Church & Dwight Co., Inc. (NYSE:CHD) Q2 2023 Earnings Call Transcript

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So we’re putting technology, we’re putting – enabling technology to – so that we can scale and grow. We have SG&A investments for people and regulatory and R&D, so that business can continue to grow at the rate it’s been growing at.

Lauren Lieberman: Okay, great. Thanks so much.

Matt Farrell: Thanks, Lauren.

Operator: Your next question comes from Dara Mohsenian from Morgan Stanley. Please go ahead.

Dara Mohsenian: Hey, good morning guys.

Matt Farrell: Hey, Dara.

Dara Mohsenian: So just along the vein of the last question, clearly, a lot of reinvestment in the back half of the year relative to original plan. Can you just talk about the level of payback you expect from those investment areas, as well as the timing of payback? Obviously, marketing is a line item that’s highly visible to us, but it seems like there are a bunch of other areas in terms of higher R&D, greater registrations technology, you just mentioned ERP in China, Rick. So those are more nebulous and harder to judge. So just how do you think about the payback and are you basically pulling forward some incremental investment that would’ve occurred in 2024 as we think about this reinvestment in the back half of the year? Thanks.

Rick Dierker: Yes. So in terms of payback, we’ll start with marketing. Marketing, we’re spending $30 million more, where are we spending that incremental marketing. Well, it’s around brands like THERABREATH, like HERO, the ARM & HAMMER campaign given the hammer, which has been great in the recessionary time. So all those things are driving the top line. We’re seeing an immediate payback, right? We talked about distribution gains for THERABREATH and HERO. Sometimes, these are the first national campaigns they’ve ever experienced and consumption is on fire, and that’s as a result of marketing and distribution gains. So the payback there is rapid. On the SG&A, two-thirds of that SG&A number is incentive comp year-over-year as our results are outperforming.

And then maybe a one-third is the investments. And those investments from more one time in nature. And yes, like for registrations, we’ve pulled forward a couple years of registrations we may do that again in terms of it gets us ready to grow even faster, and it gives you more optionality to expand in different countries around the world. Anything, Matt, you would add?

Matt Farrell: Yes. I’d just say, Dara, we’re very consistent. We had a long standing practice that when the business is performing well, we look at that as an opportunity to reinvest. So things we – initiatives we might’ve had next year, the year after, we say, hey, we could fund it now, let’s do it. And as with respect to marketing, that’s really a no brainer. Because marketing correlates with this – with the health of brands and the strength of your brand equity, and you can’t live at 10% of sales. And there’s another example of something we were going to ramp up in 2024, that’s – we got ahead of it now. So that is not going to be a drag year-over-year in 2024 versus 2023. That ramp up to 11%. So I think these are all good things.

Dara Mohsenian: That’s helpful. Thanks guys.

Operator: Your next question comes from Andrea Teixeira from JPMorgan. Please go ahead.

Andrea Teixeira: Thank you. Good morning. I wanted to ask more about your point on volumes for the more discretionary categories. Not to take away from obviously the improvement in the other areas in the down trade that you benefit, but some of these categories, of course, the 20%, I believe is still around what they represent in your revenues. So I understand that your company very easy comparisons. But consumption wise, I wonder why consumers will go back to FLAWLESS and WATERPIK given the headwinds in the category. And in general, I think we’ve heard all companies talk about like, well, we will see volumes rebounding. It’s not like your volumes were relatively outperforming, so I wonder x those two or those three categories, including VMS. So what makes you comfortable with the rebounding volumes that is predicated in your guidance? Thank you.

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