切遲杜威 (CHD) 2010 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Church & Dwight first-quarter 2010 earnings conference call. Before we begin, I have been asked to remind you on this call the Company's management may make forward-looking statements regarding, among other things, the Company's financial objectives and forecasts. These statements are subject to 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.

Thank you, Christine, and good morning to everyone. It is always a pleasure to talk to you, particularly when we have good results to report. I will start off this call by providing you with my perspective on our excellent first-quarter business results, which you've read about in our press release this morning. I will then turn the call over to Matt Farrell, our Chief Financial Officer. Mat will provide you with his perspective on the financial details for the quarter. When Matt is finished, I will return to provide some more detailed information on the performance of our key brands and to provide earnings guidance for the year. We will then open the call to field questions from you.

Let me start off by saying that I am very proud of my Company for both the magnitude and the quality of our first-quarter business results. Delivering 8% organic revenue growth, 120 basis point improvement in gross margin and a 21% increase in earnings per share would be a great result in a robust economy. The fact that we delivered these results against major headwinds is even more impressive to me.

Despite the optimism about the economy in the press, this is the most difficult business environment that I have ever seen. Major headwinds are striking the consumer packaged goods industry on every critical dimension, including consumer demand continues to be weak, as reflected in the fact that unit sales were down versus year ago in more than half of the 13 categories in which we compete; the cost of many key commodities continues to escalate; retailers are continuing to rationalize their product assortment in every category, which can unfavorably impact the distribution and sales of brands; and several key competitors have increased their trade-in promotion spending in an attempt to drive revenue gains.

All CPG companies are fighting these headwinds. Church & Dwight has been able to successfully manage these issues in the first quarter better than most of our other CPG companies due to six key reasons.

First, we have the most unique product portfolio in the CPG industry. It consists of both premium and value brands, which puts us in a position to thrive in any type of economy, as exemplified by our consistently strong EPS growth over the past 10 years. In particular, our value brands, representing about 40% of our revenue base, have experienced strong growth in this recessionary economy, as consumers are making smart choices by trading down and staying with lower-priced brands. A great example of this is the fact that our two value-based liquid laundry detergents, Arm & Hammer and XTRA, captured 80% of the total category growth in 2009. These two brands continued to grow in the first quarter of 2010, with a combined growth in the high single digits despite a decline in XTRA. The combined growth was on top of 25% growth in the first quarter of 2009.

Second, we have smartly reinvested some of our increased profits from the strong growth of our value brands to significantly increase marketing support on our eight power brands by 290 basis points or $140 million over the past three years. This increased marketing support has helped to drive share growth on all eight power brands, representing 80% of our revenue and profits over the past three years. We have maintained this higher marketing spending in the first quarter, which led to further share increases on four of our eight power brands.

Third, I believe we have the best pipeline of new products in 2010 in our Company's history. The majority of new products began shipping at the end of the first quarter, so they have not yet fully impacted our 2010 year-to-date share results. We have achieved distribution gains with these new products across almost every power brand category, and expect that this should help to drive further sales and share increases starting in the second quarter.

Fourth, on the cost side of our business, our supply-chain organization continues to work closely with our business teams to deliver gross margin expansion. We grew our gross margins by 430 basis points in 2009, and we are off to a great start in the first quarter of 2010, with another 120 basis points of improvement, despite the major headwind from higher commodity prices. We'll talk more about that later in the call.

Fifth, we continue to keep a tight rein on overhead costs, as proven by the fact that we have one of the highest revenue-per-employee ratios in the entire CPG industry. In the first quarter were able to reduce our SG&A as a percent of net revenue by an additional 20 basis points over the same period in 2009.

And finally, we continue to drive strong free cash flow. This cash flow and our strong balance sheet have enabled us to smartly invest in our future through both investments in our supply chain and the acquisition of leading brands.

In the first quarter, we started to reap the benefits of our new $170 million laundry plant in York, Pennsylvania. With this facility, we've already lowered our manufacturing costs to record low levels and strengthened our competitive advantage.

We also signed an agreement to acquire the number one nasal hygiene brand in the United States. We think this acquisition will be an easy bolt-on to our existing nasal hygiene business, which is currently sold in over 80 countries around the world.

All these factors make me feel bullish about my Company's future despite the very tough business environment facing all companies today. In my biased opinion, no other CPG company is as well-suited as Church & Dwight to thrive in any type of business environment.

We were delivering exceptional EPS growth before the recession. We are delivering exceptional EPS growth during the recession. And we are taking action to ensure that we continue to deliver exceptional EPS growth going forward, regardless of the future economic environment.

I will now turn the call over to Matt, who will provide you with greater insights in the financial results for the first quarter.

Thank you, Jim. Good morning, everybody. We'll start with EPS. The first-quarter GAAP EPS was a record $1.11 per share compared with $0.88 in 2009. The prior-year quarter included a $0.04 charge for restructuring costs related to the closing of our North Brunswick complex. If we exclude this item, EPS was up 20.7% from year-ago. The current quarter was six days longer than the comparable quarter in the prior year, and this contributed to organic growth in the quarter.

The strong sales performance and the gross margin expansion that Jim referred were the drivers of our first-quarter earnings results.

Reported revenues were up 9.2%. Foreign exchange increased revenues by 2.7%, while lost revenues from divestitures lowered revenues by approximately 1.2%. So we arrive at 7.7% organic growth for the quarter.

