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Church & Dwight Co Inc. (NYSE:CHD)

February 21, 2013 4:15 pm ET

Executives

James R. Craigie - Executive Chairman, Chief Executive Officer, Member of Executive Committee and Interim President of Domestic Personal Care Division

Matthew Thomas Farrell - Chief Financial Officer and Executive Vice President of Finance

Analysts

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Alice Beebe Longley - The Buckingham Research Group Incorporated

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

William Schmitz - Deutsche Bank AG, Research Division

Unknown Analyst

Okay, we're ready to get started with the next presentation. Please join me in welcoming Church & Dwight back to CAGNY this year. With us today are Jim Craigie, Chief Executive Officer; and Matt Farrell, Chief Financial Officer. Welcome, gentlemen.

James R. Craigie

Thank you, good afternoon. It's always a pleasure to present at this great conference. We have 140 slides to present today. They cover my personal life since the day I was born. I don't have any slides about my company. Seriously, I do have 140 slides to show you today. They tell a great story about the Church & Dwight company, that has delivered 19% compound average growth and total shareholder return over the past decade. And we're going to show you, today, why we think we can continue to deliver returns like that over the next decade. Like our competitors, we want to delight our consumers, but it's more important for us to delight our shareholders. So, with that, let me get on with the show here.

This is the Safe Harbor statement. You've seen it about 21x, so far, this conference. If don't you understand what it means, please set up a meeting, immediately, with your firm's compliance officer.

A couple of parts to the agenda today, I'm going to open up with some brief remarks. I'm going tell you, then, the 10 reasons why I believe my company continues to deliver great total shareholder returns. Matt's then going to get up and talk about our full year 2012 financials and our 2013 outlook, and then we'll do our best to answer any questions from you.

Now, I do have a slide on who is Jim Craigie, just to tell you a little bit. Believe it or not, I am the Chairman and CEO. It's just CEO, I just got promoted to Chairman. I am a Chairman and CEO of Church & Dwight for the past 9 years. Of the 28 CEOs presenting at this conference, only one has more tenure in his job than me. And every time I think about CAGNY it reminds me one of my favorite actors, James Cagney. And there's a quote of his, that I love, that kind of personifies who I am. It isn't, "You dirty rat." That's my competitive view of life. It's as follows: James Cagney once said, "Where I come from, if there's a buck to be made, you don't ask questions, you go ahead and you make it." And that's the kind of culture that pervades at Church & Dwight. And it's about Church & Dwight. We are the smallest company at CAGNY. Our revenues of $3 billion rank us 28th out of the 28 companies here. Market cap-wise we're a little better, we're 24th out of 28. But what -- we're here for what you really pay for. We are the smallest in revenue, but we are the best in total shareholder return. You can see this chart, which tells our total shareholder returns since I became Chairman and CEO back in July 2004, we delivered almost a 300% return on our stock. The blue portion of that chart is our stock price depreciation, the gold is the dividends. And you can see that none of our other key competitors even comes close what we have delivered. So if you were to invest in our company, you'll love us, you've made a pile of money. If you've not invested, you keep missing the boat. And you keep telling me you're waiting for the dip in the stock price then guys like Bill Schmitz have been waiting for 9 years. So anyway, you say, “Okay, Jim, that's a great history. Thank you very much for that history, but what about the future?” And now I want to tell you the 10 reasons why I believe Church & Dwight can continue to deliver superior total shareholder returns results.

First, we have what I call a recession-resistant product portfolio. And what I mean by that is, unlike other companies here who have almost primarily 100% premium brands, our portfolio is very unique. 60% of our portfolio is premium brands, but 40% of our portfolio is value brands. And when we say value, we don't mean that we have premium brands that have more benefits than other premium brands, that we offer better value as a premium brand. I'm talking about the fact that our value brands, in the category shown there, have a significant price differential. As you can see by the categories we're in on a value brand. Not all of our categories, but some. When we talk value, we're talking about 1/2 to 1/3 the price of the premium brands in those categories, a true meaningful value difference to consumers. And hey folks you know what's going on out there. There's this new normal out there, this increased value consciousness among consumers. So, in this environment, the value portfolio is really paying off. This is a picture of the laundry detergent category and you can see the households who have shifted from buying premium and mid-tier brands, down to value and extreme value brands. That shift is continuing and we expect to continue in the future.

