All right. Good afternoon, everybody, and welcome back. Our next presenters, Church & Dwight, have been longtime supporters of CAGNY and our conference, and today we are fortunate to have with us Chairman, President, and Chief Executive Officer, Matt Farrell, and Chief Financial Officer and Head of Business Operations, Rick Dierker. Matt and Rick come to us having just seen Church & Dwight cap off a very successful 2023, during which the company posted strong revenue growth and gross margin expansion and delivered ahead of targeted EPS while returning marketing spending to full and historical levels. Key brands such as ARM & HAMMER, Batiste, TheraBreath, and Hero achieved all-time high market shares, and capability investments were made to support growth into the future.
To that end, the company's 2024 outlook calls for a return to high single-digit EPS growth, consistent with an updated Evergreen Model that now targets 4% organic growth annually, up from 3% in the past, given anticipated new contributions from recent acquisitions and a doubling down on the company's international opportunities. To put some more detail around all that, I'm going to turn it over to Matt.
Okay. Thank you, Steve, for that wonderful introduction. All right. It's always a privilege to present Church & Dwight at the CAGNY Conference, and we've been around since 1846. So Church & Dwight is a very durable and adaptable company, and there's really four things that I think that we're known for, and I think the first one is that we have great brands in great categories. There are a lot of companies presenting here this week. What categories you are in really matters to your prospects for the future. The second thing is we have a competency for acquiring, integrating, and growing brands, and one of the reasons we're able to grow brands is because we're innovative. The brands we bring in-house, we're able to grow with new products and new innovations.
The third is we have an Evergreen Business Model, and I think all of our shareholders are pretty familiar with this. And the magic of an Evergreen Business Model is really two things. One is it promotes financial literacy within the company. And of course, the second thing is it sets expectations both internally and externally. And finally, I would say that we have a unique, unique culture of execution at Church & Dwight, and what that means is we do what we say we're going to do. Now, 2023 was a great year for us, and that's after a 2022, which was just an abysmal year when we cannonballed into the shallow end of the pool. 2023 was a terrific year, and we're expecting 2024 to be as good, if not better.
So our purpose here today is really to tell our story about Church & Dwight, and also, you should be able to leave this, this room knowing why we're optimistic about the future. So here's a safe harbor statement. You should take a look at that after class. Just a quick look back at 2023. So we have really strong reported and organic growth, and Rick will take you through that in a couple of minutes, as well as gross margin expansion. A lot of our big brands grew share in 2023. In fact, we measure how quickly our brands are growing, so we grew share on brands that represent 60% of our sales. We got marketing back to historical levels. Now, what does that mean?
In 2022, our marketing spend as a percentage of sales was 10%, and our model calls for 11%. We were able to get all the way back to 10.9% in 2023, and that's a $60 million investment. Next one up is $1 billion in cash from operations, and if you are a shareholder, you know that our number one destination for cash is TSR accretive acquisitions. And then finally, we've been investing in capacity and capabilities over the past year. Okay, so here's our report card. 2023, we had almost 19% TSR. The reasons why we're confident in the future, we definitely have steady U.S. growth ahead of us. Our international business has been a juggernaut for many years. We're expecting 8% growth there. We have consistent innovation. What does that mean?
Generally, 1-1.5% of our organic growth is driven by innovation, and we expect to exceed that in 2024. Digitally savvy, you're going to see a chart that shows that 20% of our sales is online today. I think we're probably the highest of any CPG company presenting here this week. We have a new Evergreen Model that Rick's going to take you through, and, and strong 2024 fundamentals that I'll get to. So, so we are almost a $6 billion company, largely U.S. You see 78% of the sales in the U.S., 17% international, so a lot of opportunity to grow internationally. We have 14 power brands, and those power brands make up 85% of our revenues and profits.
But recently, when we gave our outlook for 2024, we said in the future, we're going to reduce our external communications from 14 brands to seven brands. Just makes the story and the communication a lot more simple. And the reason we picked those seven is because they compete in large brands, large categories, and they also have the opportunity to grow internationally. So those are the Magnificent Seven: TheraBreath, vitaFusion, Hero, ARM & HAMMER, Waterpik, Batiste, and OxiClean. And those seven account for 70% of our revenues and profits. So here's our winning formula. I'm going to run through each of these. Balanced and diversified portfolio. We have low private label exposure in our categories, consistent innovation, and we're an acquisitive company. So balanced and diversified portfolio. We got half of our consumer business is household, and half of it is personal care.
Then, if you look at value versus premium, 37% value, 63% premium. This comes in pretty handy when you run into difficult economic times. We have a low private label exposure, so the weighted average private label share of our categories is around 12%, has been for a number of years. And I'm gonna take you through later some of the innovation we have in a number of categories. So we have a long history of growth through acquisitions. The only brand that we had in the year 2000 was ARM & HAMMER. So all the brands that we're known for were acquired over the last 23 years. So back in 2004, we had $1.5 billion in sales. At the time, we had a market cap of $2 billion.