Of the 7.7% organic growth, approximately 10.2% is due to volume and 2.5% negative price mix, which is largely attributed to a significant year-over-year increase in slotting. As projected, this year will be dependent upon volume growth and share gains accompanied by negative price mix.

So year-to-date, we are in line with our expectations, as we purposely held back on our laundry merchandising spending in January and February until our new Power Gels lines were launched in late March. We are also comping over a 7.6% organic growth quarter last year for the global consumer business.

Organic growth will accelerate in future quarters, driven by our great new product pipeline and strong quarterly marketing and merchandising support on all of our businesses. And Jim will talk more about this when I am finished.

Now I am going to go through the segments. The domestic business had a strong quarter, with organic growth of approximately 8%. That was 12% volume and 4% negative price mix. Again, that negative price mix number reflects the significant increase in slotting that I mentioned before.

The organic growth was driven by the extra days in the quarter and by the continued strong consumer appeal for our high-quality premium and value-oriented products.

Arm & Hammer liquid, cat litter, Aim toothpaste, Kaboom bathroom cleaner, Orajel, Trojan and Nair all had strong growth in the quarter. XTRA, on the other hand, was down 10% for the first quarter of this year, and that is compared to a 50% increase in the first quarter of 2009 versus 2008.

Following are some more key brand highlights. Total Arm & Hammer brand sales grew 14% in the quarter, and Arm & Hammer Liquid had its highest sales quarter in its history. Baking soda, softener sheets, cat litter and ULTRAMAX all contributed to the Arm & Hammer brand growth.

Cat litter marked 25 consecutive quarters of growth and softener sheets posted its 19th consecutive month of growth. Trojan has an excellent quarter, with 8% consumption growth, driven by ECSTASY, which is the most successful new condom product launch in our history.

Spinbrush was the only branded power toothbrush with consumption growth in the quarter, and has held the number one market share position in battery toothbrushes for 18 consecutive quarters.

Aim and Pepsodent were the first and third fastest-growing toothpastes over the past year, due to their strong value positioning. And finally, Kaboom is growing double-digit over year-ago due to the success of our new Foam-Tastics cleaner.

I'm going to turn to International now. International also had a good organic growth number in Q1, excluding the impact of foreign exchange and divestitures. International sales increased by approximately 8% due to higher sales, primarily in Canada, Brazil, Australia and the UK. This increase is 9% volume and 1% price mix, largely because International doesn't have the slotting that the domestic business would have.

Specialty Products, organic sales were up 5%, with volume up 2% and price mix up 3%. The increases are primarily due to growth in sodium bicarbonate. And as expected, the year-over-year comps for the Specialty Products business become easier starting in the first quarter and will continue throughout the year.

I'm going to go to gross margin now. Our reported first-quarter gross margin was 45%. Excluding the prior year $5.2 million charge related to the shutdown of North Brunswick, gross margin expanded 120 basis points. The increase in gross margin reflects the benefits of our cost reduction programs, our new laundry facility and favorable product mix. Going the other way, these benefits were partially offset by the significantly higher slotting and some residual costs associated with the shutdown of the North Brunswick plant.

Looking ahead, we continue to expect full-year gross margin expansion for 2010. This is after higher-than-planned trade spending and headwinds from commodities. For the second quarter, gross margin is expected to be in line with the first-quarter gross margin -- that would be about 45% -- as we step up our trade spending in Q2 to address in-store competitive actions.

I'm going to discuss marketing next. Marketing spend was $68.9 million or 10.9% of revenues, which is a 50 basis point decline year-over-year. The absolute marketing spending was up $2.6 million over the prior year. We should remember that in Q1 last year, we increased our marketing spend by 170 basis points, while most of our competitors reduced by 200 basis points or more last year first quarter.

Looking ahead, we expect to continue to decrease our marketing spending during the year, as we shift into a higher level of trade spending in response to some increased competitive trade spending. We expect full-year 2010 annual marketing spending will be approximately 13% to 13.5% of sales, or 50 to 100 basis points below 2009, but still 100 to 150 basis points above 2008 levels.

I want to give you a little more context on this point. Historically, our trade spend rates have been tightly managed as we ramped up marketing as a percentage of sales each year. As you may recall, a 50 basis point increase per year in 2006, 2007, again in 2008, and then a whopping 190 basis points increase in 2009.

For the remainder of this year, our trade spend rate will be much higher than 2009, and that will be partially offset by lower marketing. I think the most important point is that our combined marketing and trade spending as a percentage of 2010 sales will exceed 2009 levels.

SG&A is next. SG&A year-over-year was up $6 million in the quarter. SG&A as a percentage of sales was 13.3%, down 20 basis points from year-ago. The higher SG&A costs in the quarter reflect foreign exchange rate changes, higher R&D costs and information systems costs associated with our global information systems upgrade, which we highlighted in February. SG&A as a percentage of sales is expected to continue to be favorable to 2009, and for the full year should be a reduction of approximately 50 basis points.

The reported operating margin for the quarter was 20.8%, and if we exclude the plant restructuring charges from last year, operating margin was 190 basis points up year-over-year. And we expect operating margin expansion to be positive each quarter, and be 150 basis points or better for the full year.

Equity earnings of affiliates, we had an income from affiliate decrease of $1.4 million due to lower income from a joint venture that is highlighted in the release. Income taxes, as you can see in the release, our effective rate for the quarter is 36.2% compared to last year's 37.1%. And we are forecasting an effective rate of approximately 36% for the year. We expect the benefit in the reduced taxes for the year to be offset by reduced income from the joint-venture year-over-year.

