切遲杜威 (CHD) 2010 Q4 法說會逐字稿

Please stand by for the Church & Dwight fourth quarter's earnings conference call.

Good afternoon. Hello. Good afternoon, everybody. I want to welcome you all to the epicenter of American capitalism here in the boardroom of the New York Stock Exchange. My name is Jim Craigie. I am the Chairman and CEO of Church & Dwight, and I will be presenting to you today along with Matt Farrell, who is my Chief Financial Officer.

I have to start obviously the statement -- it is a lot of words; it basically says that we will be presenting some forward-looking statements today. If you believe what we say and buy the stock, that is your problem.

Opening remarks. I am going to do things a little different today. This is New York, so I'm going to give you a New York minute. If you pay attention for the next 60 to 90 seconds you are going to hear all the key points you're going to hear today. So while you are chewing on your delicious steak or fish, here is the opening remarks for today.

Number one. We had a very solid fourth quarter. We had the best organic sales of the year, if you adjust for the days. We had the highest marketing spending of the year, which led to some of our great share results. And we grew our gross margin and operating margin, which are all good signs heading into 2011.

We had a very good overall 2010. We had strong volume growth despite a very tough business environment. We grew share on six of our eight power brands, which do 80% of our business.

We had double-digit EPS growth, which very few other guys did. And we had record free cash flow, and Matt will talk more about that in a few minutes.

We have had a great decade, guys. To my knowledge -- we have done a lot of work -- we are the only consumer packaged goods company that has had 10 straight years of 10-%-plus EPS growth. So we are in what we call the 10 for 10 Club.

In that time frame we have delivered 17.6% annual total shareholder return; and that compares to minus 0.5% for the S&P 500 index. So going back to the Safe Harbor statement, despite what I said, if you bought our stock 10 years ago, despite what I said, you would be very happy and rich today. And I hope to do that for you for the next 10 years.

Looking forward, we expect -- and we will talk more in a few minutes about a very continued tough business environment. You all know about the commodity headwinds we all face. We think consumer spending is going to continue to be weak, and I will talk more about that in a second too.

The one good news is competition I think -- especially because of commodity rise -- you may see the price wars back off a little bit. And our retailers continue to struggle out there in their own way.

So I a year ago at CAGNY called 2010 ugly. I'd call 2011 ugly also. It's going to be a very tough business environment. But despite that, we will have aggressive but achievable 2011 targets.

You saw in our press release today we called 3% to 4% organic revenue growth; 50 to 100 basis points of gross margin growth; 50 to 100 basis points of increased marketing spending; and 10% to 11% EPS growth. And I will tell you that we feel very, very good about delivering those numbers.

We have become what I call the great cash machine. We are going to generate $1 billion in free cash flow over the next three years. Matt will show you charts that our free cash flow productivity is best in class in the consumer packaged goods industry. And we are going to use that cash in many ways.

One, we have doubled our dividend, but that was kind of easy when you have that much cash in your hand. We are still number one on our list. We are very hungry for good acquisitions.

We did two small ones this past year. We are in the hunt for bigger ones. But as I told Alice just a minute ago, I am not going to make just any acquisition. It has to be a good acquisition. It has to be accretive.

We are on the hunt for them. We are actively involved in a lot of deals. But that is still our number-one objective for our tremendous cash we are generating.

And last but not least, we are headed for the 10 for 20 Club. So I hear oftentimes at these meetings -- gee, I missed the boat on Church & Dwight, I didn't get on board, it is too late. I would tell you it is not too late to get on board. We are going to go for the 10 for 20 Club, and I think 10 years from now we will just stand here and tell you we made it.

With that, let me bring Matt up here to take you through Q4 and the total 2010 results.

Okay. The first bullet here is the quarter had six fewer days. So if you are familiar with our story, you know the first quarter of 2010 we had six extra days; six fewer days in the fourth quarter. Those six days accounted for 6% of our total days in the quarter, and that is over 90% of our business.

So if you go imply that back to a negative 1.4% reported organic, you arrive at a normalized around 4% organic growth for the quarter, which is the reason why we say it is our strongest organic quarter of the year.

Gross margin was up 40 basis points. You may recall we were actually expecting a higher number than that. We had 30 basis points hurt in the quarter from a restructuring charge that we took in an international subsidiary. And the rest of the balance we would attribute to trade spend and higher commodities.

EPS is up 4% in the quarter. You may recall we had a $0.07 range for the full year; we called $3.93 to $4.00. The reason we had that range which we called in the first week of November was we had the R&D tax credit -- whether or not that was going to be voted in by Congress -- which was worth $0.02; and then we had charges that could or could not happen with respect to a bond offering in December, which we actually did; and the restructuring charge. So that is the reason why we came into the midpoint of that range. We came in at $3.96, $3.93 to $4.00 range.

And then free cash flow was gigantic in the quarter. The reason for year-over-year is we had less CapEx. You may recall we were building a laundry plant back in 2009. We also had a fantastic performance on working capital and we also had some lower cash taxes, again, due to some tax law changes.

Okay, here are the numbers. Remember I made reference to the organic growth reported of negative 1.4%. Remember, adjusted for days that would be close to 4%.

We talked about gross margin. If you look at the marketing as a percentage of sales, you see 14.6%. That is the biggest number of the year for us. You probably also know that we were calling that we were going to take that up in the fourth quarter, so we delivered on that.

SG&A we got some help year-over-year, so our operating margin expanded 70 basis points. The effective tax rate, I want to point out that that 34.2% excludes the pension; so remember that is that of our numbers. So we had an effective rate of 34.2% in the fourth quarter; and I will talk a little bit about the full year in a moment.

Then we talked about EPS and as well free cash flow. Okay.

So now shares. If you look at how we exited the year -- and we always call out our power brands, you can see that five of our eight power brands expanded share year-over-year.

A couple of callouts here. XTRA, see at the very bottom of the page, has been a problem for us all year long. However, this is actually the best quarter year-over-year and we are expecting a stronger year next year.

ORAJEL, we are not really troubled by that simply because that is driven by private label, and we actually supply the private label.

So here is the full year. So full year we had 3% organic sales growth. Recall that our evergreen target is 3% to 4%; and that was largely driven by volume. I'm going to show you some of the details of that in a moment.

Gross margin was down 10 basis points year-over-year. So that is uncustomary performance for us. I'm going to have a little bit of a chart later on; it is going to show you the year-over-year bridge.

EPS up 14% and free cash flow up 11%. So a terrific year.

Here are the numbers. We did talk about the 10 basis points, but look at marketing. Marketing as a percentage of sales went around from 14% to 13.1%, so down 90 basis points.

Again, the reason for that is because there was such tremendous trade spending this past year. We had to redeploy those funds up into net sales.

Operating margin expanded 140 basis points. Again full year at $3.96, 14% up, and free cash flow excluding the pension settlement is $375 million. That is an all-time record for the Company.

So here is our progression with respect to EPS over time. So you can see we have had double-digit growth. As Jim said, it has been 10 for 10.

So we had 14% growth in 2010. And remember the 3% to 4% organic top line? So you can see we were over the top in '07, '08, and '09, largely driven by the performance of our Specialty Products business. Then 2010, 3%; and we are calling 3% to 4% for next year.

Here are the pieces I want to talk about. You see volume of 5.5%. We had negative price mix of 2.5% in 2010. If you went back to 2009 and 2008 you would see a positive number there, around 2.5% to 3%.

So it was a very different year in 2010. You had 2.5% negative price mix.

And here is gross margin. Recall in 2009 days we had a whopping expansion in gross margin, 430 basis points. And we spent that back on the marketing line. We spent 190 basis points back. So we had 14.1% marketing in 2009. We held on to that or almost all of it; only down 10 basis points year-over-year.

So now how did we get there? So look at the top line, the cost savings. We had 250 basis points of cost savings in 2010. Now that was completely overwhelmed by the commodities and the pricing, essentially trade spending, to net down to the 10 basis points.

So from our perspective this is actually a great performance year-over-year. When you look at that top line there, the cost savings of 250 basis points, and now you ask yourself -- okay, how are these guys going to get 50 to 100 basis points next year?

Well, the answer is we would expect this time next year that that number is going to be a plus-200 for cost savings in 2011. Obviously commodities are going to be a problem again in 2011 versus '10, so assume a negative 100 basis points commodities in 2011, just to keep it simple.

Okay, so now here is our trajectory with respect to marketing spend. You know that our mantra is 100 basis points of gross margin expansion, spend 50 basis points back on marketing. So that has been our progression. If we extended this thing out it would be 10.6, 11.1, 11.6, 12.1.

And then we took it way up in 2009. Why? Because we had the big gross margin expansion. Fold it back in 2010, but you can see from the release we are expecting to increase that again in '11 by 50 to 100 basis points.

Now here is our scorecard. This is a very good barometer of how well a CPG company is doing. So you go take their most important brands and ask yourself -- how fast are they growing in comparison to their category?

