive at 6% organic growth for the quarter. Of the 6% organic growth approximately 4% is due to price mix and 2% to volume growth. So now I am going to go over the segments.

The domestic business had a very strong quarter with organic growth of over 8%. The organic growth was delivered by Extra liquid laundry, Arm & Hammer liquid laundry, Oxiclean Powder, Arm & Hammer powdered laundry, Arm & Hammer Super Scoop cat litter and Arm & Hammer dental care. These increases were somewhat off set by lower sales of household cleaners and certain personal care brands. And a Jim said, we grew share on six out of our eight power brands in the quarter.

International posted a 17% decrease in revenues and this is driven by unfavorable year-over-year foreign exchange rates. Excluding the impact of FX and net divestitures, international sales increased by approximately 3% due to higher sales in Canada and Australia. Most of this increase is due to price mix as we have announced or implemented price increases on over 60% of our international portfolio of products.

Turning now to specialty products business, the specialty products revenues were down $10.4 million, below prior year. Of the $10.4 million, approximately $4 million of the decline is due to a business divested in the first quarter of last year and another $3 million of the decline is due to FX. The remaining decrease is primarily due to lower volumes in our animal nutrition business, a significant decline in US milk prices has weakened the dairy market, resulting in lower volumes in this business.

Say a few words about FX here. Regarding the impact of FX a stronger dollar reduced reported year-over-year sales for the top line by 4% in the quarter. We do expect FX will have a similar percentage impact the next couple quarters. Regarding EPS, first quarter EPS absorbed a $0.04 hurt from currency. This includes both translation and transaction FX and we still expect the full year drag on EPS to be about $0.15.

Turning now to gross margins. Our reported first quarter gross margin was 42.9% excluding the $5.2 million charge related to the shut down of North Brunswick, gross margin expanded 330 basis points. This increase in gross margin reflects price increases, faster than expected commodity benefits, the higher margins associated with the Orajel products, the impact of liquid laundry concentration and the benefits of our cost reduction programs. And these were somewhat off set by transaction foreign exchange.

We are very, very pleased with our gross margin performance in the quarter. In fact, we've been able to achieve year-over-year gross margin improvement, and this is excluding restructuring charges at or above 100 basis points in each of the last five quarters. Remember that our long-term business model is to average a hundred basis points of gross margin expansion annually. Looking ahead, we continue to expect a healthy expansion of year-over-year gross margins now in 2009. We have better visibility today regarding the factors affecting gross margin and expect to exceed our long-term business model and over 200 basis points for the year. And reminder this excludes the plant charges.

Talking about marketing now. Marketing spend was 11.4% of revenues which is 170 basis point higher than the prior year spend rate of 9.7%. Marketing expense was about $13 million higher for the quarter than year ago and includes spending behind the newly acquired Del businesses and higher spending on our power brands, particularly Arm & Hammer and Oxiclean. We believe it is critically important to continue to invest during this recessionary period to be in a stronger position when the economy recovers. We expect to increase our spending level over prior year every quarter this year and increase 2009 annual spend to approximately13% of sales, which is 90 basis points higher than our spend rate in 2008. And we continue to stick to our business model by funding higher marketing expenditures through gross margin expansion.

SG&A is next. SG&A year-over-year was up slightly. As a percentage of sales it was 13.5%. Last year included $7 million of impairment charges and operating expenses related to divested businesses and this was off set by $3 million gain on a divestiture. So net, $4 million of one time charges last year. Excluding these items SG&A as a percentage of sales is flat with year ago for first quarter. This year will also include amortization and operating costs related to the Orajel acquisition and also higher IT costs. We continue to expect full year 2009 spending for SG&A to be down as a percentage of sales as compared to last year.

Regarding operating profit. The reported operating margin for the quarter was 18% compared to 16.8% last year. Excluding the plant restructuring charges operating margin was 18.9%, this is 210 basis points higher than year ago. Next is income taxes. As you can see in the release our effective rate for the quarter is 37.1% compared to last year's 35.7%. You may remember we had expected 36% for the quarter and for the year. The effective tax rate for the quarter is higher than last year due to a higher mix of US taxable income and higher state income taxes. We are now forecasting an effective rate of approximately 37% for the full year, for the same reasons, higher mix of US taxable income and higher state income taxes.