Free cash flow, turning now to liquidity, we generated $63 million of free cash flow in the first three months of the year and netted in our three-month free cash flow is $9 million of capital expenditures. We have over $446 million of cash on hand and over $200 million of available credit through our revolver and asset securitization facility.

The Company also paid down $71 million of bank debt in the quarter, and we expect to pay approximately $143 million for the balance of the year.

Our total debt to LTM-adjusted EBITDA per our bank agreement was approximately 1.4 times at quarter end, and we expect to generate over $300 million of free cash flow in 2010. And remember, that is after approximately $70 million of CapEx. The $70 million of CapEx includes a $12 million investment to install cat litter production in our York plant and $13 million for the SAP upgrade.

In conclusion, the first-quarter results reflect 7.7% organic sales growth, continued gross margin and operating margin expansion and solid free cash flow.

I'm going to turn it back to Jim now.

Thanks, Matt. I will finish off our call today by adding a little color to the solid first-quarter business results that Matt took you through and my outlook on the year.

First, we are very bullish about the innovative new products that we are launching this year to drive our organic growth. Let me share some examples of what I'm talking about.

First, the Trojan brand, which had an excellent first quarter, with high single-digit sales growth, and the brand increased its leading market share by 1.6 percentage points to 76.5%. This was driven by the launch of the new ECSTASY product line and the continued growth of the Magnum line. As Matt told you, ECSTASY, which was launched in the third quarter of last year, is the most successful new product launch in category history. The ECSTASY sub line has already achieved an 11.8% market share.

The Magnum sub line of Trojan also had a great quarter, in which it achieved an all-time high quarterly share. Now, we are building upon this strong growth in 2010 by launching another new sub line of Trojan called Fire & Ice. This new sub line features unique lubricants on the inside and the outside of the condom to provide heightened sensations and increased pleasure. The trifecta impact of the continued first-year trial of ECSTASY, the continued growth of Magnum and the launch of Fire & Ice should continue to lead to record business results for the Trojan brand in 2010.

Second, we are very excited about our new line of Arm & Hammer liquid laundry detergent called Power Gel. Our Power Gel detergent combines the two-in-one cleaning power of OxiClean stain fighters plus Arm & Hammer Baking Soda in a revolutionary new gel formula that delivers exceptional cleaning power at a great value.

This new product line has received excellent incremental distribution from leading retailers since it launched in the first quarter, and early results reveal very strong consumer trials. This new product line contributed to over 20% growth in the sales of the total Arm & Hammer liquid laundry detergent business in the first quarter.

Third, the OxiClean brand also has an extremely -- or entirely new product line launching in 2010 called Max Force. The Max Force line, consisting of seven new SKUs, in powder, Power Gel, spray, stick and unit dose product forms, which combines four types of stain fighters to get out more tough stains the first time.

Despite the heavily supported launch of a major new competitor in the liquid laundry detergent additive category, OxiClean still delivered solid sales growth in the first quarter and is outselling the new competitor by almost two-to-one margin.

The fourth and final new product that I will mention is our newest introduction. It is a new and highly innovative cat litter called Double Duty. It has that catchy name because it delivers superior odor control for both urine and feces. Arm & Hammer cat litter has been the fastest-growing clumping cat litter in the past 13, 26 and 52 weeks. The new Double Duty product will start shipping in this quarter, and is expected to continue the strong growth of our Arm & Hammer cat litter portfolio.

We have other highly innovative new products that I could talk about, including the first-ever pregnancy kit with a six-day-sooner claim for our First Response brand, and new products for Spinbrush, Nair and Orajel. However, in the interest of time, I will move on to other subjects.

As I said earlier, I believe this is the best and most innovative pipeline of new products in Church & Dwight's history. And the incremental distribution and creative marketing programs supporting these new products should play a major role in helping us to achieve our organic growth goal of 4% to 5% in 2010.

I also mentioned earlier that we've increased marketing support by almost $140 million or 290 basis points in the past three years. This increased marketing spending has been focused on our eight power brands and has enabled those brands to have a share of voice or share of ad spending in a category that is significantly higher than our brand share of market. When this happens, it usually leads to share growth, which is exactly what happened over the past three years for every one of our eight power brands.

We entered 2010 with the intention of sustaining the marketing spending levels that we achieved in 2009. However, as I mentioned in our earnings call in February, I was concerned that some of our key competitors would spend incremental trade funds in an attempt to gain share by undercutting our brands on price. That is exactly what happened in Q1.

We will not stand still and let our competitors have pricing advantages going forward. As a result, we intend to match this incremental trade spending, and we've self-funded this cost by moderately reducing our marketing budgets. Because of our significant increase in marketing spending last year, we can afford to do this and still maintain a share of voice greater than our share of market, which will fully support all of our new product launches to drive share gains.

The higher trade spending will also create a drag on our gross margin growth objectives in 2010, but we are committed to remaining competitive in our category.

As I said at the start of the call, this is another sign of how difficult the business environment is in 2010. Nevertheless, we believe we have our best new product portfolio and the marketing power to continue to support our 2010 organic growth goal of 4% to 5%.

To that point, before I briefly talk about our future business outlook. First, we continue to actively look for good acquisitions and to prune our portfolio of nonstrategic businesses. We have the borrowing capacity and a strong balance sheet to support these efforts.

In terms of divestitures, we have quietly divested three non-core businesses over the past eight months. These include the June 2009 sale of five minor brands that we purchased in the acquisition of Orajel; the February 2010 sale of our Lambert Kay business, consisting of pet supplies; and the most recent March 2010 sale of the Brillo brand. We concluded these businesses did not fit well with our future plans, and their divestitures served to reduce complexity in our Company.