2023, we have $5.9 million in sales, and we have a market cap of $24 billion. If you run your eyes along the bottom, you see that almost every year we've acquired a business. We did not acquire a business in 2023. We do look at a lot of deals, but, we're pretty fussy about what we'll acquire. So here's the criteria: We've got to be number one or number two brand, got to have high growth and high margins in fast-moving consumable categories. Asset light means we don't want to buy businesses that have plants. We'd much prefer to buy a business that's made by a third party. and we wanna find something that where we can leverage our supply chain.
We have a very sophisticated supply chain at Church & Dwight, so consequently, we're able to take out costs and expand gross margin. And finally, whatever we buy has to have a clear, sustainable competitive advantage. So here are the seven magnificent seven and the years we acquired them, and we say, "Seven power brands today, more tomorrow." I'm sure you all notice Buzz Lightyear, lower right. I think we'll probably have to pay a royalty for that. Get the whole idea, right, infinity and beyond. All right, I'm gonna bring up Rick now to talk about our financials.
Buzz Lightyear was a late addition to the presentation. So I'm gonna go through the actuals for 2023 and how we ended, which was great. I'll talk about our outlook and the evolved Evergreen Model, and then end with capital allocation, the same way we always do. So I won't go through every bit of this slide, but the message is, we have green arrows across the board. We beat the outlook across the board. Net sales, organic sales, gross margin expansion of 220 basis points, EPS, which was about 7% growth year-over-year. If you remember, our outlook from the beginning of the year was 0%-4%. So just growth on top of growth while reinvesting back into the business, and then cash from operations of $1 billion+.
So just 2023 was a great year. A few weeks ago, we talked about how we're evolving the Evergreen Model, and if you're a long-term investor with Church & Dwight, you've heard us talk about our Evergreen Model, probably ad nauseam over the last couple of decades. It was 3% top line. It was 25 basis points on gross margin. We would leverage SG&A and get to 50 basis points of operating margin expansion, and then we would have about 8% EPS growth. Now we're saying, and for a variety of reasons, which we'll walk through, 4% on the top line, 25-50 basis points on gross margin expansion. We're gonna leverage SG&A still while making investments, and we get the 8% EPS growth. So what's the backdrop behind that?
Well, for the last 10 years, we've been growing 4% organically, but this is really looking forward. We feel like we're accelerating as we look ahead. We have. We're in great categories. As Matt said, categories matter. Our categories are growing. We typically take share because of innovation, because of our marketing spend. We're accelerating our international footprint and business, and that's gonna be a tailwind as we look forward. And then on gross margin, our productivity program had the best year it's ever had in 2023. We feel like that's a sustainable competency, and in the previous years, inflation was outweighing. It was masking the productivity that we had. We think on a go-forward basis, it'll outpace inflation.
From a marketing perspective, we're getting more and more efficient every day, but as we grow the top line at a certain rate, we're growing marketing dollars right behind that. And our ultimate scorecard on marketing is how our shares are doing. And then SG&A, we're making some investments. We don't call out investments. It's all within our guidance. We're putting investments in a China ERP system and a European ERP system for our GMG business. We're investing in regulatory and back office to accelerate that business even further, and then, of course, to build capabilities like e-com and analytics. Okay, moving to the 2024 outlook. So I just walked through the Evergreen Model. How does 2024 compare? Well, I'll tell you, it's even better than what our Evergreen Model is. So 4%-5% on the top line, both reported and organically.
Domestic is 3%-4%, international is 8%, and SPD is 5%. Gross margin accelerates further, 50-75 basis points, and then we leverage SG&A. Flat percentage on marketing, higher dollars, and that leads to OP expansion of 60-80 basis points, which is even better than, than our Evergreen Model. And that leads to 7%-9% and $1 billion+ in cash flow. The way to think about our earnings per share outlook in 2024 is we're 7%-9%, but embedded within that is a shutdown of our Megalac business, which is a small animal nutrition business within SPD. So if you exclude that, we're really closer to 8%-10% for context. Okay, again, you know, track record is credibility. So 10-year history of net sales growth, we've averaged 6%.
So if you look at the page, 8%, 9%, 12.3%, 9.2%, one of our best years last year, in the last 10 years, and we have growth on top of growth. Organically, similar story, 10-year track record of 4.2%, Evergreen Model now at 4%, and we're a little bit higher than that in 2024 at 4% - 5%. Many companies have talked about volume and how important volume is. You know, for decades, our growth, organically, has been 100% volume growth... And then, of course, during this hyperinflation time, a lot of that has been price. But for us, we've had two sequential quarters, two consecutive quarters of volume-driven growth. So we've already gotten back to volume-driven growth.
In 2024, we expect our organic growth to be primarily volume-driven as well. Now, here's a slide to spend some time on. Gross margin is super important for the company. Why? Gross margin drives EBITDA expansion, it drives cash flow, it drives ability to invest back into the top line, and it gives you optionality. And we've been chasing our pre-COVID, pre-pandemic levels of 45.5%. We made great progress this year, 220 basis points improvement, 2023 versus 2022. So that means we have 140 basis points left to close that gap. Our outlook this year, the midpoint is 60 basis points of expansion, so that means we have about 80 basis points to go. So over the next few years, we've called out 25-50 basis points.
