Next up, we have Church and Dwight and we are fortunate to have the company's CEO, Matt Farrell CFO, Rick Durkert and Chief Marketing Britta Baumhard with us this year. They're going to be giving a presentation, so I'm going to hand it right off. Thanks so much for joining us.
Thank you, Lauren. Hey, thanks everybody for joining us. I'm going to start with the first slide, which is a Safe Harbor statement. I encourage everybody to read that. Here's the agenda.
Our slides are going to be posted to our website, so there's no need to try to take copious notes here today. So let's jump into the very first slide. Who we are? We've had a stellar record of providing a total shareholder return to our shareholders. If you look at the 2023, 5, 10, 15 years, we've had just a stellar performance.
So how do we do that? If you go to the next slide, we have an evergreen business model. We shoot for 3% organic sales on the top line and 8% on the bottom line. So now if we ask us, how have you been doing with that 3% top line? You can see for the last 10 years, we've averaged a little over 4% organic sales growth.
The next slide will tell you if you ask the question about EPS, you said, well, 8% is our target. We've been averaging a little over 11% for the past 10 years. Go to the next slide. The 3% breaks down 2% for the U. S, 6% international, 5% specialty products.
Rita is going to talk to you today about the U. S. Business as well as our innovation. Barry is going to talk about international and I'll come back and talk about specialty products. Our company has 13 power brands, you see them displayed here.
Those 13 power brands on the next slide represent 80% of our revenues and profits. Go to the next slide, you'll see how the portfolio splits, quite a half household, half personal care on the consumer side. Maybe we have a small specialty products business about $300, 000, 000 and that's about 2 thirds animal productivity and 1 third bulk sodium bicarbonate. If you go to the next slide, you'll see the split between premium and value. This is important because people who have been long term shareholders of Church and Dwight know that we perform well in virtually any economic environment.
And as the split geographically is only 17% international and that's important. Barry is going to talk to you about how much runway we have to grow internationally down the road. I think international will provide a disproportionate amount of our sales growth in the future. And we're we like to think of that we're very nimble organization. We only have 5, 000 employees.
We have very quick decision making and we adapt very quickly. And I think the best evidence of that is how we performed during COVID and a long history of growth through acquisitions. So we're known as the serial acquirer. You can see back in 2004, we only had $1, 500, 000, 000 of sales, almost $5, 000, 000, 000 in 2020. And virtually every year, we pick up 1 or 2 new brands.
And for the year 2000, the only brand that we owned was ARM and HAMMER. And since then, 12 of those 13 Bauer Brands have been acquired and all of them are either number 1 or number 2 in their categories. Next slide. And online is on everybody's mind. If you went back 5 years, only 1% of our sales was online.
20 20, we spiked from 8% in 2019 to 13% in 2020. And then we expect it to continue to grow in 2021, expect 15% of our global sales online. We do get questions about private label. We have a low exposure to private label, averaging about 12% on a weighted average basis.
If you go to the
next slide, you see the categories that we're most exposed to with respect to private label. You can see those lines there. They've been pretty stable over the past several years. And we definitely have had headwinds in 2021. I'm sure this is redundant with any of the other presentations you're listening to today.
Lots of cost inflation, we've had $125, 000, 000 of unplanned cost increases in 2021 versus 2020. The other issue we have is supply chain, because the difficulty in us hiring labor as well as our suppliers and co packers getting labor, they've had the disruptions in their production, which has also affected our ability to get material raw and packaged materials to make our product. The most recent wrinkle is Hurricane Ida. Generally, these things have about 6 to 8 weeks to work themselves through this system. We've had force majeures all year along in the second and third quarter.
This is just 1 more that we're going to have to deal with. And we'll update everybody at the end of October when we do our Q3 press release. And in reaction to the $125, 000, 000 in cost, we've raised prices. So we've raised prices starting in July. We have another tranche coming in October.