In the meantime, we have signed an agreement to acquire the Simply Saline brand of products, including the number one nasal saline solution, which is primarily sold in the United States. These products provide a natural alternative to nasal congestion for people of all ages, including young children who are advised not to use OTC products. This acquisition globalizes this category for Church & Dwight, as we already own a nasal hygiene brand called Sterimar, which is the number-one brand in Europe and is sold in over 90 countries around the world. Thus, the Simply Saline business, which currently has sales of about $20 million, is a great bolt-on acquisition that meets all of our key acquisition criteria.

It is a number one brand, it has a strong growth potential, it is margin accretive to the current Company margins and it is asset-light, in that we are just buying the brand, with no people or plants coming with this business. We take great pride in finding bolt-on acquisitions like Simply Saline, and we are actively working other similar acquisitions that have the cash flow and leverage to do so.

The combination of the three divestitures and this acquisition will have a neutral impact on 2010 earnings and will be accretive in 2011.

My second to last point before I talk about our earnings outlook for the rest of 2010 is that some of you have raised concerns about the risk to our future performance in relation to such issues as private-label growth, competitive threats and actions by retailers to reduce the number of brands that we carry. Let me assure you that we are fully aware of these issues and are continually managing them, as demonstrated by our outstanding business results.

Private label is only a threat in four of our 13 categories, and we have successfully implemented programs to ensure that the private-label brands do not deter us from achieving our growth objectives. Our competitors have launched new products and increased trade spending, but we have launched our own great new products and will increase our trade spending to ensure that we achieve our growth objectives. And we are working closely with retailers so that they rationalize their categories to drive a win-win outcome for both of us.

With respect to our new products, the retailers have been so positive about our new-product launches that we have been awarded incremental distribution in every one of our power brand categories in 2010 that more than offsets any SKU losses that we have incurred.

The strong business results that we have consistently achieved over the past several years would not be possible if we were not on top with these competitive and economic changes that you have raised with us.

In closing my discussion on the first-quarter performance, I believe that no other CPG company is as well-positioned and managed to not only survive, but thrive in any business environment. Our unique product portfolio, consisting of both premium and value brands, put us in that position. Our experience and motivated management team knows how to leverage that portfolio to consistently deliver superior results. And we have given our teams the tools and the money to make the investments needed in new products, marketing, manufacturing and overhead to continue to deliver strong organic revenue growth, gross margin improvement and EPS growth.

Finally, a few comments about the future. As stated in the press release, as a result of our strong first-quarter results, we remain very confident in our ability to deliver our previously announced earnings per share estimate for the full year of 2010 of $3.93 to $4.00, which is an increase of 13% to 15%, excluding plant restructuring charges and the favorable litigation settlement with Abbott.

Within this EPS target, we also reconfirm our annual organic revenue growth target of 4% to 5%. As I noted earlier, if our competitors continue to spend on trade promotions, it will force us to reduce our marketing spending versus year ago by as much as 50 to 100 basis points. But again, please remember that we increased marketing spending by 190 basis points in 2009, so we can afford to shift some of that spending and still have a share of voice greater than the share of market on all of our power brands, which should lead to share gains as it has in the past.

Despite the higher trade spending and rising commodity costs, we still believe that we could achieve approximately 50 basis points of gross margin improvement in 2010. Again, keep in mind that we achieved 430 basis points of gross margin growth in 2009, and we expect to maintain all that growth and more, driven by our intense focus on costs and our new laundry plant.

As I predicted at this year's CAGNY conference, 2010 will be an ugly year, driven by weak consumer demand, rising commodity prices, continued pressure from the retailers to rationalize assortment and competitive price wars. But when things get ugly, you should place your bets on the company that has the product portfolio that thrives in such an environment and the management team that has the track record of knowing how to successfully leverage that portfolio to deliver consistently strong EPS growth.

In case you missed my point, that company is Church & Dwight.

That ends our presentation. I will now open the call to questions that you may have, which Matt and I will do our best to answer. Christine, please go ahead.

(Operator Instructions) Nik Modi, UBS.

Just a couple quick questions. Matt, can you talk about the six extra days and how we should think about it in terms of the contribution this quarter. And then maybe how we should think about it in the December quarter. Because there is obviously an offset at the end of the year.

Yes, it's a logical question. The problem with it is that it is not an exact science. So there's many ways we could think about it. It could be calendar days, shipping days; we could think about billing days. We could get a lot of snow days in the quarter. You heard me talk about slotting. We had significantly higher slotting year-over-year. So you notice that in the consumer domestic business, that had 4% negative price mix, half of that -- more than half of that was slotting.

So you could normalize for lots of things, so it is a very arbitrary calculation, and we just concluded we are just going to focus on the full year and not take a swing at it.

Got you. And then, Jim, on the XTRA comment, was it just purely a function of the ridiculously tough comparisons you had, or was there some more competitive activity at the low end of the liquid laundry market?

There was a little bit of both, Nik. XTRA had a phenomenal quarter a year ago, with sales up in the neighborhood of I think about 50%. And also, we did have a key competitor who cut its prices quite significantly.

I want to make it quite clear -- I instructed my guys to not initiate any price wars in Q1, even though we were concerned about it, and to wait until we actually saw the white of the eyes of the competitors. We've seen that and now we are responding.

