Church & Dwight Co., Inc. (NYSE:CHD)
Q4 2012 Earnings Call
February 05, 2013 12:30 pm ET
James Craigie - Chairman and CEO
Matthew T. Farrell - EVP & CFO
[Call Starts Abruptly]
This was what this floor is made for in a refreshner economy, which we have been in from about 2008, this was the case of the laundry category, more and more users are shifting from the premium mid-tier price points for the Value and Extreme Value price points. In fact as of little past year or so, the Value category is now growing bigger than the mid price category, which you can see on this chart and encroaching up on the premium category soon.
In fact more households, you look at actual households, more households use a Value detergent than a mid or premium price detergent and its growing, and we’ve got share results. As you can see we have just steadily every year gained a point or two of the total fair of the total laundry category. We are now almost 15%. As you will see Church & Dwight has grown over the last three years, we’ve gained 300 share points, everybody else has lost and now we’ve past Sun as the number two company in America on pure dollar share basis.
If you look at the Value segment, we are by far the biggest player in the Value segment, over 50% of the segment; we’ve gained eight share points within the Value players. We are now bigger than the number two, three and four players combined. You can look at the total Washload. This is what people actually use in their household. How many Washloads are our products versus other products, they give us some liquid dollars because those are just purely what they use in the Washload, you can see we have increased the number of Washloads in the American household between 2009 and 2012 and we are far closer to Procter on total Washloads than we are of a dollar basis and growing.
Every player well in 2013 will expect continued strong growth of our laundry business plans of 2013. First of all we have achieved some major distribution gains on our two products across major North American accounts. So we’re going to be growing the shelf across all these accounts. Now, I know some of you are workshop analysts will ask me questions as to which accounts and the answer is we’re not going to tell you. For competitive reasons we’re not going to name those things these things are happening as we speak by the way this is the pitch of the three analysts will have a hold on our stock anyway.
There are no details you’re going to ask me 100 times and you could tell you accounts what timing whatever. I would simply tell, I still try a little around on distribution across all of our products within 2009, 2012. I will simply tell you in 2013 in our laundry business we probably have the biggest amount of distribution gains than we've ever had in our business and by the way we deserve this because of our share growth the distribution have to keep catching up with our share gains and this is not as we've got something we deserve we totally deserve this because we grew our share of net products, so I showed you so much.
And we have some great new products coming around next year for both ARM & HAMMER and Xtra that will help drive increase sales along with that increased distribution. And Xtra, this is a brand that provides great value to consumer. This brand is about a third of the price of the premium brands. We put a dimension on how big Xtra is?
Xtra share is – got a highest cubic share ever in the fourth quarter of 6.4, how big is that? Some you may not know this. That is bigger than P&G’s Era and Sheer combined. That’s bigger than West House Son and Width combined. So Xtra is a big brand and we’re launching two great new fragrances on this in 2013. This brand is very much driven by its fragrance and deo and so we are launching two great new fragrances to help drive this brand.
Big news today folks. This is ARM & HAMMER ultra power, we’re leading the way in the liquid laundry category on concentration. This is a win for everybody out there. The consumer wins in this case because we’re improving value we’re offering 20% more lows along with the downsized version here with less water in it, improving performance, this product is 50% whiter and 50% fresher. As a product the smaller bottle which you get a compaction is easier for handling and storage. That is environment friendly because its less weight. And the consumer to control the dosage and I’ll talk about that in a second.
The retail wings on this one the bottles are small they can ship more per truck so they save lots of money on their transportation cost. They can fit more bottles on the shelves. So see you a lot of stock and higher and one of the best fit and drives category growth. And we are watching the product incrementally to our base business today and only will walk into retail seeking incrementally – we just result them. There sponsor has been extremely positive.
Why are we doing the next around of compaction from you would say because it is a little bit of risky going from bigger bottles to smaller bottles this is why we’re doing it. If you look at the last amount of compaction which has happened over 2006 to 2007 as a world out across the country and then you look at it in the 12 month after it was fully out there going into 2008, 2009 compactions rolled a 5% gain in the total laundry category, big improvement, which I think fully liquid laundry category, everything right in the first place leave my own side that was big that’s big growth.
You might say well isn’t positive during that or something we call unit dose. The answer is absolutely not. Consumers use less laundry detergents when they switch from liquid or powder to unit dose. You can see on this chart that as unit dose sales versus the total category, this was reported by Nielsen, all channels which captures 90% of retail consumption out there for all manufacturers involved with it. Unit dose has grown, since it started the numbers versus year ago, you can see growth of $22 million over a year ago to $140 million.
But you can see down for the laundry category, which is liquid, powder and unit dose, all three forms, incremental in Q1, but in Q2 as the biggest player, I know this category has started pushing unit dose. You can see the total detergent category has lost more and more and more sales. Unit dose is hurting the laundry detergent category. Compaction will help the laundry detergent categories, we last did it and that’s by we are leading the effort and hopefully the other manufacturers will get the news and follow us. I was very pleased to hear yesterday Clorox doing around a compaction in bleaches. Smart move for all the same reasons we are doing it.
All right so we are on the (NYSE:TV) product portfolio, part premium, part value, which is really helping to drive great sales in especially recessionary time, but also great times too. Number two we know how to build our powder brand share. I’ll talk about we have eight powder brands as you can see in this charts. Those eight powder brands represent 80% of our sales and profits. Those were the eight powder brands there, the number one in every category or a major product and leading households like ARM & HAMMER, which connects about many categories.
(Inaudible), we think there is no secret to this, this should be every brand in America, but we have very innovative products that I would tell you I think our innovation pipeline is as good or better than any other CPG company out there. We’ve increased our marketing spending, we’ve increased our distribution in to those three things and you build your share on your brands.
Let me talk about new product series. The major news today coming across, I think first of all the major new products on our existing platforms today, in a second I will talk about some wide space categories, and the joining categories. These are some of our new products, I talked a minute ago about XTRA, just repeating that slide. I talked a minute ago about Ultra Power, big new news leading the way out there and the next one is compaction.
Let’s move to Cat Litter, Cat Litter we had massive new launch to XTRA called Ultra Last, it’s the number one new Cat Litter launch since 2005 and this year we are going to grow it even further by launching a larger size expansion to 2013. Pure Ecstasy and TROJAN, this is the next new form of TROJAN going out there. We’ve had a great success line. I will show you more in a second on that. It is a revolutionary new patented design that makes you feel like nothing is there and it’s an Ultrasmooth lubricant going with it.
Nair Spa Clay Trio, wash and launch Nair Spa Clay product individual product, this we are combining them into a package called Trio, so you get in one little package how to prepare your skin, how to remove the hair and how to moisturize the skin all at once.
Now to White Space, turning over to big White Space categories we are going into which we think will help drive very significant growth for our company. These categories are big, manual toothbrush $800 million category, Cold Sore $200 million category dishwashing additives 140, Sexual lubricants $250 million category.