It's well within our sight. Then, of course, we have tailwinds, right? The mix of our recent acquisitions are additive to gross margin. Marketing, I already mentioned it a little bit, but 11% of sales is our outlook. We're investing tens of millions more dollars in marketing. We believe it's a virtuous cycle, drives the top line, and the ultimate scorecard here is how our shares are still. And for our major categories, we're winning on shares. Adjusted SG&A, we're gonna continue to leverage SG&A, but we're also making investments where it matters, again, to be a virtuous cycle, to help international propel faster, to build capabilities for e-com and analytics. And then EPS growth has been high single or low double digit for many years, and 2024 is no different. Cash flow really matters to Church & Dwight.
Cash flow drives value, drives valuation, drives our M&A and capital allocation priorities. So free cash flow conversion, we think, is one of the single best metrics for the company and for the industry. We've averaged, over the last 10 years, 119%, which is industry-leading. Many companies target 90%. We've dipped down the last couple of years as we invest for CapEx. So, we said we're gonna bump up for this incremental CapEx for two or three years. We have, 2024 is the last year of elevated CapEx, and then it returns to 2% of sales in 2025. Cash conversion cycle. So free cash flow conversion is driven from great cash earnings, but also from working capital. And we've gone from 52 days of cash conversion all the way to 27 days.
Now, we have inflected up a little bit because of acquisitions, but we have foresight into the future, and we see that improving this year and year after. We have a really strong balance sheet, 1.8 x levered by the end of 2023, and we expect 1.6 x by 2024, so a lot of optionality. We do this slide, and we actually did this back in September at the Barclays conference, and since then, it's been improved by about 20%. Why? Because of we generate so much cash. We're paying down debt, we're improving our cash earnings, and so that calculus gives you even more financial power for an acquisition.
Just as a reminder, if you're not familiar with Church & Dwight, and you didn't see the slide Matt did, but year after year after year, the number one destination for cash flow is M&A. And we spend a lot of time as a management team looking at the right deal. And it's not if, it's just when we find the right deal. Number two is CapEx for organic growth. Number three is NPD. Number four is debt reduction, and number five is return cash to shareholders. We're not a capital-intensive company. Here's the visual of the spike up in CapEx for the last two or three years because of capacity-driven investments, and then a stairstep back down in 2025 to 2% of sales is our expectation. And then finally, I'll end with the dividend.
A 4% increase in the dividend in 2024, and we've had 123 years of consecutive payment of dividends. And with that, I'm gonna go back over to Matt for the U.S. story.
Okay, thanks, Rick. I'm gonna run through each of the businesses. I'm gonna talk a little bit about our innovation, what some of the dynamics in our major categories, and I'm gonna end with how we run the company. So first off, our U.S. business, our Evergreen Model now calls for 3% growth in the U.S. Here's the track record. If you look back over the last 10 years, you can see we can got a lot of confidence we can sustain that 3% going forward. And just what are the reasons to believe? Well, we're leaders in growing categories, and we say over and over again, the categories you're in really have a great impact on your destiny. The second thing is we thrive in difficult environments, and finally, our acquisitions have room to run.
I'm gonna explain that to you in a minute. So here are the categories that we're in. So, you know, if you're a quant, you're an analyst, you're a portfolio manager, your eyes go to the red. So if you look at 2020, so you see power flossers and dry shampoo. So that's when COVID started. You go to 2022 and 2023, you have the COVID hangover. So power flossers in 2022, big contraction, and then 2023, a little bit more delayed, but gummy vitamins also pulled back in 2023. As far as thriving in difficult environments, you can see we got value and we got premium. So it's just a wonderful combination and low exposure to private label, meaning it's not gonna be a big competitor to you.
Now, I wanna talk about why we think our most recent acquisitions have so much room to run. On the left-hand side, we're gonna talk about the mouthwash category. So, we bought TheraBreath in 2021, so we're so 2022, 2023 is the second year of ownership. You can see, take your eyes down to the bottom of the slide, so we had almost 60% growth in points of distribution, and we're still 2.6-2.8 times lower than the big dogs in the category. If you go over to Hero, Hero was acquired in 2022, so this is the first year of ownership.
So you can see we had a 200% increase in TDPs, and you can see it's almost still over four times less distribution than the biggest player in the category. Here's another way to look at it. So this is household penetration. So this is how many households have mouthwash. It's kind of surprising that a third of America doesn't have mouthwash. But you can see it's pretty steady eddy, right? 63% for five years running. But TheraBreath has been steadily increasing its household penetration, and of course, that reflects itself in our shares. Now, take a look at the acne treatment category. There's a big change going on there, so it's not steady eddy. It was 16% of households in 2019. It's almost 22% today.
Why is that? It's because there's a new form. You know, if you go back to 2019, most of the products in the category were lotions and potions and whatnot. That is when patches really hit the market, and Hero is what's driving the growth in the household penetration. So going from pretty much zero in 2019 to 6%. So between the distribution and household penetration, we think both of these products, both of these brands, have a lot of room to run. So now I'm going to talk about market shares and innovation in some of our major categories. So the first one I'm going to talk about is fabric care. So this is just a look at 2023.