So you can see 26 out of 32 times our brands have beat the category growth. And here is the full-year number; so six of our eight power brands grew share in 2010.

Just a couple of callouts there. I mentioned XTRA before, so XTRA was down year-over-year, largely because of the fierce trade spending in value detergents.

OxiClean is a negative 1.2, but there is a story behind that. We actually lost our pitchman in 2010, and we also had a new entrant into the category. The new entrant actually expanded the category broadly. So what is hidden in the numbers here is we actually grew net sales in 2010; and consequently we are looking forward to another strong year in 2011.

Now here is cash flow. So free cash flow again is a record $375 million in 2010. One of the things -- we are a very metric-conscious Company. So you see free cash flow; we compare free cash flow to net income, and you can see that we exceeded that by 131% in 2010.

As Jim said earlier, we do compare ourselves to the other CPG companies. You can see that we have got the blue ribbon on a five-year average.

Now here is our balance sheet. Many of you know that we target our leverage to be 2 to 3 times EBITDA. So you can see we have become exceedingly unlevered over the last four to five years, and we are only 0.6 times levered today.

We have tremendous financial capacity. In fact our net debt at year-end was $150 million, so we are essentially unlevered.

We have investment grade rating, you saw in the release. We borrowed at 3.35% in December and we have access to $710 million of cash as we sit here today.

Cash conversion cycle. I think the measure of any good company is how well they manage the working capital. The reason for that is because it touches so many functions. It is not just finance, it is operations, it's sales.

So we got our cash conversion cycle down to 29 days in 2010. So again, another record for us. We are not a capital intensive company. You can see the blue bar at the bottom of the slide there. It is really our base spending.

The 51 and the 85 in the middle of the page, that is what we spent on that new laundry plant that took us a year and a half to build.

Prioritize uses of free cash flow. We have shown this chart many times in the past. What is different here is that number five is debt reduction. That used to be number four. The reason we moved that down is because obviously we are out of debt.

And return the cash to shareholders -- because we are generating so much cash, we decided we are going to double the dividend. There are more reasons for that as well, which I am going to take you through now.

So if you're just going from left to right, you are thinking about the balance sheet. You're essentially unlevered, you're investment graded triple B-minus, and you have access to undrawn lines of $500 million, and you have another $500 million accordion on top of that.

Cash flow, we have a $600 million EBITDA run rate. We generate $330-million-plus on average. That is why Jim said we are going to generate $1 billion over the next three years.

And we are very oriented towards our shareholders, so total shareholder return from this Company, especially if you are an owner, that we have had double-digit results any way you look at it, one, three, five, or 10 years; and we expect to stay there in the future.

So we double our dividend, 100% increase. Just to make it easy for you it's the way to think about; it went from a 15% payout to 30%; and the yield goes from 1% to 2% assuming a $70 share price.

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

Thank you, Matt. Let me take you through a little color on 2010, not too much. Those of you going to CAGNY, I am going to have a much bigger, fancier show. But let me tell you about the highlights.

I always love this first slide. This is all about our brands. Our brands are integral with the consumers out there, whether it is [688] trillion chocolate chip cookies made with ARM & HAMMER baking soda; there is 520 million sex acts a year with our TROJAN brand. We are part of the world society, and consumers love us. We have great brands.

Two things about our portfolio which you always got to remember. Just briefly, I'm not going to dwell on these today. Number one, we have a very unique product portfolio. 60% premium brands, 40% value. Obviously need part is the value side of it, which makes us pretty much recession resistant out there.

That is because we have in some of our categories some very value-oriented brands. I will give you more details in a second, but our laundry detergents are less than half the price of the category leader. Aim toothpaste, having a great run, is half the price of the category leader again. In pregnancy kits we have the number-one brand in FIRST RESPONSE, but we also have a value brand that does very well too.

So we have a very recession resistant portfolio. The only thing to remember is we have over 80 brands, but eight brands are the ones to think about. Those eight brands do 80% of the sales and profits and that is the focus of our marketing spending and attention.

And those brands are leaders in every one of their categories out there. As Matt said, we grew share on six of the eight in the past year, 26 out of 32 opportunities in the past four years. So we know how to build brands and we have great brands to build upon.

Let me talk about the category that was most controversial this past year, which was liquid laundry, which is our biggest category. Don't forget it's a $6 billion category, so 1 share point in this category is worth $60 million. That is one of the biggest categories in the entire household universe out there.

We have had a great story here on growth the past couple years. We have grown over the last four years at 11% compounded average growth rate in terms of consumption, and you can see that it is more than twice any competitor out there.

You say -- why? Well, it's an interesting story. Long-term category dynamics favor the growth of value. Hey, wake up. It's a recession out there.

You can see right now that the value category has had good growth. Why? Of course, here is the detail specifically. Our brands, ARM & HAMMER and XTRA, are less than half and a third the price of the category leaders out there.

Now let me tell you -- I always want to tell a little story here for those who haven't heard it in the past. Laundry detergent is simple.

80% of what is in the bottle is water; the other 20% has two components. A, multi-surfactants, basic cleaning agents. And then premium brands have enzymes in them. Enzymes are terrific; they are only really necessary for super tough cleaning like grass stains, bloodstains, and that. Everyday ordinary cleaning, enzymes do nothing for you.

So consumers are smart. They realize that -- hey, for everyday sweat in the clothes, nothing tough, they can buy a value brand, save a ton of money. If they are really smart they actually realize they can buy a laundry additive to kick into it, like OxiClean, and get the cleaning power of the higher brands for even still less the price.

So we love the laundry category and it is moving in our favor. Over the last couple of years people are shifting more and more into the value category and extreme value. We call ARM & HAMMER a value; XTRA on the extreme value side.

Actually today in terms of units sold, actual jugs of laundry detergent, more households buy a value brand than a premium or a mid-tier brand.

So it is not like value is unknown. There is more jugs of value detergents being sold out there than either of those two other categories.

While P&G obviously dominates the premium and midtier category, we are not a leader by far in the value category. In fact, we picked up over 7 share points in this category right down, and we are 50% bigger than the next competitor in the category.

You will see here too that Church & Dwight is the only liquid laundry detergent manufacturer over the last three years to gain share. Again, keep in mind a share point here is worth $60 million.

You can see this past year, this was a tough year. Procter decided they didn't like what was going on from those previous charts. They took the price of Cheer down; they took the price of Era down; and they actually got very aggressive on merchandising. It paid off. They got some share.

But we didn't lose either. We had the year -- they started the war early in the year; we took a few lumps in the first quarter as we found out what they were doing. And we came back hard; we gained share. Everybody else lost.

And if you look at that, we came on strong toward the end of the year. Our share you see at 14.6% is on the verge of passing the number two player, Sun, in the category. We had a very strong result in the fourth quarter.

Procter is still doing well with their aggressiveness. Now obviously a lot of the issue is pricing. You are going to ask me the question -- is the price for over?

Well, this is a good sign. After pricing dropping dramatically over the course of the year as the price war kicked off in the first quarter this year, in the latest quarter, Q4, pricing is the least stabilizes. Now I tell you, one quarter doesn't make a trend; but at least it is headed in the right direction.

If you look at volume done on promotion which is the red line, which got way high, a lot of volume being sold on the promotion, it is now starting to back off.

So again I wouldn't -- I'm not going to sit here and say the war is over. But I am going to say the trends are in the right direction here and hopefully I think pricing will abate next year, especially with commodities being up. That is the one good side of commodities being up; you got to pay for that somehow, and people are likely to take their prices back down.

Let me talk about 2011 for a minute. Hey, four key factors that drive everything, the economy. I would tell you I am honestly very word about unemployment; I think all this euphoria about unemployment going down to 9% recently is just smoke.

We all know the state and municipal city governments are facing big problems. I just heard in the paper today I think one state is cutting their budgets like 10%, 15%. Well, that is jobs.

So I think the biggest employers in most states are the states themselves. So I think with all the budget-cutting they have to do I think unemployment is only going to head back up.

I will tell you, we are in 13 categories out there. Category being like liquid laundry detergent, powder detergent, condoms, pregnancy kits. In 2010, 9 of those 13 categories had unit declines; seven out of 13 had dollar declines; and the trends were getting worse as the year went on.

So here is basic, basic, products out there and it is not looking good right now. People are buying less.

It leads me to believe a lot in the theory out there you hear, about haves versus the have-nots. I think as you see that people are buying a lot of premium products, I think that is the people with money. That's us.

The 20% of unemployed people out there, it's 9% full-time, about another 10% part-time, they are hurting badly. And they are the ones who are buying everyday basic staples like toothpaste and laundry detergent, and they are not buying as much as they used to. They are stretching or they are just going without.

So I think the economy is a real big issue next year.

I mentioned the price wars. We talked about it. So the biggest one for us is laundry. I think there is possibly some abatement going on, which would be really terrific news.