Last year we launched late last year Tooth Tunes proprietary technology we actually acquired from the Hasbro Company. This product we launched in the second half of the year. This product is doing awesome already achieved a 16% share of kids battery toothbrushes. In this case, proprietary technology only we can do and I’ve always said jokingly but true if we had children we yell at all the time to brush their teeth at night you have to yell it from stop brushing their teeth when they have Tooth Tunes and the music is playing in their head.
Big new news here folks we have the exclusive bright news for our musical toothbrush form the One Direction brand now the old timer is going to say who the heck is One Direction, for those of you have young kids they’re going to say oh my god One Direction this is the hottest boys brand in the world. They sold over 23 million singles albums and DVDs last year they were named Billboard MTV’s Top Artist for 2012 their world tour for 2013 is already been sold out and they got a movie coming out in August of this year. This is as hot as it gets and we’re launching two brushes with two of them are the favorite songs on them (inaudible) those are you going home tonight with especially young girls in the family are going to be very curious when you bring this product home tonight its shipping as we speak and your kids will be the first once in America to have this product.
Cold Sore, Matt mentioned we had some issues on the oil gel – private label, we’re dealing with that on the core business. Last year we launched a new product called Cold Sore treatment. Again it’s a some patent technology this product is incredible it’s always in the top 10 SKUs in the Cold Sore category. I tell if you have friends have some cold sore tell them to use this product. The competitive product that’s been out there has – users over seven straight days and it only stops healing by about six or seven hours. This product is one application healing stuffs immediately its incredible I swear to you tell your friends about Cold Sore, given this product they will thank you.
Dishwashing additives another thing we started last year, we’re going to span out this year our Oxiclean Dishwashing Booster with the number one new product in the dishwashing additives category. Again we launched it late last year. As I told to you straight back then dishwashing products, they get phosphate out of the product last year but the government phosphates and great cheap cleaners that help make your glasses sparkle they had to take it out they haven’t quite found replacements for that. We've launched this product to help you store the cleaning power of dishwashing products. It is DD additives category since we was launched 58% of the growth was due to our product, we've achieved a 10% market share in year one. And we’re spending on that in a year or two by launching a larger size of not even value of consumers.
Huge news, our company which is the owner of TROJAN brand the number one sex brand in America is launching a line of lubricants next year. The lines that we call TROJAN Crazy Sexy Feel. We’re going to do a (mimine) to this category with the X brand end of the ordering category.
There is going to be great excitement in this category which it needs. And we have a huge competitive advantage we’re going to be launching samples of this in the millions and millions of boxes of condoms that we fill so we’re going to be putting again wait it to the hands of people out there to enjoy.
You can see lubricant category is very attractive on a totally North American basis you can see condoms is about $500 million basis lubricants about half that size. The category is actually kind of stop to declining because of the lack of the news and we’re going to fix that and the margin of this business are very high. Why the people use lubricants, its not a myth out there, which need to dispelled. A lot of people believe lubricants are just used for older women they’re just for only to fix the problem that’s not true. We've done extensive studies with major universities out there and found out lubrications are critical components and great effect our lubricants are used mainly for pleasure, fun and comfort and lubricants use fulfills want the needs of across a wide range of users and situations.
You know folks that’s the mainstream acceptance in this country, the Fifty Shades of Grey book is the moving seller for the past two weeks, the movie is coming out in 2014. So we want to take TROJAN and make it our next great mega brand in this country after the ARM & HAMMER mega brand. We want to become the leading brand in three major sexual health segments, we already own a 66) share of the common business in North America we want the become a leading premium brand n the vibration market in North America and want to become the leading premium brand in the $250 million lubricant market.
You can we (inaudible) uncommon through great innovations that we launched over last few years and achieve sheer growth again this is across from three countries and doing extremely well. Lubricants and vibrators have to understand are helping to extend our franchise as this chapter shows that’s age of consumers on the bottom the show for condoms – use of condoms declines over age. Youths and vibes don’t. they stay very high usage in overall age group. So this is really going to bring great growth and strength for the TROJAN business force for launching in these businesses. We combine through seconds, interesting fact about just make you very popular your next cocktail party your neighborhood.
There are two types more people use vibrator, 30% use condoms, 53% of adult women and 46% of adult men have used the vibrator sometime in their life. So that we say when an adult women and men have used it with their partner that will surprise you and get this one 56% of women and 59% of men who have never used a vibrator before believe that a vibrator use is a healthy part of a women’s sex life where as people have used (inaudible) 95% believe that so this category has a lot of outside opportunity.
We've now with a full line of vibrators on the marketplace and last year we did am interesting little test, we decided to give away vibrators in New York City to find out how much people appeal to it improves the reach out in America that everybody wants vibrators. On the first day we did in August 9, we launched in New York City and we have hires that announced it and we have people lined up over five blocks more and waiting for a free vibrator to the point where Bloomberg said its folks that didn’t us down in front page of New York Post the next day (inaudible). Well, next day we got the license to come back out and do it from the city we did down on the meat packing district we’re not stupid.
And you can see the lines again, lining up before that and the people loving it, we give away almost 10,000 free vibrators and it was extremely popular. We since rolled that out last year to Chicago and Boston, had equally incredible results. This year we are going to roll up 15 more cities and drive extended retail distribution, there is the picture down there in Washington, in front of the Washington monument; again we are very careful how we choose our sites show the symbolism behind them and have great success. So if you want to actually put it to do we will give you the cities and the timeframe, so you can meet all your friends across the world and fun out there.
So that’s good in price, I think it again it probably the most innovative new pipeline of products that we ever had in our history entering some major new categories with exciting news. We support those increased marketing, interesting chart, we’ve never quite shown this kind of detail before. This is a chart of our total marketing spending and very carefully here this is advertising, consumer and trade dollars. We are not going to give you the details, but I am just going to show you a few additives up across the years, you can see that our spending across, out the most total three elements of what we call marketing has gone to 9% CAGR across the year. So we have been increasing our support by on great innovations.
You take those two, you will grow up in sales, grow up to the retail world and you tell them, hey, we need more distribution, and we get it. This is a fascinating chart that compares between 2009 whatever we had in this brand, how does it compare that’s a 100, how to compare certainly well in 2012 and you can see just from that timeframe, which goes through the end of last year we had major gains across our brands and I would tell you in 2013 or probably the biggest year this division gained across our entire franchise out there. So when I come back here next year I will show you the 2013 results, but I can tell you right now based on what we know from what a counsel said to us in a very (inaudible) to do its going to be a terrific year in 2013.
Yet all together and after the great growth in our power brands, this is the last five years our eight power brands have grown share over 75% of the time, heck of a lot more of the other companies out there who are trying to get to 50%. We’ve gone to 75% December time, again had a great year in 2012 with six of the eight growing and actually I explained to you Nair had a great year, but there was a new entry that grew the category even more than we grew, so tactically our share went down, but our sales were right here.
