Good morning, ladies and gentlemen, and welcome to the Church & Dwight’s First Quarter 2025 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. Rick Dierker, President and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

All right, good morning, everyone. Thanks for joining us today. I'll begin with some thoughts on the macro environment and review our Q1 results. And then I'll turn the call over to Lee McChesney, our new CFO. When Lee is done, we'll open the call up for questions. As you read in the release, we have several topics to discuss this morning, including Q1 results, portfolio changes, tariff management, U.S. consumer spending, and the revised full year outlook. With that, let's turn to how we performed in Q1. During our presentation at CAGNY in February, we stated we expected our organic sales growth to be at the low end of 0% to 2% range due to retail destocking and weakening consumer demand. As it turned out, organic sales decreased 1.2%, falling short of our outlook. Retailer destocking accounted for a drag of approximately 300 basis points on organic growth. The good news is our strong brand performance. We gained share in nine of our 14 major brands as our consumption outpaced category growth. Over 80% of our business grew volume share in the quarter. Contributing to our Q1 results is our success in the online class of trade with online sales as a percentage of global sales now reaching close to 23%. In a few minutes, I'll contrast our Q1 consumption with category growth when I comment on the major categories. Regarding earnings per share, adjusted EPS was $0.91 beating our outlook by $0.01. Now, let's discuss the strategic actions we outlined in the press release. Each year, our management team reviews our brand portfolio with the Board of Directors. In concert with that review, the company completes a valuation exercise for each and every brand. As a result of that review, the company is pursuing strategic alternatives for the Flawless, Spinbrush, and Waterpik showerhead business, which means we'll be shutting down or selling these businesses. These businesses generate $150 million of net sales or around 2% of our total net sales, with below-average profitability. We expect to take a charge in Q2 relative to this decision. This decision will prune our portfolio, sharpen our focus on core brands, and mitigate a significant tariff exposure, which is the next topic I would like to discuss. Turning to tariffs. While the tariff situation remains fluid, the company is currently projecting a gross 12-month run rate tariff exposure of $190 million. The net impact of the portfolio decisions and a series of supply chain actions is expected to reduce our tariff exposure by approximately 80%. The supply chain actions include no longer sourcing Waterpik flossers from China for the U.S. market. Our ability to move with urgency to execute these changes is a testament to the Church & Dwight culture. I'm very proud of the company and the reaction that we've done here. Now, I'm going to turn my comments to each of the three businesses. First up is the U.S. Consumption was positive in the quarter for the U.S. business, while organic sales declined 3%, entirely driven by negative volume from retail destocking. So, let's look at the trend line. In the U.S., consumer spending continues to sequentially weaken. For context, it's constructive to look back at our U.S. year-over-year category growth since around mid-2024. In the second half of 2024, category growth averaged 2.5%. In Q1, our categories grew around 1.5%. March was flat and April was negative 1%. And remember, for context, over the last 10 years or so, category growth is typically around 3%. In addition to the consumer, retailers took inventory actions, which impacted our top line. Now, I'm going to provide a bit of color for a few of our important categories. Let's start off with laundry detergent. ARM & HAMMER liquid laundry detergent consumption grew 3.4% in contrast to zero category growth. ARM & HAMMER share in the quarter reached 14.7%. There's a similar story on unit dose. ARM & HAMMER unit dose saw consumption growth of 26.9%, which drove a 120 basis point share gain to reach a 5.5 share. This is in contrast to a weak unit dose category, which declined 1.1%. Now moving to litter, a similar story to laundry, the category was up 1.9%, while ARM & HAMMER litter consumption grew 2.3%, which outpaced the category and share reached 24.9%. The gummy vitamin business continues to be a drag on the company's organic growth. The gummy vitamin category grew 4.8%, which is the second consecutive quarter of growth. The bad news is our consumption was down 19%. The plans that we shared with you on previous calls will begin to be visible in the market starting in May. Those actions include new products, an enhanced taste profile, and new creative marketing. We'll update you on our progress on the Q2 call. Next step is BATISTE, consumption was down 5% in the quarter with share declining 3.4%. There are a couple of contributing factors. One is we were experiencing some supply chain issues that have since been resolved. In addition, a competitor had a significant price increase that impacted our dollar share. On a positive note, BATISTE continues to be the global leader in dry shampoo, and this year, we're launching BATISTE Light. As a leading brand, our innovations continue to attract new users to the category and increase household penetration. Over in mouthwash, THERABREATH continues to perform extremely well. While the mouthwash category was flat in Q1, THERABREATH consumption grew 26% and is now the number two mouthwash with a 20.3% share. Remember, we believe there's a lot of runway here as our household penetration for THERABREATH currently sits around 10.5% versus the category of 65%. HERO is the number one brand in acne care with a 22% share and continues to drive growth. HERO grew consumption by 13%, outpacing a 1.1% decline in the category. HERO market share grew by 280 basis points in the quarter. Similar to the THERABREATH story, we believe household penetration growth is key for this brand. Currently, it sits at 8.7% versus the category of 25%. HERO continues to launch innovative solutions and patches and is entering the growing body care segment in 2025 with the mighty patch body. Looking ahead, we're excited about our pipeline of new products, which remain a key driver of our success. In 2025, we expect continued innovation to power our growth and build on our momentum, especially in several core categories where we're leading the way. And we spoke about many of these at our Analyst Day in New York. Now, turning to international and SPD. Our international business delivered sales growth of 2.7% in the quarter. Organic sales increased 5.8%, largely due to higher volume. Growth was led by HERO, THERABREATH, and WATERPIK and was broad-based with all of our subs delivering growth. Finally, SPD organic sales increased 3.2% due to a combination of higher price and product price mix and higher volume. This business continues to deliver, and we continue to be excited about the future. Looking ahead, our full-year organic growth outlook is now 0% to 2%, driven by a weaker U.S. consumer. We expect our Q1 brand share momentum to continue, bolstered by our new product launches, our distribution gains, and sustained full-year investment in marketing. After considering the trend line that I shared with you, we do not see a catalyst for improvement in the U.S. consumer. Our outlook also reflects no bounce back from Q1 retailer destocking. For adjusted EPS, we now expect 0% to 2% growth, which reflects the impact of lower sales and the effect of tariffs. I'll close by saying that, despite a slowdown in category consumption, our brands are strong. They're performing well. We're gaining both dollar and volume share across much of the portfolio with a healthy mix of value and premium offerings. We're well equipped to navigate the current environment. The strategic actions we announced today will position the company well for the future, and we continue to be on the hunt for the right acquisitions. I'd like to thank all the Church & Dwight employees for executing well in a volatile environment. And now I'll hand it over to Lee for more detail on the quarter.