But as I've said, therefore we are going to be increasing our trade spending over the rest of the year to stay price competitive. And that might have had a little impact on our Q1 sales, by holding off until we saw what was happening. And it will certainly give us confidence on the rest of the year going forward.

Great. And then just a last question on the acquisition. Any thoughts on just kind of what the share levels are of this brand? And in terms of synergies, how much you guys think you can bring out of the business this year or next.

Those are logical questions, but since we haven't closed the deal yet, we figured we would wait until the Q2 call to talk about the financials.

Okay. Excellent. Thanks a lot, guys.

Andrew Sawyer, Goldman Sachs.

I was wondering on the slotting fee side, does this relate to the new products that you put out this quarter, or is there something more structural going on across the portfolio?

No, it's more timing. It is really timing of the shipments. The way slotting is recorded is if you ship the first case of a new product, you get all the slotting costs in the quarter. So it is a mismatch, actually.

This is Jim (multiple speakers) --

Jim did comment about all the new products shipped late in the quarter -- that's what hit?

Yes.

And I would tell you, too, we've launched about 30% more new products this year than last year.

Okay, and then on the -- so that's not something that is ongoing. So when you're talking about the increased trade spend, the slotting was just a timing shift. But the increased trade spend, though, is there anything beyond laundry where you are seeing this big increase in trade spend, or is it principally a laundry issue?

Yes, there are two concepts. Q1 is the heavy slotting. Q2, 3 and 4 is the trade spend story, where we are going to reduce our marketing spend and we are going to be moving it up into the net sales line, which is the trade spending. So it is in-store spend.

Okay. And then on the laundry question, are there other categories where you are seeing the trade spend step up?

No, I mean, it's primarily in liquid laundry. When you think about trade spending for our Company, more than two thirds of it is in household. It is very little bit on the personal-care side of the business.

And have you seen any changes in the competitive activities as commodities have come up, or is that just not influencing the category at this point?

I would say we've definitely seen an increase in trade spending by competitors, and we know they are affected by commodities, too, but it doesn't seem to affect their impact of spending more trade dollars.

Okay. And then just shifting gears, on the ad spending side, will the cuts come proportionally out of household, since that is where the increased trade spending is coming from?

No, it'll be -- we will do a little shaving across the board. We are absolutely going to support all the new products extremely aggressively as they come out. And again, Andrew, keep in mind, we've spent so much last year that we are still going to have a very strong marketing support this year.

As Matt said earlier, don't miss the point. Between the marketing side and the trade side, we are going to be up on spending in 2010 versus 2009. So when you look at the total impact of what we spend against the consumer, it is going to be higher in 2010 than 2009.

All right, and then just completely shifting gears, on the cash side -- and Matt, you alluded to debt paydown over the balance of the year -- at any point, would you entertain repurchase activity, if nothing comes through on the M&A side?

We evaluate return of cash to shareholders every quarter, both with management and the Board, so return on cash being both dividend increases and share buybacks. But right now, still our number one destination for cash is TSR-accretive acquisition, so that hasn't changed.

All right. Thanks a lot, guys.

Bill Chappell, SunTrust.

I guess quickly on the shift of dollars from marketing to trade spend, obviously, the higher trade spend hurts your net sales, but you reiterated the sales guidance for the full year. Does that mean you have a more bullish outlook on your volume growth or is there something else going on?

We have a range, Bill. We've said 4% of 5% for the year, so we still feel good about that.

So the changeup is not more than 100 basis points?

Well, we're not going to quantify the number, other than to say that marketing and trade together is up as a percentage of sales higher year-over-year.

Don't forget, Bill, on our consumer side of the business, which is the bulk of our business, we actually did 7% organic growth in 2009, and it was pulled down a little bit by the Specialty Products division. We've told you consistently Specialty Products is not going to be a drag this year.

So we exited last year with great momentum on the consumer side. And despite the price war that is beginning to break out all over the place, we are still going to be spending a lot of marketing dollars and even more trade dollars out there. And like I said, it is the new product pipeline and the increased distribution against it which gives us great hope for very strong numbers this year.

I don't know of another company out there that is calling 4% to 5% organic, gross margin improvement, operating margin improvement and delivering 13% to 15% EPS growth. Other guys out there are spending their brains out, giving them some good organic growth, but their bottom line sucks. So show me somebody who has got the combination that we do out there and we'll talk about it.

Okay. As I look to Q2, are there any meaningful slotting fees, or are they all behind us and it's all trade promo?

Q1 was our biggest quarter for slotting, but we still have more coming in the second quarter. It is generally in the first half, as you know, Bill, when we launch our new products, and then we build distribution throughout the year. So the big slotting piece is behind us in Q1.

Okay, and then on the acquisition pipeline, I'm not sure you're going to answer this question for me. But as we look at the $20 million deal you announced, is that on the small side of what you see out there? Is that in-line kind of in size of what is available for sale? How should we look at that and compare it to your large cash balance that you are sitting on?

Bill, it is definitely on the small side. We don't want to kid you that this is going to move the needle a lot. But I want to just tell you, though, we look at all types of deals. And you will see us going forward, we will continue to make small deals like this, if they are nice bolt-ons that are like this deal, and we will go much larger, as we have in the past.

But we are not the kind of guys that have to buy a $1 billion business and that. We will buy any type of business that fits our acquisition criteria. This was a perfect fit. It's going to be a nice business that quickly gives us some accretion. And, like I said, it gives us a worldwide nasal hygiene business. And you are going to continue to see us look at all types of deals, but we will only do deals that fit our criteria. This one did, and we snapped it up. It is small, but it is still nice.