This (inaudible) chart say well, this just shows you how we are not just one year wonders, we do it consistently. Here is share growth in ARM & HAMMER (Toothpaste) shows us 16% CAGR between 2003 and 2012. Here is ARM & HAMMER Litter, a category we entered in 1998 and had a 14% CAGR and sales force driven by tremendous innovations over that time period.
OxiClean, a great brand and I will talk a bit more in a second. If you look at this brand, we bought it in 2006, but where it is today take those combined sales of the Oxi product itself and we what we co-branded with, this product is going up to 22% CAGR and we tripled the total sales of this business since we bought it 2006.
First Response, I love this brand. We acquired this brand in 2001; it is a (mute) number three brand with a 12 share. Now about 11 years later we are the number one player in the marketplace with over 30 share and still growing.
The bottom line we had a great year in 2012 and we exited with great momentum, on the year, six of eight power brands grew to record levels, didn’t just grow record all time levels on an annual basis and in the fourth quarter of 2012 seven of the eight grew share in the fourth quarter and those quarterly shares and half of them, a record quarterly share, so, very important to us as we exit the year with very strong momentum.
Now well great portfolio, great power brands driven by innovation and marketing, distribution, but sometimes people say we got little Church & Dwight, you are only $3 billion in sales up against guidance, they get to $8 billion in sales, how do you defend yourself when you got a task? Let me show you. I have told this story before, the ending is even better than I told you before. This is the story of OxiClean. We bought this business in 2006 with a 27 share, which was the number one brand at the time. In the next three years through 2009 we grew it to 40.7 share, how we do that, like I just told you, create new products, increase the advertising significantly, but then in 2009 the player in the marketplace decided they are one of the biggest share of this business.
They already had a little stain pen out there, that was a sub 10% share of the category, but they decided to come on board with also the ones that come out as hard. We didn’t sit there, we ferociously defend the business, we launched a whole line of new products, we also cobranded the product, because other products being more awareness of the OxiClean name, we increased advertising spending to make it the number two most advertised product in the entire fabric care category and the end result was that now today, our share in 2012 is actually higher than it was in 2009 when the other guy entered the category and you can see on their line, the second line down there that their share at one point reaches high as 17% to 18% of the category. They have backed down to13% of the category and are barely above where they started the business in 2009. And you can see we totally deflected all the share gain to other players in that category, so not only we are still number one, but we are growing.
International, international is about 18% of our portfolio, not as much as (inaudible) but a very good piece of our portfolio. Our business is concentrated in six countries, where we have $500 million in sales, five of those six countries are doing very well. Over the five year time periods of 2012 we had good strong sales growth across those countries and even the one we are often really down about 1%.
Drivers of that is not only do we have our power brand corporately in some of those countries, but we also have some very strong international power brands between RUB A535 which is the hot, icy hot brand of Canada, we have Grava, number one upset stomach brand affairs, (Therma) which is big, which is the international version of simply failing we have here, so we have some very strong power brands, number one and two in their categories out there, mostly personal care, mostly high margin and we have our corporate power, we’ve been expanding ARM & HAMMER Laundry to Canada and Mexico, Cat Litter the same, we have extended toothpaste around the world and we grow out Spinbrush around different countries.
We are also acquiring some brand. We acquired the Batiste business last year in the UK for dry shampoo, doing exceptionally well, it’s a fixed share in the UK, you heard so much, we are the leading wet shampoo business the dry shampoo the leading wet shampoo business only 12 this business has grown from a four to six share in last 12 months and really a hot product and we have a process expanding this around the world. And last but not least we’re leveraging our one company strength in across all functions around the world both to drive innovation drive our marketing better and to drive all of our cost savings.
And we’re proud expanding gross margin. We've told you many times in the past gross margin is the gas to our gas tank. We've had a fantastic record here between 2001 and 2012 we've increased our gross margin from 29% roughly to 44% or 1510 basis point increase.
As well talking about competition the last five years Church & Dwight has by far exceeded anybody’s growth in gross margin last timeframe we’re over 500 basis points over the last five years, the next closest guy is about 200 basis points.
The key drivers of that things we talked to about before what we keep doing them there is going to be very cost optimization program, good to greater, use of that famous book by Jim Collins, just our name -- it applies to what we call reformulation of products reducing packaging, reduce the number of SKUs and have got plans for more efficiently laundry compaction was a big contributor back about 2007, 2008 and hedging commodity do an excellent job of doing -- make sure we had consistent lower across the commodities.
Supply chain restructuring we've got lot of capital we’re building some new plants out there to help our laundering capital businesses which are very heavy businesses so it makes it very different that our plans across the country we now have plans in the East Coast, Mid West and the West Coast the best solution chain of any laundry product out in America, so and diesel being as high as it is, the money on transportation cost they had three plants out here.
Acquisition synergies I’ll talk about more in a second but we love the core high margin brands and drive a lot of out of cost out of them to make them ever more accretive to our business. And price mix, we have a principle in-house that everything we launch is new products we want the gross margin equal to or higher than the other products in the line that’s launched.
I mentioned acquisition we have a great track record in acquisitions very clear guidelines we try to follow in every case so we primarily want number one or two share brand. I am firm believer that anything below that is a bread that’s in trouble and with some possible turnaround so we want leading brands we want higher growth brands higher margin brands, we want to act that like that means we got to love to pick up headquarters and plan something like that we will have some competitive advantage. But we don’t like to otherwise, we want to leverage our capital base in manufacturing logistics and purchasing and we want businesses we believe over the long-term with sustainable competitive advantages so we can grow their share and sales.
Here is our track record you can see a little past 12 years our businesses and I mentioned really Matt said it too, we have eight power brands seven of those eight brands we acquired that I was questioned earlier what is new Avid acquisition will be nice power brand and it is so Avid -- presentations going forward that’s going to become our next power brand. We quickly integrate these acquisitions and quickly grow their shares you can see on all these acquisitions how much we have grown shares over time very solid consistent record .
Let me talk about Avid for one second those of you have heard it before this is the fantastic acquisition. This is the acquisition the very fast growing category called vitamins, mineral supplements. And we have the most unique and hottest product in that category by acquiring this company. And this is the business I mean vitamins, minerals supplements what a category I mean you know in our world today historically 3% to 4% growing category was good now most categories are growing 0% to 2%, decent business is going to steadily very single -- mid to high single digit growth rates and those growth rates are doing to continue as this increased focus on health and fitness in this country is the population ages above the mineral supplement categories continue very strong growth rates.
Interesting split here very big difference from kid’s category to adult category. The kid’s vitamin business is only about $200 million category adults are at least $3.3 billion category. Gummies in total make up over 58% of the kids business, they don’t make up 3% of the adult business. So we’re looking at adult being 16 times the size of the kid as a category and yet only 3% penetration of gummies and we believe there is tremendous upside there.