Thank you, Rick, and good day to everyone. Before I jump into the quarter, I do want to say thank you to Rick and the entire CHD team for the warm welcome. I've only been here for a month or so, but I've already seen what makes this company such a strong performer as the team is focused on execution. We are acting swiftly to address the challenging macro environment that nearly every company is facing today. With that, let's dive into the first quarter and our outlook. We'll start with EPS. First quarter adjusted EPS was $0.91, down 5.2% from the prior year. The $0.91 was slightly better than our $0.90 outlook. Reported revenue was down 2.4% and organic sales were down 1.2%. The organic sales decline was due to lower volume of 1.4%, partially offset by positive pricing and mix of 0.2%. Our first quarter adjusted gross margin was 45.1%, a 60 basis point decrease from a year ago with improved productivity, positive mix, and higher margin acquisitions being offset by the impact of commodity inflation, higher manufacturing costs, and lower volume. Let me walk you through our Q1 gross margin bridge. We saw 160 basis points from productivity, a favorable 10 basis points from the combination of mix and price, and positive 10 basis points related to the acquisitions. Those factors were offset by the headwinds I just mentioned above and 20 basis points related to FX. Moving to Marketing, our marketing expense as a percentage of sales was 9.3%, 80 basis points lower than 1Q of last year. For the year, we are targeting 11% of net sales. Accordingly, we expect to continue our first quarter momentum in gaining market share. For SG&A, Q1 adjusted SG&A increased 40 basis points year-over-year, primarily due to the year-over-year volume change. Other expense decreased by $7.7 million, inclusive of lower interest expense and higher interest income. We continue to expect other expenses for the full year to be approximately $50 million on an adjusted basis. In Q1, our effective tax rate was 22% compared to 19.9% in Q1 of '24, a 210 basis point year-over-year increase. The expected adjusted effective tax rate for the full year continues to be 23%. And now to Cash, for the three months of 2025, cash from operating activities was $185.7 million, a decrease of $77.3 million versus last year due to lower cash earnings and the sales timing impact on working capital. Capital expenditures for the first three months were $16.5 million, a $29.8 million decrease from the prior year. We expect 2025 CapEx to be approximately $130 million as we return to historical levels of 2% of sales in 2025. Let's now take a few minutes to walk through our outlook. For the full year, we now expect our organic revenue outlook to be approximately 0% to 2%. Previously, that was 3% to 4%. The sales outlook now reflects the slower category growth and the retailer inventory reductions that we don't expect to recover. Full year gross margin is now expected to contract 60 basis points versus 2024. Previously, that was a positive 25 basis point outlook as we expect the tariff impacts and persistent commodity input inflation costs to offset the incremental productivity. We now expect full year adjusted EPS to be 0% to 2%, down from our previous view of 7% to 8%. This is primarily due to the lower sales outlook and the tariff pressures. Cash flow from operations for the full year is now estimated to be approximately $1.05 billion due to the impact of our lower EPS and the one-time charges. For 2Q, we expect organic sales of approximately negative 2% to flat and as a result, we expect adjusted EPS of $0.85 per share, a decrease of 9% versus last year’s adjusted Q2 EPS. As our outlook implies, we expect EPS growth to be weighted towards the back half of 2025 through the marketing investment timing versus last year. Finally, as we noted in our release, this adjusted outlook as of April 1, 2025, excludes charges and the ongoing results for the Flawless, Spinbrush, and Waterpik showerhead business. Those charges are expected to be between $60 million and $80 million, largely recorded in Q2, and two-thirds is expected to be noncash. With that, Rick and I would be happy to take any questions.

Your first question comes from Rupesh Parikh with Oppenheimer. Please go ahead.

Good morning. Thanks for taking my question. So obviously, a lot of areas to cover. But maybe I'll just start out, just as we look at your updated organic sales growth guide, is there any way to get updated expectations by segment and it's related to that do international play out with your expectations for Q1?

Yes. Sure, Rupesh. Yes, Q1 was spot on for international. Lee, do you have the division that you can share?

