Good morning, ladies and gentlemen, and welcome to the Church & Dwight Third Quarter 2021 Earnings Conference Call. Before we begin, I have been asked to remind you that on this call, the company's management may make forward-looking statements regarding, among other things, the company's financial objectives and forecasts. These statements are subject to risks and uncertainties and other factors that are described in detail in the company's SEC filings. I would now like to introduce your host for today's call, Mr. Matt Farrell, Chief Executive Officer of Church & Dwight. Please go ahead, sir.

Okay. Thanks. Good morning, everyone. Thanks for joining us today. I'll begin with a review of the Q3 results, and then I'll turn the call over to Rick Dierker, our CFO. And when Rick is done, we'll open up the call for questions. But before we begin, I would like to recognize all Church & Dwight employees around the world for their continued dedication to keeping our company going, especially our supply chain and R&D teams as during this quarter, the company faced the complexities of widespread raw material and labor shortages at our suppliers and at our third-party manufacturers. Now let's talk about the results. Q3 was a solid quarter. Reported sales growth was 5.7%, organic sales growth grew 3.7% and exceeded our 1.5% Q3 outlook. The 3.7% organic growth rate in the quarter is impressive, considering the prior year Q3 2020 organic sales growth was 9.9%. So that's growth on top of growth. The adjusted EPS was $0.80 and that's $0.10 better than our outlook. We grew consumption in 12 of the 16 categories in which we compete, and in some cases on top of big consumption gains last year. Regarding brand performance, five of our brands saw double-digit consumption growth, and I'll name them for you: vitamins, ARM & HAMMER cat litter, Scent Boosters, BATISTE, and ZICAM. And although many of our brands experienced double-digit consumption growth, it's not all reflected in our 3.7% organic sales growth as shipments were constrained by supply issues. In Q3, online sales as a percentage of total sales was 14.3%. Our online sales increased by 2% year-over-year. Now keep in mind, this is on top of 100% growth in e-commerce that we experienced in Q3 2020 versus 2019. And we continue to expect online sales for the full year to be above 15% as a percentage of total sales. Now as described in the release, Hurricane Ida's impact was substantial, which resulted in limited availability of raw materials and caused our fill levels to continue to be below normal. Labor shortages at suppliers and third-party manufacturers have constrained their ability to produce. Transportation challenges have further contributed to supply problems. Now the good news is that over the past 18 months, we have made our supply chain more resilient by qualifying dozens of new suppliers and co-packers, which provides, of course, both short-term and long-term benefits. And in a few minutes, Rick will tell you about our plans to expand capacity in 2022 with a significant increase in CapEx next year to support our growth plans. Now due to the lower than normal case fill rate, we pulled back on Q3 marketing compared to the prior year, and we expect the supply issues to begin to abate in the first half of 2022. Our biggest issue is widespread inflation. We're dealing with significant inflation of raw and packaging materials, labor, transportation, and component costs, which is compressing our gross margin. These conditions are expected to continue well into 2022, and Rick will cover gross margin in his remarks in a few minutes. On past earnings calls, we described how we expected categories to perform in 2021. Overall, our full-year thinking is generally consistent. Just to name a few categories, demand for vitamins, laundry additives, and cat litter has remained elevated in 2021. The condoms, dry shampoo, and water flosser categories have recovered and are experiencing year-over-year growth as society opens up, and consumers have greater mobility. Baking soda and oral analgesics have declined from COVID highs as expected. So now I'm going to talk about each