Avid little critter brand is always the number one brand in the kid’s vitamin world, the Vitafusion brand which is the adult version is the number one brand, but again number one with only 3% of the total business. We do see how fast these are growing the Vitafusion the adult version on the left there because only launched in 2008 and its already through 2011 we have issued 2012 numbers that’s the 2011 already close $100 million business. The kid’s side again is the number one player there is already over $100 million business with tremendous growth rates.
This little place for strength I mean think about what we do well and what I talked about already. We ship a fragmented category that’s why its opening for very strong agile competitor like Church & Dwight. We have a great track record I showed you of building the share. We have the resources this company did not have to take all their great product and their great marketing support and expand distribution.
We have great internal know-how that they didn’t have and that’s the systems and packaging line from we can apply to their plans and save a lot of money. We have economies of scale they don’t have in purchasing logistics and this is a business somebody say well this is a regulated business well how we have a bunch of regulated businesses that we fully understand how to properly deal with the FDA going forward.
This is going to have a great impact in our share price going forward we just acquired this business officially in October 1 and paid $650 million for it over this year and we are set to realize $15 million in cost savings I would tell you that’s right on track everything is going very well doing a great effort for my entire team and you can see down, we have talk about this few minutes – couple of minutes, we’re calling 9% EPS growth on the core business in 2009 an additional 5% EPS growth will come from the Avid acquisition.
So that’s our formula there a great core business great acquisitions, great continuity to see our results. And if you haven’t tried it yet there is a sample in your goodie bag (inaudible) someone in the room here try them, I swear to you I was like most of you I had never had anything but hard pills for my vitamin, they brought this I got into it, I got in the gummies and I look forward every morning, get up in the morning and eating my gummies its just the best (strip) and we have the very best gummy in the market. I’ve tried them all many times, other guys are not as soft and chewy, not as favorable, we have the best tasting gummy vitamin out there and you’re going to be hearing a lot about that as we double the advertisement spending on this in 2013.
Getting more into the math territory right now, we have best-in-class free cash flow, we kind of talked about this. You saw the tremendous growth in the cash flow over the last five years. The blue lines here are through 2011 and we had latest information on competition. You can see we are best-in-class. Nobody has done as well as we did and we've done it again, the gold line in 2012 more than 118% free cash flow conversion.
Number eight something very unique by the company’s superior overhead management control. Interesting chart our revenues have increased 93% since 2004. Our headcounts increased only 15%. Now I showed you this chart in the pad, our headcount actually have been going down through last year, but in the Avid acquisition we picked up about 750 employees. So actually prior to thinking of Avid our debt employee line would have gone 3800 in the past to 3600. So making that we would have increased sales 93% and actually reduced headcount and the same time taking our EPS up 260%, but even with Avid we’re still best-in-class in the industry. Nobody has the revenue for employee that we do even picking up 730 employees.
And believe me folks we do walk a lot. We don’t have a company trial, I wish I did. I don’t have a company plan I wish I did. I don’t have a golf club membership, I wish I did, but I have Church & Dwight stock, and I can buy all those things, my Church & Dwight stock because it’s not as so much. In fact lot of that things in my Church & Dwight stock and if you wanted to you go afford all those things. And then say -- Okay, Jim, great results. How do you get them, how do you keep doing it? Well we put in a new health care plan in the second next year, they have to save money, you know we spend a lot of money on a information system, we’ve got an SAP system. All that allowed us to go forward and keep our headcount down to continue to grow this business and it will help us as we keep lowering our percent of net revenue spend what we call SG&A.
My expert management team in the room here today, all my lovely experts, I tried it before, I do not believe in rotating people around. I do not believe at fine desk person he is training over in sales or marketing or vice versa, makes him a better person in the future to be Jim’s replacement someday, I don’t really train 50 people be my replacement someday, there is only one of me. In the mean time I want people to become experts in their functions and they are -- my age strategic business views leaders have been in their current jobs at least five years, they have an average of 23 years of experience in the industry that pays off, our eight power brands I showed you, have grown category growth 30 out of 40 times in the last five years.
We've been able to minimize headcounts because they don’t need extra people to help, in fact they can reduce people because they know the business so well, that is also in the execution, everybody knows each other, they know what they doing they have been doing over three years, its great and then execution is one of the great hallmarks of Church & Dwight and we're able to absorb big one, big one, absorb acquisitions without adding out incremental headcount. My people actually beg me, they are kind of somewhat bored running the same business over again they say give me new brands, give me your businesses and we can bring out business out without adding lot of additional headcount s.
(Figures) one to nine we will end up with a fact that we are total shareholder returns junkies. We have had an incredible decade of growth, tripling sales, gross margins were up, marketing spending up, SG&A only up 220 basis points, leads to great results, you can read them at operating income, EPS, adjusted free cash flow and our marketing cap in my tenure has grown $2 billion to over $8 billion, huge increase.
And if you own our stock about ten years you have averaged 19.2% of the total shareholder return, which you have to make a lot of your investors out there and shareholders very happy.
.There is my team, that’s actually done a year ago, February 7th to my point a second ago, there's my team. Every one of them is here today, who are in their very last year, I have been even with the same stupid tie I wore last year. Last year, I had a giants had on because the giants had just won the Super Bowl, I am not aware (inaudible) or good team, but anyway we are here about again today with all my great TSR junkies throughout this room. And folks we are 100% in the game, our bonuses are tied to 100% of business results, the business results mean the most you and all of your models out there, 25% of our bonus is now revenue, 25% of our bonus is in the gross margin expansion targets, 25% is sitting at our adjusted EPS target and 25% free cash flow.
Our equity compensation is 100% stock option, that’s where you should want to hear. We are not going to get rewarded if the stock price doesn't go up. We don't have phantom stock or restrictive stock that grows in value for no improvement in stock price. We are 100% stock options. We are exactly in the same mindset you are, grow that stock price and we are required to be heavily invested. Over 80% of my net worth is in this – of this company’s stock. But trust me I watched the results every day, we broke 60 this morning. Thank you.
Anyways with that I’ll let Matt come back up here and tell you more about the outlook for 2013 and the numbers.
Okay we are going to wrap it up now. So you know our long-term algorithm for organic sales growth is 3% to 4%, we are calling that again in 2013. As I said before we have three divisions, Domestic, International and Specialty products, so all three divisions we expect to be within that range.
Our gross margin, you should all think of 2013 as a reset year for us. So we just required a business that has lower than company average gross margins. So we have four quarters that I have baked into our numbers into 2013. But keep in mind as we said in our release that we expect our existing business, base business to expand its gross margin 25 to 50 basis points. One of the things too is we about 60% of our most volatile commodity hedged as of today, so it again increases our confidence and our ability to hit that number on a full year basis.