International showed solid growth in the first quarter, with an organic increase of approximately 6%. SPD contributed around 3%. Looking ahead, we anticipate some pressure internationally as global macro challenges emerge, while SPD is expected to perform slightly better than in the first quarter. For the domestic business, we experienced a decline of 3% in the first quarter, and we expect a similar trend in the second quarter, with improvements anticipated in the latter half of the year. Overall, we project an organic growth range of 0% to 2%.

Great. For my follow-up question, considering the weaker category outlook and the current challenges you are facing, what is your perspective on the promotional environment for the quarter? Do you anticipate that the promotional backdrop will become more intense from this point onward?

Yes. That's a fair question. For the quarter, when we talk about promotional, we really talked about laundry and laundry in Q1 was 34% amount sold on deal, very similar to what Q4 was, very similar to what Q3 was. So not a huge step up right now. A lot of things happening on the laundry category. There's concentration happening from one of the peers or some price increases in another part of the tiers as they switch out different offerings. And so it looks like there's a little bit more promotional going on right now as they work through those old inventory and transitions. Litter is the other example. Litter promotion was around 18.8% in the quarter, sorry, 17.8% in the quarter, it was 18.8% last time. So again, stable as categories are flat, though, people tend to increase their promotional spend. I'd say we're well positioned for what we think is the right level of promotion; our assumption for category growth used to be around 2.5% for the year. It's closer to 1.5% these days.

Great. Thank you. I'll pass it on.

Your next question comes from the line of Anna Lizzul with Bank of America. Please go ahead.

Hi. Good morning, and thank you so much for the question.

Hi, Anna.

Hi, Rick. I was wondering if you could just discuss maybe your expectations for the category relative to market share growth since you did mention softer trends in April. Are you seeing a significant difference here across the premium and value segments of the business in terms of the slowdown? And just on the value side, are you trying to see any benefit here from trade down or anticipating a benefit as we're moving through the year? Thank you.

Yes. Looking at our outlook, we're estimating an organic growth midpoint of about 1%. We experienced a decline of 1% in Q1, and Q2 is expected to be similar, possibly another decline of 1%. This suggests that we might see closer to 2% growth in the latter half of the year. Initially, we anticipated categories would grow by 2.5%, but now we believe they will grow by about 1% to 1.5%, and we expect to outperform that slightly. Surprisingly, we aren't observing the level of trade down that we might have anticipated under these conditions. For instance, Orange Box is not growing faster than Black Box in the Litter category. The value segment of the laundry category is not keeping pace with the mid-tier, which is seeing significant growth thanks to our new Deep Clean innovation. However, if trade down occurs, it will activate those two areas. I also expect our additional business to perform better. We need to be in this position for a while. Overall, I think we are still in the early stages of this environment, but we are well-prepared to navigate it.

Okay. Thanks very much.

Your next question comes from the line of Chris Carey with Wells Fargo. Please go ahead.

Hi, good morning, everyone. Can you guys frame within the reduction in earnings for the year, how much was the revenue call down versus tariffs? And maybe just simply put, what is the tariff effect that you're embedding for this year? And can you help give us a bit of clarity on the wraparound tariff impact into 2026 unmitigated for some of the sourcing changes you're making and then perhaps, how you're thinking about your 2026 absolute tariff exposure? I mean, effectively, there's this $190 million number, but what we're going to end up seeing in the P&L is substantially lower? So how does that look in '25 and 2026? Then I have a follow-up.

Yes. Sure. I'll give you my thoughts, and then if Lee has anything to add, he can do it. Just taking a big step back on the tariffs, I really do think this is a great example of Church & Dwight moving with speed and urgency. A gross impact of around $190 million on a 12-month run rate basis. I just want to be clear, we're not taking those strategic actions because of tariffs. We've been discussing internally for some time, and they've been on the list of businesses that we believe are either have a better owner elsewhere or we're going to shut down. And even as recently as this past summer, we went through those details with the Board. Those three businesses, though at marginal profit levels at $150 million of sales are really hit extremely hard by tariffs. So it made sense to kind of fast forward that discussion and that decision. So that $180 million goes down to $100 million when those three businesses have strategic options around them and then that goes down to around $40 million after we've made the manufacturing decisions for Waterpik flossers as we've moved that business out of China over time. To be able to go from $190 million gross to kind of a $40 million number is fantastic. We're going to continue to be working through supply chain activities and maybe nuanced pricing over time to reduce that even further. So in the P&L for 2025, to answer your question, there's a net number of around $30 million in our outlook. If you do the wraparound for 2026, that's why we kind of say it takes 12 months to do some of the rest of the supply chain activities. We won't go through all the detail, but we expect to further mitigate that number over time. Is it an issue? Yes. But after all that work, that's a manageable issue that we feel pretty confident on being able to mitigate over the next 12 months or so.

Thank you. From the connected in a way that what you were saying about some of these businesses that you had presented to the Board and have thought about strategic alternatives, how conscious is the vitamin business? How do you plan for this year on a performance category that's widening? At what point does patience with the plan run out? Content you have a strong balance sheet, which gives you a lot of options to do many things. So maybe give us updated thoughts on where Vitamin sits within your meeting the long-term plans and maybe what's happening this year that hasn't gone as well as maybe what you would have hoped relative to your going plans? Thanks.