So that by October, about 50% of our portfolio will have already been priced up. We're looking at the remaining 50% right now to see where it makes sense for us to raise price in 2022. And even the places that we already raise price, we may be revisiting those in 2022 to see if we need to take price again. And next up is Britta to talk about the consumer business.
Thank you, Matt, and welcome, everyone. So as you see, we have a target of 2% in our evergreen model. We so far always delivered more than that. And on the next slide, you will see what should give you confidence in 2021 that we have key growth drivers. Number 1 is, obviously, vitamins continues its growth journey and not only that people are taking supplements, but the conversion to gummies.
2nd, dental offices are back and that fuels our water pick price. The Beauty at Home trend continues benefiting there. And we have some brands which are recovering from the COVID extremes of social distancing and lockdowns like Batiste and Trojan. And then we have obviously our long term strong growth driver, which is building brand equity and using media effectiveness to make our brands better known with consumers. And you see our biggest 3 brands ARM and Hemmer, OxiClean and VitaFusion named here because we have great brand equity metrics.
Next slide, you will see that you're not don't have to take my word for it, but what you're seeing here that we've been growing consumption in 13 out of our 16 categories in Q2 of 2021. But let me give you a couple of the innovations who are also helping to drive that growth. So number 1 is that germs and viruses are in everybody's minds, not only in the bathroom and the kitchen. And we have a fantastic innovation, which is on the next slide, OxiClean Laundry and POM Sanitizer. And it has this extraordinary claim that it kills 99.9% of bacteria and viruses, including the virus that kills COVID that causes COVID-nineteen.
And what better than to see some advertising for it?
Germs appear when you least expect them. Don't just clean them. Clean clean them. OxiClean Laundry and Home Sanitizer. Now you can kill 99.9% of bacteria and viruses, and that feels Get your home clean clean with OXY Clean Laundry and Home Sanitizer.
Now you can kill 99.9% of bacteria and viruses, including the virus that causes COVID-nineteen.
And as you can imagine, such a great claim we're taking further than just into OxiClean home sanitizer. If you go to the next 1, you can see that we are launching 2 great cleaning products, multipurpose disinfectant sprays with a similar claim. And what's more important, they are both without chlorine bleach, which is a concern to consumers. Next slide. And we are having other innovations as well.
Most of us know how well, how confident we feel in great fitting clothes. So we are bringing great fitting condom. We are launching Trojan UltraFit, the new lines of condoms tailored to fit for a better feel. And if you look at the bottom of those designs, you can see the different shapes of those condoms. Next slide will show you that we also have something for those consumers who are not using condoms, who are actually hoping to get pregnant.
And we have a unique consumer insight knowing that some of them test frequently 6 or more times. And we've generated a particular product for them, which is on the next slide, 1st Response Comfort Check. And this is the first 1 which allows you with several test strips to frequently test whether you're pregnant or not. Next slide. We also know that consumers find flossing difficult and only 16% floss daily.
And so you might remember from the past that Waterpik Sonic Fusion is our number 1 and best ever innovation for Waterpik and it's just got better with our 2.0. And if you see what we've done, we've upped our flossing experience, but we even higher upped the brushing experiences with different bristle speeds, different head sizes and brush speeds. So very confident that our growth in Sonic Fusion will accelerate going forward. Next slide. We also know that there's new beauty routines in actually a actually a beauty routine where you lather your legs and then you remove the product.
So it's a much more cosmetic application. And we've used that for complete refresh of the NIA brand. So I'm very proud to show you in a minute the new advertising, which, if you're aware, is fully in line with where we are today in more younger kind of positioned brands who are also body positive. And for those of you who know the NARE brand for a long time, there's even a little nod to our very old shorts, shorts TV commercial.
Thunder size, more like lightning size because when they strike, you better watch out. That means I'm on the move. Smooth, strong, pure magic. Yeah, I wear short shorts and no lies, these guys are going places. Just watch me.