You can see it's had a big impact in the laundry category, which is our biggest value category. You've seen, the value is here, now, and has gone up almost 300 basis points over the last several years now, and it is past the mid-price category, in total dollars sold, as a second-biggest category in laundry detergent. It might even surprise you more, households who buy laundry detergent -- there are more households, 51% of households buy a value detergent. That's more than the mid and premium price tiers. All because of that, the great products we have, the market support we have grown shares, steadily, 5 straight years, increased -- a 50% increase in our share now, to almost 15%, in dollars, of the total laundry detergent category. We are the only company, in the past 4 years, that has grown our dollar share in the category. You say, well, okay. But what about value? How are you doing in the value part of the category. We've had significant gains here. We've gone up almost 8 share points since 2009. We are now bigger than #2, #3 and #4 brands combined, in the value product category. All that and take it one more step. Okay, Jim, dollars. I told you -- showed you a chart a minute ago. We're about 40% behind Procter & Gamble, in terms of dollar share. Look how close we are in actual wash load usage. We're only 12 points behind them in wash load usage. 25%, almost 26% of American households, in their wash loads, use Church & Dwight laundry detergent brands, and Procter is only 37%. Not that far ahead of us.

So you say, again, that's a nice story, Jim. You had great results the past few years. Can you continue to deliver that going forward? And I'm telling you, yes, we can. First of all, 2013 will be the greatest year of increased distribution of our laundry brands in my history here. We have got commitments from the major retailers across this country to increase our distribution, to keep up in line with our share growth down there is going to result in big distribution gains. So you ask me, okay, Jim, give me details. What accounts and when? Sorry, folks, I can't tell you that, okay? I got my competitors sitting out there taking notes right now. I'm not going to reveal what accounts, and when, going out there. So, stay tuned. Maybe next year, when I come back here, I'll show you the result. I will show you a chart, later today, on distribution trends for the end of last year, to give you sense of how much we've been growing distribution on all of our power brands.

We also got get new product coming out this year, to grow both of our larger laundry brands, the ARM & HAMMER brand and XTRA brands. XTRA, you may not -- we don't talk about it that much. It's one of our 8 power brands. It's about a 6% share of the laundry detergent category. You say 6%, how big is that? Well XTRA is bigger than Procter's Era and Cheer brands combined. XTRA is bigger than Vestar or Sun Products' Sun and Wisk brands combined. And we're launching 2 great new fragrances, from the brand, in 2013, to continue its record growth.

ARM & HAMMER is our bigger brand in the category, about a 9% share now. And we are taking a major bold move here. We are going to lead the way in compaction in liquid laundry detergent category in 2013. That's a win-win for the retailers, it's a win-win for the consumer. The consumer gets improved value, we're taking some of the savings, we're taking the water out, reducing the packaging and pass it on to consumers. The bottle will have 20% more loads than the equivalent non-compacted form. And that's just not a bonus back, that's permanent. It's a smaller bottle that's for easier handling, environmentally-friendly, there'd be less waste when these bottles are thrown away, and consumers can control the dosage of liquid laundry. And I'll talk about that in a second. Retailer wins. Lower transportation cost. They can put more bottles on a truck. Higher shelf return on investment, we can put more bottle in the shelf, fewer out of sock. You hear all these same reasons, from Clorox, today, for why they compacted bleach. It's true here, it's a win-win program.

Last time compaction was on the laundry detergent category, it drove the greatest growth in the category in the past 5 years, up 5%. That's very significant and, you heard Don Knauss say, today, early results on compacted beach were up 7%. You just say, okay, Jim, wait a minute. What's this new unit dose or what some people call pods product out there. Isn't that the ultimate compaction. There's no water. Well it's true, it is the ultimate compaction. But one thing about unit dose, or pods, is that you can't control the dosage. And I'm going to show you a chart, I'm going to show one chart today, unit dose per pod is killing the laundry detergent category. Since the product was launched earlier this year, we all did it. The big dog did it, we all followed. As it grew you see the chart down there, it's sales over the four quarters, from all competitors, including the big guy, including us. As it grew the laundry category, including pods, powder and liquids had steadily declined. Now what kind of a new product is good when it's hurting the total category? So we're taking the bold move of going the opposite direction. We're going to lead the way on liquid compaction. We're doing it incrementally to our business. We're not replacing the non-compacted forms. Retailers love it. We've got great distribution as part of our distribution gains out there. And so we're going to take the lead on doing an action which is going to grow the laundry detergent category, and I hope my competitors are smart enough to follow us.