Yes, fair question. I think right now, we're kind of in that a little bit of that circle where you have negative consumption. That leads to lower TDP growth. Lower TDP growth distribution points lead to lower consumption. What we're laser-focused on is the innovation, the best tasting reformulation change in marketing to reach the right consumer and to do some couponing and to go drive trial. Loyalty rate is actually very low in the vitamin category. I think it was like 8% or 9%. If we can go get these consumers to retry our best tasting formulas. Again, the new innovation is Power Plus, our most powerful vitamins. I think we have a good chance to have some green shoots and inflection points in that business. That business is not meeting expectations. We said last call that we needed from April through July to see if this innovation turnaround and investment is working. That's why in my prepared remarks, I said, we'll talk more about that after Q2.

Okay. Thank you.

The next question comes from the line of Andrea Teixeira at JPMorgan. Please go ahead.

Thanks, operator, and good morning, everyone. And welcome Lee to the call. I wanted to just go back. You called out in terms of consumption; I called out the 300 basis points reduction in customer domestic for the inventory destocking. But if you can comment also on HERO, it was a big model of growth. I understand all the actions you're taking and the brand continues to be strong, but I'm assuming it is hitting a very tough comp. As you said, there is obviously a completely different story between the HERO and the vitamin side. But talk about the distribution points and how we can think about that brand continuing to grow as you lap the growth? And then on the commentary just on a clarification on the promo side, I understand the depth and how the percentages are, so don't promo. But if you can comment on the depth of the promotions, if there is a, to your point, some of these categories, leader in laundry, perhaps having a little bit more depth and for how long you think that's going to normalize. Thank you.

Thank you for the question, Andrea. Regarding HERO, we are very satisfied with its performance, showing a 13% increase in consumption for the quarter. However, it is worth noting that HERO is somewhat reliant on a few retailers facing foot traffic challenges. While we see strong growth across the board on a like-for-like basis, the decline in foot traffic at certain retailers does impact HERO's performance. Overall, though, a double-digit consumption growth is impressive. We believe there is still room for total distribution point growth, as we think our shelf space in many locations is underrepresented. We plan to not only expand to new retailers and distributions but also better utilize our shelf presence. It has been observed that on Sundays or Mondays, shelves can be empty. At some of our conferences, we've mentioned that during major events, the top-selling items in several retailers are water, paper towels, and HERO, indicating its strong performance and promising distribution opportunities ahead. Regarding promotions, you're correct that the percentages indicate frequency, but the depth of promotions can vary. There are various pricing shifts and concentration changes, and we consider the current promotional spending to be temporary due to size and SKU adjustments. If this situation persists, we will provide further updates in Q2. For now, it aligns with our expectations.

Thank you.

Your next question comes from the line of Steve Powers with Deutsche Bank. Please go ahead.

Good morning and welcome, Lee. Rick, your guidance suggests an expectation of improvement in organic growth during the second half of the year. However, this seems to contrast with your outlook on consumption, which you believe will not improve given the decrease we've observed in April. While it's acknowledged that the inventory reduction in the first quarter may not continue as a general trend, what can you tell us about the connection to the anticipated improvement in the second half?

Yes. I think it's a fair question. I think positive category growth, I think it is kind of unique for us to have. I went through it in the release, but I'll say it in my script, I'll say it again, right? 2.5% growth in the back half of 2024, 1.5% growth in the quarter, March was flat, and April was down 1%. It is extremely odd for these categories to be negative. That is just not something that we have seen, and we don't expect that to continue for a very long period of time; they tend to grow around 3%. I get that we're in a volatile environment, weak consumer confidence, a more volatile world than ever. These categories over time, we still expect to return to growth. Then we have distribution gains happening in the back half. We have innovation, even incremental innovation that we didn't necessarily share in New York. We have strong marketing. We're going to keep our marketing where it's at. The long-term strength of the business is to drive share over time. We did that well in Q1. We expect that to happen throughout the year.

Okay. Fair enough. Back to your comments on vitamins and the initiatives you’re implementing between now and July. What does success look like in terms of monitoring our progress? Ultimately, what are your expectations for these initiatives and the returns you anticipate in the latter half of the year and as we approach the end of 2025?

Yes, the signs of improvement that we want to see are quite clear. One aspect will be our weekly point of sale data on our multi-bit business. With all the reformulation efforts, advertising, and trials we are implementing, it’s crucial that we see positive trends. Customer and consumer feedback is significant—are we meeting the expectations of what they need and want? This matters greatly. Additionally, have we halted the decline in retailer distributions because they believe in our innovation story? We’re not just introducing a new multi-bit; we are reformulating our entire product lineup. We're launching a new Power Plus vitamin, sugar-free variants, and a GLP offering. This is a comprehensive innovation. The question is whether this will be enough to warrant shelf space. Those are some of the specific points we’ll monitor in the coming months. I believe the most critical measure for me is whether we are starting to grow again. We are making strategic decisions to streamline our focus, prioritizing growth rather than being present in every segment of the vitamin market. We want to ensure we are consolidating but can still grow, and I am confident we can achieve that. In the next three months, we will determine our direction.

Okay. Perfect. Thanks. Appreciate it.

Your next question comes from the line of Olivia Tong with Raymond James. Please go ahead.

Great. Thanks, and welcome, Lee. You mentioned the possibility of pricing adjustments, acknowledging that they will be quite targeted. Given the current market trends in declining categories, how do you plan to implement price changes? What are your thoughts on the promotional landscape moving forward? Also, in light of this situation, could you discuss how you intend to maintain and expand your presence in your newer categories like HERO and THERABREATH so that they can continue to make a significant impact? Thank you.