Commodities -- hey, we all know the stories. Commodities are up very high. That is a definition issue.

The only thing I would say, in my eyes, a lot of what we see is -- it is more speculator driven versus real supply-demand driven. Whether the speculators can keep this up or not I think will be interesting to see. But certainly it is a major headwind right now.

I will tell you we have hedged a lot of this already, so we are pretty knowledgeable of our cost position on this, which is why we feel so good about our gross margin side.

And M&A activity, I think it will pick up, because -- bullet number one, the economy is going to lead to a tough time on organic growth for a lot of companies. That is going to lead them to want to acquire other companies to drive the organic growth, to drive their revenue growth.

You have already seen in this business in the past year three companies disappear. SSL got bought up by Reckitt; Chattem got bought up; and Alberto Culver got bought up.

So I think that is just the beginning of a trend. I think you will see more M&A activity going forward.

But I would still summarize this as I think 2011, like 2010, is going to be an ugly year.

Now let me talk about the six key points about our outlook here, starting with a robust new product pipeline. I said last year I thought we had the best new product pipeline ever. I would tell you this year is just as good.

We've got some terrific new products. And don't forget, I show both years here, 2010 and '11, because oftentimes we launch products in 2010, starting in the second quarter. So really you got a carryover effect in the first two quarters of the following year; and then we launch our new products in 2011.

2010, ARM & HAMMER liquid, especially with OxiClean, is going to continue to be a huge success, continue to grow. This year we are launching something unique. The sensitive skin category in laundry detergent is one of the fastest growing segments there. We have a product out there, but we are launching a new one in this category -- actually a scented version, which is kind of unusual. Usually people who are skin sensitive want dye-free, perfume-free, and everything.

We think there's a very strong niche in this category for people who actually have a fragrance with a sensitive skin product. Be honest with you, our research -- and I think our competitors would tell you -- people today judge clean laundry by the scent more than actually whether it is clean. So we think by adding a scent that doesn't sensitize the skin, it actually could be a nice home run in this category, and that is launching out there.

XTRA. Matt told you XTRA was our biggest problem last year. We had a lot of competition. We actually lost some distribution at a major account, and we have had a lot of pricing competition there.

I will tell you we solved the distribution piece. It hasn't gone back in yet, but the account has agreed to take the product back in, even bigger and better than before.

And we are launching a great one. We told you how big ARM & HAMMER OxiClean is. We are launching XTRA with OxiClean. We think it is going to be as big a home run as ARM & HAMMER.

It also will differentiate us. Honestly our competitors in this category have copied everything that we have done. They have copied our pack size, colors, our fragrances, everything. So it's been hard to stay ahead.

Well, they can't copy this because we're the only guys in the world who have OxiClean. And we think it will be a big home run for us, and that will be launching this year.

Cat litter. We have been on fire in cat litter. A fascinating category. We didn't exist in cat litter until 1998. It was a whitespace for us.

We launched the ARM & HAMMER brand into the cat litter category in 1998. 12 years later we're the number-two brand in a category. It's been terrific product innovation.

The one we launched last year has the best new thing we ever did. It is called Double Duty, kind of a very funny but interesting name that deals with both feces and urine. Just finding another product in America that has the word feces on the front of the box -- but it has been a home run for us. Doing outstanding.

We are still growing distribution on it. This year we are launching a larger pack size version of that takes advantage of that category. The people in this business amazingly love large sizes.

Condoms are another huge success story for us. This was the case in 2009; we launched ECSTASY, which is an interesting different shape of a condom. They give you extreme sensitivity, which was great.

2010 we launched Fire and Ice, which was actually a condom with lubricants on the inside and the outside to give you a sensitivity both hot and cold. Those two together are now over a 15% share of the condom category, which is bigger than the number two, the number three players in the category.

So just two products launched in the past two years are now bigger than our two biggest competitors. I will also tell you those products have higher margin; we only put 10 in a box versus 12. So you've got great new condoms, great new box.

And I hate to say it - like a lot of new product development -- and I hate to say it, my great genius is here today, new product development -- it isn't brain surgery. So we thought, well, if ECSTASY was a great success and that was about a shape; and Fire and Ice is a great success and that is about lubricants; let's put them together. So in 2011 you get ECSTASY with Fire and Ice.

And also we are launching a thing called TROJAN BARESKIN, which is our thinnest condom ever. So I think we've got two home runs coming in 2011.

Now, I talk about whitespace with cat litter and how we launched into cat litter 12 years ago; we're number two now. Well, there is a new whitespace for us we want to take advantage of, and that is in TROJAN, that is in vibration.

Vibrators are a $1 billion category out in the marketplace right now. High margin, unbranded. We are going in this category.

We launched vibrating rings a couple years ago, started to get into it. We launched finger vibrators a year ago. And last year and now this year we are launching a full line of vibrators out there.

Obviously it's a very discrete category. I am not going to go into details about this today. If you want to know more details, check our website, Trojanvibrations.com, and learn about all the details. So it's a great category, it's our next big whitespace. $1 billion, unbranded. Just think, if we could just get 10% of that category, it is $100 million of sales at very high gross margins. And that is kind of our goal we are after.

SPINBRUSH. SPINBRUSH has had a great year in the fourth quarter, had a record share over 50% share in the category. The category is soft, I will tell you, because it is a high-priced category. So it has some softness in the category. But we have grown our share.

We had a great new success in this category last year. We launched a SPINBRUSH for kids. Actually it was targeted to girls; it was called My Way! in which a girl could take it in and then we put stickers in the box and they could sticker it the way they wanted to. Huge success, became number one kid brush in 2010.

Well again, new product development is not brain surgery. We said -- well, if the girls loved it that much, let's get one to the boys. So in 2011 we are launching the My Way! into the boys segment.

And we are also launching a brush that glows. Bruce, where are you out there? You got my SPINBRUSH that glows out there?

Bruce Fleming, my head of Marketing right there. There you go. Make it glow, Bruce. There he goes. So if you get -- even in the middle of a blackout you can tell your kid now he can brush his teeth because he can see the toothbrush. So you got it there.

We think it will especially appeal to tweens in all of our testing. So great new product from the SPINBRUSH side of the world.

ORAJEL, a fairly recent acquisition for us. We have done things on dosing because dosing was an issue in the past; moms didn't want to overdose.

We are now launching into the naturals segment here, which is the fastest-growing segment of this category, with a great new product. And we think that will be a big hit.

FIRST RESPONSE, here is another great brand which I will tell another story about when I get to CAGNY. Here is a business where 12 years ago we were a distant number three in this category. Over the past 12 years we have had great product innovations, increased marketing support. And the same person running this business for 12 years, which is one of the great strengths of our Company, management expertise.

Today we are number one in this category overall with the FIRST RESPONSE brand. Last year we launched -- we fight guys like J&J and Procter in this category. It is not like Mickey-Mouse players out there.

We're number one in the category. Last year we became the first pregnancy kit to have a six-day sooner claim, which is big in this category. As you were told, record shares in the fourth quarter coming out of the year.

And this year we are launching an interesting new thing on the ovulation side of the world. It is a test kit that actually lights up yes and no to tell you whether or not you're ovulating. So I am sure all the husbands will want to press yes on that and we will be all set.

NAIR, interesting category. This is actually our biggest category worldwide. Depilatories used to be an issue because women didn't like it as much; most women like to shave in the shower with a razor.

Depilatories used to be messy. You had to apply them outside the shower, wait three, four, five minutes, wipe it off. Just didn't have the time for it.

Well, two years ago we launched ShowerPower, which was the first depilatory you could use in the shower. It's a very thicker cream. Women could put it on their legs, go in and take their shower, get in the shower, wipe it off with a sponge.

You get all the benefits of depilatories, which are a much smoother skin, because there are no nicks and cuts like razors and blades give you. And it lasts twice as long as shaving with a shaver.

So great success that was. Put out a convenient pump form last year. This year we are launching two new things -- a cooling gel, which is very popular.

And then the wax category we have not been big in. That's been a category we have been behind on. But we have a great new product coming out. It is a honey wax.

Literally you put it in the microwave, you heat it up, you take it out, and it rolls right on very smoothly. Put a little sheet on and pull it off. It works.

So I kind of -- remember the movie, the 40-year-old Virgin with Steve Carell? Well, I used this a week ago; my hair is still growing back on my arm right now, but it does work very well. I promise you.

But it is a terrific new product and we think it will really catapult our business in the wax category.

Simply Saline, a business we bought this past year. We have another brand around the world called STERIMAR, where we are the world leader in nasal -- what do I say -- nasal hygiene. This brand came up in the United States, Simply Saline; it's the market leader. We bought it.

Right now, we are converting it over into the ARM & HAMMER trademark as you can see. And we had another slide on this and we had to take it out. We are launching a big new product on this one shortly, but we haven't announced anybody yet. But next time I see you, I will tell you about it. So it will be a big success.