I'm going to wrap up now with liquidity. We generated $71 million of free cash flow in the quarter. Net ended out free cash flow is $21 million of capital expenditures and within that $21 million is $15 million of expenditures related to the new facility in York, Pennsylvania. We have $280 million of cash on hand and approximately $180 million of available credit through our revolver and asset securitization facility. Our total debt to LTM adjusted EBITDA per our bank agreement was approximately 1.9 times at quarter end and this puts us well below the long-term leverage range of two to three times EBITDA.

We expect to generate over $200 million of free cash flow in 2009 and remember this is after absorbing $95 million of new Cap Ex for the new plant in York County. Of we include just our base Cap Ex which typically runs around $50 million a year but exclude the Cap Ex for the new plant we expect to generate over $300 million of free cash flow this year.

In conclusion, the first quarter results reflects 6% organic sales growth, exceptional gross margin and operating margin expansion, continued reinvestment in marketing, and very strong free cash flow.

Thanks, Matt. I would now like to provide you with specific details on our domestic business unit to give you a better sense of what is driving the Company's results.

Overall, we are very pleased with the outstanding 8.4% organic growth achieved by our domestic business unit in Q1. Driven by the strong consumer appeal of our value oriented liquid laundry detergent business and the continued solid growth of our premium price brands driven by innovative new products and increased marketing spending. I would like to add a little color commentary to these key drivers of the continued strong organic revenue growth.

First our largest brand Arm & Hammer which represents about 30% of our total revenue base continues to grow at a very strong rate driven by a mega brand marketing campaign initiated in 2006. This mega brand marketing campaign consists of a steady pipeline of innovative new products, supported by more appealing and unified packaging, a trademark advertising campaign and increased levels of marketing spending. This marketing campaign has driven net sales growth of all products under the Arm & Hammer brand from 1% in 2004 to 11% in 2008 and now 12% in the first quarter of 2009. We intend to continue to fuel strong growth by our flagship brand by increasing marketing support and launching more innovative new products.

Second, we offer tremendous value oriented products. To fully appreciate the consumer appeal of our two liquid laundry detergent brands, Arm & Hammer and Extra, I'd like to illustrate the incredible value offered by these products. If you compare the price of an equivalent 96 wash load bottle of laundry detergent at the larger US retailer, you would find that our Arm & Hammer and Extra products are priced at a $9 to $12 savings versus the premium priced leading brands. But consumers can save between 50 to 66% in just one purchase of our quality products. This price advantage has made Church & Dwight the fastest growing laundry company in the US. And our two brands now represent approximately 25% of all wash loads in the US. I firmly believe that the current economic recession has created an opportunity for a dramatic shift in consumer behavior toward our high quality value oriented detergents. And we will continue to fuel this shift with innovative new products, supported by increased marketing spending.

We also sell value oriented products in categories such as cleaners, toothpaste, and pregnancy kits. Which are also delivering solid growth in this increasingly value conscious world. In total, 40% of our domestic revenue base now consists of value oriented products. Consumers are increasingly seeing the great value in both price and performance of our strong products. We believe the recent shift in consumers mind set has the potential to become a permanent shift as consumers realize the high costs they have been paying as manufacturers have aggressively traded them up over time to higher priced products. Because of this, we are investing our marketing dollars to under score the strong value proposition of our value oriented products and to build consumer loyalty.

The third factor to understand about the strength of our Company is that our steady and significant increase in marketing spending has enabled us to drive share growth on our eight power brands, which represent over 80% of our sales and profits. Six out of the eight power brands in our portfolio are premium price leading brands in their respected categories. And our largest brand, Arm & Hammer is premium priced in some of its categories and value priced in others. Over the past four years we have increased our marketing spending on these brands by and average of 50 basis points a year. This steady and significant increase in marketing spending has driven significant share gains in our eight power brands. For example, Trojan has gained five share points to a 75% share. Oxiclean has gained 14 share points to a 40% share. And First Response grew seven share points to a 26% share.