Yes. Good question, Olivia. On pricing, I'm actually really pleased with, again, the commercial organization here at Church & Dwight. We're handling this just like we did COVID in the first few weeks. We have standup meetings every week, sometimes multiple times a day, and we're doing all types of actions. Because in this environment, you're exactly right. The last thing you want to do when categories are flat to down is try to go take price. It's not good for the consumer; it's not good for the brand. We've worked really hard to mitigate 80% in the short term and probably more than that over the medium term. That's going to enable us not to take price. There might be a couple of examples where we do, and again, that's going to evolve based on how the external environment changes because things change from Thursday to next Tuesday. I'm just happy and pleased with the culture of this company and how quickly we can move when we need to. Overall, so far, we've been able not to have to lean in and take price. The second one was on penetration, especially for our new businesses like HERO and THERABREATH. That is the story in my mind. We are so under-indexed still on household penetration. I think I gave you the numbers in the prepared comments, but like around 9% for HERO and 25% for acne and THERABREATH, a much bigger opportunity for sure. So that means in an environment like this, we should be doing a couple of things. One, we're reallocating media where needed to higher and best use, and those two brands have a higher and best use for sure. We're committed to spending at the 11% of marketing clip even in this environment because we want to go drive awareness and household penetration. That's the name of the game in this that means these two businesses have years of growth ahead of them. Combined with the marketing investment, we're going to continue to innovate with those two businesses. We have global expansion for those two businesses, and we're thrilled with the growth curve that's happening.

Got it. Thanks. And then just following up, can you talk about the drivers for the 85 basis point change in the gross margin guide to down 60. How much of that is deleverage potentially some negative mix? You talked about potential for more trade down as the year progresses versus what you embedded in terms of tariffs. It seems like it's mostly tariffs, but just the flexibility within the rest of the P&L or within the operating guide. If you do start to see more trade down and that impacts the gross margin line?

Yes. So I'll jump in there. So again, good morning. Thanks for the welcome. Yes, I think similar to what you saw in the first quarter, we're down 60 basis points, and we're saying actually that's the view for the year as well. Behind it, obviously, we talked about inflation, operations costs being mitigated by productivity, a little bit of price mix, and then benefit from the mix into acquisitions with higher margins. As you think about it from a full year perspective, productivity is still strong. We're frankly driving incremental productivity. There's a bit more inflation still holding in there as well as a little bit more coming in the marketplace versus four months ago, which is weird to think about in this macro environment, but that's the case. To your point, the big driver, though, just difference-wise is tariffs. We talked about a little bit earlier, a holistic 12-month number and just what we think will settle into this year. Obviously, as we work through our different actions, there's different timing events to those as well. That's the primary driver.

All right. Thank you.

Your next question comes from the line of Peter Grom with UBS. Please go ahead.

Great. Thanks, operator. Good morning, everyone. Welcome, Lee as well. Lee, maybe just a quick question for you. I mean, I think you mentioned that 2Q U.S. or domestic sales will be similar to 1Q. Could you just unpack that a bit? I think the guidance assumes market share gains. I think Rick mentioned category growth would be down one. So I guess I'm just curious how you get to that minus 3%?

Yes. No, it's a good question. I mean, to your point, we noted what happened in the first quarter with the inventory impact. Certainly, we don’t expect that much impact in the second quarter, but there's still a bit more. As Rick talked about, the category, the consumption levels have continued to slow down. Yes, one should be less negative and then one is going to be a new negative for us to manage. So that's what we're seeing here in April. Again, it's all about us driving share, but the macro is just a bit softer.

Got it. That makes sense. And then, Rick, just a question for you. I think you said it's odd what you're seeing in terms of category growth. I'm just curious, why do you think this is ultimately happening? Why is it happening as quickly as it is? And then just on the April commentary, I get it’s different categories, geographic exposure, but it is a bit different from what we've heard from some of your peers thus far. So what do you think is causing the difference in terms of your April performance or what you're seeing versus maybe what some of your peers are saying?

Yes, Peter, that's a valid question. I would say our categories often serve as a reliable indicator since we operate across 18 different categories. This includes most of our areas of focus. The core consumer has been feeling pressured for some time now. Even prior to the tariffs, we noticed signs of this pressure, which we discussed back in January or possibly at the end of last year. In our categories, we experienced a growth rate of about 4.5%, potentially dropping to around 4% in the first half of 2024, followed by a deceleration to 2.5%. We highlighted this, and at the time, some people thought we were being too pessimistic. Our goal was to be transparent about what we were observing and to share our perspective on consumer behavior. In Q1, things declined further, coinciding with tariff concerns, and that uncertainty seemed to intensify the ongoing situation. This uncertainty affects many categories, including ours. However, I believe this feeling may be temporary as the market eventually stabilizes. While there’s likely to be consumer malaise for a period, perhaps a year to 18 months, the current situation seems to have intensified. The volatility is making consumers more cautious. What we're witnessing isn't unique to us; it's reflective of broader trends in our categories, and I expect that more of our peers will acknowledge this if they haven't already.

Got it. Thanks so much. I’ll pass it on.

Your next question comes from the line of Lauren Lieberman with Barclays. Please go ahead.

Thanks. Good morning. Sort of boring housekeeping, I'll admit. But in the release, you talked about that as of April 1, you'll exclude the businesses that you're going to be divesting or exiting or excluded from results. I was just curious how we should handle that as we model. Like are we putting it in the structural line? Or is it in net sales or just completely gone? And will you be restating the base just so we again, know how to model?