So we love this little brand and like I said, we are converting ARM & HAMMER and we have got a new product coming out very quickly.

Increased distribution, hey, he who owns the shelf has got a great advantage on the market share game. I am not going to give you details on this. I can tell you right now, we know almost all of the category sets in the country with major retailers.

They haven't reset yet. They will do that in the next few months. But across almost every category we are in, our great new products are driving increased distribution. So we are very excited about that, having gained distribution in all of our major categories with all of these great new products out there being one of the key drivers.

Marketing spending. Matt mentioned to you this chart which I'm very happy about to look at. As he said, our goal every year was to go up 50 basis points. We really took advantage in 2009 with all the humongous gross margin growth, to jack it way up. But then we had to pull back a little bit when the price wars had started, but we are still in line, right with our 50 basis points.

We are telling you right now, we expect a great year on gross margin. We will do at least 50 basis points and, hopefully, if the year goes as well as we think, we will be able to like 2009, to spend another 50 basis points on top of that to get to 14.1.

And of course, that will have tremendous benefit to all of our market share and revenues.

Margin, Matt kind of spoke to this thing, just some big broad strokes. Our cost machine is going like never before. We have an incredible program called Good to Great; it's been going on for years. Mark Conish in the room here is our head of Operations and the supply chain. It has been driving terrific things.

It's big projects and little projects. One big project that will kick in this year, put we part of the cat litter business into our New York plant. We will be doing some other supply chain restructuring like we do every year. This machine is just cooking.

Matt told you, 250 basis points of cost savings last year. If not for the cost price wars we would have easily delivered 100 basis points of gross margin growth last year. But the price wars that broke out got a little out of hand and we had to defend our business, so we had to spend all that back.

Price mix, I told to at this point in time we think we will be slightly positive. You saw the biggest issue was laundry for us. You saw the signs it is starting to abate.

I think because of the headwinds it is going to continue to abate. I don't think you will see price mix get any worse in that category and I think get a little better.

On the raw material side, that is the big issue. The raw materials are rising in cost. I will tell you we are very highly hedged against that right now, so we kind of know what that is going to be for us largely. So we kind of have it in the bag.

So I would tell you we feel very, very good about delivering the 50 to 100 basis points of gross margin right now knowing what we know about the business.

Cash. Wow. Matt and his team with the help of all the other functions have done a humongous job on working capital in our Company, getting the inventories down, payables and receivables in line. We are just becoming the cash machine there.

$1 billion in cash pouring out of this Company over the next three years is just incredible. It gives us a lot of opportunities. The most important one to us -- yes, we're going to double the dividend; but that was just kind of a nice to-do and get there.

We continue to be focused on acquisitions. Keep in mind seven of the eight power brands in this Company we have acquired since 2000. We are good at it. We have a very proven track record on acquisitions.

Accretion is what it is all about. Trust me; this past year we could've done a couple of deals. They would have been dilutive. They wouldn't have been good. You would be sitting here yelling at me about them.

I will tell you too, sellers right now still have an inflated opinion of what businesses are worth. In several cases they put stuff out there and they pulled them back when they couldn't get the prices they wanted.

So we are very actively involved in acquisitions. We made two small ones this past year, a thing coming up here.

Let me stop. I'm sorry; this thing first. We have very tight criteria for acquisitions. Got to be a number one or number two share brand. It's got to be higher growth, higher margin for the Company. Asset light; we don't want plants, headquarters, all that kind of stuff.

It's got to leverage our existing asset base. That is how you get the synergies, that is how you get the accretion. And it's got to deliver sustainable competitive advantages. Honest to God, those criteria within 10 minutes knocks out probably 75% of the acquisition candidates that come across our desk. They just don't meet it.

We don't want to buy crap. We are not going to do it. We're going to buy good, high-quality stuff, high-margin stuff. And that is what we have done.

Yes, they have been small. I wish they were bigger; but these were no-brainers.

We all about serious oral care. When ORAJEL came around in 2008 that was a great business. We picked it up. It is doing very well for us.

Simply Saline and Feline Pine this past year were terrific. Again, I told you we already are in the nasal hygiene business in the rest of the world, so it was a natural bolt-on to our business. Small but we think can be a very high grower with very high margin.

Feline Pine. My God, our cat litter business is on fire. This is the number-one natural cat litter in the marketplace. Entrepreneur, wanted to get out of the marketing side of the world, really couldn't spend the money he needed to expand distribution and to the marketing support. We loved it, we picked it up. He's going to continue to supply us.

We are going to take over the brand and marketing and selling it. That is going to catapult our cat litter business even faster, because the natural segment is growing very quickly here in cat litter.

So nice little bolt-ons, we want bigger though, and we are going to get bigger. But they got to be the right deals for us.

So when you wrap that all up together, as Matt said, organic sales of 3% to 4%, which is back in our zone. Yes, we did better than that in the past. We show you just to show you we have done better in the past. So it is no big deal to do 3% to 4% to us.

Gross margin, hey, we kind of had a flat year last year; but don't forget, we blew it away in 2009. We feel very, very, very comfortable right now calling 50 to 100 basis points of gross margin for 2011.

Marketing side I showed you. We are going to spend all that back on the marketing side. Matt will also tell you too, because of our refinancing of our debt and everything else, our interest payments will be much lower going forward. So we have a big benefit there we can help deploy to the marketing line.

We want to really continue to drive our power brands, gain share, gain revenues out there, and build them while most guys are hurting right now. A lot of our competitors can't spend back.

The commodities are killing them. They don't have the cost machine we have in place. So we hope this will be another great year like 2009 was for us.

EPS growth, so we feel comfortable. You know we are fairly conservative. It is early in the year.

We need to know where the price wars are going to come out. Are they truly abating or not? We don't know where commodities are going to come out. But I don't think anybody else out there right now is calling over 10% out there.

So 10% to 11% to us is a very aggressive target out there, but we think very achievable as this slide says. So that is our story, and it is still not too late to get a little Church & Dwight engine there.

We are 10 for 10, we are going for 10 for 20. Get on board and you will be happy investors. So with that, let me open the floor, and Matt and I will be glad to try to handle your questions. Mr. Chappell, yes.

Can you just talk a little bit more about the gross margin. Can you maybe help us understand (inaudible) promo going to marketing (inaudible) cost savings. When you look (inaudible) all the business that you planned (inaudible). Are there incremental benefits (inaudible) give us more color on (inaudible).

Yes, with respect to the 250 basis points for 2010, you shouldn't make the mistake that that is all the York plant because it is not. You probably want to think about that as it is a little more than half of it.

So what that means is we still have our Good to Great program which covers our entire system. Remember, we have 15 plants. It's a program that has been in place for years.

The way the program works is we plan out for the next three years. So we will know what plans we have in place by plant, by site, for 2011, '12 and '13. You can't just dream these things up.

Many of the programs and the changes that you make have to be linear. You have got to do one before the next.

So consequently when you think about next year and we see 200 basis points, you're right. We [know] a York plant again and we are saying we could get 200 basis points next year of cost savings.

But as Jim said, we have this cat litter going into York, so that is going to give us a piece of that. Then we have all the other things that we (technical difficulty).

Then the thing I might also point down is that, as Jim said, we are hedged. I have been with this Company for four years now. We have our highest hedge position now going into a new year than we have ever had. We are almost half hedged on our most volatile commodities.

So we took the basket of the most volatile commodities, what would be in that? That would be things like resin, surfactants, diesel, soda ash, PFAD, latex. So if you put all those in a basket, we have between long-term contracts and financial hedges almost half of it under control. So we feel really good about -- knowing we have headwinds -- that we have some certainty with respect to what the cost base is.

Bill, to your other part, it is not a flip back on the promotional side. If anything, we think promotions will largely stabilize. Maybe a little bit, but it is not a complete reversal.

We are not expecting that. I think prices will largely stabilize with a slight plus. Slight plus but not a huge plus back to gross margin line. It is largely the cost savings side. Okay? Alice?

Could you give us some more color on the kind of acquisitions you want to do? Specifically if you could give me more color on the kind of acquisitions you might do, and I am specifically interested in whether you think you could do well with a brand or business you bought in -- offshore. In other words, do you think that you really know the consumer and have the infrastructure to do well with acquisitions offshore? Because that is where sometimes companies have had trouble with acquisitions. That is not where their dominance is.

To be honest with you, our greatest strength is North America, no doubt about it. I will tell you, though, we are looking at acquisitions overseas. We are very happy with our management teams there. But really we don't differentiate acquisitions anywhere in the world. If it is a good acquisition that fits it, we believe in doing it.

I will tell you if you study hard the acquisitions going on right now in the BRIC countries in particular, the price tags are out of this world. I think a lot of companies are going in out of this desperate move to get into Brazil, Russia, India, or China; buying businesses; paying 30 times earnings, 40 times. It's ridiculous prices they are paying, and I am not sure they are ever going to get it back.