So we've really hit where consumers feel today because we're seeing that in engagement rates to this campaign online. And as we're talking about changed consumer beauty routines, they have learned to do beauty at home and are aware of the cost savings. So we're taking advantage of that with the launch of the new FLAWLESS Pedi and manicure, 1 of our at home beauty solutions. Next slide. Other trends which we are very aware of is that people are currently very concerned about their immune system and that they're looking for this extra support.
So we are launching VitaFusion super immune support. It includes vitamin C, zinc and elderberry delivers over 100 percent of that daily value. And what's more important, it's the 1st VitaFusion item in the cuff and cold aisle. So we are expanding the VitaFusion footprint. The next innovation might also be something for this audience here because we know that everybody currently struggles due to stress with brain health and we have a product just for that, which is the new VitaFusion BrainFood, which has focus benefits in the focus and stress area.
And if you go to the next slide, you will see that we are also understanding the stress and anxiety everybody is facing in the current environment. And that's why we are launching a very trendy ingredient by diffusion ashwagandha, which has a highly relevant stress benefit. And it is a very trending agreement and has an exceptional great taste. And if you might remember, my diffusion is that that's tasting gummy. So we are seeing how consumers responding to great ingredients, but with a VitaFusion taste.
Next slide. And with that, I can round off saying you are aware that we've upped our innovation stream, but particularly in vitamin gummy areas, you see that over the last couple of years, we have really doubled down on innovation and that will continue to fuel our growth not only in 2021, but also going forward into 2022 and beyond. And with that, I would like to hand over to Barry Bruno. And some of you might have read the news. So Barry is going to be my successor as CMO, and I'm very delighted because I know that he loves brands as much as I do and I trust he will grow our portfolio even more than I have.
So I'll hand over to Barry.
Thanks, Britta. Thanks for 8 great years of partnership together. We'll miss you for sure and big shoes to fill. Okay, you guys have seen this slide. I'm going to tell you the international story in 5 minutes or less.
We are the growth engine at 6% organic year over year. And as a reminder, we break our business up in our subsidiaries. So you can see Canada, Mexico, Australia. In Europe, that's also UK, Germany and France. And then our Global Markets Group, which we operate through distributors in over 130 countries around the world.
Next slide, Jill. How have we done against that 6% organic target? Well, we've done pretty well. You can see where we've been on a pretty good run from 2015 through 2020 exceeding our evergreen model. Through the first half of 20 21, we're exceeding it as well.
And I'll tell you that our demand remains really strong while supply remains constrained. So we feel confident we could be doing even better. Next slide, Jill. So how did that 6.7% play out in the first half? Well, our subsidiaries that I mentioned earlier, they're growing faster than category averages, we're gaining share.
They were up 3.8%. Gmg continued its strong, strong growth, up 13.5%. And when you conduct a weighted average of the 2, that's how we get to the 6.7% for the first half. So that's the past. Looking at the future, it probably won't be a surprise to many of you on the call that 95% of the world's population lives outside of the United States.
You can see here markets where over a 1000000000 consumers live, whether we're talking about India or China or parts of Southeast Asia, there are huge populations outside of the U. S. And that's what gets us excited about the future. We did a quick study of our top 10 CPG company average. They get about 60% of their sales internationally, while we still only get 17%.
So we've got about a 42 point gap to what we think are our fair share here. Next slide. So what are we doing about it? Well, Global Markets Group that remains our investment hub. Emerging markets serve as our long term growth drivers.
Our subsidiary markets, they're delivering growth above average. We're still gaining market share there. There are profit drivers. And then really acquisitions, WATERPIK and FLAWLESS are still hugely under indexed internationally. Both of them are growing at double digits this year and we see that going long into the future.
To make it real for you, here are a couple of accomplishments in the first half of 20 21. So we've almost doubled the size of our team in China and now have the ability to sell directly to consumers there. We opened a new office in Mumbai. I haven't even been able to visit it myself because it's open during COVID, but we've got our first employees on the ground in this important market. Pricing, you've heard about all the COGS headwinds we're facing.