In the first quarter of 2009 we increased our marketing spending by 170 basis points and grew share on six of our eight power brands. Our goal for 2009 is to continue to increase our marketing spending and once again drive share growth on all eight power brands like we did in 2008. Our portfolio of premium brands differs from other CPG companies in that we have high shares in niche categories where efficacy is often much more important than price in the consumers purchase decision. Condoms, pregnancy kits, and stain removers are three great examples of these types of categories. As a result our premium brand portfolio is more insulated from down trading than some of our competitors.

So as you can see, Church & Dwight is not a one trick pony. 40% of our product portfolio has strong value orientation which we are leveraging in this recessionary economy to deliver significant growth. And 60% of our business consists of leading premium brands which are driving significant share growth through a steady pipeline of innovative products, increased marketing spending and superb sales execution.

And we are investing heavily in brand equity driven marketing. So that our brands will emerge from the economic downturn with even greater strength, consumer loyalty, and growth prospects. No other CPG company has such a powerful combination of value oriented and premium price brands and a demonstrated track record of driving strong growth in both types of businesses. It goes without saying that we are very pleased with the continued strong organic sales growth of our domestic business unit. In total a terrific first quarter for our domestic business in the face of a very challenging business environment.

Let me switch gears now and talk about the future. While we are pleased with the outstanding first quarter results as I often state, we are never satisfied. First, we are very excited about the new products we are launching this year which offer innovative product benefits.

For example, on the household product side of the business, we are offering Arm & Hammer two and one wet dryer cloths, which combine the softening and freshening benefits of liquid fabric softeners with the static cling control of a drier sheet. All in the convenience and better value of just one drier sheet. Second, we are expanding the highly successful Arm & Hammer with Oxiclean line of detergents. To include a product specifically designed for high efficiency washing machines. Third, we are upgrading our compare line of Arm & Hammer cat litter products, with the addition of a special baking soda crystal that provides superior ammonia blocking to destroy even the toughest odors.

Now on the personal care side of the business, we are also launching a number of new products. First the Trojan brand has two exciting new addition to its product line. A product called Trojan to go contains two condoms in a pocket size hard cover card, which makes it easier to discretely carry condoms in a wallet or purse. We hope that this will increase condom usage and lower the risk of sexually transmitted diseases and unwanted pregnancies. Second our new Trojan condom called Exstacy features a unique comfort shape and ultra smooth lubricant to deliver the most pleasurable experience of any latex condom.

Now in oral and skin care, we;re introducing a new line of spin brush products that delivers superior deep cleaning benefits of advanced sonic technology at a price that provides significant value compared to other premium sonic brushes. We're also expanding our Nair depilatory line, with a Nair exfoliator with microbeads that delivers superior skin exfoliation. Now these are just a few examples of the over 20 great new products we will be launching in the US and in our international markets in 2009 to help drive our organic growth. We will support these exciting new products with increased marketing spending and superb sales execution in an effort to drive share gains on all eight power brands.

We previously projected organic revenue growth of only 2% in 2009 due to our concerns about the economy and private label. However, based on our first quarter, a better understanding of current consumer trends in this recessionary economy, and detailed discussions with retailers concerning their support for our brands the remainder of this year, we now expect to achieve organic revenue growth of at least 3% in 2009. In terms of gross margin we previously projected margin improvement of at least 100 basis points in 2009.

Based on the strong first quarter, greater than expected commodity savings, greater benefit from productivity programs, and the contribution of 2009 price increases in our international business unit, we now expect to see 200 basis points of gross margin improvement in 2009 excluding the plant restructuring charges. For marketing spending, as Matt stated earlier, we are going to utilize some of our rising gross profits to increase our marketing spending in 2009 to approximately 13% of sales which is a 90 basis point improvement over 2008.

Finally, we will continue to keep a very tight lid on overhead costs. As you may know, we have increased our sales by 60% or $1 billion in the past four years while at the same time lowering head count by 5%. We expect to continue to aggressively manage our over head costs to lower their percentage of net revenues.