They are almost -- when we hear the word strategic investment, that means highly dilutive to us. So we are not about to go necessarily jump into a deal like that right away.

(inaudible) a little difficult. It isn't a management issue, it is the price tags in these countries right now.

So we are in Brazil. We have a nice business, had a great year in Brazil. We're looking at opportunities, whether acquisition or JV in some other countries. We are in China; we have three of our power brands in China right now.

So we are in those countries, but you will still see our strength is, I should say the Americas, more than North America. North America and South America is our key focus for acquisitions, and we feel we will do well.

It all goes down to our criteria, Alice, and the ability to be accretive. We are not going to do dilutive deals.

Our track record has been tremendous and it has been very good to our shareholders. So we feel very comfortable.

I will tell you the activity is ticking up tremendously. I think the economy has got a lot of companies scared. A lot of companies are deciding to focus on what they do best and get rid of brands that are inside categories. Very good brands sometimes; they just decided they want to focus their companies.

And we are starting to see books cross our desk like crazy. We were in presentations as early as last week, we were in a major presentation listening to a number-one brand being sold by another company. So the deals are happening and I think the economy is forcing companies to focus and shed some side businesses.

Would you be willing to be bought?

Would I be willing to be bought? Hey, I got to do what is right for my shareholders. So you know, I got to do what is right.

So willing to be bought? Yes, any day. But I have to do what is right for the Company.

So I will tell you at our share price that is going to be very hard. Add 30%, 40% premium to that and if somebody wants to talk a price like that, sure, we will have to look at it. We are not aggressively pursuing that at all.

We love our little Company. Our shareholders love the return they have had in this Company. We think our model has legs to go on it, going forward.

So we are not in a situation where we'd sell because we think we've hit the end of the runaway. We think there is a long runway ahead of us.

But if somebody wants to talk to me the kind of price that's been talked to some of my competitors I certainly would have to take it to my Board of Directors and do what is right for the shareholders. Are you trying to sell your company to me? Jason?

Thanks, Jim. I guess it is kind of hard to follow that question, so I will go back to fundamentals. Just looking at the guidance for 2011, so if we look at the gross margin and the marketing spending seeming to be a wash, can you maybe talk a little bit more about the SG&A opportunities, the leverage? How much is implied I guess to get to that 10% to 11%?

And then the two kind of related housekeeping questions are -- how is the tax rate going to look this year? And maybe where does interest expense fall out?

Then I do have a second question but I will leave that first one for now.

Jason, try to remember all the parts to that because I am not going to remember them. So let's start with the question with respect to gross margin and marketing. So when you see the gross margin is going to be up 50 to 100 basis points, and then you see also that the marketing is going to be up 50 to 100 basis points, obviously that looks like a wash.

So as Jim said, we paid off a whole lot of debt in December, so we have a lot of benefit year-over-year on the interest line. So just remember the number $0.17 year over year.

On the other hand, this is another part of your question, the effective tax rate next year is 36.6%. We ended this year with 35.3%.

So now you say -- why is it up so much year over year? Well, 90 basis points is because we had some reserves that released in 2010 related to an IRS settlement that is not going to be there. So 35.3% naturally is going to go up to 36.2%.

Then because of mix we're going to be at 36.6% next year. So that alone, the change in the effective tax rate, is going to be about $0.09 going the other way. So you've got $0.17 help from interest, and you get $0.09 hurt taxes. That leaves you with $0.08 of help.

So what that means then is, if you think what 50 basis points is to a company -- to keep it simple, $2.5 billion company -- $10 million. Right? So now you have some flexibility to go and deploy that into the marketing line. So that is a simple way to think about it.

Okay. Then just also on the SG&A side, can you just --

Yes. so SG&A, so a little like 40 basis points improvement, year over year. So this is 10% going to 11%. One thing Jim didn't mention that we normally do is we actually have fewer employees at the end on 2010 than we had at the end of 2009. As you know we have fewer employees today than we had five years ago. So we continue to drive SG&A leverage year over year, keep a lid on that.

Then just a second question while everyone really focuses on the Consumer Domestic business, International had a good year. I know there was some expansion in Canada and Mexico with laundry and cat litter. So can you just talk about the opportunity there? How should we think about that for 2011?

International, you're saying? Actually you're going to see another very good year in International. We are only beginning to crack the dam on laundry and cat litter in Canada. We had double-digit growth in the overall country, which was our biggest subsidiary last year. So those continue to be very strong for us there.

Five of the six subsidiaries had very strong years last year. I think they will continue to. Australia is doing great for us. Brazil is doing great. UK had a very good year.

The only sub that had a soft year was France, and I think we are making improvements to fix that. So I think -- we don't talk about the fact we have what we call International power brands that we don't talk about.

We have brands like GRAVOL in Canada which is number one for nausea up in Canada. We have a brand called RUBA535 in Canada which is number one. It is like an Icy Hot, but is number one in that category in Canada. High margins; over-the-counter product.

So our foreign subs are doing a great job on doing that. So will we do the same numbers, which were outstanding, International this year? Maybe a little less, but still probably the best performing unit in the Company right now.

So we love International. Adrian Huns, our head of International over there, is doing a great job in it. I think it will continue to boom. Canada will be the biggest part of it because we are making big headway in Canada in laundry and now cat litter, which are two big, big categories for us. Connie?

I have a couple of questions. What does the integration look like for Feline Pine since it is an entirely different material?

It's not a problem at all. The guy who sold us the business will continue to manufacture for us. So he is going to become our supplier, so we just take over the marketing, sales, and distribution of the product.

So it is a seamless; it's done. I mean it is in-house, our brand teams are running it, our sales guys are selling it. We have integrated the data as far as the accounts. That was a easy, easy, easy integration.

Then on the TROJAN line, I think when you put up the fourth-quarter market shares, maybe my eyes slipped or something; but was TROJAN down like 110 basis points?

Yes.

What was happening there?

That is one of those I call good stories. The category is starting to grow again. It is up in the low single-digit, but it saw 3%, 4%, 5%.

The only issue was our growth was positive but a little less than that. But we are happy in the condom category right now. All the new condoms carry higher margins. We have done a great job managing inventories there.

So TROJAN had as far as financially a very, very, very good year for us. It's only a case of the categories will grow and the [catalog]. When the category is growing, when you are 75% share you love that.

But we weren't growing in the fourth quarter quite as fast as the category. One of our competitors has done some nice things. But we are all happy.

When I came here six and a half years ago I used to tell the story, condoms were only used one out of four times by consumers back then. Which means three out of four times they have unprotected sex, which is why the United States has the highest rate of sexual diseases of any country in the world.

The good news is six years later because of product innovations, the advertising, everything, we are down to one out of three times. Still horrible, but it is better than one out of four. So people's uses of condoms has gotten better.

I think also a fascinating stat which I will talk more about in Florida in a few weeks, two years ago was the highest birthrate in the United States in like 100 years. Two years later, this past year, it was the lowest birthrate in America in 100 years. It's an amazing switch, and I call that the recession.

I mean, who wants to have a kid when you're out of work? So it's been an interesting flip. So it's been good news for the condom category and a little difficult for the pregnancy kit category.

Except remember, in the pregnancy kits, half the people who bought them want to find out they are not pregnant. So it's been an interesting bimodal business for us.

But that is the only story in condom. We had a great year financially on condoms and we are still 75% share. If we lose a point, that is no big deal to us.

One follow-up. On the vibrations line, up until now they have been sold primarily online. Is that right?

Yes. Starting now to move into traditional retailers. Probably the drug trade first.

That is going to be a slow but steady business because the controversy around it. But definitely online, moving out into traditional retailers over the course of 2011.

(technical difficulty) commitments from the drug retailer on this? You have seen them in the planogram changes?

Oh, yes. Go over to Duane Reade right now, and -- see, they already carry a full line of condoms -- or full line of vibrators. Actually from a competitor.

So the drug trade actually loves this business because they are looking for businesses that the mass trade doesn't want to carry right away. They are looking for high-margin, high-ring businesses. And they are very positive about taking this business.

It's also -- I have to say that in the drugstores they are viewed as more -- people can have more discretion as to standing in front of a shelf and looking at it, versus being in a mass merchant where 80% of the country is shopping once a month and you might bump into your neighbor.

So the drugstore guys love businesses like this, where people will prefer to shop in a drugstore versus a mass merchant side. But eventually we see this business getting into all channels out there. Yes, sir.

I was wondering as an advertiser if you could talk for a moment about your spending on that side. Because it seems as though, with the recovery of the ad market, seems as though pricing has gone up considerably over the last year or so.

Is there anything in that that has led to changes in the way you're approaching that? Be it maybe just as far as breaking out channels or that kind of thing. Or is your approach similar to what it was last year despite changes in pricing?