Yes. It's a complicated situation, and we're making efforts to keep it as straightforward as possible. Our organic outlook will not account for the impact of the three businesses from April 1 to December 31. Our adjusted earnings will also disregard the profits from these businesses during that same period. The other lines of the income statement will still include this information because it's presented in an adjusted format. We aim to provide clarity on this matter. Those two lines are crucial, and this is how we've chosen to present it.

Okay. So we should think about the adjusted EPS, the absence of those businesses is still a headwind for EPS?

The absence of those businesses will lead to a one-time charge, primarily made up of non-cash charges. As we phase out those businesses, we expect a decrease in sales and profit from them. Consequently, net sales will decline as reported. There will also be a charge partially in Q2, but for Q3 and Q4, those businesses will impact profit significantly. We will do our best to clarify this for you.

Okay. All right. Great. Thank you.

And that was not a boring question.

For me it was. I appreciate it.

Okay.

Your next question comes from the line of Korinne Wolfmeyer with Piper Sandler. Please go ahead.

Good morning. Thank you for the question. I would like to revisit the comment about retailer destocking and what has changed since a few months ago when you expected those orders to pick up as the year progresses. A lot has shifted with the tariff situation and consumers being more cautious. What is your reasoning behind the idea that retailers may not restock if consumer demand remains? Additionally, could you share any updated thoughts on the M&A environment? I understand you've mentioned exploring some international assets to enhance your portfolio; has your perspective changed given the current macro conditions? Thank you.

Yes. Thanks, Korinne. I would say you hit it on the head. The pullback in the consumer and the agita around tariffs, I think that's what's going on. Retail inventory, even a few months ago, we thought would recover because exactly that—our consumption was running ahead of our shipments. We said, okay, well, that's just a matter of timing; we've seen that play before, and no problem. But the longer it's going on and the more uncertainty that's out there, it just feels like everyone's retrenching a bit, is what I would say. On international M&A, yes, still a strategy. We've got to find the right one. We're looking at different countries. In many cases, we would love to do what we did in Japan with Graphico as you create really a subsidy infrastructure, and you can bring your brands there in an easier way. We're always on the lookout for those kinds of bolt-on acquisitions. Meanwhile, the team is spending— the leadership team is spending an awful lot of their time looking for the right acquisition. We've had a bit of a dry spell, but we still believe the number one use of cash and capital allocation, as does the Board, is M&A. This management team spends a large percentage of time looking for the right acquisition both here in the U.S. and outside the U.S.

Great. Thanks so much.

Your next question comes from the line of Kaumil Gajrawala with Jefferies. Please go ahead.

Hi guys. Good morning. Maybe a follow-up on the inventory levels at retail. I guess what gives you the confidence that inventory shouldn't bounce back or that there should be a restock? Is there something you're seeing in the market? Is it channel mix? Maybe you were high on inventories towards the end of 2024. The idea of sort of consumption being ahead of inventories and then sort of staying that way for the whole of the year? Just feels like something that maybe we don't see that frequently. So, I'm just curious what might have changed and what gives you that confidence that this was a one-time step down. This is where it is going to be?

Yes, it's a fair question. I would say it's probably the expectation that Q2 looks a lot like Q1, given what we see in orders that there's not a bounce back coming. I think when you have negative or flat consumption across many categories, the retailer doesn't want to lean back in to get to what we think is the right level. We've heard other retailers continue to talk about taking down weeks of supply. Do I think there's an incremental risk for retail inventory? I do not overall, because there's only a certain level that the businesses can be run effectively with. I don't feel like it's an incremental risk; maybe it's a little bit of conservatism, and maybe we'll be proven wrong. We just think there's flat to slowing consumption in the near-term. We said for the back half, we think it's closer to 1.5%, which is lower than our typical 3%. Yes, just the inflection point a little bit is what's driving our thinking there.

Okay. Got it. And I guess in the context of everything you mentioned on the consumer, you talked a bit about promo activity being rational, but maybe how do you feel like, where it's going to play out over the course of the year if the consumer stays in the sort of conditions that they might be in? Would you expect promotional activity to pick up? Or is it not a pricing thing; there's just something else going on?

No, I think we've seen this play out before back in 2008 and 2009. If categories are flat for an extended period of time, competitors tend to go after share in a bigger way. If you look at all the transcripts, everyone's talking about how they're going to gain share. Well, not everybody can gain share. We've proven in an environment like this that we do tend to gain share because we have the right promotional strategy, right marketing spend. We have the right products and value offering innovation. We're usually set up better than most. But promotional levels do tend to go up if categories are flat for a period of time. What I just said is why we believe that we're positioned to take share.

Got it. Thank you.

Your next question comes from the line of Javier Escalante with Evercore. Please go ahead.

Hi. Good morning, everyone. I've managed to still have a question on the inventory issue. So if you could help us if there is anything to learn about categories and the type of retailers where you're seeing greater lag in terms of reorders. I'm specifically thinking about the drug stores, very important for vitamins. There are a lot of changes there, and there are a lot of problems with traffic; is this particularly a pressure area? If so, how that informs the relaunch of the vitamin business, which is a category that is increasingly going online?