business. First up is Consumer Domestic. So the Consumer Domestic business grew organic sales 2.8% and this is on top of 10.7% organic growth in Q3 2020. Looking at market shares in Q3, six of our 13 power brands gained share and our share results are clearly impacted by our supply issues. I will comment on a few of the brands right now. VITAFUSION gummy vitamins saw a huge consumption growth in Q3, up 24%. Consumers have made health and wellness a priority. It appears that the new consumers that came into the category are staying because if we look at the last year, VITAFUSION household penetration is up almost 10%. BATISTE dry shampoo grew consumption 36% in the quarter and grew share to over 40%, first time that's happened. Dry shampoo is recovering as stores have reopened and consumers are becoming more mobile. Next up is WATERPIK. WATERPIK consumption declined in the quarter due to the year-over-year timing of a major online retailer sales event. But the good news is that WATERPIK continues to have strong consumption year-to-date and continues to benefit from the heightened consumer focus on health and wellness. In Household Products, ARM & HAMMER liquid laundry held share despite leading with price. ARM & HAMMER scent boosters continue to gain share, going the other way was unit dose share, which declined due to supply issues. The good news in unit dose is that we are now self-reliant with reliable in-house production. And also in household products, ARM & HAMMER cat litter grew consumption 11%, while gaining 50 basis points of market share. Next up is International. Despite disruptions due to COVID, our International business came through with 2.3% organic growth, primarily driven by strong growth in the Global Markets Group. Asia continues to be a strong growth engine for us. STERIMAR, FEMFRESH, VITAFUSION, and L'il Critters led the growth for the International business. Now the next one is Specialty Products. Our Specialty Products business delivered a very strong quarter with 18.5% organic growth, but this was on an easy comp. The prior year quarterly organic growth for Specialty Products was actually down 3.4%. So 18.5% is a really nice rebound. And this was driven by both higher pricing and volume. Milk prices remained stable and demand is high for our nutritional supplements. Now let's talk about pricing. In response to the rising costs, we have already taken pricing actions in 50% of our portfolio, effective July 1 and October 1. The volume elasticities have been slightly better than expected since the July price increases. We will be announcing pricing actions effective Q1 2022 on an additional 30% of the portfolio. That means that as of Q1 2022, we expect to have raised price on approximately 80% of our global portfolio of brands. Due to our expectation of incremental cost increases, we continue to analyze additional pricing actions that can be put in place next year in 2022. Now let's turn to the outlook. Significant inflation of material and component costs and co-packer costs impacted our gross margin in Q3. Looking forward, we expect input costs and transportation costs to remain elevated in Q4 and we expect significant incremental cost increases in 2022. Our EPS expectations are unchanged. We expect adjusted EPS growth of 6% this year. It's important to remember that we are comping 15% EPS growth in 2020. We expect full-year reported sales growth of 5.5% with 4% full-year organic sales growth. It's also important to call out that we are committed to maintaining the long-term health of our brands by ensuring a healthy level of marketing investment in Q4 and in 2022. As many of you know, we typically target 11% to 12% marketing spend. Q3 was 12.3% and we expect Q4 to be approximately 13%. Just to wrap things up, October consumption continues to be strong. We're navigating through significant supply challenges and cost inflation. We expect our portfolio of brands to do well, both in good and bad times and in uncertain economic times such as now. We have a strong balance sheet, and we continue to hunt for TSR accretive businesses. And next up is Rick to give you more details on Q3.