But of the ones you are looking at now, there are some larger ones in the pipeline?

Yes, there are.

Thanks so much.

Alice Longley, Buckingham Research.

I want to try to get to the drag on sales another way. It was -- price mix was a negative 4 in domestic consumer in the quarter. Is the number for the rest of the year going to be higher or lower than that?

Four? No, it won't be higher than that.

Is that kind of a good number to assume for the year?

No, remember that is an inflated number for the first quarter because of slotting. More than half of that 4% negative price mix for domestic is slotting in Q1.

But we are going to get these trade deals, which you would report as part of price mix, right?

Right, that's true.

But the trade deals basically are not as much of a drag on the top line as slotting was in the first quarter?

Right, on a full-year basis. So I mean the way to think about it is you can say 100, 150 basis points of negative price mix for the year at this point. We will update it as we go through the year.

Thank you. That's helpful. And then with the detergents up -- I think you said high single digits -- and XTRA down. Was some of that because this Power Gel basically replaced XTRA, that retailers knocked XTRA down and more than replaced that with Power Gel?

No, not all, Alice. It was strictly due to a competitor being extremely aggressive on some pricing actions. And also -- Matt mentioned it -- we purposely held back on merchandising a little bit in January and February to save our dollars for when the new products launched, particularly the Arm & Hammer Power Gel. So we went a little light intentionally to save our marketing spending starting in March.

So between that and some competitors came on strong in starting some aggressive pricing, we were a little bit hurt in the first two months. But now, things are coming on very strongly. And we've put programs in place to take care of the competitive spending, and now our new products are going along with it. So you are going to see a nice pickup in our laundry business going forward.

And I am assuming that the net margins, after gross margin and then after marketing support of Power Gel, are higher than for XTRA.

Oh, yes. Absolutely.

Okay. And then just on the model, you've said that the divestitures plus the acquisitions are neutral to earnings this year. How much are the divestitures taking off sales for the year?

We are going to update all the financials in the Q2 call, Alice, for both the Simply Saline acquisition and the divestitures. We put that in so that it would take it off the table, if people were worried about what their EPS numbers on a full-year basis.

Are detergents overall -- are margins on detergent after marketing still a little below the corporate average?

Slightly.

Slightly. Okay. And Trojan are well above, right?

Well above.

How about some of the cat litter?

Cat litter is slightly above the Company average. We've done a lot of great cost improvements on that business over the past two years to do that. And then almost of our personal-care businesses are well above the corporate average.

So it is a good mix. And got a lot of good growth going on this year in the condom business, which is very profitable for us.

Great. Thanks a lot.

Lauren Lieberman, Barclays Capital.

I did want to get back to the question of extra selling days, because wouldn't that have impacted volume? If you just sort of do straight math and you assume it was a 90-day quarter and this was a 96-day quarter, it was about 6.5%, which would say volume -- or true -- or like apples-to-apples was more like 3.5. Is that a reasonable --?

If you want to do a linear calculation, every day is worth the same, yes, you could come up with math like that. But as I said before, Lauren, there are many ways to look at it -- calendar shifts, billing days, etc.

The bottom line, Lauren, is that we looked at the numbers on the quarter or the year and everything flowing out, we still feel extremely confident in the 4% to 5% organic growth for the year.

And I get that. I'm just trying to think about the flow through the year. And so is the six days, is it in fact going to come out of the -- so the fourth quarter will be shorter this year than last year?

Yes, exactly, the fourth quarter will (multiple speakers) less.

Okay. The other question I just had was on receivables. Can you give us a little color on sort of what the big increase was there?

The increase in receivables is largely influenced by the timing of sales in the quarter. I think the bigger -- what's more interesting, I think, is the increase in inventories, and the inventory increase is related to the new product launches. So receivables are up and so are payables, so it's sort of an offset. So the increase in working capital is largely driven by the increase in inventory.

Okay. And then the other question was just very briefly on commodities. Just -- I (inaudible) caught in anything sort of terribly specific. So your outlook for commodities for the year now versus what you thought, I guess, in early February -- a little bit worse, but nothing terribly dramatic?

Yes, it is definitely worse. There are -- three areas in particular would be surfactants, resins and something called PFAD, which is used in our Specialty Products business. But yes, it is definitely worse than we thought in February.

Okay. And that -- in terms of thinking about gross margin, is that a bigger swing factor, or is greater promotion than you initially planned?

I would say on a full-year basis, the (inaudible) commodities now versus where we were in February is probably hurting us about 25 basis points in gross margin.

Okay, perfect. Thank you so much.

Joe Altobello, Oppenheimer.

Just wanted to follow up on that last question on the gross margin and the change from February, where you were talking about up 100 bps plus this year versus now up 50 bps plus. It sounds like half of the change is commodities and the other half is trade. Is that correct?

Yes, that's a good way to think about it.

Okay. And then in terms of the slotting fees -- and I don't want to beat this to death -- but is the increase this quarter simply due to the number of new launches, or are retailers trying to extract more cash out of you guys?

Strictly, Joe, more launches. Like I said, we are doing 30% more launches -- or SKUs this year than last year. So again, we are paying the price for that in Q1 with the slotting fees, and we will get the benefit of that in future quarters, as those products drive consumption gains and sales gains.

Got it, okay. And then just a housekeeping issue. The impact of the cost of closing the North Brunswick plant in your cost of goods this quarter.

