Church & Dwight Co., Inc. (NYSE:CHD) Q4 2023 Earnings Call Transcript

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We’re driving growth in those categories. We thrive in difficult environments. You’ve seen our value percentage of our portfolio. I’ll take you through how, on ARM & HAMMER in particular, we bring consumers in tough times, we keep them, we trade them up. And then acquisitions have a ton of room to run, HERO and THERABREATH have been absolutely home runs, and they’re in the early innings of that story still, and I’ll show you what that looks like. So this slide was getting a little complicated, right? This is our old 14 power brand prior look, 17 categories. As we got into new categories, the chart got longer and longer. You can see which in 2023 we’re growing, mid-single-digit growth, high single-digit growth, pretty strong. But when you look at the new look of our seven power brands and these compete in eight categories, just as a reminder, ARM & HAMMER competes in laundry and litter, of course, seven brands, eight categories, incredibly strong growth, right?

11% in 2021, 18% in 2022 and then 16.9% on top of that. And we’re driving a lot of that growth and I’ll show you that in just a little bit. But these are exciting healthy categories to be in. Matt talked about these a little bit, too. So our portfolio has changed a little over time. So we’re 63% premium, 37% value, still incredibly valuable to us in tough economic times as we bring consumers in and low private label exposure of 12%. And then the third reason for confidence is about these new acquisitions. When we met with you over the last two years talking about THERABREATH and HERO, it’s been about our ability to build distribution to bring these to more and more consumers, and you can see the success that we’re having. THERABREATH up 57% in terms of distribution last year and lots of room to run to catch up with the big guys, and HERO is another great story as well, up 200% last year and tons of room to keep growing.

And that’s just in MULO, that’s in measured channels. If you look at it from a numerator standpoint, mouthwash is in 63% of US households today. THERABREATH is only in 7%. And you can see the growth we’re making from 1% to 2% to 3% to 4% to 7%, great growth, but there’s a ton of households where we’re not in just yet. And so there’s room to run there. And HERO is the same story. HERO almost didn’t exist five years ago with a 0.2% household penetration, up to 6.4% today. You can see the rate of growth accelerating. So whether you measure MULO or you measure numerator households, tons of room to run on acquisitions. So let’s look at some category and consumer dynamics. Now, we’re going to start with our largest brand, Arm & hammer and one of our largest categories, Fabric Care.

And the look back is a pretty compelling story of growth from a five share to an all-time share high, 14.4% last year on top of an all-time share high in the prior year. And all of that growth has been driven, as we’ve talked with you, about being anchored in the value tier of the laundry detergent category. That’s about 30% of the category. But I’m happy to be talking today about Arm & Hammer Deep Clean, our most powerful formula and our first entry into the mid-tier segment. And to give you some idea, that’s about 27% of the category. The mid-tier, we haven’t played there today. And we’re thrilled about this new formula that’s going to be launching in Q1 in 2024. And just to break it out for you, so you can see our architecture, we’ve got our core Arm & Hammer products.

Those are our better products, Arm & Hammer plus OXICLEAN, sorry, Arm & Hammer Good, Arm & Hammer plus OXICLEAN Better and now with Deep Clean, our best formula and the best anchor in our architecture. And we are telling consumers about this new formula starting very soon, and I’ll play one of the spots. We call it dig deep to show you how we’re bringing awareness to the category and the brand. [Video Presentation] So that’s just one way we’re spending some of the incremental marketing that Rick talked about earlier. But fabric care is so important to us, we’re not done with Deep Clean. We’re also happy to be talking about Arm & Hammer Power Sheets, laundry sheets, not dryer sheets. We’re the first mainstream brand to bring this form, new form of unit dose to market.

We launched it in Q4 of last year online. We quickly grew to the number two detergent sheet on Amazon, and we’re expanding it into bricks-and-mortar this year. It’s a great new form of unit dose. And there’s a lot of education that needs to take place when you’ve got a new form, so let us show you how we’re using one of our army of influencers to educate consumers about this great new form of unit dose. Let’s play the spot. [Video Presentation] Once is enough. You can tell she’s excited about it. We are too. I just dropped my son off at college a few weeks ago, and laundry sheets were one of the first things that I made sure I packed for him. Far more convenient than unit dose for sure, and than liquid for sure. So staying with ARM & HAMMER, moving over to Cat Litter, now another important multibillion-dollar category for us.

You can see that the category is healthy, right? It was up 11% last year. It’s been a consistent grower for a long time. During COVID, there were increased pet adoptions, then there were multiple rounds of price increases, 11.7% growth. ARM & HAMMER contributing to that growth, up 11.8% last year. When you’re growing faster than category, you’re gaining share, of course. We were up to a 24.8% share, almost a 25% share of the category. And you can see we’ve been a consistent growth over time from 23.6% up to 24.8%. And one way that we’re keeping that growth going is through new products, ARM & HAMMER Hardball is what we’re talking about today. We’re changing the lightweight litter experience. We think it’s lightweight perfected, ultra compact strong clumps, 60% lighter than our base product today, plant-based, and it was one of the strongest-performing litter new product launches at Walmart last year.

So we’re expanding it nationally this year. And why are we so excited about lightweight? Well, today, we’ve just got a four share in the lightweight subsegment versus our 25% share overall. So getting our fair share equals $100 million opportunity in retail sales. So we’re squarely focused on growing and gaining share in this important subsegment of the category. And we’ll share how we’re doing that via a piece of advertising right now, which is cats watching humans on the Internet. So, a little bit of a different play. Let’s play the spot. [Video Presentation] I swear we test all of our advertising and our cat-obsessed consumers love it, so it’s helping to bring awareness to this great new product. All right. Switching gears to something slightly different, dry shampoo.

BATISTE dry shampoo has been an absolute tear. The category is healthy, up 15.6% last year. As the leader in the category, we were up 16%, a combination of new products and advertising has absolutely driven continued growth for us. And you can see the share story is the same here, whether we’re talking about litter or fabric care or BATISTE, we’re hitting all-time share highs. We hit a 46.3% last year. We’re up 9 share points in the last few years, so incredibly strong growth continues here. And again, the theme is the same. We’re keeping it going with new products that we’re supporting by advertising. Now we’re talking about BATISTE Sweat and Touch Activated, our newest innovation in dry shampoo. They use bursting bead technology that have been in skin care before but never in dry shampoo, so they do — they offer a burst of fragrance with every touch or drop of sweat for up to 24 hours of freshness.

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