Thank you, Matt, and good morning, everybody. We'll start with EPS. Third quarter adjusted EPS, which excludes the positive earnout adjustments, was $0.80, up 14.3% to prior year. We don't expect any further adjustments to the earnout. The $0.80 was better than our $0.70 outlook, primarily due to continued strong consumer demand and higher than expected sales as well as lower incentive comp and lower marketing spend as supply chain shortages were impacting customer fill rates. We also overcame a higher tax rate year-over-year. Reported revenue was up 5.7% and organic sales were up 3.7%. Matt covered the details of the top line. I'll jump right into gross margin. Our third quarter gross margin was 44.2%, a 130 basis point decrease from a year ago. This was below our previous outlook of expansion as we faced incremental pressure from the effect of Hurricane Ida on material costs and distribution. Gross margin was impacted by 500 basis points of higher manufacturing costs, primarily related to commodities, distribution, and labor. Tariff costs negatively impacted gross margin by an additional 40 basis points. These costs were partially offset by a positive 250 basis point impact from price/volume mix and a positive 120 basis point impact from productivity. Moving to marketing. Marketing was down $10 million year-over-year as we lowered spend to reduce demand until fill rates could recover. Marketing expense as a percentage of net sales was healthy at 12.3%. For SG&A, Q3 adjusted SG&A decreased to 180 basis points year-over-year with lower legal costs and lower incentive comp. Other expense all-in was $12.1 million, a slight decline due to lower interest expense from lower interest rates. And for income tax, our effective rate for the quarter was 20.4% compared to 17.3% in 2020, an increase of 310 basis points, primarily driven by lower stock option exercises. We continue to expect the full year rate to be 23%. And net of cash, for the first nine months of 2021, cash from operating activities decreased 18% to $653 million due to higher cash earnings being offset by an increase in working capital. We continue to expect cash from operations to be approximately $950 million for the full year. As of September 30th, cash on hand was $180. Our full year CapEx plan is now $120 million, down from the original $180 million in the outlook due to purchase timing. This CapEx move out a year and we now expect CapEx in 2022 to exceed $200 million. Future is bright as we continue to expand manufacturing and distribution capacity primarily focused on laundry, litter, and vitamin. On October 28th, the Board of Directors authorized a new stock repurchase program up to $1 billion. As you read in the release, this is a sign of our confidence in the company’s future performance and the expectations of our robust cash flow generation. Our number one priority for capital allocation remains acquisitions. And given our low leverage ratios, we have confidence to do both. Through October, we purchased approximately $130 million worth of shares and in Q4, we will likely get ahead of our 2022 planned purchases as well. And now to the full year outlook. We now expect the full year 2021 reported sales growth to be approximately 5.5% and organic sales growth to be approximately 4%. Our consumption is strong and outpacing shipments. We expect our customer fill levels to improve throughout Q4. Turning to gross margin, we now expect full-year gross margin to be down 170 basis points, previously down to 75 basis points. This represents an incremental impact from our last guidance due to broad-based inflation on raw materials and transportation costs. That was exacerbated by Hurricane Ida. In our prior outlook, we had discussed $125 million of higher cost versus our plan. That number today is $170 million, and the majority of that increase in the last 90 days relates to transportation, labor, and other increases. As a reminder, we price to protect gross profit dollars, not necessarily margin. The $45 million movement versus our previous outlook is primarily non-commodity related. Spot pricing today is elevated compared to spot pricing just three months ago. And now for the full year, we expect adjusted EPS to be 6%. Our brands continue to go from strength to strength as strong consumption and organic sales growth lap almost 10% organic growth a year ago. And while inflation is broad-based, we have taken pricing actions to mitigate, which gives us confidence over the long term. For our Q4 outlook, we expect reported sales growth of approximately 3%. We expect organic sales growth of approximately 2% due to the supply chain constraints and our SPD business to return to a more normal growth rate. Adjusted EPS is expected to be $0.61 per share, up 15% from last year's adjusted EPS. And with that, Matt and I would be happy to take any questions.