The way I would address that is I think somebody wrote -- was interested in the contribution of marketing decrease. So the 50 basis points decrease in marketing helped us by $0.03, but that was more than offset by the residual cost of the North Brunswick closing.

Okay, so the costs in the quarter were $0.04?

It was more than $0.03.

More than $0.03. Okay, thank you.

Doug Lane, Jefferies.

On the new products, can you -- did you tell us which new products started shipping at the end of the March quarter?

That's correct.

Which ones were they?

(multiple speakers) little bit more. Like the cat litter will start shipping in Q2 and the Fire & Ice from Trojan will start shipping in Q2. But the bulk of the rest of them start shipping toward the end of the first quarter.

Oh, okay, that's my next question. So you highlighted four or five, and they are all pretty much shipping now or will be shipped very shortly?

That's correct.

Okay. And then just directionally, you talked in good detail about the puts and takes on the competitive environment and the cost landscape. If you adjust for the extra days in the quarter, just to get sort of where we are organically, I come up with math sort of low-single-digit sales, high-single-digit EPS, something below your full-year trend.

What is really going to drive the acceleration in your organic growth and organic EPS growth going forward? You mentioned new products, but are there a couple of other things that you can talk about?

It is kind of what we said in different pieces. It is, A, absolutely new products. B, I think I was quite clear the new products, the retailers have responded very well to it. And we've got distribution gains across the board in every one of our key categories, which is a big win. I think you also know year ago, we had some little bit of issues on our laundry business and a key customer, and that has all been corrected, plus. So distribution and new products are a key part of the game this year.

And again, don't overreact to this marketing story. We have increased marketing so much in the past few years and our share of the voice was so sky high versus share of market, we can easily afford to shave that back a little bit, pour that and more into the trade side. So the actual amount of money spent against consumers, like I said, is going to be significantly more than it was year ago.

So you add that to the new products, the new distribution, and that is why we feel very bullish about calling very strong numbers of 4% to 5% organic growth, and still being able to deliver 13% to 15% on the bottom line.

And again, yes, some of it is ahead of us, as the products are hitting market, the marketing spending's hitting the marketplace and the distributions increasing out there. So Q1 was definitely a quarter, as I said, we held off a little bit on -- first, on laundry merchandising, waiting for the Power Gel launch. And then competitors, as we were worried, but they did -- went ahead with some trade wars out there. So we've taken care of all that right now in the future quarters.

Lastly, we've talked about the difference between measured and unmeasured channels. Are you still seeing the better growth in the unmeasured channels, and where do you see that gap sort of these days on a run rate basis?

I can't quantify it, Doug. It is definitely -- the shift is still going on. Although I will tell you in the last couple years, we've been able to increase sales in the measured channels also, which is going against the trend. But overall in the business, the shift is still going on but in non-measured channels just because of the usual price advantages they have.

Okay, thank you.

William Schmitz, Deutsche Bank.

Thank you. This is actually (inaudible) calling on behalf of Bill. We just wanted to talk a little bit about the increase in commodity costs. I know we are talking about increased trade spending, but if commodity costs continue to increase, do we see another wave of price increases, or do we see another wave of compaction?

With respect to commodity costs, you may know we have a couple of options available to us. One is financial hedging and the other is physical hedging. So we have -- for a lot of our major commodities we have hedging programs in place using either financial or physical hedges. So we have a pretty good handle on how much our exposure is for the rest of the year and how much it is not. So we have baked that into our call on a full-year basis.

The color I was giving earlier [with respect to] was that there was double-digit increases in resins, surfactants and palm fatty acid distillate. But it is all baked into our full-year call of about 50 basis points of gross margin expansion. Longer term, with respect to compaction, obviously we are not going to lead that, but it would certainly help our gross margin were it to happen.

Okay, thank you.

Jason Gere, RBC Capital Markets.

Just kind of a bigger picture question, Jim. Just trying to get your perspective what we've seen over maybe the last couple of months. Can you just talk about the change in that shopping behavior?

You talked at CAGNY and on the last call about the trade up, the trade down, where you are well insulated on both sides. But can you just put a little context of how you are seeing the next six months kind of playing out? Are you seeing that shopper who did trade down last year, are you seeing more of them coming through? Or are people kind of staying where they are in terms of their shopping pattern? So that is kind of a bigger picture, and then I just have more pointed questions after.

Jason, I continue to see -- we continue to see the trade down to the value category. I think that is why you saw some of our competitors panic and start dropping prices out there, because they fear they will permanently lose their premium buyers if they continue to trade down and that. So that is what kind of I think precipitated the price war that they initiated and we are responding to.

But people are continuing to look for value, and I think they are liking what they are seeing and they are going to stick with it.

I would tell you -- you know I don't want to be called a pessimist, but I am not so bullish on what I read in the papers every day about the economy. When you see the largest retailer in the world drop prices on 1000 items a little over a month ago, why would they do that if the economy is getting better? I ask you that. Why would the competitors start price wars on their products if things were getting better?

So on the consumer side of the world, consumer packaged goods side of the world, I told you, over half of our categories are seeing unit sales declines versus year ago. So I think it is going to be a very tough year. I think it is going to be a share war. I think some people have chosen to fight it in ways which I don't think make any sense in terms of pricing, but we are not going to let them have any advantage of that.

And we entered -- we had great momentum coming out of last year. And again, with the new product pipeline and the total money we are going to spend in marketing between marketing and trade, we feel good on this year. And the best is yet to come this year from Church & Dwight.