So the category grew 3.3%, and ARM & HAMMER liquid laundry grew 4.8%. Now, most of that growth in the category, actually, all the growth in the category, was driven by price. Now, look at our history. If you go back to 2006, we had a 5 share in liquid laundry, and today we have a 14.4 share. And remember, we're a value laundry detergent, and one of the things we have going for us is we spend so much money on ARM & HAMMER, and ARM & HAMMER is not only in laundry, it's in litter, baking soda, ARM & HAMMER deodorant, et cetera. So, we're a recognizable brand within value, so that's sort of an unfair competitive advantage, but we're happy about it.
Now, what's happening going forward, this year we're introducing a new product called Deep Clean. So now we're moving to the mid-tier, and mid-tier is 27% of liquid laundry category. So we're moving from. We're going to stay where we are with. We have a good product, a better product. This is going to be our best product, so launching nationally right now. So here's the good, better, best. So good is traditional ARM & HAMMER. The middle, ARM & HAMMER with OxiClean, is better, and best is going to be Deep Clean. So we think this is going to help us continue to grow our share and our sales and profits for years to come. Here's a spot for Deep Clean.
Laundry call! Let's dig deep, people.
Drenched, drenched. Soaked through. Take on deep. Everyday dirt and stink lingers deeper than you think. Now clean deep with new ARM & HAMMER Deep Clean Laundry Detergent. Our most powerful formula yet penetrates deep in the fibers and gets to the bottom of odor and mess. ARM & HAMMER Deep Clean, more power to you.
Okay, next up is another innovation. So in August of 2023, we launched ARM & HAMMER Power Sheets. Now, these are laundry sheets. We launched them on Amazon, and right now, we have 7,000 reviews and a 4.5 rating. The people who try this product love it, and by the way, it's going to be outside after class if you want to pick it up and take it home and try it. But we think this is a wonderful product because it comes in a cardboard box, it's sustainable, and it's effective. So by the way, when you're coming out with something new, a new form like that, sheets, it takes an effort to change consumer behavior. So we've got an army of influencers helping us do that. So here's a spot from one of them.
As a family of five, the amount of laundry we create is intense. I partnered with ARM & HAMMER to share their brand-new Power Sheets that have been a total game changer in our laundry room. And when I say Power Sheets, I'm not talking about dryer sheets, people. These are laundry detergent sheets. That's right. It's a brand-new form of laundry detergent from ARM & HAMMER, and it's made with the same type of powerful cleaning ingredients as ARM & HAMMER liquid laundry detergent. The sheets fully and rapidly dissolve and leave your clothes smelling incredible with a fresh linen scent. ARM & HAMMER Power Sheets are super convenient to use. Just toss a sheet in your washer, and you're off. No drips, no spills, no measuring. Give yourself the trusted and fresh clean of ARM & HAMMER with the new Power Sheets.
Shop now with the link in my bio.
All right, tell all your friends. This is a good one. All right, I'm gonna move to cat litter now. So cat litter grew—the category grew to 11.7% in 2023. We grew a little, little bit faster. Again, most of that, that growth is, in 2023 is, is driven by price. Here's the, the share story. So we hit an all-time high share at the end of, 2023, and this time last year, we were talking about a, a new product called Hardball. So this is a cat litter that's made from sorghum, so it's plant-based, and you may remember it seizes up. It's, it seizes up into rock-hard, clumps. So, and it's, again, this is a, it's a, it's an entry into lightweight litter. And why is that important?
It's because we're really nowhere when it comes to our, our lightweight share. The regular weight, we have a 29% share, and lightweight, we have a 4% share. So, and then we, we launched this in one major retailer. We're going national, in 2024, all retailers. So this is a $100 million opportunity if we get our fair share over time. All right, next up is Batiste. So here's the growth rates there, 15.6% in 2023. We grew a little bit faster at 16%. And here's the share story. It's been one of our juggernauts, 37% share in 2019, and, 46.3% in 2023. So on our way to 50%. And by the way, Batiste is the number one dry shampoo on the planet. So it's. And it originated outside the U.S., in Europe.
So here's our next new innovation. So we have a dry shampoo that is sweat-activated and touch-activated. So if you touch your hair, you get a burst of fragrance, or if you're working out, again, sweat is going to create a burst of fragrance. And we have a 4.5 average star rating at Ulta already. Okay, here's a spot for Batiste.
Gee whiz! What's the future like? Well, people live on Mars. I'm dating an alien. And your hair is Batiste Touch and Sweat Activated Dry Shampoo. It keeps hair fresh all day long. It's the best invention ever. Better than sliced bread? Hop in, Betty. Wow, it is better than sliced bread! Batiste, the future of hair care is here.