We've added dedicated pricing headcount for international for the first time in the first half of 20 21. Local manufacturing, we're not shipping from the U. S. Anymore. We've got local manufacturing in Asia, so we're close to our consumers and our customers and can replenish all of that demand faster than ever.
And last but not least, thanks to Britta and our marketing team who came up with a great More Power TO You marketing campaign, we've rolled it out globally around the world for the first time ever. We've got a truly global marketing campaign building awareness of ARM and HAMMER in 130 countries now. We're doing all that while staying committed to our commitment to improve profitability as well. So you can see here going from a 12% to 12.5% to a 13%, 50 bps year over year operating margin improvement. So in closing on the international story, we believe we're the engine for growth.
We've got a long runway to get to our fair share. If there's any 1 takeaway here, it's that 17% for C and D versus 49% for our top 10 competitors that comes from out of the U. S. Recently acquired brands, we've got miles to go still on Waterpik and FLAWLESS. Emerging markets, they're still relatively new to us.
We're investing in headcount and resources there and actually continuing to invest in all of international, so we can keep this great growth going. So that's the international story in 5 minutes or less.
Thanks, Barry. Thanks. I'm going to run you through Specialty Products and particularly Animal Productivity story. Specialty Products business, we expect to grow 5% annually. That's a long term goal.
If you go to the next slide, you'll see that the business is a $300, 000, 000 business, half of it is dairy, 8% this is last year's numbers, 18% was nondairy and the rest is bulk sodium bicarbonate, what we call specialty chemicals. If you look at the next slide, you'll see that the products that we make are not antibiotics, prebiotics, probiotics, nutritional supplements. Why is that important? Well, because consumers are moving away from consuming meat that's produced with antibiotics. We've had a cyclical business We've had a cyclical business historically.
It seems like a 3 year cycle, 2011, 2014, 2017. You would have expected 2020 to be up, but COVID hit. But we do have a cyclical business because it's largely tied to dairy. Next slide. Nondairy in 2020 was 18%.
We expect it to be 24% in 2021. So that's a good thing. We'll have a more balanced business going forward, smooth things out. NexoLad. And with respect to specialty products and animal productivity, they're all all these products were labeled Arm and Hammer.
We're consistent with the consumer trend away from antibiotics. We've moved into other species by way of acquisition. So it's not just dairy, it's also cattle, swine and poultry. That's important because the population of the world is going to grow to over 9, 000, 000, 000 by mid century. So there's going to be a lot of opportunity to sell our product.
And a lot of that opportunity is outside the U. S. We make reference there to global growth. Now, how we run the company? If you're a long term shareholder, you know these 5 things.
Number 1, leverage brands 2, friend of the environment 3, we have super productive employees number 4, we're asset light. If you do those 4 really well, you get great good returns. But if you top that with acquisitions, you get great returns, as you saw from my very opening slide. You go to the next slide, you see we already covered our 13 power brands. These are the ones that we get all of our attention, all of our focus.
The next slide, you see a friend of the environment. If you go back to the 19th century, we were putting bird trading cards in our baking soda boxes, not baseball cards. In the early 20th century, we started to recycle paperboard.
And if you go to
the next slide, in the last few years, we started to use renewable energy for electricity demands, both globally and we've been planting millions of trees in the Mississippi River Valley through Arbor Day, from 5th grade science that trees take CO2 out of the atmosphere. If you go to the next slide, you'll see what our targets are. Most proud of the 1 on the bottom, we intend to be 100% carbon neutral by the end of 2025. As far as waste goes, we want to be able to recycle 75% of our waste by the end of this year and then water reduction of 25% by 2022. If you go to the next slide, you'll see what with my reference to highly productive people, just look at these numbers.
Our revenue per employee is approaching $1, 000, 000 per employee, which is fantastic. We're about 5 van top line company with about 5, 000 employees.