Yes, that's a good question. You're exactly right. In 2009 the TV upfront sale actually declined. Which was good news, so you could buy more TV time for less money.

2010, the networks were successful in getting their rates jacked up about the high single digits. So bad news; in a year where you had a lot of pressure going on from price wars, on top of that you had to pay higher prices for the same amount of time.

So going forward we are in the midst of those rates; we won't know 2011 until the middle of this year. We really haven't changed our mix that much. We are still -- and Bruce can give you more details at your table there.

We are still -- the bulk of the money is still with TV. Print is secondary. Internet, it depends on the brand. I mean a brand like TROJAN we probably spend, Bruce, 20%, 30% of our money on the Internet. That is the highest. Other brands much less.

But we are still pretty traditional in that front. We still find TV and print. You can't beat the reach of TV. That is why they continue to command bigger dollars for the same amount of inventory.

I think it's amazing what the TV guys have done over the years to get the prices up, despite the fact you get less households today than ever before. But we still find print extremely effective for us and our guys have some great print campaigns you can see around the room here.

One thing about print, while everybody thinks it is dying, it is not dying as fast as you think. The weeklies are dying, the Times, the BusinessWeeks are dying.

Classic, ageless things like Better Homes and gardens and Women's Day and things like that, people don't throw those out when the week is over. They sit there and they read them for a long time. Those are the kind of print magazines that we are, and they have done extremely well for our businesses, especially our household businesses in that.

So I don't -- Bruce could tell you. The mix may have changed a few points here and there every year depending more on the campaigns we are doing. Do they fit to print better than TV? But not a seismic shift at all. Yes, sir?

Can we get an update on the potential for the next round of liquid laundry compaction? Then kind of using history as a proxy, what that could mean from a gross margin perspective. Thank you.

Yes. It is not going to happen this year. Liquid laundry compaction has taken the water out of the bottle; it happened in 2009, '08 and '09. The issue there is no manufacturer is going to lead the way on that.

Because every test in the world, a smaller bottle with say 100 wash loads versus a bigger bottle with 100 wash loads, consumers will buy the bigger bottle. They just believe bigger is better, even though the bottle says same number of wash loads.

So you are not going to find any manufacturer take the lead on that and leading the way. What happened last time was a certain major retailer decided that was good, because the retailers will save tons of money on the shipping costs. That major retailer, with the power they had said -- manufacturers, you're going to compact and you are going to do this timetable, and you better do it or you are in trouble.

We all went -- we loved it. The retailers loved it. The consumer got the same number of wash loads because all they took was the water out, which the washing machine adds.

So the consumer was happy and the environment was terrifically happy. So it was all great. We have been asked 100 times what the cost savings was on that; and we have said 100 times we are not going to tell you. So 101 times, not going to tell you.

Right now that retailer which is the driver of it has sort of indicated he doesn't think it is time for the next wave yet. I don't know why, quite honestly. I think it would be great for the industry, great for the environment, great for everybody.

So I am hoping maybe we will hear wind of that in 2012, but it's got to be driven out of that one source, honestly. Because the guy who leads that category, the big dog out in Cincinnati, has indicated many times they are not going to lead it for the reason I said. So we need the big dog down in Arkansas to set the tone on that.

I think it will happen. There's every reason to believe it is a good move for everybody. But that is how it has got to happen. We would certainly support it 100%. Bill?

What are the underlying category growth rates for that 3% to 4% organic growth target for this year?

What are we assuming for that?

Yes.

We are assuming -- I can't (inaudible) exact numbers. We are assuming some improvement versus 2010, not much, maybe a point or two and it varies by category based on there. But we think there will be a slight swing back.

I will be honest. That is my biggest concern of any factor in our plan right now. Will that category growth come back? Because it was not trending in a good direction actually in this year.

But I actually think -- don't forget pricing helps in some sense. If pricing happens that is an automatic plus to a category. So if the laundry wars start to abate a little bit that is a plus for category growth.

I hate to say this; commodities cause people to take pricing up in categories, and we are only the price leader in two categories because we are the strong share leader in two categories. Other categories, the other guys who lead in those categories are going to take it. But if pricing actions happen, that will drive category growth.

So we think in total -- and you are talking low, low, low single-digit-plus versus overall this year was pretty much low, low, low, negative single-digits overall. So we think we see a slight swing but we are not counting on much.

(inaudible) will be predominantly volume or do you think it will equalize a little bit between volume and price mix?

Right. So the way to think about next year, if it is 3% to 4% total Co, you should think of that as volume. If it is price mix it is going to be plus or minus 50 basis points.

So we had the big step down from '09 to '10, right? I was 250 basis points hurt in 2010. Looking ahead it is plus or minus 50 basis points. That is how we think about next year.

The other thing you should think about with respect to volume, Bill, is remember that scorecard, like in 26 out of 32 times. So if you look at our history -- so we grow share every year in spite of the fact that the categories may be sluggish. So we'd be expecting to grow share again in 2011. That is an element (multiple speakers) volume as well.

That is one we use for Sun. Just in case you want to know, this is Maureen's, so if you'd like to see shots of Maureen doing something -- just a second. No, that's okay.

Maureen is going -- get it off, get it off, get it off.

Is there any difference in growth between the different classes of trades? Because there's been all this stuff in the media recently about some Wal-Mart destocking, and I don't know if it is temporary or if [you think] it might be for a while?

We don't know either. Yes, there has been a little bit. The channel [shifts] are still largely what they have been happening. The dollar store channel continues to thrive.

Club has been okay, a little -- not as strong as in the past. Mass continues to eat the lunch of the traditional food channel.

But I think the biggest difference in the past two years has been the dollar store channel, which we are very big in. We are over indexed in dollar stores, which is a big plus for us.

You would rather mix the dollar than mix the club from a margin perspective, at least gross margin?

Yes, not that much, but it's good. It's good. The dollar store guys are just eating everybody's lunch out there today. Mike was saying people, with the economy the way it is, if a person has only got $50 in her wallet you can't go into a big mass merchant and pay $18 for laundry detergent like they would for the category leader. You would blow 40% of your budget just on laundry detergent.

So you go into the dollar store and buying a bottle of laundry detergent that is a third the size but for $3 and walking out and still have enough money to feed your kids and pay the mortgage and stuff like that. So the dollar store guys are just growing stores and thriving. And they are smart retailers. They are very smart retailers.

If I could, is Reckitt helping direct at all, getting more distribution or being better in the category here in North America?

Nothing yet.

(inaudible) I know you know.

If you find out send me a message. I don't (inaudible), but he hasn't quite sent me his plans for the year. If he does, I will like to know.

They are a terrific company. They're smart. I think that we think of all of our competitors probably Reckitt is right at the top of the list, as their total shareholder returns show. They are an outstanding, smart company.

We have our concerns what they will do with the direct brand. But hey, we have had the big dog in Cincinnati attack us in several categories and we are fine. We are not -- we ferociously defend our brands, and I will talk about that again in CAGNY, some stories on that.

So nobody is going to roll over Church & Dwight, I guarantee you. Alice?

In that 3% to 4% organic sales guidance for 2011 I guess detergent should grow slower than that. So which categories will grow faster than that?

I wouldn't say that. I think detergents with -- XTRA with OxiClean and continued growth of ARM & HAMMER is going have a very good year. Other categories will do well. Cat litter is expected to continue to do very well.

I think condoms will do very well with the innovations. Vibrators for TROJAN, helping the TROJAN side of the whole world. Pregnancy kits again had a record share of the fourth quarter; I think it will continue into 2011. That is our biggest.

Our toughest category right now is toothpaste, oral care. Honestly that to me is the emerging price war going on right now out there. There seems to be -- it's always been a very tough category with excessive -- in my eyes -- amount of promotion activity between two big guys. And now obviously GlaxoSmithKline has come on very strong with their foaming bubbles toothpaste.

I think if there is any category where there is going to be a tougher pricing war in 2011 it will be the oral care side. Which -- it's a good category for us. It is not the hugest.

It is not a medium sized category for us. We are just seeing I think ridiculous type pricing and merchandising action in that category right now. We will fight back. I just can't believe what they're doing in that category right now.

If I am remembering one of those slides correctly, just last year price mix was negative 3.5% for Consumer. What was it in the fourth quarter? Had it become neutral or negative 1%?

Yes, for the Company in the fourth quarter, it was --

(multiple speakers) calendar.

Well, unadjusted for the calendar the volume was 0.9% positive; but we had negative 2.3% price mix in the fourth quarter. That is total Company.

That gets you to the 1.4% negative unadjusted for days. If you adjust for days that is going to be all volume. It is going to be -- it's getting on the same relationship on price mix.

The price mix was negative 2.3% in the fourth quarter. Does that -- what happens as you go -- what happens in the first quarter?

Nothing. It's --

Neutral or positive? When does it --

It is more neutral, Alice. You are going to start -- the price wars in laundry started in the first quarter last year. So you start to lap very aggressive pricing.