Okay, next up is Vitafusion. This is one of the categories we've been struggling in. One of the things that I think is one of the hallmarks of Church & Dwight is that we're always transparent with our investors. So just kind of a look back. We've owned this business for 10 years, and when we bought it, it had a it was a unique form, great taste, and a wide assortment. And what's happened over the past 10 years or so is it's been become a very crowded category, and you see that takeaway on the bottom, it's gone from six to 60 competitors, and if you added in the online-only competitors, you'd have 100 brands out there. So here's what's...
It's kind of a busy chart, but those gray bars are the size of the category quarterly over the past six years, starting in 2018 over on the far left. So just kind of—if you just look at it quickly with your eyes, you can see the category has doubled in size since 2018 up to 2023. Now, at the same time, our share has declined from 24% to 12%. So obviously, you can sustain your sales as long as the category is growing, but we're not real happy about that share loss. So what's the good news? So if you look at a lot of major retailers, we're still the number one gummy brand. You can see them arrayed on the left-hand side of that slide.
And then, if you, if you look at household penetration, we still got 11% household penetration, which is significantly higher than some of our competitors. So what are we doing about it? So over the past 12months-18 months, we've been working on upgrading our formulas, changing the texture, the flavor. We got new packaging coming, so it pops on shelf, spending a lot of dough on new displays, new advertising, and also we're going after new forms, and that's the soft chewables in 2024. So the whole idea is to get this business stabilized and grow in 2025. And this is a big business for us, so can you imagine what our numbers would've been in 2023 if this thing were rocking? Okay, here's TheraBreath. So, this is just a cool story.
Remember we bought this business in 2021. The category grew 13% in 2023, and TheraBreath grew 86%. Now, here's the share story. We bought this business in 2021, middle of the page, and at the time it was a 6.2% share. So we've doubled the share in two years to 13.3%. So we're now the number one non-alcohol mouthwash, and we're the number three branded mouthwash and still growing. So now why are we so optimistic about the future? Well, besides the story about greater distribution and greater household penetration, we're also now entering antiseptic. Antiseptic represents 30% of the category, and we're not there. So we're launching this in 2024. Now, here's the TheraBreath spot.
This is Carmen. Before using TheraBreath mouthwash, she worried about getting a deep clean for her dinner party. Now...
It's swishy time!
Swishing with TheraBreath Deep Clean Antiseptic Mouthwash kills 99.9% of germs.
99.9? You're the hostess with the mostest.
Plus, it's alcohol-free, so there's no burn.
You didn't burn your mouth or dinner.
When Carmen looks in the mirror, she loves what she sees.
You get that. I got this.
Try dentist-formulated TheraBreath Deep Clean Antiseptic Mouthwash.
It's a better mouthwash. I guarantee it.
All right, that was Dr. Katz. He's the guy who invented the TheraBreath. All right, Hero's next. So now we're talking about the acne treatment category. So the category grew 20% last year, and Hero grew at 73%. And Hero is the reason why the category is growing. So go back to 2019, the share was 0.2%. Now, we bought this business in 2022, and now it's 18.4%. And this is not just acne patches; this is acne treatment category. It's a $1.2 billion category. By the way, if you went back a few years, around 2018, it was a half a billion dollar category. So the form is driving the growth in the category.
Here's a fun fact: So if you went to a large mass retailer, and you say, "What are their top turning SKUs?" Number one is a paper towel, number two is baby formula, number three is Mighty Patch, number four is water. So this is a hot cake, and it's just killing it. All right, so one more thing I want to point out is that Mighty Patch, yeah, patches is the bread and butter for the business. We've got so much runway still with respect to that form, but we also are moving into products for acne-prone skin. So this one, for example, Dissolve Away. It's a cleaning balm to remove makeup if you're a person who is acne-prone. All right, so we got great momentum.
We've got great new products coming this year, so we're betting big in 2024. So we got a lot of confidence in the U.S. business. I just want to spend a minute on digital for a second. I'm sure everybody's heard this ad nauseam this week, but we all know that 70% of purchases are influenced by digital channels. What that means is, it influences your purchases not only online, but also in bricks and mortar. So consequently, 80% of our spend today is digital. That's the only 20% now is TV, radio, print, et cetera. And here's the story is, we were 1% in 2015.
Just to give you a number, in 2015, our online sales were $35 million, and in 2023, it's over $1 billion. So we have made this a big priority within the company, because we believe that by the end of the decade, that number is going to be 30%. So you got to get really good at this. And just proof's in the pudding, right? There are online shares for six out of those seven brands grew in 2023. If you said, "Let's look at more broadly with our 14 power brands," in the fourth quarter, 13 out of 14 of those brands grew share online. When we say online, we're not just talking about Amazon. It's Amazon, walmart.com, Target.com, retailer.com, the whole, the whole ball of wax. It's just a great story.
All right, I'm going to move to international now. Okay, so international, the expectation there is 8% growth. That's part of our Evergreen Model. And here, with the billion-dollar business, we have six subsidiaries. Look on the right-hand side of the slide there, Canada being the largest. But our Global Markets Group is more than a third of the business, and that's been the fastest growing part of the business for a number of years. Now, why are we so excited about international? Well, if you look at the top 10 CPG companies, you'll see that almost 60% of their sales is outside the U.S. So they've done decades ago what we're only started to do the last couple of years. So only 17% of our sales is outside the U.S.