If you'll go to the
next slide, you see how everybody's incentive, we have 4 targets: net revenue, gross margin, cash from operations, EPS. We've had these 4 targets for years years and it promotes financial literacy within the company and our long term incentives are all stock options. So if the stock performs, management wins and but so do our shareholders. If you go to the next slide, Asset Light was number 4. Rick will take you through this later that our evergreen target is about 2% of sales as of our CapEx.
Now finally, if we move on to M and A, which is number 5, go to the next slide. The first 4 give you good returns. Number 5, if you do the acquisitions well, they give you great returns. Now you saw this slide earlier, a long history of acquisitions. We have very specific criteria.
We buy brands that are number 1 or 2 in our category. They need to be able to meet or exceed our evergreen target of 3%. Margins that are at or above our company gross margins around 45%. Asset Light, we don't like to buy plants, we like to be able to leverage our existing supply chain footprint and they have to have a sustainable advantage that's going to be here for years to come. If you go to the next slide, the shorthand with respect to acquisitions is 13 brands today, 20 tomorrow.
Stick around for a few years and that number will And now we're going to bring up Rick for the financials.
Great. Thanks, Matt. We'll go through 4 things. We'll go through the Evergreen model, talk about our outlook as of a month ago, speak on cash flow and then end on capital allocation. So, first off is Evergreen model.
This is our long term shareholders know this very well. We've been going through this for many years. 3% top line, 8% bottom line. And then the details on this page. So, 3% top line, gross margin expansion, marketing dollars higher, but usually as a percentage flat, leverage SG and A at least the operating margin expansion of 50 basis points and then 8% EPS growth.
Now, our outlook as of a month ago was 5% net sales growth, 4% organic sales growth. This is higher than our typical Evergreen model and higher than our original outlook for the year. Consumption is strong. Domestic is 3%, international 6% and SPD is 9%. Adjusted EPS growth is 6%, a little bit under our Evergreen model, higher inflation, dollars 125, 000, 000 of incremental COGS this year as well as a higher tax rate.
Gross margin, first half, second half story. For the full year, our outlook is down 75 basis points. But in the second half, we're up. And we're largely up because we've been able to take price on more than 6% of the portfolio as of October 1. Going to cash flow.
So, our 10 year average on free cash flow conversion or free cash flow divided by net income is over 120%. Many companies target 100% and some 90%. So Church and Dwight produces and generates so much cash that we put to work. Next slide, please. And part of the way we do this is working capital improvement.
So, our cash conversion cycle, receivables plus inventory minus payables, has gone from 52 days back in 2, 009 to around 16 days is our latest estimate for 2021. If you strip out some of the recent acquisitions like for Waterpik and FLAWLESS that have Chinese supply chains, long supply chains, then, it would be closer to 5 days, which is just a great accomplishment. And we have a strong balance sheet. We've mentioned a few times today that we're going to probably end the year around 1.3 times lower. So, just a lot of financial firepower.
And here's an example. We believe we could do up to a $4, 500, 000, 000 deal and maintain our investment grade rating. And then moving to capital allocation. Here are the 5, prioritized uses of cash flow. Number 1, far and away TSR for good M and A.
Number 2, CapEx for organic growth in their productivity program. Number 3, new product development. Number 4, debt reduction and number 5, return cash to shareholders. And then the next slide is going to show some of the examples of CapEx for capacity. So in 2020 20212022, we're going to be spending incremental dollars on laundry, litter, vitamin capacity, technology investments.
And 1 more slide, please. And that's how it compares to our 2% evergreen model for CapEx. So, in 2021, it's closer to 3% and it will be again in 2022 as we're spending on those capacity driven projects. But over time, we're not a capital intensive company. And then to wrap up the financial section, we end on the dividend.
We had a 5% dividend increase in 2021, but even more impressive is 120 consecutive years of dividends, just a power of consistency for Church and Dwight. And with that, I just want to say thank you for joining us. We'll talk again in late October for our Q3 earnings call.