Yes. Sure, Javier. Gummies and the drug class trade are very, very promotional. You walk in, and you see a whole aisle full of yellow tags, which are tend to be buy one, get one free. As we're looking to reach rent, we're making decisions on what class of trades we want to play in. I would say the sales and profits are not as appealing in that class of trade typically. We're kind of retrenching on what SKUs, what offerings, and what promotion depth that we're willing to go to in that class of trade. There is a flat traffic concern in the drug class of trade. One of the retailers is not as financially stable as some others. There is a lot of noise going on in the direct class trade. Again, we retrench to where we have strength and we grow from there for vitamins. The online class of trade is interesting – it's actually half of all vitamins. So we've got to make sure that we're hitting the innovation and advertising, but really also focused on the online class of trade. Specifically, it's very fragmented, but half the category. We're looking hard at what the right innovation strategy is and the short-term innovation strategy is to ensure that we're going after those subsegments appropriately online because if that's where the growth is, that's where the focus needs to be.

And Rick, if I may, if you can expand better on the laundry detergent piece. There was a very weak read in April, I believe, is the guys in Germany. If you can unpack a little bit, I mean you mentioned it, but it was very briefly that there are a lot of moving pieces. But if you can unpack what is happening in detergents in the context of your push with the clean and the trade down into mid-tier. That would be very helpful. Thank you.

Yes. Look, the laundry business is healthy. In Q1, we had 3.4% consumption growth for ARM & HAMMER. I think we had 26% to 27% growth for unit dose. Even for scent boosters, we had 8% plus growth, and extra had positive growth as well. Largely for us, we continue to gain share in all those subsegments. We think we're executing really well. I kind of alluded to it. There is some noise going on in the category. One competitor is catching up on some of the concentration activities that happened a year or two ago. One competitor is taking price at the top end and spending a bit more in the low and mid-tiers. One major retailer introduced private label at the premium end. There are a lot of moving pieces. I would say we're better positioned than ever in this type of environment. What tends to happen in a recessionary-like environment—and that's why I would start to call this environment that we're in right? Consumer confidence, as we look forward, is at a 12-year low—this turmoil. What tends to happen is folks trade down to value. Even Deep Clean, while it's a mid-tier to us, the consumer doesn't know what mid-tier or premium or value really mean. They just know that it's a 20% discount to premium—the premium tier of laundry. They know that it's more expensive than our most basic offering. We have a good, better, best strategy so that base ARM & HAMMER can do well. ARM & HAMMER ahoc can do well, and now Deep Clean does as well. So we're well positioned to wherever the consumer trades up or down to.

Thank you very much.

Your next question comes from the line of Dara Mohsenian with Morgan Stanley. Please go ahead.

Hi, good morning. So I just wanted to touch on U.S. share. You guys mentioned you still expect to gain share in the U.S. despite the category weakness. But the tracked channels, it does look like it's decelerated in terms of your share so far in April. I would assume the Q2 corporate org sales guidance, when you back out international, which is robust as well as pursued growth in SPD, that you're assuming share loss probably implicitly in that Q2 guidance. Can you just shed some light on maybe overall trends in the U.S. as you look at April and your thoughts in the balance of the year here on a go-forward basis also? Thanks.

Yes. Good question, Dara. I am never assuming share loss is what I would tell you. I believe, like I talked earlier, because of our portfolio, because of our brands, because of the advertising and the innovation and the promotional program we have in place. We have a long track record of growing faster than the category, and I fully expect that to happen now. As we have a stretched consumer, our brands are made for this time as well. All that's going to help lead to share gains. April—you're right; we're— I think I said the category is down 1%. We gained in Q1. I expect to gain share in Q2. Sometimes, it's just promotional timing to some degree. But that's the short answer to the question.

Okay. That's helpful. And then obviously, the external environment changed fairly significantly in recent months. You're taking decisive actions on portfolio structure. I was just hoping you could review capital allocation from here, given your strong balance sheet, might share repurchases a greater priority? Perhaps there's more M&A opportunities from an external environment standpoint given the difficult environment, and just how you think about those two pieces. Thanks.

Yes, we talked about it a lot. Even though we haven't done a deal in a couple of years, it doesn't mean that's not number one on the capital allocation priority list. I joked in previous conferences that M&A is number one, two, three, four on the list, and that's still true. We believe that we have a competency in identifying, acquiring, integrating, and growing acquisitions—there's no better value creator for the company than just that. We have a huge amount of firepower. The math that we showed at CAGNY was around $6 billion; we could do a couple of deals, and the organization can tend to do a couple of deals even sequentially. That's the number one capital allocation and focus. If we go a long period of time without doing acquisitions, we tend to look at buybacks. In some cases, given this type of low leverage, we could probably do both. But number one, I want to keep the powder dry for M&A. If we don't do M&A for a while, we'll look at and talk more about doing maybe any buybacks. Lee, anything to add?

Yes. I would just add, number one, one of the reasons I came here and completely believe in this capital allocation methodology. I have a whole history of doing M&A, making sure you have discipline in doing M&A. We've shown that we find the right acquisitions, and we drive value-enhancing TSR. That’s one, two, and three. Behind that, we’re continuing to invest in the business, even in this environment, whether it's we talked about the marketing side, the innovation side, and then obviously, things like debt and shares that Rick talked about would be on the list too; but every day, we're focused on number one, number two, number three, which again, we will find that right deal to bring to the portfolio, but we will remain very disciplined.

Your next question comes from the line of Filippo Falorni with Citi. Please go ahead.