Now, if you look at international, look back and say, "What kind of growth have you had over the last few years?" You can see that, we've hit 8% or better in most of those years, and not in 2021 or 2022. That's because of COVID and a hangover from COVID. Now, why are we confident about the future? There's three things. Our brands travel well. We got great brands. The second thing is we're investing in our GMG infrastructure. That's Global Markets Group. And the third is we have our recent acquisitions that we're going to run to launch in other countries. Now, what are the brands we think that can travel? The U.S. brands are ARM & HAMMER, OxiClean, and vitafusion.
Outside the U.S., our most global brands are Batiste, Stérimar, which is a nasal hygiene product, and Femfresh, which is a feminine hygiene product. Then finally, Waterpik, TheraBreath, and Hero are largely U.S. businesses with a lot of opportunity to grow internationally. As far as the Global Markets Group goes, we have teams in Panama, London, India, Shanghai, and China, and then finally in Singapore. Rick mentioned that one of our priorities is investing in international going forward. The second priority is investing in e-commerce. So we're investing behind people, systems, offices, regulatory people, quality people, back office, so we have the infrastructure to grow. So just to wrap it up, our brands travel well. We're investing in the infrastructure, and TheraBreath and Hero are going to be also a tailwind for the business.
By the way, we're launching Hero in 40 countries in 2024. All right, Specialty Products. This is our underachiever. So Specialty Products has got a goal of 5% growth annually. The business is a small business, $300 million, but this is our legacy business. This is the original business that under which Church & Dwight was founded. So that's, we call it Specialty Chemicals. It's bulk sodium bicarbonate. So that's a third of the business. Back in the 1970s, the company got into animal nutrition. The way it got into animal nutrition is that we learned that the people we were selling baking soda to were reselling it to dairies, and they were putting it in the feed. So that was, that was back in the 1970s. I guess it was an Alka-Seltzer for cows.
So that was the start, and since then, we've gotten into prebiotics, probiotics, and nutritional supplements. So if you look at how was the performance in 2023, not good. We're down 8%, largely driven by the product that Rick mentioned, which is MEGALAC, which is just a, a, a feed additive for dairy cows. It's really suffered from a lot of low-cost imports over the last couple of years, so we're bailing out of that business in Q1. So if you pull that out of last year's numbers, we had a 2.5% growth. Still not where we want to be, but we think this is a business that, that has a lot of potential. We just haven't gotten the genie out of the bottle just yet.
By the way, those prebiotics, probiotics, and nutritional supplements, lots of different brand names you'll see on the page there that would be known to people who grow cattle, swine, and poultry, but they all are sold under the ARM & HAMMER banner, which we all know is a trusted brand. This is another business that's got international opportunities. You get 17% shows up again. So 17% of our animal nutrition business is international, and it should be in excess of 50%. So just to kind of wrap up, SPD still got a lot of faith in that business. You know, the population of the planet is going to go from 8 billion today to 9.5 by mid-century. So there's a big demand for protein. So we've got a trusted brand.
We're definitely aligned with consumer trends, moving away from antibiotics. We got lots of different species we can serve, and we got a lot of global opportunity. All right, I'm gonna wrap up with, you know, how we run the company. So here's the five operating principles at Church & Dwight. If you're a shareholder, you probably know these off by heart. So leverage brands, we've talked about. We're a friend of the environment. Leverage people, leverage assets, leverage acquisitions. So we've talked about the brands enough already, now we'll just talk about the environment. So this is kind of a fun fact, if you don't know it. So back in the nineteenth century, Church & Dwight was putting trading cards in our boxes of baking soda.
If you look at the bottom of that slide, it may be hard to read from the back, it says, "For the good of all, do not destroy the birds." Now, if you pull out your phones right now and went on Amazon, you can actually still find these bird cards sold or being resold. Sold on this morning from 1938. So it wasn't just in the late nineteenth centuries, but this went on for decades. So we've been a friend of the environment for a long, long time. And we've run through this slide with you before. You know, we used recycled paperboard in the early twentieth century. First corporate sponsor of Earth Day, which was in 1970. Twenty years later, in 1990, still the only corporate sponsor.
And more recently, in 2017, we started planting trees through Arbor Day. We planted millions of trees. In fact, this year, we will have planted enough trees to offset all the CO2 we put into the atmosphere. Now, that's great, but then you say, "Well, how are you gonna reduce the CO2 you put into the atmosphere?" That's what science-based targets is all about. So we have some projects in place right now to take 50,000 tons of CO2 out of our system, 'cause we use a lot of CO2 to make baking soda. All right, why is that all important? Well, it's definitely important to us at Church & Dwight. It's important to our employees, our families, but it's also good for business, and it's, as the slide says, very relevant to young consumers.