And then marketing, again, it's a kind of reset year for us and we’ve got four quarters of the gummy vitamin business. As you know it had historically a lower spend as a percentage of sales. We said we are going to take that up at not as high as necessarily through our other businesses. And the thing we watch most closely is share voice versus share market. So we're very, very keen on what is been spend in a particular category and making sure that we are more than competitive with respect to our investment in our brands.
And then finally EPS, so you can see we are expecting 14% EPS growth in 2013, and this is a summary page. So 3% to 4% gross margin marketing kind of flattish, but remember as I explained the acquisition had some impact on that. Lots of leverage on SG&A, so round numbers as you know, our long-term algorithm is to expand operating margin 60 basis points, so we expect to do that again in 2013, and you know the rest with our dividend increase today of 17%. We have a dividend yield of about 2%.
And this actually 2012 is the 12th consecutive year that Church & Dwight has grown earnings per share of 10% or better and you see the 10 for 20 club there, so our idea there is by 2020 that we would have done it 20 years in a row. So 2013 would be the 13th year that we are shooting for. And now we are ready for questions.
Mr. Smith? I never knew you would need a mic, but go ahead
Is there a plan to take the whole laundry portfolio to Forex concentrate at some point, so is this kind of a catastrophe how it goes and then ultimately you may want to convert the whole thing?
No it's not a test. We're launching this incrementally into the business, it is eventually the retailers of the world, it’s not they want everybody to go to Forex, we would be perfectly happy taking our whole line. But right now this is between the launch of an incremental effort to our current business and we think about to please consumers tremendously, please retailers and I think as a result they are hopeful the retailers will say why isn’t everything for everybody on a compacted basis.
Got you and did you say what retailers you are going to expand the distribution in? On the Avid business, is there a game plan to get the gross margin up above corporate averages and then can you just tell us what the business grew this year, because the market is doing pretty great relative to when you bought it, so…
Do you have a growth of the share, I know it’s not a (gag) yet, just a business from that 2011 base…
Double digits on the growth. That’s all I will tell you and we do have a long-term game plan to get it up over the corporate average.
Hi, I don’t think in the press release was a breakout of the – what I would call non-recurring items in the first quarter tied to – could you tell us what they are in terms of inventory step up transition cost and deal cost?
Yeah, there actually no difference than we said previously, so…
So the step-up cost were about $7.5 million and transaction costs were $4.5 million. So between two of that’s $12 million, so it’s $0.05 to $0.06.
And so, I guess in the guidance you said that Avid would had 4% to earnings, but if you just set out its more like 2, right?
Yeah. We don’t think of it that way. So the way we think about it is, Avid was neutral to EPS in the fourth quarter. So, I know we can play games, and say what do we want to take in or out. But, we look at it has the EPS that Avid contributed fourth quarter is no different than if we bought on December 31. So consequently we say, we want everybody to understand this $0.13 of earnings per share in our numbers in 2013.
And don’t forget we told you we are going to at least double marketing spending on Avid. We really, we stepped it up a little in Q4 but really that will take starting this quarter right now. So we are going to be smoothly increase the marketing spending to drive the strong growth here. So you can use Q4 really at the base of what happened because the marketing spending hadn’t fully going to step up here – we have those step up charges and we just got in control of this business as far as distribution. But this will be a double-digit growth on revenues for us. We are going to spend some of that back in the marketing side to drive this business because we just – it’s a long-term tiger by the tail we have here. We wanted to go – we have to get out there and do well as quickly as we can.
How fast is the kids, vitamin part growing for you?
The kids vitamin part because we are already -- the kids – gummies are already over 50% of the total kid category. We already number one. So the growth there won’t be as much as the adults because we are already a big number one player there in a category that’s already well developed. It’s growing; it will be more I will say mid-single digits. And then the adult side depending on how fast to get the distribution, how fast we drive the growth we definitely be a double digit growth category, how much will depend on, how fast we can get the distribution and spend the marketing dollars and get the trials. Because of the samples – sampling drives this business when you taste this product you are converted on the spot. So we got to do a lot of sampling progress. We will save some time. But, 2013 will be a great year to drive a lot of incremental distribution incremental sampling and then convert all these people to use this long-term especially on the adult side.
And do you think in your core business that detergents will grow faster than that 3% to 4%?
And the last part is ARM & HAMMER are extra growing faster in 2013 of the two?
Well, it’s had a great year. Both are getting significant incremental distribution, both are great new product launching, we will be supporting those heavily and we had a great in 2012 fastest grower in the entire laundry category in 2012, biggest share gainer in 2012 and with what I know right now in 2013 to be another terrific year. No more, you are done. Next?
Okay. Thanks. Can you just talk a little bit about the competitive environment, what do you building in for a promotional spending, I know you said there was going to be some sampling on some of the new products but just overall I know you always have a little bit of a gloomy attitude at the beginning of the year and the numbers usually come in better. So…
So you are talking gummies or everything?
I’m talking everything.
I think it’s a pretty stable comparisons building out there. I think the business environment the economy is just kind of in a lower spin. We have seen every category for the past two years about half up and half have flatter down actually they are continuing. I don’t see any difference. That’s a little optimistic you won’t believe that. I honestly think confidence in this country is starting to turn right now. And confidence always comes before the results. And if you watch what happened in the building industry is having a turnaround. And the building industry usually perceives an economy turnaround because new homes create needs for product in those homes and things like that.
So I’m very encouraged to see the new home market picking up in this country and I think that will be the precursor hopefully maybe in 2014 or 2015, nothing will happen so much this year it takes time. But, I love the fact, I’m seeing confidence in the consumer environment, they are starting to build and I hope that continues. I hope double net quits putting us in a crisis mode with these fiscal cliff issues and makes – quits getting everybody else nervous because when consumers get nervous they pull back. So hopefully I can file the budget crisis and look forward and I hope the building industry they continue to improve and maybe in 2014 or 2015 we will see some improvement in the GDP. I think 2013 is another whole year right now. But, I don’t see things getting worse. I don’t see in 2013 getting better. Hopefully I can spend a year from now and hopefully the data will support the beginning – turnaround in this country. So we will see.
Okay. And then just on the three to four organic, I know you kind of labeled that your assumptions were aggressive but I think achievable is your quote, the three to four I guess, if you think you about you are going to get Avid into the organic sales composition.
No, it’s one quarter.
By the fourth quarter. You are getting increased distribution, you are already seeing laundry is going to grow faster than the total company. So, again, I understand that’s an ever green target. But, when you flush it out a little bit more, I mean, what could really step…
I said aggressive, but thinking more of the 14% EPS target nobody is going up the 14% in our industry. It’s a tough competitive environment, we got a lot step go out there and we do expect to spend the marketing support to do. So I think very happy, my number one thing is the 14% EPS target. We are going to deliver that heck of a hell in a high water. And if there is competitive issues out there, we will deal with them, but that’s a rougher target nobody, I know is even in double-digit range. So the 10%, I mean, we are 700 basis points above anybody else in this industry as far as EPS growth and I think that’s extremely aggressive given what we face out there.