Your first question comes from the line of Rupesh Parikh with Oppenheimer.

So I guess the first here, just with the supply chain headwinds. Is there a way to frame like how significant impact it was on your top line in Q3 and Q4, and just any initial thoughts in terms of the magnitude of impacts early next year?

From a top line perspective, organic for the domestic division was, I think, 2.8%. If we look at what consumption was, remember, our fill levels at retail are pretty good, our in-shelf, in-stock levels are in the mid-90s. We want to be in the high 90s, but are in the mid-90s. The consumption was closer to 6%. And so that just means retailer inventories are depleted to some degree. So you can do the math between the 2.7% and really the 6% consumption.

And then on the cost side, so you guys mentioned that you expect significant or incremental increases next year. Is there any way to quantify, like as you look at your current spot prices and cost pressures, what significant could mean as of today for next year?

Rupesh, I would imagine there will be a lot of questions on 2022 and want us to quantify that. Here's what I would say. Our goal is to offset cost increases dollar for dollar with our price increases. And the 2022 plan at this time of the year is a work in process. And we expect to have, like I said, significant incremental cost increases year-over-year, '22 versus '21. If you look at what's happened so far, in April, we priced up 30% and that was primarily laundry and that was high single digits. And in July, there's another 20%. This is litter, additives, baking soda, flossers, and showerheads and that was mid- to high single digits. And today, we're saying another 30%, but that's largely personal care and that will be mid to high single digits as well. But as one of my friends likes to say, everyone is chasing a ball downhill. And so costs have continued to escalate even since the April announcements and the July announcements. So we're going to be revisiting our '21 pricing decisions next year. And Rick could probably give you a little bit of color on maybe a couple of things that are causing the incremental cost increases. But that's probably as far as we would go on '22. But Rick, do you want to add anything to that?

To clarify what we are observing, in our July outlook for Q4, we anticipated that inflation would mostly be balanced by price adjustments. However, three months later, the disparity has widened by a couple of hundred basis points. This is why, as Matt mentioned, we are reviewing our pricing strategies. We are implementing price increases in various segments of our portfolio. Moving into 2022, we will adopt current spot pricing for a significant portion of our offerings. We expect transportation constraints to persist. Fortunately, as our fill levels improve, our operational efficiency will also enhance. While there are still overall macro challenges, our delivery efficiency is improving, and we expect labor costs to remain high. We will do our best to address these issues, and we will provide a more detailed outlook in January.

Your next question comes from Nik Modi with RBC Capital Markets.

I wanted to discuss how the supply chain issues are affecting our fill rates, which are currently quite weak. Retailers are seeking more efficient product assortments, and I’d like to hear your perspective on this, particularly in relation to innovation, as it's a vital component of your strategy. As you look ahead to 2022, could you provide some insight on how you foresee this evolving?

We have a strong lineup of new products from 2021 that are ready to be launched in 2022, and we have great ideas for 2023. Retailers are focused on innovation, which attracts consumers to their stores and increases foot traffic. Thus, I believe we're well-positioned for 2022. Currently, the financial situation for consumers appears to be healthy, with disposable income and savings rates both on the rise. However, inflation is a concern, highlighted by rising gasoline prices. The end of stimulus measures will impact consumers' willingness to purchase new products, but I believe household finances are stable enough to maintain strong demand for the next couple of quarters, although we can't predict beyond that. Overall, we have a solid product lineup for this year, and at least in the short term, consumers seem to have extra cash, which can affect their buying decisions.

Matt, I’d like to follow up on the topic of consumer behavior during the pandemic. We’ve noticed that shoppers are gravitating towards familiar brands, with less exploration as they prefer to shop quickly for health and safety. Have you observed any increase in consumer exploration, particularly in seeking out newer or niche products?

I wouldn’t say yes to that, Nik. I still think that the larger brands are still winning.

Your next question comes from Olivia Tong with Raymond James.

Two questions on pricing, not surprisingly. First, on the new pricing you’re planning to take. Do you know whether your competition is also taking similar pricing in personal care? And then just a little bit more color on the price increases you already took, you mentioned price elasticity that it was better than you had anticipated. Just curious if you could give a little bit more color in terms of what you had anticipated and what you're seeing with respect to impact on consumption?

We are aware in a couple of personal care categories where our competitors have already moved, but we wouldn't call those competitors out on this call, nor would we cite the percentage increase that they had. But there are a couple of categories, and I expect there are going to be more, Olivia, where people are already moving in personal care. We moved early on laundry and largely household products, our first two rounds. The April announcement and also the July announcement, laundry, litter, additives, baking soda, if you remember. So next up is going to be personal care, but that's as far as I can go with respect to competition.

And then on elasticities, I’d say we’re really happy where it’s at for many of the household products. I think we moved first in laundry as an example. But competition is starting to move. And the elasticities are better than we had expected, which is good. And then litter, when I originally told you about the litter price increase, we assumed competition did not move when we did all of our math in our forecast, and it’s obvious that competition has moved in litter as well.