If you look at our ESG scores, we've certainly been recognized for that. There's lots of rating agencies out there, but this is one of them. So we've done a good job over time, and that's reflected in our numbers. All right, leveraging people. This is a very, really underappreciated metric, and this is sales per employee. So we've been a leader for as long as I've been coming to this conference in sales per employee. So we've got over $1 billion, excuse me, $1 million. But wouldn't that be nice? Yeah. $1 million in sales per employee. And that's illogical, because you would think the larger companies, the bigger you are, the more scale you have, but not the case. And this is our compensation structure.
So we have net revenue, just if you wanna go clockwise, gross margin, cash, EPS, and strategic initiatives. Strategic initiatives are there because we wanna make sure we have an eye on some long-term goals as well. Gross margin. Not many companies have gross margin in their, in their, incentive comp. And the good news there is that if when you have gross margin in there, your employees wanna know, "Well, what is that, and how do I get it? Because it influences my pocketbook." So it's, it's 20% of everybody's bonus on an annual basis. So how do you get, gross margin? Well, we have our Good to Great, program. That's the name we've given to our continuous improvement program. Supply chain optimization, that's an investment in automation, et cetera. New products.
We wanna launch new products that have a higher gross margin than the ones they're replacing. And finally, acquisition synergies. We like to be able to expand the gross margin of the businesses that we acquire through our supply chain. All right, number four is leverage assets. So we are an asset-light company, and we. Our target spend is 2% of sales. If you went back to 2009, you'll see that we have a big number there. That's when we built our York, Pennsylvania, laundry plant. That plant today not only has laundry, but also has litter as well as, and vitamins. And we've got a bubble here the last few years, 2022, 2023, 2024, where we've been adding capacity for laundry, litter, and vitamins. But 2025, we're gonna get back to 2% of sales for the next several years.
Now, if you do the first four really well, you get really good returns. And if you can do acquisitions well, which as I—one of my opening remarks was, that is a competency of this company. We all know that seven out of 10 acquisitions fail. Why is that? Because you overpay. You know, you don't hang on to people. You overestimate your cost takeout. There's a whole laundry list of things that can go wrong. Yeah, we've had a couple of black eyes, but very few over my 17 years with the company. All right, here's the long history, $1.5 billion-$5.9 billion in top line today. A deal in almost every year, and as I said earlier, we're pretty fussy. That's our criteria.
I won't run through that again, but I'm gonna end on this note. So we're really optimistic about 2024. We got stronger organic growth that we're calling for, 4%-5%. Meaningful gross margin expansion, 50-75 basis points. We got a great new product pipeline. You didn't, you didn't see them all today, but you saw some of the, some of the highlights. And we're, we're putting our money into international and e-commerce. So although we're growing the top line faster, our Evergreen Model went from 3%-4%, any profits that's gonna throw off, we're gonna be plowing back into international and e-commerce. So if you're a long-term shareholder, you probably got a smile on your face. And then finally, free cash flow.
We've got $1 billion in cash flow we generate annually, and the number one destination is TSR accretive acquisitions. We've got a few minutes left, so we can have some fun. Okay, we'll go left to right. Olivia, I think I called on you last at the stock exchange, so you're first today.
Why, thank you. I appreciate that, Olivia Tong, I do too. Maybe where you ended around M&A, if we could talk a little bit about that. And what are, you know, as you look at the recent deals that you've done and done the diagnostic on it.
... What have you learned from Hero and TheraBreath that have influenced your decision-making going forward? First, and what processes have you put in place to ensure better shots on goal with respect to M&A versus some of the things that have happened in the past?
Yeah, well, we recently doubled the size of our M&A department. As you know, we had one person for 16 years, so we added one. And actually, there's another one gonna start in a month or two. So we're hiring someone in Europe and someone in Asia, so just so we can get into deal flow outside the U.S. 'Cause, you know, it's part of our ambition, is to take that 70% of sales and make it a much, much bigger number, and that's only gonna happen if we can find more deals outside the U.S. It'll happen faster that way. But we haven't made any real changes.
I mean, the whole point of, or how we look at M&A is that you can only buy what's for sale. So we don't spend any time studying categories or businesses and say, "Wouldn't it be wonderful if we could own that company?" Well, yeah, it's not for sale. It may never be for sale. So our focus is we wanna make sure we're in deal flow. We don't wanna wake up in the morning, and pick up the pad, and go, "Oh, I didn't know that was for sale." And I think that doesn't happen in the U.S., but outside the U.S., it's something we're trying to remedy. Okay, Chris, you're up. We can go left to right. Just keep passing it down.
Just from a follow-up on the M&A question. So, we talked about this at the stock exchange, 2023, no deals. You know, so what about the deal environment right now is preventing you from doing a deal? Is it the lack of, you know, potential acquisitions? Is it deal price? Are you looking back to, you know, some of the deals that didn't go as well, and you're a bit more conservative now than you were? Or do you have to do bigger deals now to make an impact? Maybe just contextualize, you know, why there's a longer timeframe, you know, from a deal, and then just maybe remind us again, if you don't do a deal, what you're planning to do with all that cash.