So could we – better 3 to 4, possibly but if we do, we will probably reinvest the money in the business with the marketing spending so I want to exit next year the share growth on leave three quarters of our brands ad maybe strong in the fourth quarter that formula has worked for us consistently. I told you, I will show you numbers that will stay in general our January results were very strong this year, so we are very off to a good start, you always worry; you have a good year and a good quarter. But the inventory loading is something that did not happen and I was gauged by how well January is – and January is off to a very good start. So I’m very encouraged. So we are off to another good year, its one month, but I will take it. And then in the bag, we see what happens ago 11 months ago, I think that’s a very, very positive about 2013 for my company.
And just a two questions on gross margin, last year, you said you did 30 basis points on the base business and if you are sort of sticking with your long-term 25 to 50 for 2013, you will have a full year of partial compaction. You got a full year of the price increases in (inaudible), you got a full year of Victorville, so why couldn’t we see something better than the 25 to 50 on the base business.
And then secondly a little help on the cadence of the gross margin this year because you have obviously got some shifting comparisons in the base period into 12 plus you got Avid.
As far as the comparisons go, my favorable comparisons in the second half, so when you think about 5ish on a full year, you would expect to be down in the first half and up in the second half because Avid obviously we are going to get some of those synergies, $15 million of synergies, most of those come post 2013. But, it’s some coming in the second half of this year.
Can we beat the 25 to 50 basis points maybe like Jim said its just like the 3% to 4%. So there is a lot of things that could happen during the year and we do a lot of pluses as well also have we have a lot of dry powder with which to deal with competitors.
Yeah, you are right. We have a lot of things in the pipeline we hope come true but that’s still given where everybody else is these days, that still I think and could target but aggressive target on the core business and the mix claw down from the Avid business. So but we do a lot of good initiatives, we put a lot time last year with the new plants and everything else or even hopefully it will pay off and deliver at least that in 2013.
Yes, following up from the gross margin, looking back the last of round of compaction, did you ever quantify or could you quantify what you did to gross margin, I mean, was it 20 basis point, 300 basis points and as we look out this, is it that type of – if it was all implemented again, can you have that type of benefit or is there something we are structurally, a lot of the low hanging fruits are being grabbed?
It’s about 472 time people have asked this for our historical gain (contraction). It was meaningful. It was the single largest product impact on gross margin in my tenure in this company I'll not you what is worth. Now this time (inaudible) on the entire flight. This time is just on the incremental piece. So, it certainly won’t be a big 2013 if not it would be big if the whole business was converting and we hope the retailers of this country receive that, the consumers (inaudible) thumps up and the retailers will then especially the big one out there will get thumps up for the entire industry to those point and let's take this to it.
I'm encouraged by Clorox's action on bleach I hope that shows the way because the effort of anything we are the manufacturer do should be to grow a category and the same time bring benefits to consumers that they will appreciate and this effort does and I hope, what we are doing is kind of risky on our part to take the lead but again we did it only by the retailers being non-incremental everybody we'll talk to is willing to do that and add non-incremental to our business and hopefully consumers will start -- will react very strongly.
We are going to put some good strong marketing support behind this and I think we are guiding some of the outstanding way of putting the product out there with great package and offering 20% more loads to encourage people to bring the product on and try it. So, we have got great distribution, great displace for comments. Watching this quarter, as we speak you will see it popping up; you will see the commercial start mid to late this quarter and hopefully the results will be great and hopefully it will encourage the entire industry to move with a separate on a complete basis of line.
And on the distribution gains, I think one of the goals or possibilities out of (inaudible) was to maybe expand distribution on the West Coast and West coast Retailers is that part of what you are talking about in some of the distributions gains or is this still too early?
Yes of course, we had already been expanding on the (inaudible) West Coast and (inaudible) lot of money to ship out to some major accounts out there. So look our games, there is nothing significantly different than games in the West Coast and elsewhere because now we can ship it out there a lot less. So, yes, we have had major gains in West Coast accounts are doing very well out there in fact I'll have to check with Mr. Tursi but I believe we are the number one laundry brand and one of the major accounts in the West Coast right now certainly by far the more value brand out there.
So, being able to shift a lot less distance so these accounts was going to is the reason we built (inaudible) plant. We are working so much the plant Pennsylvania, Pennsylvania was more from a processing basis because our previous plant was all just (inaudible) and that we made a very streamline plant that was all savings about processing and making the product. The Victorville plant was more of a case of saving logistics that. So, it would benefit us from having the -- much savings on the two heaviest products we make laundry detergent and cat litter. Next now he is going to be careful of caladium red.
What was the interest expense and why don't you to break it out and what are your plans for the balance sheet for next year?
We actually do breakout interest expense when we file the 10-K you will see it. We typically do not do that in the Qs. For your interest expense for the company was $14 million probably you want to figure this out on your own, but next year it’s going to be around 26. So, it'd be $12 million incrementally year-over-year. Often it’s worth knowing with respect to other income as also our JV income. So, in 2012, I think it was $9 million, the expectation for next year is $7 million. That also a herd as well. So, those together that $14 million year-over-year.
I like to brag too the money we had to borrow to buy Avid acquisition, my finance set a record on Wall Street ever for a company at our rating level, correct?
Unidentified Company Speaker
Yeah, for 10-year money, yeah, BBB rated.
Unidentified Company Speaker
This goes to show the confidence that Wall Street has and investors have in us being able to pay off our debt and
I'm sorry, I can't hear you.
Plan to pay off any of it in '13 or what's the schedule?
We certainly have the free cash flow to do that, so that would be an option.
First question on the international margins, I think you've seen sort of an outsized, if you will, EBIT margin expansion in the international business. Is that just a function of scale? And going forward, will the international business continue to close the gap with the domestic business or can you talk about that directionally?
And then, can you clarify sort of specifically your strategy with respect to Pods, I mean, God forbid you're wrong and Pods continue to do well over Tide, is that a segment of the category you just don't want to play in or even continue to invest behind it?
Yeah, thank you (inaudible), very good. I'll take the second part of the (inaudible) expect for the margins. No, Pods is a very great product out there. We support it, we want (inaudible), we were first in the marketplace with our product. Over the course of a whole year we've got a fair share of the product out there. We're happy with it. We a little cautionary in Q4 we did expect those consumer issues with the Pods out there and we kind of pulled back the marketing support. It's sort of reality as to whether or not this product was going to face any potential recalls or anything because of the consumer news. So, our share of the market in the fourth quarter dipped a little bit but we were a little cautious. In fact, we're launching a sensitive skin version of it. I did mention that today out in 2013.