Okay. And then just looking at the second quarter, and obviously, there is a lot of puts and takes. You don't have the extra trading days. But trade spend kind of replacing some of the slotting fees, then some of the new products shift in the end of the first quarter and still a little bit more in the second, so maybe there is some trial building. You blessed kind of the 4% to 5% for the year for the second quarter. Are you comfortable with that with the sales in that range, with all the puts and takes?

With respect to guidance and calling quarters, like to stick to the year, Jason. As you know, last year, our first quarter was up 29%, so we are calling up 8% to 10% in the second quarter (inaudible). And then first half of the year (multiple speakers), up 15% on earnings.

As far as the sales numbers go, we will see where it comes out. But we think that the second quarter organic growth numbers will support our full year call of 4% to 5%.

Okay. No, that's good. And then -- and just I guess in the same thing in the context, when you look at the 4% to 5% for the year, the domestic part, which is the part that everyone kind of looks at, it looked like International did a bit better, SPD did a little bit better. So the 4% to 5%, you're comfortable with that on the domestic side for the business. And taking into consideration the fourth quarter, we will probably see a dropoff, just obviously in conjunction with seeing the benefit you got on the first quarter. Is that a fair assumption, too?

Yes. right. You would almost have to take the first and the fourth quarter together and divide by (multiple speakers).

Right. So is that a fair assumption?

Yes.

Okay, good.

And Jason, you mentioned International, for us, it has had a real good start to the year. And on the flip side of that, you know we are not that heavy International, and so as far as all this stuff going on in Europe with the euro drop and that, it is not going to have as much impact to us as it has to other companies.

No, that's true. But I mean, at the same point, SPD was obviously such a big drag, and these are parts of the business, too; that can have a swing effect, too.

And just the last thing, and I don't think anybody has really kind of brought it up, but we were talking about the gross margin, 100 basis points, now 50, and you are talking now commodity and trade spend.

Could you just give us kind of an update on the plant? And I guess obviously we will see it kind of live very soon, but just in terms of your initial expectations there, and in terms of is that exceeding expectations. Could that be a swing factor also for the year that gets you beyond what you've just called out for a gross margin upside?

The plant has been incredible. It is already hitting record production dates at record low costs. But we've kind of built that into our projections for the year.

Okay, great. Thanks, guys.

Chris Ferrara, Bank of America.

Can you guys go back and just give a little more clarity on the margin targets? I'm just trying to -- or the margin guidance. I'm just trying to pull it together. Are you saying, I guess, gross up 50, operating up 50? But it sounds like -- did you say SG&A down 50 basis points and marketing at 13% to 13.5%? Does that all sound right?

Yes, the way -- the map goes like this, is that if you say gross margin up 50 and then SG&A down 50 -- all right -- that is a help to operating margins. And then if you assume you're going to be down 50 to 100 and marketing, that means you're going to be up to 150 plus in operating margins year-over-year.

And that, you think, is consistent with EPS of $3.93 to $4.00?

Yes.

Okay. And I guess on a normalized basis, I understand you guys don't want to take a shot at what the shipping day effect was in the quarter. But it does sound like if you were to normalize the sales growth organically in the first quarter, you would expect an acceleration through the year now, with comps getting easier, pipeline getting stronger. Is that the right way to think about it sequentially?

As far as the comps go, comps get easier for the Specialty Products business as you go through the year. I don't know that you can make a -- draw a conclusion about comps in future quarters.

I think, Chris, keep in mind, too, comps will get a little better in the year because of some distribution issues last year which we don't have this year. In fact, we have just the opposite. We have distribution gains. And with all the new product coming on, generally, I think you will see over the course of the year improvement on the organic side of the business.

That helps. And finally, the AR thing again, so can you just give me a little more color? Why would AR be up at the end of the quarter? Is it because you collect it slower or is it just because you shipped more right at the end of the quarter relative to what you did in the year ago? Is that -- that seems like that would be it, right?

Yes, it is just timing of shipments. It has nothing to do -- we have no issue with collections.

Right. So in other words, you shipped more late in the quarter this year than you did in the year-ago period, maybe because of the later cut -- the later end to the quarter. Is that right?

Yes, that's a piece of it, right. And then currency as well.

So then just thinking about whether shipping days are the right way to think about what your impact was for the extra days in the quarter. It is not like -- based on the AR being higher, it doesn't seem like it would be logical that -- or it seems like you would at least be reasonably right to do that straightforward math we were talking about, if you did have shipments toward the end of the quarter. Does that make sense?

Yes, but you're always going to -- you are at least entitled to three month ends, right? So you at least entitled to the quarter end in March -- or April 2.

It is all a function -- I don't know if you know this, but the way the [4/4/5] works is you got to have 13 Fridays. And the first day of the year this year for us was January 1, which was a Friday. But because it was on a holiday, our first business day turned out to be January 4.

So you kind of measure from there. But it goes from January 1 to April 2.

So I haven't thought about your math and trying to work receivables into it, but as you can see, it is very arbitrary as to how you would calculate it.

Thanks a lot, guys. I appreciate the color.

Okay. Well, listen, I want to think you all for taking the time to tune in [with us] today. I think, again, our first-quarter results was a great start to the year, and we are reconfirming both our high earnings call of 13% to 15%, and our strong organic growth call of 4% to 5%.

And like I said, the best is ahead of us with all the new products launching and all the total marketing spend we're going to be throwing out there in the marketplace. So again, thank you all for calling. If you have any follow-up calls, please feel free to call myself, Matt or Maureen Usifer with your questions.

Thank you.

This concludes today's conference call. You may now disconnect.