And then in terms of the marketing spend kind of getting pulled back a little bit this quarter because of the in-stock levels. Are you expecting to reinstate that as time progresses? And then also, given pricing plans, fairly decent consumption, obviously, hopefully, by next year, supply chain challenges do get a little bit better. Should we expect fiscal '22 to be a better growth year given all those different factors?

Let me take marketing first. So marketing year-over-year is down, but it's up sequentially, Olivia. So you may remember, in the first half of the year, we were like high single digits, marketing as a percentage of sales. So we dialed it up in Q3. Yes, it is down less than Q3 2020, but we went from 9% to 12.3% sequentially from Q2 to Q3, and we expect Q4 to be 13%. So as the in-stock levels in stores have improved, we've dialed up the marketing. And what your second question was?

Just around the fiscal '22, just because if you're taking pricing, the consumption is relatively solid and it's supply chain challenges that are constricting you and hopefully, those do get a little bit better as time progresses. Just wondering if you think fiscal '22 should be a better growth year given some alleviation of challenges but also pricing coming through?

We're not going to comment really on our outlook for 2022 yet. We'll go through it in detail next quarter. I'd say, yes, there's tailwinds. Matt talked about that shipments have been lagging consumption. We do well in any economic environment, value and premium, macro economy also matters. And when we have a lot of stimulus in 2021 that cannot repeat that level in 2022. So those are the brief comments on the outlook. But Olivia, I would say, just to echo what Matt said. We were at almost 14% market in Q3 a year ago and almost 15.5% marketing in Q4 a year ago. Those are well in excess of what we would normally spend in marketing. So those aren't really the right comparables. The right comparable is our Evergreen model between 11% and 12%.

Your next question comes from Dara Mohsenian with Morgan Stanley.

So a couple of things. Just one, you mentioned capacity expansion in the release in 2022 and 2023, and I think you used the word significant. So can you just help give us a sense for the level of spending you're expecting there or what percent of volume you're hoping to unlock? Is that more something that's typical where you're building more capacity each year? Is it really an outsized level of spend versus history? And is that just capacity or are there potential other areas of increased investment also as you look out over the next couple of years?

Maybe I'll start and then Matt has something to add. This isn't new news. At CAGNY this year, we kind of alluded to that we had significant capacity investments for laundry, litter, and vitamins. We also said it, I think, at our Analyst Day. Typically, we are 2% or lower on CapEx spend as a percent of revenue, and I think we had signaled that it would be closer to 4% for 2022 and 2023. Today, some of those 2021 projects are slipping just because of timeline and same supply chain challenges we have in providing finished goods also is happening in the CapEx installation market. So I would say that we're in excess of $200 million. In excess of $200 million is our outlook for 2022 and it will be even higher than that in 2023, and that would flow back down to our normal 2% of sales. And Dara, these are our largest businesses, vitamins, litter, and laundry. So we've got a lot of faith in the brands. We've got tremendous consumption. So we're real excited about adding this capacity because it's going to stand us well for years to come.

And then second, just on shelf space in the US, you guys have done a great job gaining share in shelf space over time. But you're taking significant pricing granted at a time when competitors are also, you're going through supply chain issues here, so there's some product limitations. You're cutting marketing versus original guidance, understanding it's still at a robust level. So just curious for any perspective on if that creates any risk from a shelf space standpoint, how you think about that? Those are typically not things that retailers like to see. So just how you think about sort of the level of risk given some of the dynamics that are going on in the business here.

I don't see the risk, frankly. We're not alone, Dara, as you know, with respect to raising prices, et cetera. So I think it's a level playing field out there right now. And you keep in mind that our growth rate in Q3 was almost 4% on top of 10% growth last year and our brands, our consumption is super strong. And the retailers are aware of that; they see the demand for our products. So we're not worried about shelf space losses as a result of our actions.

Your next question comes from Kaumil Gajrawala with Credit Suisse.

First, and I make a quick one on new buyback plan. Is the intention to continue to buy back about what you've been doing in recent years or does it maybe signal a bit of an acceleration from where you were before?