And then the pricing is starting to come out of that. So as Matt said, roughly pricing is plus or minus half a point for this next year. So we see it kind of neutralizing next year.

Yes, although from a gross margin standpoint the first quarter will probably be our weakest quarter. Because you may recall in the first quarter last year we were more or less on the sidelines with respect to trade spend. So we had a big gross margin expansion last year -- well, 2010 in the first quarter. So that is going to be a tough one to lap until we get into second, third, and fourth quarters.

The other two points about the first quarter, some of our new products this year are shipping a little later, so that will be more of a second quarter impact versus first quarter last year. I will say on some of our value toothpaste brands we have cut out some aggressive BOGOs, buy one get one frees, that we had in the prior year which drove a lot of volume but almost no margin.

We just decided it was a stupid waste of money. So those three factors together is why the first quarter will be the tightest versus year ago. Then the new products will kick in and everything else -- all the benefits of those and distribution will kick in and everything. So starting in the second quarter we will have some very strong organic growth numbers and higher EPS.

So don't get hung up on quarters. We still feel the year looks great and feel very comfortable about it. But timing issues will --

But organic sales growth will still be positive in the first quarter?

It will be tight. It will be tight. But only because mostly we had a tremendous amount of new products ship the first quarter last year. We won't have that much this year, and that drove some very strong numbers last year.

We are kind of up against that. So it is nothing more than a timing shift, a little bit.

Can EPS be positive in the first quarter?

We said in the release we expect to be comparable year over year.

Then the latter three quarters, are those up sort of equally or is there going to be an acceleration all through the year?

The way to think about it, if you looked at the last four to five years for the Company, with the exception 2010 about 51% of EPS comes in the first half and 49% in the second half.

2010 was an anomaly. It was like 54/46. We expect 51/49 in 2011.

So when you are meting out the EPS if you start the first quarter with around $1.11 or so, we expect it to be somewhat comparable to that during the year.

(inaudible - microphone inaccessible)

You get a chance. He has already talked.

All right, first to just continue on what Alice is talking about, I'm a little confused actually. Because I remember in the first quarter of last year -- maybe my memory is wrong -- but that there were slotting fees for a lot of the new products. But I remember talking about it that there weren't a ton of sales because stuff launched, there was big [take] slotting fees and you expected momentum to build in the second quarter.

And the second quarter didn't really get the returns you were looking for because the categories were soft. And that continued into Q3.

So if anything I would think the comp picks up in the first quarter because of the extra days. Because that is sort of the biggest issue when we think about revenue comparison.

Say that again? You think what is the first?

The extra days would be --

No, no. We have the same number of days. That calendar thing shifts every six years, and then it stays that way. So it's the same number of days in the first quarter '11 as '10. So that is all behind us. That is not the issue.

Okay. So, maybe we will follow up offline. But I thought that it was maybe shipped very end of the quarter, you paid slotting fees, but you didn't you didn't have the sales to match the magnitude of slotting fees.

Yes, but that is true every year, so when you ship the first case you book the sliding fees. It's the whole nut.

We didn't have as much trade spending in the first quarter last year because we got kind of caught off guard by the price war in laundry that kicked off. So it wasn't till the second quarter we started spending more heavily on the pricing, on the price war for laundry.

So the first quarter actually had a nice EPS benefit from actually lower trade spending that we won't have this year. We will be up to the level of a comping over the last three quarters of last year.

So there will be higher trade spending in the first quarter which will somewhat dampen the EPS growth. After that it neutralizes for the rest of the year to a slight plus if things start getting a little better.

You are correct, though, about slotting fees. So that was big for us in the first quarter last year. So that actually can be higher in Q1 '10 versus '11.

Okay, cool. More interesting question --

I thought that was pretty good, but go ahead.

On oral care, one thing that sort of struck me was you are getting all this -- and it is not this huge category but getting growth because it is a value, the value tier, etc.

It made me think of XTRA in that XTRA has been a little bit to date -- although I think what you are about to launch is (technical difficulty) OxiClean -- undifferentiated other than the fact that it was cheap. Whereas ARM & HAMMER was cheap (technical difficulty) lots of innovation and new product [news].

So what is the risk that Aim and ARM & HAMMER, although it is more premium, lose significant amounts of share as things get more competitive in that category and then end up being sort of a meaningful drag?

It's a very good question, but it is kind of hard. Aim sells below $1. I have a hard time thinking that Crest and Colgate are going to get to those levels consistently. They pop there once in a while, but they really would be giving up a ton of margin.

So it's a price -- if they do it, it would be trouble. But Aim is a very good brand. It's got good strong distribution. Trade loves it, and it has had double-digit growth for us and just keeps kicking in.

So it's good. But again, yes. Like the laundry we get tougher comparisons on pricing. XTRA's problem was also driven by the fact we lost some distribution in a major account. That major account also took in another competitor, which made no sense to us.

But that is all reversing right now on XTRA in that, because that competitor, that retailer learned that was a bad decision and kind of reversing back out of it right now.

I don't think it is so on Aim. Our issue on two things is more ARM & HAMMER. ARM & HAMMER which is premium priced has been really hurt badly by all this price competition on the premium side of the business. Coupons galore, pricing galore, all sorts of stuff going on.

Which I would love to see their P&L; I don't know how it makes sense. But the two big guys seem to be at war in oral care right now around the world and certainly in the US, where it is our core business.

So we will be -- that was one. We don't like to start price wars, but once they start, we know how to fight them.

Thanks.

On cat litter, you seem -- and correct me if I am wrong. Are you implying that you should see a price mix benefit in cat litter even though the whole category has been tough for the industry?

Because of the cat litter going into York?

Well, that, but most importantly what you are -- even though the acquisition is small and you have just done it. But going forward, are you looking in '11 or would that be '12, to where potentially -- all else being equal from right now -- that you could see a price mix improvement for you?

A little bit, but more from the gross margin side. Putting the cat litter into York is going to help us on gross margin. The Natural Cat Litter has a little higher gross margin on it.

That category more is a little more just organic growth. Bruce, Steve Cugine, have new products here. Our sales team, Lou Tursi is not here today, but they have just done a tremendous job of leveraging the innovations we have had for the past several years. And this Double Duty is grand slam. I mean it is just a great product. Consumers love it.

The packaging, the merching, everything is working great. The retailers love it. They are begging us for a larger pack size. We are putting it in.

I would say one of our competitors has made some mistakes in the past year that didn't work to their favor. That again goes to my story about category expertise. We don't believe in rotating people on the top of our businesses around.

I told you Stacey -- and, I won't say his last name -- her last name, because a headhunter will poach her. Stacey has been running the pregnancy kit business for 12 years.

The guy running our laundry business, an ex-Procter guy, he has been running it for six or seven years now. We keep our top people in place, and they are very smart. They don't make mistakes like this one competitor made in cat litter.

We ate their lunch when they did it and it hurt them with the consumers and retailers and that. But more it is our story of organic growth. We just have this great pipeline of new products. We're working on the next big home run.

We are now clearly the number-two brand in that category and moving in on the number-one guy.

We think we have got the ideas. It won't be tomorrow, but the next couple years I think we get number-one brand in cat litter.

Again, we went to them because of ARM & HAMMER. That is a category where the other players have independent brand names, so it's just that brand name. Again this is the beauty of the ARM & HAMMER brands.

We have -- Bruce -- close to over $100 million of advertising on ARM & HAMMER across all the brands, all the segments we are in. That helps cat litter.

The other guys are fighting with independent brand names in that category. So we are spending $100 million plus in ARM & HAMMER that when people hear it, whether it is baking soda, toothpaste, laundry detergent, whatever -- you walk in the cat litter aisle, you see ARM & HAMMER. You get it. You get the story.

Bruce has done a great job of a consistent message across those categories. So we are beating those guys with new products. We are beating with the total weight of the ARM & HAMMER brand name. Our sales force has done a great job getting the distribution. The new product pipeline is just cooking.

Cat litter, we are on fire and we love that category. It is big boxes too, which helps our logistics and our shipping and stuff like that. So it is probably our number-one business result in 2010 was cat litter overall, which is great. Great category. Bill?

Reluctant to remind you of this, but a year ago we were sitting here and you were conservatively looking for 5% top-line growth.

Right.

Excited about the year and the prospects. Then price war hit a month later in liquid laundry.

What gives you confidence now that there isn't something around the corner, there isn't something that is coming out of Cincinnati that can whipsaw the guidance again?

Also on the price mix initiative in your hedges, it sounds like you feel very comfortable with the hedges. But maybe your competitors and some of them who might be leaders aren't so. Do you expect to follow any price increases taken and let that flow through margin?

This is like Jason, okay, taking all these questions in my head. Okay, on the -- look at the confidence about 3 to 4 -- hey, look, we did 3 in a really, really, really tough year. We exited the year plus 4 in Q4. The last three years were 5, 7, 5.