Now let me translate what all of these means and the specific guidance for the total year. In view of our improved outlook on organic revenue growth and gross margin improvement, we are raising our previously announced EPS forecast of $3.20 to $3.25 to $3.30 to $3.35, which is a 15% to 17% increase over 2008. This is the largest EPS increase in 2009 for any CPG company I'm aware of. In my opinion Church & Dwight is the best stock to own within the consumer package goods industry. I belive no other CPG company can currently match our trifecta of strong revenue growth, significant gross margin expansion, and tight overhead controls.

This trifecta delivered an 18% annual increase in total shareholder return over the past ten years. The S&P 500 fell 3% annually over that time frame. This trifecta delivered over a 4% improvement in total shareholder return in 2008. A year in which the average S&P 500 stock declined 35%. And this trifecta is expected to deliver record EPS results in 2009.

Finally, while we are delivering these record results we will also be making investments in our future. We are increasing our marketing spending to go drive future organic sale growth. We are building a new laundry plant in York, Pennsylvania to support our rapidly growing laundry detergent business and drive continued gross margin improvements -- so that we can continue to deliver record EPS results in 2010 and beyond. The new laundry plant in York, Pennsylvania will have the ability to expand its capacity by 50% to efficiently absorb the product needs of future household or personal care acquisitions that have been key contributors to our strong earnings growth.

Now, that ends our presentation. I will 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). Your first question comes from the line of Bill Chappell of SunTrust. Please proceed.

Good morning.

Hi, Bill.

Hi, Bill.

I will start with the big question on a lot of investors minds. On the detergent side, it looked like you lost some shelf space at a key retailer over a past few months being replaced by a private label. Is this the start of a trend? Are you overall gaining shelf space for the detergent business? Kind of how should we look at this for the remainder of the year?

Bill, we don't talk about specific accounts, I will just say overall we are ahead. Every day, every week we have gains and losses across the country. Right now we are ahead and that is a key driver the reason our laundry business was so strong starting in all of last year and particularly in the fourth quarter and a very strong first quarter. So, net, net we are ahead.

Okay, so I guess that is all I will get on that. Looking to margins, I mean just trying to understand certainly it is impressive to do better than 200 basis points this year, but to try and after the first quarter of doing 300 basis points, how should I look at it for the remainder the year? Is that just being conservative? Are there less benefits in later quarters?

Hi. Bill, this is Matt. You probably want to think about it from quarter by quarter. So if you move from Q1 to Q2, Q2 you still have the benefits of Del. But some things that are happening in the second quarter that would be going the other way we would start reducing the year-over-year gross margin expansion. It is our highest quarter for slotting and it is also our highest quarter for couponing And both of those not only affect the top line, but they also affect gross margins. So , you have sliding, you've go coupon. The third this is we start lapping the 2008 price increases. We took price increases early last year, so they start being lapped. And the benefits of concentration sequentially from Q1 to Q2 they have greatly diminished. Because remember by Q2 last year, most of the country was concentrated by June.

So now you go, okay, Q3, there is no Del and there is no concentration benefits and then Q4 similarly. You have no Del and no concentration benefits and then you have lapped your fourth quarter 2008 benefits. It makes sense then that your first quarter would be the way -- to turn out to be a a pretty good quarter. We did get faster and larger benefits from commodities in Q1 and our Good to Great program is still pretty robust. So we are getting good cost reductions there as well. When you do 330 in the first quarter, that means you have to average 150 the rest of the way to net out to around 200 plus for the whole year. So definitely a very healthy

Okay. That helps on the color. And then just final question on the personal care side, it is a little bit weaker than I expected, is there anything particular going on there? Is it timing of new products or promotions or is it just the categories are a little bit weak?

Bill, it is a little bit of both honestly. It is primarily a timing of new products in that. Like I said, we are launching the Trojan new products, the Nair new products, new Spinbrush stuff, even some new Orajel stuff. So that all starts in the second quarter and we actually pushed some advertising on some of those brands out of the first quarter to start the second quarter. So they should start to see a jump back there. And then being fair, some of those categories are the ones that we expect will be the most hurt in this economy. The higher priced discretionary categories like pregnancy kits and battery powered tooth brushes are a little weaker that the more the household categories and that. So mostly it is the timing of new products.