If you look at our track record, we've done a few hundred million dollars each and every year. And a few years back when cash was built, we did closer to $500 million. So somewhere in that range between $300 million and $500 million is what I would tell you.

Regarding the impact of inflation on raw material and other costs, it's clear that there is significant fluctuation. However, to what extent are those costs possibly increasing at a greater rate now due to the hedging effects starting to expire, or are you still hedged and expect those effects to occur later in 2022?

I'm going to do my best to answer that. Your phone is breaking up significantly. I believe you're asking about the hedging. We are about 90% hedged for 2021. And as we entered the year, we were significantly hedged, which was a good thing. And as we enter 2022, about now we're about 45% hedged. And of course, there's probably, I don't know, between $10 million and $20 million worth of a benefit from 2021 hedging. And so just as we layer on our new hedges versus that, that's a headwind but that's something that we've known about for a long time and are managing to do. As of right now, hedges are very expensive. So we actually lean towards a lot of the spot market as of right now. The volatility in the market in 2021 has, I think, made the banks less likely to offer up any reasonable hedges for 2022. So that's a quick overview of the hedging.

Your next question comes from Andrea Teixeira with JPMorgan.

So I think just going back to the point about pricing and price gaps. In some of like, obviously, you've done well rolling the pricing and rolling it. And I think that to much point, obviously, you're not alone. But for the most price-sensitive categories you compete in and for the areas that you've seen these price increases roll out, any color around the volume elasticity, given the widening price gaps most likely? And related to that, as your main competitor in this segment is increasing couponing, I believe, coming back from a depressed level from last year. How do you feel about closing the gap in pricing and as well as the fact that at some point, the private labels, I think, have been taking the time to take action there? If you can help us kind of reconcile that.

Well, as Matt said, and I mentioned too on elasticities, elasticities are better than we expected because competition has moved. And so we're really happy with that. I think some competitors, as they do more couponing or whatnot or higher trade in laundry, we have added a little bit of trade back in Q4, but we're well below normal levels as an example. So I think overall, Andrea, I would say it's gone better than expected from a price cap perspective.

But from that roll off of the hedging, the 45% and now you're going to enter 2022 doing mostly spot. So the headwind will be massive and you quoted the $170 million cost pressure. That is, I think, net of hedges. So should we think about that number, obviously, extrapolate that number into 2022. Obviously, that's going to be a much bigger impact. I'm assuming. Is that the way to think?

Let's take a moment to reflect. The $170 million figure compares with our initial forecast. Year-over-year, we're looking at around $250 million, which represents roughly 9% of our cost of goods sold. This figure reflects the inflation seen in 2021. Regarding my previous comments on hedging, we're anticipating a difference of $10 million to $20 million, which is relatively minor compared to the $250 million I mentioned. There will indeed be some carryover from recent price changes, but we feel confident about our pricing strategies across various categories due to competitive shifts. This trend is not limited to just one category or even the consumer packaged goods sector; it spans a wide range of categories throughout numerous aisles.

So just to fine point that, so $250 million would be $270 million, all things equal. But is that based on spot prices or is that based on the forward curve?

That's 2021 versus 2020, actual. So it's actual, and then spot pricing for the last two months of the year.

And then the last month of the year would add you around $20 million only on that $270 million or that's more…

No, Andrea. It's $250 million for the full year forecast 2021 versus 2020. If we didn't have any hedges, you would add another $10 million to $20 million.

And then for 2022, it has to be higher than that because, obviously, the beginning of the year, the pressures were much lower than we're seeing now. So that's what I wanted to make sure I understood.

We called incremental inflation in 2022. I would not expect to have another year of 9% inflation on top of 9% inflation.

Your next question comes from Bill Chappell with Truist Securities.