So actually I think we are calling for the low end of the range in my tenure in this Company. I know our new products, they are great. I know the competitive new products out there; not worried.

The commodity news, which is the bad news of the year, is remember good news on the price war side.

A lot of you read -- we've read all the reports. Usually we are the last guys to report. I have read all the competitors, they are getting socked.

What did the big guy in Cincinnati claim? There was $1 billion of unexpected cost increase. They are not about to, I think, go exacerbate a price war when they have got to cover $1 billion of price increases. That just makes logic.

So the commodity bad news should lead to pricing at least not becoming an issue and maybe abating a little bit in, 2011, so I feel good about that.

Which as far as pricing, again, we only are the category leaders in a strong position to take pricing in a couple of small categories. The rest of the categories, I'll just be careful here. The leaders in those categories price, we would certainly look at it and make a good decision in those categories.

But we got commodity stuff to cover too. If we can cover it through pricing, that's great. We have got it more than covered right now through cost savings. But we will certainly take a good look what everybody else does no pricing. But it's other guys who drive those categories for the most part, not us.

(inaudible - microphone inaccessible)

That's true. Lauren has got a question. She is going to get us today.

It's really [something] when you put up the 10 out of 10 Club or whatever, and 10 out of 20. One thing I have been thinking about a lot lately is the risk for all the companies in this industry being too wedded to double-digit earnings growth, where market growth really should be the underlying assumption of everything. We have already seen a very big company make a series of bad decisions over a number of years to stick to that and deliver to that goal, which ends up being a problem.

So clearly there is upside potential. There is the potential for pricing, etc. But what if things don't go according to plan? Will you walk away from that goal for a year because it is right for the business to print 9% earnings growth or whatever the case may be?

I'd like to make -- I think 10 for 10, we are the only guys who did it, so we have got to brag about it.

We'd certainly love to be at the top of the pack. We will certainly not do things to hurt the business to stay there.

One of the biggest keys to our business is drive that gross margin, because the gross margin is the gas for the engine. With a gross margin improvement I can fund increased marketing; with increased marketing I can win the share wars and the revenue war. Bingo; I got good numbers.

The other side which I would say -- so that feels good and we think with our cost machine right now we got several years to go easily of gross margin improvement.

The other side -- I was talking with Alice about this earlier. More guys have destroyed shareholder value and earnings through bad acquisitions, and we will not do that. I have told you this past year there were a couple that crossed our desk. I would have loved to buy SSL; but the price that went at, you would be screaming at me. You would be killing me because I could never justify that on the bottom line.

It would have been wonderful to be the condom king of the world. But it is a case of the price tag that went at. Reckitt could more afford that; I think it will still be a struggle for them. They could more afford it because there are Western European based, so they had greater synergies than we had over there. Because they promised a huge synergy number to justify that price. We couldn't get there.

So we're going to be very careful. We are not going to -- I'm not going to name names but some of my competitors have just killed themselves with bad acquisitions that they are digging out from or writing off and things like that.

You know one of the most recent ones. So we're very careful. But I have a tremendous team on acquisitions. I think our track record is proven.

I will just tell you on some of the recent deals we have been complimented by investment bankers for finding things in due diligence that the investment bankers for the seller didn't see. We pointed out issues on -- let's say issues like taxes and things like that which surprised the other side and actually caused two sellers to back off on deals because they didn't understand their own tax implications with the deals, which we pointed out to them.

And after seeing them, they kind of said -- whoops, we got to go back and rehuddle and think about selling this business. They had a price tag in their head but it had certain assumption on taxes which, when they realized the reality of what it was, it was not what -- they weren't going to take away what they thought.

So the team that does our acquisitions is my A Team, which is in this room today. We don't have a separate team. The one guy that does M&A is right behind you, Brian. He is the entire M&A department right there.

Brian's our point to the Street. Everybody calls him, but once it comes in-house, the team in place takes over. My head of Operations, Mark Conish; head of Marketing, Bruce Fleming; Sales, Lou Tursi. We are all, myself, personally involved with putting the -- we go to the presentations; we put together the business plan.

So when we make a deal we know what the synergies are supposed to be because we calculated them ourselves, not some third party who hands it off to the operational team and says -- the operation team goes, where the hell did you get that from?

We know the cost thing. So we have never missed a business plan.

So because of that bottom line, we have walked away from some deals. They wanted prices that we couldn't figure out how the heck the seller got there or the buyer got there.

And I hate to say it, more often than not in retrospect, several years later, we see the buyer made a big mistake. Then it ties up the whole company because you are now trying to cover.

I would say right now some of the big pharma guys out there are really reeling from prices they paid on some of these deals. The one guy in our state that has been all in the press lately, the acquisition of a consumer packages business a couple years ago I think was the undoing of that company. They have gone from being the gold standard of quality to the basement.

So we are not going to take -- as much as we would love some acquisitions from a strategic standpoint, if it is a price tag that would just kill us or knock us on the bottom line who won't do it. And we will just -- and they really can unravel a whole company, being focused on trying to justify an acquisition sometimes.

So bottom line, the organic growth side is there because we have this great cost-saving machine that drives the gross margin which enables us to spend more marketing. That is there for I think several years to come at least.

The other side is we are not going to do a deal that is going to hurt our Company. Not easy. It is patience.

I can't tell you how many deals we came this close to this year and it didn't happen; and it's very frustrating. But we were not going to jack our price up to a price like the seller wanted and hurt our Company.

Global war on toothpaste and this morning Colgate is up over 3%. Rumors are Unilever. Any thoughts?

I'm, sorry. What was the last part about?

The rumor was that Unilever was contemplating a bid; that is what had the stock up.

For Colgate?

Yes, 3%.

That would be interesting. That has been -- [Mike Tisloff's racket]. But that would be interesting. That would be interesting.

It goes to my point, with organic growth being such a struggle. You mentioned Colgate, probably one of the greatest companies in the world. When I saw their earnings forecast for the year, it was stunning to me how low it was. They are dealing I think -- that is the (inaudible) people.

Everybody is rushing to these emerging markets. The wars breaking out in the emerging markets are sometimes more fierce than what's going back home.

Because everybody is going in there, beating each other's brains out for share, cutting prices and things like that. I would tell you we watch this very intensely.

Some of the share wars going on in those marketplaces drive profits into the bottom, the basement. So a great company like Colgate, which for years has thrived on it foreign market -- with 80% of its earnings are outside the United States, or whatever -- is all of a sudden I think in battles across the world with this other big dog that is going on.

So I am not surprised eyes are opening up M&A, mergers and acquisitions. Because with low organic growth, low earnings forecast organically, buying other companies, mashing them together, knocking out some of the synergies is a great way to get to the bottom line.

And we love it. That is what we do. We buy companies and as I say we just basically keep their brands, a few keep people. We get rid of their operations. We get rid of their headquarters. We get rid of everything that is extraneous, we just put it in the back.

Mat has said when I came to this Company there were 3,800 employees. We were doing $1.4 billion in sales. Six-plus years later we are $2.6 billion in sales, more than 50% bigger, and we have fewer employees. So our revenue per employee is the highest in this entire industry because we just keep throwing more on the backs of our people and actually trying to cut out people.

So acquisitions can be a way out when you're struggling organically. And I think that is why you have seen the Chattems, the SSLs, Alberto-Culvers get out. And I think you will see more activity going forward.

I am not surprised by that. That is a rumor, right? Is that official?

(inaudible - microphone inaccessible)

Crap, I wanted to buy Colgate, but that's okay. Yes, in my dreams.

In the press release you talked about earnings per share being kind of balanced through the year. Does the timing of any changes in interest expense or tax rate -- are you also implying that operating margin will be balanced through the year, or there are below the line items that will fluctuate?

Yes, we wouldn't be that specific that we would call operating margin by quarter. The interest actually kicks in immediately, right because we paid off all of our debt in December. So obviously we get that interest benefit, it's going to be ratable throughout the entire year.

But remember on the bottom line you are impacted also by taxes. So a 36.6% rate is one you will see starting in the first quarter.

(inaudible - microphone inaccessible)

Yes.

How is that for being specific?

Right. Any last questions? If not, I want to thank you. You have been a wonderful audience today.

I will just end up telling you I am always Mr. Cautious. I feel very, very good about this year ahead of us. Based on our programs, our cost cutting, our new ideas, our new products, the effort by my team -- it is going to be a rough year. It's ugly. It's going to be an ugly environment out there again in 2011. But this time we are not going to get caught off guard by a price war like we were last year and we had to fight back through to get to our numbers.

So I will just tell you, get in that little train and get moving, and you haven't missed the boat on Church & Dwight.

Alice is going to give me $100 a share next week for the Company, so that'll be good news, too. So we will be all set. Thank you. I'm ringing the closing bell today on the New York Stock Exchange, so I hope nothing bad is going on out there today. And otherwise thank you very much for coming.