Great. Well, nice quarter.

Thank you, sir.

Your next question or comment comes from the line of Alice Longley of Buckingham Research. Please proceed.

Hi, good morning.

Hi, good morning.

Hi, Alice.

Just to follow-up on the gross margin, don't commodity costs benefit you increasingly through the year?

Yes, it does. It is only one benefit though, Alice of what is driving the year-over-year gross margin.

Okay, but that is a partial off set to losing some of the other stuff?

Yes. That's right.

Okay. And back on detergents, can you give us some color on how you see Walmart positioning its private label detergent to the consumer? And also talk about what you are seeing in test markets for Clorox's Green Works detergent?

Yes. Alice, we don't comment on any particular retailer. It is not fair to them out there, so I can't comment on that. And Clorox's new Green Works detergent, really I don't have any opinion on that either. We are aware of that happening and obviously monitoring like any new product introduction and check in with us next time.

All right. Thanks.

Your next question or comment comes from the line of Andrew Sawyer of Goldman Sachs. Please proceed.

Yes, sure hi guys. I was wondering if you could talk a little bit more, you alluded twice in your prepared remarks about retailer discussions about support of your brands that make you feel better about the sales atmosphere. I guess what were you guys anticipating before you entered the year versus what you are hearing today? Or can you elaborate a bit on what's changed there?

Yes, Andrew, it was a general concern about private label and what retailers wold do with that. And the point in time we made the comments back in February. It was real early and we had scant information on that trend. Now, we have much better information particularly on the impact on the shelf that we know about. And as we go forward we will need to know more about the impact on consumption.

But pretty much the shelf was a very big important one for us to know because it does impact consumption. We understand that. We have also seen the results in the categories as far as consumer trends and -- in general those are more positive than we thought. The laundry categories are particularly positive our there, cat litter is very good, oral care is very good. So we have seen the consumer reaction so far in this depending recession and overall I would say it was a little better than we expected. So that gives us optimism on the year for the higher organic revenue growth called, that we're calling of at least 3%.

So it is more a function of shelf space hanging in rather than a change in the promotional support levels?

That's correct.

Okay. On the laundry side, we heard your "largest" laundry competitor talk about doing little bit more tactically to address price gaps. Have you starting to see anything in the trade fro that respect? How should we think about that risk to your numbers over the rest of the year?

We have seen a little bit. We expect a little increase in trade merchandising out there but I would say nothing that significant.

And finally just one last one on the A&P spend, is this a new higher base? And how much can we expect consumer impressions to be up this year? And I guess finally, how should we judge the sales return that you get from the step up in A&P spend or how are you thinking about evaluating that step up?

Well again, you have seen us increase our marketing spending while most of our competitors are cutting. Advertising costs are definitely down versus a year ago. So that's a double plus. We are spending more and being able to buy more with that. And then if you add the fact that while many of our competitors are cutting, we hope that will be a big driver of our share growth this year. We are I would say, piling it on in our situation here. And again, six of our eight power brands were up in the first quarter. All eight were up last and our goal by the end of this year is to have all eight power brands growing shares. So whenever this recession ends, we sure hope to come out of it a hell of a lot stronger than we started. Well, thanks a lot guys.

Your next question comes from the line of Doug Lane with Jefferies & Company. Please proceed.

Yes, hi, good morning.

Good morning.

Hi, Doug.

Did you give us what the organic sales growth was for the personal care division and the international division if you exclude currency and if you exclude acquisitions and divestitures?

Yes. International was 3% if you exclude FX and divestitures and personal care side I think if you pulled out Del, it would probably be -- for domestic would be 5% or 6%.

Okay. Thank you. And then can you give us an update on essentials and how about line is progressing?

Doug, I will explain that one simply we don't get into that type of detail. It is still out there, it still has good distribution. It is doing okay. It will not be a home run but it is doing fine. And I think as the trends continue with the environmentally friendly trends in the consumer side of the world, it will do okay. It is not one of our major business drivers. It is a good product but we have a lot of other great things on the laundry side, laundry additive side, condom, side, pregnancy kit side, oral care side. There will be a heck of a lot bigger than that.