Hi, good morning. I had two quick clarifications on the guidance. First, within the organic sales guidance of 0% to 2%, can you give us a sense of what you're assuming for the full year for volume and price? You mentioned price increases, some surgical price increases. Maybe can you give us some sense of timing and some magnitude there?

Yes. I mean, I would tell you, we talked about—you got pretty quick position. We talked about price quite a bit. I mean, price has been positive. We'll just say it's going to be flattish for the rest of the year. Our outlook is all about volume growth.

Yes. The price increases that we're talking about, that is over time if we can offset tariffs. In my mind, we're going to work like to do just that. We believe that will be a competitive advantage versus other folks.

Got it. That makes sense. And then on the tariff front, you mentioned the €30 million net tariff impact after the mitigation— is that what is embedded in the gross margin and EPS guidance? Or should we think about somewhere around 50 basis points of negative hit on gross margin and then somewhere around like $0.09 on EPS? Is that the right way to think about it?

40 to 50 basis points. Obviously, the exact timing will play out depending on actions and mitigations and things like that. That's a good number.

Okay. Got it. Thank you so much, guys.

Your next question comes from the line of Kevin Grundy with BNP Paribas. Please go ahead.

Great. Thanks. Good morning, everyone. A couple—Rick, a couple for me. Rick, just getting back to the decisions around the portfolio pruning. So the business lines that you're exiting certainly make sense, not hugely impactful at about 2% of sales. I think there might have been some sense among some in the market as the divestitures directives could have been larger. Is this pencils down for the year given it's an annual review process? Or would you consider further divestitures in the future? I'm curious what's your commitment to a business like vitamins. Presumably, you want exit from a position of strength. So maybe that's the reason that, that is perhaps on hold for now. A quick review, maybe just on the criteria at a high level for hold versus an exit. And I have a question for Lee. Thanks.

Yes. Well, look, we do go through a portfolio strategy review every year. Like I said before, we value each and every brand. There's a handful that are always on the list, and then we turn to a few of them and say, can we internally improve those businesses? Some of those things are underway. It doesn't mean that if those businesses don't do and accomplish those KPIs that we want, that we couldn't wake up and say, yes, that's on the list to do something with. So just because we have an annual review, it doesn't mean that there aren't other things in motion that we're always working on. Vitamins, we want to inflect that business and turn that positive for all the reasons I gave earlier. We'll talk more after Q2 on how we're doing with that. I think that's a better question to ask after that quarter.

Okay. Fair enough. Lee, welcome. Quick question for you. You mentioned the M&A dynamic and the appeal of that in terms of coming on board. What are your early impressions more broadly? Any potential areas where you think your background can potentially enhance the way Church is doing things, whether this is around productivity, whether it's around revenue growth management, capital structure, et cetera. Would love to get your early impressions and thoughts.

No, I appreciate you're asking the nice question. Number one, very impressed with the CHC team. I mean, obviously, I can follow in from the outside and the track record speaks for itself. But to be inside the building and to meet the people and the culture, the mindset to execute. I mean, I think in my first 5 weeks, everything we're showing here, the tariff situation continued to be a bigger challenge and look at the plan we've laid out here in just less than 2 months as everyone's dealing with that. The team is very focused on— I love where I see what's going on innovation. Certainly, the continued focus on brand development, winning share. Those are all things I fundamentally believe in. This business—my focus right now is to learn this business. This business has been successful. I want to understand that. I want to obviously get more time to get out and meet people and understand what goes on across the globe at our different manufacturing sites. My mindset is just to contribute my experience to what we have focused here. I believe in the Evergreen model, as I went through the process and spent time with Rick and other members of the leadership team. We have very similar thoughts and are very focused on driving share, always making decisions with that in mind, but at the same token following the facts and finding the right balance to protect gross margin. There's efficiency with how we run the business to drive this overall high level of cash return. Those are all things that frankly just match with me. That's one of the reasons why I'm here. So I can just say with now 6 weeks in, it's everything I thought it'd be and more. So I'm optimistic as we look forward here.

Yes. And Lee's being humble as well. He has a great pedigree and experience in M&A, right? Decades of experience in M&A on acquiring, integrating; he has decades of experience, not just as a CFO, but as a President of different businesses. To have somebody in the seat who's an operating CFO is exactly the culture of this place, and we're going to be better off for it.

Very good. Thank you. Good luck.

Our last question comes from the line of Robert Moskow with TD Cowen. Please go ahead.

Thanks. Rick, you've talked about having the right advertising, the right promo, the right spend. But the world is changing quite a bit in the last 4 months. So other than vitamins, are there any categories where you've had to shift your tactics, maybe lean in a little more from a promotional standpoint? Or because your market share is good, you feel like, hey, we can just keep executing the plan as it stands?

Yes. Not from a promotional perspective, really. I'll tell you, we are pivoting a little bit on our advertising. We just walked the Board through it, but Stacy is our CMO. She's doing a great job, and she laid out how we're shifting our messaging more towards value in this environment, right? Some big steps in doing that, reminding people across the ARM & HAMMER brand that we are value but across our other brands too. I think that messaging is going to be important in times like this. That's kind of one pivot we're making. We're pivoting a little bit on what brands we allocate media to and where we over-indexed or under-indexed.

Okay. All right. Thank you.

Great. Well, thank you for your time today. I would just tell you that the company is laser-focused on growing share, launching our innovation to delight the consumer. We're a stronger company for these portfolio actions and look forward to talking to everybody next quarter. Thanks very much.

Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.