Just following up on Nik's question about innovation. I guess my question is, you're seeing supply shortages and pulling back on marketing. So we're about to flip as we go to the first of the year, I mean typically, you roll out a lot of new products in Q1 and step up marketing in Q2. And at the same point, you've said you're not sure or you don't believe that things will be back to normal in terms of supply chain until sometime in the first half. So I guess, does it change? One, what gives you confidence that things improve in the first half? And two, does it change your cadence of kind of rolling out new products and marketing behind those and stuff like that, or is everything normal at this point?

Bill, we anticipate that supply issues will improve since some factors are within our control. Although our fill rates are currently in the low 80s compared to the usual 99%, we expect this to enhance in the coming months. This improvement is important because we are currently losing potential revenue by not being able to fulfill customer orders. Regarding marketing, Q1 is typically our lowest spending quarter, usually around 9% to 10%, so a surge in marketing spending during this period is unlikely. However, new products are scheduled to launch in March and April, which is when we will increase our marketing efforts in Q2. That’s our plan moving forward.

So what you're saying is that fill rates are improving month-to-month, and I'm trying to understand what gives you confidence that things will be better by April.

Well, because we're in touch with all of our suppliers and co-packers.

And we're also optimistic by nature in that. If Hurricane Ida hadn't happened, we would have been on the road to recovery and further along than where we ended up. We kind of ended up at the same spot but that was largely due to additional hurricane pressures and disruption.

Yes, you probably know, Bill. We had seven force majeures. And those chemicals that are coming from that part of the US, it's not just household, all those chemicals affect personal care products as well. So as all of those things get sorted out, and they are improving, just talking to those suppliers down in Louisiana, for example, things are getting better. And as that supply improves, our fill rates are going to go up and we're going to take advantage of the demand.

And then one last as you look back at vitamins in particular. Is there work you've done to kind of understand how many of the incremental consumers over the past 18 months are going to kind of stay in the category versus as we come out of this, they kind of go back to their more normal patterns in terms of vitamin consumption?

Our work tells us that household penetration is up almost 10% year-over-year. So what we're seeing is repeats of new people coming into the category, repeat purchases.

With a high loyalty rate of around like 80% plus, which is great.

If we look at the quarterly performance, for VITAFUSION, year-over-year consumption increased by 25% in Q1, 10% in Q2, and 24% in Q3, showing strong consistency throughout all three quarters. This growth is driven by two main factors: the ongoing wellness trend and the shift from pills and capsules to gummies. We are also excited about our new product lineup for 2021 and another strong lineup for 2022. Additionally, it's worth noting that private label gummy share has decreased for three consecutive quarters. We are quite optimistic about the vitamins market, which is a key reason for our significant capital expenditure plans. We are planning to invest in this sector in 2022 in anticipation of growth in 2023 and beyond.

Your next question comes from Kevin Grundy with Jefferies.

So Matt, if I could just pick up on the last one, a point of clarification around the iron you're going to put in the ground or CapEx, as you referred to it. So I’m going to have to step up. If I'm not mistaken, about 25% of the business currently goes through co-packers. And you guys have obviously done a tremendous amount of work building out the supplier and co-packer, co-packers that you use over the past 18 months. The point of clarity, is there a rethink on the 25%? Is that still the right number? How much is that going to change on the other side of the stepped-up CapEx? And then I have an unrelated follow-up.

I wouldn't expect that number to decrease, Kevin, because that is our operating model and we are an asset-light company. We do rely on co-packers. Yes, COVID highlighted that in some cases we were a bit too reliant on sole suppliers or sole co-packers or just did not have enough options, but we've addressed that issue. We believe we will be in a strong position coming out of COVID. Additionally, our acquisition strategy remains the same; we still prefer to acquire brands and businesses that are co-packed so that we do not end up with extra plants and increased CapEx requirements. There is no change.

Rick, a quick follow-up for you and then I'll pass it on. Just on the fourth quarter guidance, and I guess what I'm trying to better understand the consumption trends are strong. We see that in the Nielsen data. The fill rates sound like they're getting better, which is encouraging. But the organic sales growth guidance of 2% implies a modest deceleration on two-year stack or two-year average basis. I think you made the comment, SPD may lighten up a little bit. I'm trying to reconcile the improving fill rates, what we see in the Nielsen data and then the guide for the quarter. And I also understand you guys are typically conservative, but just maybe help me better understand that. I'm just trying to triangulate the data points.