So it was a good initiative. Keep in mind, cleaners overall is a relatively small category for us. And that was an effort to take advantage of a couple of trends and value and the green movement to see what we can move. We never had a strong base there. But it was a good shot and it is doing okay.

Okay. And then lastly you were asked about some competitive pricing moves, can you give us an update characterization of retailers and any push back in price you are getting there?

I would just say generally very little, honestly. Don't forget over the long-term the pricing we took, still you can make a great case, we are still recovering a lot of the commodity increases that have happened over the years when no pricing was taken. Retailers are also struggling with the fact that their store sales are weak in this recessionary economy. If price declines were taken, it would lower same store sales. So that is a dilemma for them. But again, we're not the pricing leader in the majority of the categories we are in. Other big players are. And we generally follow what they do. And so I would say the large majority of business we are followers on price. So we have heard honestly very little at this point in time about any effort to do price declines out there.

Okay. And if you had to -- you boosted the organic growth a little bit, I mean 3%. You just came off of 6%. Still below where you were. I know you have a tough camp in the fourth quarter. What makes you feel better today than in February? Is it more private label? Is it just how well your value brands have done so far this or what is the one or two things that maybe make you a little more comfortable now versus February?

I think the biggest thing Doug is some of the categories are much stronger than we thought they'rde be. The laundry category, is very -- it's our biggest business, it is very strong both on the liquid and powder side and the stain fighter side. The pet business is hanging in there doing fine. The oral care business is doing fine and the condom category is showing growth too. So those are four to five big categories for us that are all generating single digit growth. We were concerned, that is dollars I'm talking about -- we were concerned that they might go negative in this economy. So overall the categories are hanging in better and as we expected we are spending more marketing dollars and growing our shares and that is a help to us. And you heard earlier, overall the shelving issues out there, we were concerned about, turn out to be less than we thought. So those factors you add them all up, make us feel more positive about organic revenue growth. I wouldn't underestimate this is still a tough economy and unemployment is going to get worse. We now feel more positive about organic revenue growth than we did in Q1 when those issues were a lot of unknowns to us. Okay, thanks.

Your next question or comment comes from the line of Bill Schmitz of Deutsche Bank. Please proceed.

Hi, good morning guys.

Hi, Bill.

Can you talk about any sort of alternative channel expansion you saw in the quarter, so outside of discount channels into places like Costco or Dollar Stores, I mean is that growing for you guys?

We have had successes Bill. If you look at all the channels we are very strong in traditional food and drug. We are very strong in mass and very strong in Dollar Stores, very strong in Dollar Stores. And our only weakness really versus competition was in club stores. And I won't name accounts, but we've had some wins recently to get some better business into the club stores, so that is helping our success. And overall, you know the trends the right now, the mass dollar in clubs are generally doing well. I will say to you our sales in traditional food and drug which channel wise have been losing and continue to lose to the mass drug and club, our sales are up in the food side of the world, nutritional food and drug. So we are doing a good job of execution over there and very good job of our leveraging our value oriented businesses to drive sales improvements even in channels they are losing. So that is the overall picture on the channel side.

Okay and you have never really talked about de stocking like some of our competitors have. I mean why is your business more immune to it than some other folks?

We are not immune, Bill. We just don't whine.

Yes, you do. I'm just kidding.

No, destocking is happening. We have lost some SKUs to destocking. But you win some and lose some. We have a great sales force that is out there every day presenting our situation. Like I said, we have a great portfolio. The 40% value orientation is a great story today. Consumers responding to it well and our customers the retailers are supporting it with increased distribution and on the premium side of our world, a 50% of our portfolio, we have great brands there brand spending more. Retailers like that. They want to support the brands spending more. So we have certainly have had some losses on our secondary brands. And I repeat, our secondary or tertiary brands as some people call them are only about 7% of our total portfolio today. So while we had some losses on some of those brands, it is more than offset by the gains in the 93% of our portfolio, that value and premium based

Okay, good. And then lastly, I guess Proctor is going to launch a laundry additive or they talked about it another test to marketing right now. I mean is part of the start that the advertising maybe increased promotional support, there to kind of protect Oxiclean? Because I know it is a pretty high price margin fast growing business for you. There to protect Oxiclean, it is a high price margin point to me.