Yeah. Well, as I said before, we're you have to be fussy about what you're gonna acquire. And you mentioned you have to do bigger deals. I would say no. When we bought TheraBreath, it was probably, like, $100 million, a little bit more in sales. And we said, "We're buying this business to be a $500 million business," and it's not just U.S., but it's outside the U.S. So you really have to have an understanding of how big can this be, and that then informs how much you can pay as well. So I would say, no, we don't have to be swinging for the fences and do really, really big deals, but you have to find ones that can grow, and you have to win the auction as well.
Now, we were involved in four or five deal auctions in 2023. I just can't name them 'cause we signed NDAs, but none of them really met all of our criteria, so we just kind of walked. Now, so the next question is: Well, what happens if you get a lot of buildup of cash on the balance sheet? That has happened in the past. I don't remember what year it was, but I wanna say it was maybe 2017 or 2016, and what we wound up doing was a buyback because we just had so much cash on the balance sheet. But that is not our preferred route here. We really wanna find things to buy. But there's plenty for... Anything to add, Rick, by the way?
I would probably just add, you know, we've created so much value through M&A, and that's a capability we have. We also believe the number one way to destroy value is to do a bad deal, and so we are very fussy in what deals we do. We don't say no typically 'cause of price. We say no through due diligence, because of the category, because of private label, because of competitive threats, whatever that is. But we say no a lot, and because our base and core business is so well, we don't feel the pressure to ever reach for a deal.
Yeah, but the last three have been winners. 'Cause I came in 2020, bought TheraBreath in 2021, Hero in 2022, and just didn't come up with one in 2023. But we're looking now at a couple, but you know, don't want anybody to run to the phones. You know, you never know. You know, you gotta go through the process and see if they're gonna be right for us. Okay, Dara.
Dara Mohsenian, Morgan Stanley. So the shift in Power Brands from 14 to seven, you've talked about how you're gonna communicate differently to us, in terms of Wall Street. But can you talk about if you've shifted at all internally, the way you manage the business? Is there a different resource allocation in terms of marketing spending to some of the larger brands? Or organizationally, has anything changed, and how might that unlock higher growth going forward?
Yeah, no, that, that's a good question. No, internally, we have 14 power brands. We're talking about 7 externally, but those other 7 are still with us. Now, you might say, "Well, 7 of them account for 70%, the other 7 accounted for 15%, so they are smaller." What are some of the brands that are in there? Orajel, high gross margin. Trojan, high gross margins. Small categories, though, oral analgesics, condoms. So no, we're not gonna underinvest in those. They still generate a lot of dough. It's just the categories are not that big. You know, these are, like, $300 million or $400 million categories, whereas TheraBreath is, or mouthwash is a $1 billion category, and Hero is $1.2 billion. So I'd say, no, and we're very careful about that, too.
So we've kind of went out with an announcement within the company and say, "Hey, if you're working on these other seven, well, you're not an orphan now." That's the last thing we wanna have happen. It's just that, you know, to talk about 14 brands, we had 15, 16, this is a lot to talk about externally. So we thought, "Let's simplify it to seven that we think are in bigger categories or can be big categories and ones that we could take globally." That, that's the logic. Ready?... So who's got the, the mic? Nobody's got it. Okay, Andrea, you're up.
Andrea Teixeira, J.P. Morgan. So the Mighty Patch, amazing story. You take it from $500 million to, in a few years, to $1.2 billion. How you're thinking—And then you're expanding into skincare, which is, which is obviously, a great expansion. How are you thinking of protecting now that your competitors are also, some of them had launched even before, but now they're tweaking it, and everyone is in the eye patch now, in the patching. How you protect that patent or how you protect that delivery, given that more entrants are coming, and how you're thinking of skincare as a whole? Like, how you're gonna be thinking of skincare as a strategy or more extensions besides, you know, the makeup remover? Anything that you can help us.
Yeah. Well, let's take the second one first, as far as skincare goes. Yeah, it's—we're focused on patch, and then obviously there are adjacencies to that, but we're not gonna become a skincare company overnight. But we know that we got a great brand, a great brand recognition in Hero, so we want to take advantage of that and move beyond patches, but we're gonna do it slowly. Because we think patches still have so much opportunity for the next couple of years from a household penetration standpoint. So I would say, I think we're doing it in a judicious fashion. Now, your other question is, hey, there are other competitors that are jumping into patches.
Yeah, that's true, and there are a number of them, we know the names of them, they've been around for a couple of years now, but it is Mighty Patch that has emerged. I think it's two things: One is its efficacy of the product, I think, is superior to other patches, and I do think that the digital marketing story is second to none, and that does matter, particularly in this day and age. And by the way, this is, it's not just for teenagers. What we found is that if you did the profile, the ages of the consumers, you got people all the way to in their fifties, sixties. So you can have an issue with diet that's gonna cause acne, menopause, pregnancy, so lots of reasons.
But, yeah, I think this business has got a lot of room to run. Switch over to this side here.
Actually-
Do you want to ask a question?
We gotta keep the trains running on time here.
Okay.
So we're gonna-
Thirty seconds.
We're gonna move on to the breakout. Thank you to Church & Dwight. Thanks to Matt and Rick.
All right.