So, we fully support Pod is a fine product; its got a use out there. I think its particularly attractive to households; we have to go to (inaudible) or difficulty is easy to carry. I told you and I scream again from the pulpit, it is not helping to grow the (laundry) category in fact its hurting the laundry. People use less laundry detergent when they use a Pod they're going to have liquid or powder, but we fully supply the category. We're launching new products to support the category. We'll get our fair share of the category though we believe the answer going forward that's the best in this category, its doing another round of liquid compaction in this category. And we're going to wait for any retailers to tell us to do it, we're not going to wait so the manufacturers do it, we're going to take the lead.
Matt, the EBITDA margin is?
Yeah, can you restate the question on EBITDA?
No, you just said the operating margin for the domestic business over the last two years I mean, there has been an expansion but not as much expansion as you have seen in the international business so the gap between the domestic margins and the international margins have narrowed and I'm wondering if that is going to continue?
The international business because it's fragmented and it's in many different countries its SG&A is typically higher percentage of sales than it is for the domestic business. It's also true for marketing because they are smaller brands they still have to spend more money proportionately. So, marketing as a percentage of sales as well as SG&A has been higher historically for the international business.
As far as the (other thing) that's been happening internationally is that we have been selling more household product into Canada and Mexico as a much lower margin so that's been putting pressure on their gross margins that's then brings them down closely to the domestic business and that will continue actually to the extent we continue to drive household in Canada and Mexico so it’s really a mixed effect is what you are seeing.
If I could drill a bit too, we thought about distribution gains, that wasn't jus the U.S. we have some major distribution gains on our products going on and our current countries do so it's across the board. Again not because we actually didn't deserve it because our business has been growing so fast the distribution is always trying to catch up to it and our sales and marketing folks done of good job of convincing the retailers say, we need do more shelf space because you are getting out of stocks in our brand because it keep selling more and more.
Just two quick questions here. First on your 2013 EPS outlook was there anything in particular that convinced you to go to the higher end of your range maybe the strong January you had?
And then the second question on EPS, your longer-term I guess algorithm consistently you have proven on your base business that you can grow EPS 10% to 12% and your adding Avid, which obviously a top-line growth faster than the overall business and you are getting some cost synergies, which should benefit going forward for many years I would imagine. Why can't this business grow mid -teens instead of maybe the 10% to 12% EPS over the long-term?
Good question. The answer to your first part is, when we first made that call on 2013, we are only I think partway through Q4. Q4 finished stronger and this year started out (business) strong so that's why we raised our target up to we raised the bottom end of the target. Second thing is, I hope you right but we kind of feel at this point and time 14% is a very aggressive call versus the industry. We have to compete with people out there and (inaudible) we want to keep investing in the marketing side as best we can. So, if there is an opportunity to beat that we'll probably redeploy that money back into marketing our businesses and driving their shares for long-term success.
So, we love to having a model where we have the ability to invest and still deliver the best EPS results in the industry but we don't today if I could easily beat that
non-performance strip up marketing or pull back in initiatives now they’re going to go to the future. But I want to come here every year and tell you at least on a 12% which is nobody else has done the record and we have and I don’t want to have a 20% a year I didn’t get a 5% a year following it I think that good steady double digit growth has been a key of Church & Dwight. Our investors can account on it. It drives our stock price and the consistency of the whole market and the company if you hedge fund and your looking for short term gains go by somebody else. If you are somebody want to buy a stock and go to bed at night and get that 19% CAGR unit TSR by Church & Dwight. Thank you for that 30 second public announcement.
Way in the back, back from (inaudible) of producing a beautiful a baby.
Thank you. Double thank you.
I am not going into diaper business by the way so.
So and by she loves Church & Dwight rattle.
Yeah, it’s good.
Few money when you rattle with, got a dollar sign, I told you that.
So first in just in terms of the distribution gain so if the laundry compaction is incremental product how much of the distribution or is a lot of that incremental distribution in laundry business because of that product…
No I would say its about 50-50 on our base products we have just around distribution gains too on our base products so its going to be a fantastic year for the laundry category distribution gains because we need the more distribution our core products which have been growing steadily and had another record year and now we’re launching this incrementally. So both sides of the business are doing very strong.
And any sense of where the incremental self space is coming from?
Somebody who is not growing their shares.
Got it. And then in terms of wide space entries. I mean last year you talked about wide space entries and some of them kind of were later in the year but how much did you say those ended up adding to your sales growth this year?
It’s a good question. But I honestly I don’t know the quantitative answer to that is certainly is going to help us we had good results last year. I mean sometimes you have a wide space is tough and there is incumbents there they don’t want to see you there. Everything we did last year got off to a great start we’re barely upon it this year. I mean we’re taking on major players like KY like a 60, 70 share lubricants out there. And so there is going to be incumbents who are not going to roll over but we’re being very careful on this we’re not betting the bank of the company on these things we’re launching these categories with products we've been working on for several years with good strong marketing support and we’ll take a one step at a time. And I expect everyone of cases we’re here we’re going to build our share from last year and go forward form there.
So we’re not I think, you should comfortable we’re not taking all our marketing money and throwing up behind these initiatives which are riskier because we’re going up against incumbents out there my sales force has got an outstanding job I can tell the lubricant line is getting out there and distribution support out there. I told you I gave the team (inaudible) his team here with new products that charge, I want to be X brand on this category bring excitement news and young feeling to all, very aspirational two versus the big guy out there who we kind of feel is out and dated and not really aggressively pushing the categories, so we are trying to bring that x type feel which is the massive success in the deodorant side of the world. So, I want to think its just – it will be meaningful, it will be meaningful and these products all carry very good gross margin to them. But we are not going to -- trust me – some of them don’t do as well which I don’t expect but we still make our numbers. We still feel confident when we make our numbers on these, we will start to build a very strong presence here.
And like I said our goals to be the leading premium lubricant, I should tell you that too, the lubricant category there is a lot of lower priced products. These products are selling for obviously about $14, $15 a box. Yeah, this is the upper end of the premium market. We are not coming into low price entry, which are good chunk of the market. We don’t want to get down the low price, we are going into the upper end of the market. So like x in the category, in the upper price range of the category and that we believe the TROJAN name of the products deserve. So its very good gross margin which enables to have the marketing spending to support these products.
And the winner to is, in fact, we are using existing trademark name. So I think, I told you the story earlier, we want launched Alexa– I don’t know 6, 7 years ago was my brainstorm, we lost a whole new condom line TROJAN Alexa, that was mostly Alexa side but TROJAN was there. We spend a fair amount of money on it. The line itself did not do well. We actually have to pull it out of the market but because we have spent money at TROJAN Alexa, it help to build only the best tier ever on the base condom business.
So that’s how smart, we didn’t come in within brand x name on lubricants TROJANs. So all that money, we are increasing pretty significantly amount of money we are spending on TROJAN this year and that will help the entire franchise, TROJAN Vibrators, TROJAN Condoms and TROJAN Lubricants. If I have to build a mega brand and Bruce Fleming my head of marketing gang are outstanding out into the advertising, so you do get a sense of the TROJAN brand as you go out there and so everyday we spend will help you entire the line not just the new form in there, both in HAMMER, HAMMER success story I used to tell you all the details here but.