Oxiclean has gone from a 26% share when we bought it to over 40% share today. It is a great brand. We've been supporting it with new products and increased advertising and all I can say to our friends in Cincinnati is bring it on..

Is there a plan in place to sort of protect in this environment if they start going crazy with spending and advertising and everything else?

We will always defend our businesses to the hilt. okay, all right. Thanks, guys.

Your next question comes from the line of Jason Gere of RBC Capital Markets. Please proceed.

Good morning, guys.

Hi, Jason.

Just a quick question, I was wondering if you can talk about the sales progression through the quarter and maybe how that talking about March and how that kind of trends into April? I mean did you see an acceleration January through March?

I would say the business sales model is very steady state, very steady state and looking good.

Okay. And then I don't know if I missed this, did you -- you kept talking about the six of the eight brands that gain share. The other two, did they lose share, were they flat and which were they?

The two brands that they lost a little share on one was Trojan and one was Orajel. The Trojan one was it less than a share point. It was due to competitive pricing a couple of accounts and we are addressing that and we expect to get that share back and more. And Orajel again was due to some competitive pricing activity going out there and just like Trojan we are addressing that.

Okay. And then just the last question, I think in the press release you talked about some different cost savings accelerators, I was just wondering which bucket since there are so many buckets that you guys have, which buckets that might have been referred to?

Yes. That was a question that Alice asked earlier about commodities and would we still see commodities helping us year-over-year for the second half. And the answer to that is yes. And that was in response to a question of would things be going the other way in the second half which were things like no Del, no benefits from the Del acquisition in the second half, no benefits from concentration, et cetera and we will be lapping our Q4 2008 prices in the second half.

Okay. Fair enough. Thanks.

Your next question comes from the line of Joe Altobello from Oppenheimer. Please proceed.

Thanks, good morning guys.

Hi, Joe.

First question is on the marketing spend, I'm just trying to understand the step up versus what you guys said in February. How much of that is that you guys are getting much better gross margin expansion? And so you figure, let's take this year's opportunity to reinvest in these brands? And how much of that is try to go on offense and stem any shelf space losses and try to spend back to try to keep the shelf space that we have now?

Joe, no, it is almost a hundred percent due to the fact that our gross margin expansion was stronger than we thought. And it has alway been part of our model to spend back roughly 50% of the gross margin expansion into the marketing side. And honestly, we are going on the offensive, we are going after categories in particular where we are doing exceptionally strong being, laundry, laundry additives and pregnancy kits and Trojan. Where we have an opportunity we think to take a quantum leap versus competition because of our strong position in those categories.

Okay, because it sounds like you guys probably would have gotten 3% organic growth his year with marketing spend at 12% of sales. Why increase the 90 bips, then?

We have a crystal ball, Joe.

Well, it sounds like part of the driver of the top line is the categories are doing better and your shelf space is better than what you thought and both of those are unrelated to the marketing spend.

Well, Joe always keep in mind our model is always to spend to approximately 50 basis points in marketing spend. When we had a lot of unknown factors earlier this year, we held back and usually mutedly benefit from lower marketing costs out there, just still increase our share voice out there. And now with the higher gross margin, we're just going to pour it on. You have seen the reports from most of our competitors, they are cutting marketing spending out there. And we feel we are in a position to take advantage of that increased marketing spending and drive both our value and premium brands to the share gains in our environment. So it is an advantage for us and we are going to take advantage of it.

Okay, goo. I certainly appreciate the higher marketing spend. I just hope that the incremental spend is as efficient as what you have been doing. That's all.

I promise you it will be.

Okay. And then secondly in terms of gross margin, this year you talked about a lot of things that are helping you. It is probably a little early to talk about 2010, but beyond the York plant being more cost effective next year, you probably aren't in a position to raise prices. And you probably won't get the same type of commodity reduction next year versus this year. So are you comfortable with your Ever Green target for next year on the gross margin side?