It's really two things. One is SPD comes back to normal growth rates. It had a fantastic 18% organic growth quarter in Q3. And part of that was because of the comp a year ago, but Q4 comes down to normal. So I'd say maybe half the deceleration in the company organic growth rate is SPD. And the other half is we're being conservative on the fill rates. As they continue to improve but we're still assuming they're in the low 80s. And then we said in the first half of 2022, it gets back to normal. So I would just say it's probably conservatism. If great unbelievable consumption demand continues like we just saw in Q3 or earlier then when you have a bigger number times 80% fill rate then that's when you kind of over-deliver on the quarter, and that's what happened for us in Q3, we out-delivered because of consumer domestic. So yes, short story is we still think the fill rates are what impacts us.

Your next question comes from Lauren Lieberman with Barclays.

I'm sorry if I missed it. But have you guys specified which categories or products are suffering most supply chain-wise, where you're leaving the money on the table?

We haven't, Lauren. We said, in general, our fill rate is around 80%. And because of having seven force majeures after Hurricane Ida, and as Matt alluded to, it's household and personal care. So it's pretty broad-based across the spectrum.

Because one thing I was curious about and it's a little bit tough to ask a question admittedly without knowing which categories are more or less impacted, and recognizing force majeure may well be an industry factor. But what's going on with your competitive set in those categories? Are others on the shelf is private label producers that's kind of stepping in? But just thinking about not denying the strength of your brands, but if we go forward and supply continues to be constrained for a couple of months. Are consumers still shopping the categories or going to other brands and thoughts around risk as you come back into the stock if you've lost some of those households?

Let me just make one comment, and I'm sure Matt has some color too. But we need to distinguish between fill rates and in-stock levels. Fill rates are in the low 80s. In-stock levels are in the mid-90s. So very rarely is a consumer going to shelf and not being able to buy our product. What's happened is mostly retail inventories have been depleted, like in their warehouses, or our inventories are lower. Hopefully, that clears some of it up.

And Lauren, the in-stock levels weren't as good earlier in the year. So we've really seen them improve quite a bit, particularly as we got towards the end of the third quarter. So looking ahead, going into Q4, we have a lot of our brands back in the low to mid-90s, whereas earlier in the year, they were not. So I think the question might probably be more relevant for an earlier quarter.

And I might also say, we haven't spent as much on trade spending or couponing because we don't want to exacerbate our shelf fill levels as well.

And if you look at what we did with marketing, marketing was 9% in Q2, it's 12% in Q3. So obviously, as in-stock levels started to improve, we started to dial up the marketing.

The pullback also in terms of spend to the degree there is one is more on the trade spend piece in couponing. And as you said, marketing is already rebuilding. So when we talk about them leaving money on the table, or even the rebuilding shipments to get closer to consumption into next year, it's not like there's a major hole that needs to be filled. Because if stock levels are okay and retailers would like to have more inventory, it's not like there's some major catch-up that has to happen when we think about sales growth for the full '22?

What we need to consider is that when we refer to in-stock levels, we mean what's available on the shelves. The issue lies in the distribution centers. That's where we find a hand-to-mouth situation, and that's the area where we can work on bridging the gap between consumption and shipments.

And that was my comment to Rupesh earlier. It was really the 3% or so organic in Q3 compared to the 6% consumption in Q3.

And Lauren, the only class of trade that's not true in is Club because Club has their inventory at their stores as opposed to DCs.

And there are no further questions at this time. I would now like to turn the call back over to Matt Farrell, Chief Executive Officer of Church & Dwight.

Okay. Well, thanks, everybody, for joining and thanks for your interest, and lots of great questions today. And we look forward to updating everybody again at the end of January with our Q4 results and full year '22.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.