ARM & HAMMER when I came here, this was on 2004 was totally what you call desperate brand, the packaging was different, the advertising was different, we spend a dollar of detergent, the new health toothpaste, and Bruce is doing brilliant job, pulled together the advertising, the packaging and everything and that’s why ARM & HAMMER which is a 160 years old, double digit in pretty tough category. We are planning that same thinking
I would tell you we are the masters of mega branding. I truly feel that I will tell Coca-Cola, great master two, we are terrific ahead of mega brand, a brand. And that enables you to smartly spend the money and not to just blow money up on a new brand and new category which – if it doesn’t work, you doesn’t wait for the money 100%. This money will not be waste, it will help grow the mega brand. But its like this is the next new thing, we do ARM & HAMMER, we continue to grow that and we are expanding that to new categories, we are taking ARM & HAMMER to Spinbrush now, we took the ARM & HAMMER in an aim to simply failing now, so we will continue to grow that business. We’ve got lot of licensing on that business.
I told you before ARM & HAMMER is in more aisles of the grocery store in your brand in America more categories in your brand in America added feel to the growth of a brand, which was going 1% when I and my team walked into the door, now its growing over 10% of the total brand. Now apply that same thinking that TROJAN when I look forward in the future I think some of their brands on our portfolio have mega branding status, which we're beginning to see with OxiClean, now into dishwashing out the soap. A very successful thing we do very well and I think is a way to good results as we go into these white space categories, I hate that term, but its like five categories should make sense. So…
Thanks. The 20% free loads that you have on the compacted detergent, is that meant to be introductory promo spending or is that kind of a baseline price point where you think the compacted detergent will be?
That’s baseline. And it's not a bonus pack. It will be ongoing, correct? Correct. Yes they are nodding their heads.
Right and is it – I guess compared to the last time compaction went through where I guess the effort was to maintain price points where you are letting it slip because you guys are going so well and leading it, is that kind of a rationale?
We are maintaining price points. This is from the line price with they call the 2X product. So it would be line price that’s compacted, in this case kind of an encroachment for people to go over to a slightly small package we are offering 20% more loads in it. So I think it was very brilliant move on our part to give people the incentive to- well, it's a little smaller, same price, oh, it offers more Washloads. Great, let’s try. Yes sir.
I just wanted to get your updated thoughts on share repurchases, you showed the dry powder slide and your leverage is still if you know well I think under where your longer-term targets are, so anything here for 2013 and then may beyond?
Yeah we just to remind everybody, our most recent authorization was $300 million. We had $20 million left on the old authorization. So we had $320 going into the fourth quarter. In the fourth quarter we spend $50 million and in January spend another $50 million. So we spend $100 million of the $320 that we had going into the fourth quarter. Our expectation is that we are done for the year, so that remaining amount of shares are dry powder for share repurchase will be used in 2014 and 2015. And it’s largely the cover share creep.
I think when we got together last year you had mentioned that you had spent probably more time looking at acquisitions, than you had in – before - and I was just wondering if you could sort of give us an update on your thoughts of sort of what's out there now, and maybe what your views on bid-ask spread of buyers and sellers at this point?
Yeah so we are still aggressively on the trail. I’m walking out of this meeting right now and half and hour to a meeting in a side room here to look at an acquisition. We've made business, we bought Vitafusion and other acquisitions we’re very selective. I think its an interesting time out there about that I told you I’ve been very surprisingly down sided that they’re have been more acquisitions out there in the marketplace because cash is dirt cheap. Businesses are struggling organically out there. I am surprised that there wasn’t more spin off and divisions or mergers of companies but I think I told you, I think that this would happened is stock market treated everybody pretty well despite lower forecast of organic growth in earnings so companies didn’t feel the pressure, so we have to acquire something and bring a company in, driving synergies driving EPS back up.
But I think with cash flow relatively cheap above debt I think you might see some more I don’t know there is a lot of actually out there honestly the sellers still have pretty lofty multiples in their heads for their businesses which is leading to a lot of sales don’t happen because they want a lot more than anybody who is willing to buy. I think that’s pretty smart on the buyers, buyers are staying pretty smart is not overpaying there have been some deals we've seen which we shook our heads at we stopped and we brought the (budgeting) business the competitor of ours bought another business in that space that twice in multiple we bought the business that we would thank them very much because we compete with them. So I hope they’re totally overwhelmed by what the price they bought but I don’t know they’ve been a great company over time we’ll see, we’ll see.
There is a lot of activity there is a lot of activity people offering (inaudible) still the road block to more activities the sellers really want too much money for their businesses than that so but we’re very active because we got math so we got a ton of dry powder but we’re very selective and we love this last acquisition there is tremendous potential for us going forward in a tremendous category and we’re looking for businesses like that as we go forward. And we’ll just keep looking
So then we’ll go running to one of the side rooms here to see who is there but we’re looking we constantly look and a lot of time in the road looking at stuff because it is a part of that we’re great at it and my team I can’t complement enough -- I sometimes tell people they have to work for greatest strength at Church & Dwight I think there is a lot but at sometimes seems our ability integrated business is one of our greatest strength and all my functions do a brilliant job of bringing those businesses in fast creating accretion. I mean you know a lot of acquisitions on accretive year one, Avid is going to be we told you going to add 5% to our earnings I don’t think the company is going to do that on a scale like that and we do it and seriously absorb that we are looking right now more acquisition is coming on stream and (they haven’t) we’ll take them you might, we’ll say I cant put our trajectory you never know until they happen I know exactly what I’d like to buy right now I can guarantee we’ll get to our satisfactory price with the people trying to sell those business and if we cant no deal and if we can great.
Are there question from wonderful crowd here? Well, anyways I want to thank you very much for…
Unidentified Company Speaker
Hey, we have – I’m sorry confused. I’m sorry.
On the latest round of compaction, how much water is coming out of the bottle and what’s the change in the size of the bottle?
I need my technical genius back in the corner there. This is (inaudible) can you give that in a round number so that I will…
Unidentified Company Speaker
All of you, I want to thank you for all coming today for the New York Exchange, two things, we had the most fantastic goody bag you have ever seen in the back of the room, with a lot of new product we talked about today. Please don’t wait to see what’s in it, until you get home in your kitchen with your children around you may want to check that do that before you do that. But with all that exciting products we have the wonder action tooth brush in there, we have the new lubricant line in there, you may want to take that out. We have new gummies in there for adults, please try out, if you haven’t tried adult gummies. I think we have two in there. All the cool store product is in there. So all of our hot, hot new items in that goody bag. And if you really boarded at 3:59 and 45 seconds, you will see my ugly face and my team on CNBC today ringing the closing bell. Thank you.
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