The thing to keep in mind Joe is yes, we do have York plant coming online for the fourth quarter. So that will be a significant contribution to gross margin expansion. Let's also remember some of the things that got us here in prior years when we didn't have price increases and that was our Good to Great program where we spent a whole lot of time on reformulating and repackaging and we're -- this is a company that very focused on being efficient. And the other thing that we've spend a lot of time on is trade spending. And you will remember we put in a [tebo] program a few years ago, so we will be back at making sure our trade spending is more efficient in 2010 and in 2009.

Got it and one last question, your cash balance built is a little bit in the quarter. I was curious if that is any reflection of what you are seeing on the acquisition market at this point?

No, I mean the acquisition market I would honestly it is very active, lots of opportunities out there. Very few that actually meet our criteria, being a number one or number two brand, margin accretive and growth opportunities. We are still seeing a lot of reluctance by sellers to sell because other buyers who are normally there are having trouble getting money in this credit market. But now we are not -- we are just bringing the cash in house and holding it in this kind of tight credit market and we certainly if the right opportunity comes along, we jump all over it.

Okay, great. Thank you.

Your next question comes from the line of Connie Maneaty of BMO Capital Markets. Please proceed.

Good morning. Just two quick questions. I think you have some new distribution for some of your products in the first quarter. Was the pipeline filled in the first quarter or the second?

It will be more of a second quarter fill Connie.

Okay. And then secondly, I think you said in your comments and also noted in the press release that you expect a big increase in marketing spending in the second quarter, but it was also in last year's second quarter when there was a 20% increase in marketing. And I guess it was 13.3% of sales a year ago. Will the percentage of sales be higher in the second quarter this than it was Q2 a year ago?

Connie, you probably know we don't call line items on the P&L. What we are trying to help people with is thinking about fact that our EPS is going to be somewhat balanced the rest of the way. With respect to Q2 which we have the greatest visibility of -- it is our highest quarter for slotting. It is also our highest quarter for couponing. And we have very heavy marketing and the other thing was our highest quarters for organic growth were Q2 and Q4. Last year Q2 was an 8% up quarter, so it is a tougher comp for us. So that's a little bit of color on how to think about Q2. As far as marketing goes, marketing will be very healthy percentage of sales in Q2.

Did you just say that you thought the rest of the quarters would be evenly balanced in terms of earnings?

Yes, it is a little bit like last year. Last year was we didn't have a huge variation in Q2, Q3 and Q4.

Okay, thanks a lot.

Thank you.

Your final question is a follow-up from the line of Alice Longley. Please proceed

Hi. I'm wondering if you can give us more color on the timing and cost and benefits of the new facility coming on in Pennsylvania? I'm assuming that well -- could you tell us if you are going to have to run double lines for a while as you bring it on? And when that will be and will the cost of doing that be included in your charges or run through the regular gross margin costs?

Yes, the plant is going to come online in October. We will run the York plant and the North Brunswick facility concurrently. As far as the production, we will be shifting production so that in the third quarter what formally was 100% coming out of the North Brunswick plant, we expect 70% come out of there and 30% come out of York. Once we go to January, we will be running all out of York. From a benefits and cost standpoint you may recall we had an estimate of about $0.25 a year for charges associated with the new plant. Included in that $0.25 is some redundant overhead in the fourth quarter. So we tried to keep that separate. If everything goes according to [hoil], we will be in good shape and have lights out in North Brunswick in December and have all of our production that formerly came out of North Brunswick into York in the first quarter. So we have called out, Alice, it is in the numbers that we'rve given

How much should the new plant benefit your gross margin in 2010?

We have never hung a number on that other than to say it will be a very significant contributor year-over-year, 2010 versus 2009. It will probably be one of the biggest moves for us next year.

Okay. Thanks.

I want to thank you all for taking the time to listen to our call today. I think the numbers speak for themselves. If you have any follow-up questions, plea give me or Matt, or [Maureen Musfor] a call and we will be happy to answer them for you. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.