Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Reported sales growth of 3.9%, exceeding the outlook of 3.5%.
- Organic sales grew 4.7%, surpassing the 4% Q2 outlook.
- Adjusted EPS was $0.93, higher than the $0.83 outlook.
- Gross margin expanded by 150 basis points.
- Strong performance in international markets with 9.3% organic growth.
Negative Points
- Gummy vitamin business continued to be a drag, with consumption down 10.9%.
- Private label share gains in gummy vitamins and litter categories.
- Slowdown in consumption growth in June and July.
- Increased marketing expenses impacting SG&A.
- Tightened full-year organic revenue outlook to the low end of the prior range.
Q & A Highlights
Q: Can you provide more details on the promotional backdrop and your expectations for the rest of the year?
A: Household categories are more promotional than personal care. For example, liquid laundry detergent sold on deal was down 180 basis points year-over-year and 200 basis points sequentially. This was largely driven by a large premium brand. In the litter category, Q2 saw an increase in promotional activity, primarily driven by one competitor. Overall, we don't see a significant increase in promotional activity across the board.
Q: Can you elaborate on the slowdown in June and July and how it affects different categories?
A: We observed a deceleration in consumption across various categories. For instance, laundry detergent category growth was around 2% in May, flat in June, and down close to a point in July. Similarly, the litter category was up 3% in May, flat in June, and slightly up in July. Non-alcohol mouthwash also showed a deceleration from 14% in May to 11% in July. This trend suggests that consumers are becoming more cautious with their spending.
Q: How are you planning to use the "dry powder" you mentioned for additional spending?
A: The dry powder is reserved for potential increased promotional activity if categories further decline or if the promotional environment heats up. We are prepared to deploy it primarily in our household businesses like laundry and litter, as well as in the vitamins category. Additionally, we plan to support our new products with more marketing in the second half.
Q: What are your expectations for the international business in the second half of the year?
A: Our international business had a strong first half, and we expect it to continue performing well. We anticipate full-year organic growth of around 8%, with the second half contributing approximately 7%. The international consumer has been more resilient so far, but we are keeping an eye on any potential changes.
Q: Can you provide more details on the performance and future prospects of the TheraBreath brand?
A: TheraBreath continues to perform exceptionally well, holding a 17% share and being the number three brand in the mouthwash category. The launch into the antiseptic segment, which represents 30% of the category, has been a significant growth driver. We expect TheraBreath to continue growing, supported by its premium positioning and strong consumer demand.
Q: What are your plans for addressing the challenges in the vitamins, minerals, and supplements (VMS) category?
A: We are working on renovating our VMS portfolio by introducing new packaging, upgraded formulas, and new forms like chewables. However, the improvement is taking longer than anticipated. We expect it to take another six to 12 months to stabilize the business and regain market share.
Q: How do you plan to manage the potential increase in promotional activity and its impact on gross margins?
A: We have factored in some trade and couponing expenses for the second half of the year. Additionally, we are focusing on supporting our new products with displays and marketing. While we expect some inflationary pressures, our productivity improvements should help offset these costs.
Q: Can you comment on the potential for negative pricing in the second half of the year?
A: We do not expect to have negative pricing in the second half. Our focus will be on maintaining a balanced approach between volume growth and pricing to support our overall financial performance.
Q: How quickly can you pivot your innovation pipeline to address changing consumer preferences?
A: We are capable of quickly adapting our innovation pipeline to create different price points and pack sizes to meet changing consumer needs. This flexibility allows us to respond effectively to shifts in consumer behavior and maintain our competitive edge.
Q: What are your thoughts on the current M&A environment and potential opportunities?
A: We continuously evaluate potential M&A opportunities that align with our criteria. While we have not made any acquisitions in the past 18 months, we remain open to strategic opportunities that can enhance our portfolio and drive growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