Okay. People say, Jim, that's nice. Value -- some people think Church & Dwight is just all about our value portfolio and it's growing in this value-oriented economy, and I'd tell you it's not true. We are some of the greatest brand builders in this business. Let me show you how. We have 8 power brands, I talk of them constantly. There they are. They represent 80% of our revenues and profits. They're all market leaders in their categories. And we have a very simple but proven formula that we execute superbly. We take innovative new products, and I think we have the best new product pipeline in the history of our company. We put increased marketing spending behind that. We build the distribution of that business, and it leads to terrific share growth. Let me give you some examples. Here's some new products we're launching on our current platforms. And I'll explain the difference, in a second, from white space categories we're going into.

Here's our current new product lineup for 2013, on our existing platform. First of all, I told you about XTRA, same size, a minute ago, but 2 great new fragrances going out to build the XTRA franchise. Also told you about ARM & HAMMER, the new Ultra Power compacted form going out there in 2013. Cat litter. This has been an amazing successful business. I'll show you a chart, in a few minutes, of how we've grown this business over time.

Last year we launched a new form called Ultra Last. It was the #1 new cat litter launch since 2005, and in 2013 we're coming out with a larger size, to give greater value to consumers, to continue to drive the growth of this business.

Trojan, the new condom for 2013, it's called Pure Ecstasy. It's a revolutionary patent design that feels like nothing's there. And it's an ultra smooth lubricant for a purely smooth experience.

In the depilatory category, our Nair brand. Last year we launched some individual sp clay products. This year we're bundling them together into a trio pack, to give you in 1 package a product to prepare the skin, remove the hair and moisturize the skin.

Let me talk about white space. These are categories that we're expanding into, that are joining our existing businesses, and we have 4 great new things going on to continue to drive great sales growth for us. These categories are big. Manual toothbrush is an $800 million category; cold sores, $200 million, very high margins; dishwashing additives, $140 million; and sexual lubricants $250 million. Last year, the second half of last year, we launched ARM & HAMMER Tooth Tunes. This is a revolutionary proprietary technology that plays 2 minutes of top-rated music. It encourages kids to brush longer. And I can't tell you how many people have told me personally -- I've told you this story before, if you have children who don't want to brush their teeth, give them to this product. You will beg them to stop brushing their teeth. This product, in the back half of last year, achieved the top 3 kid's manual toothbrushes of 2012. Folks, we have incredible news on this thing. You might have heard, in this conference, Colgate got the One Direction brand. You have a little picture on the box. You heard a few minutes ago, from a new Rubbermaid, that they can actually have a pen to send a letter to this boy band. Well we the band and our band is played in our brushes. We have -- expanding the line with 2 brushes that plays the music of the incredibly hot One Direction band. If you have a daughter or a niece, who's 8 to 14, you're going to be God. We sent this in your goodie bags, to your rooms. This band is hotter than hot. Their 2013 world tour is sold out. There's a movie coming out later this year. This is the hottest thing going. We have the rights. Our toothbrush plays the music. You're going to have this tie your kids down from brushing their teeth.

In the cold sore category we launched, late last year, again, a product called Orajel single-dose treatment. It deals with cold sores. One dose, one -- treatment starts immediately. Much better than the top competitor's category, achieved the top 10 status in the cold sore category last year. I swear to you, if you have a friend or you suffer from cold sores, try this product, it's incredible.

Dishwashing additives. We took the OxiClean business into dishwashing additives last year. This category was hurt when the government banned phosphates in dishwashing detergents. You might have noticed your glasses don't sparkle as much, the dishes look a little dirty because they take phosphates out. Since we launched OxiClean, which was a great laundry additive, #1 laundry additive, into the dishwashing additive category, we've doubled the size of the category. 58% of that growth is due to our brand OxiClean. We got a 10% market share in the first year, and we're expanding it with a larger size OxiClean booster that's offering greater value to consumers in 2013.

And now really big news. Trojan, finally, is entering the sexual lubricant category with a brand called Crazy Sexy Feel, under the Trojan brand name. We hope to do this category, what the AXE brand did to the deodorant category. There's 3 SKUs, offering all very interesting performance to them, and we're going to sample this product in millions of boxes of Trojan condoms, next year, to drive share. We think this is a really exciting business. A little fun fact about lubricants. There's a lot of myth about this category and here's some truths. The myths are that lubricants are only used by older women and the myths are that lubricants are only to fix the problem, a dryness problem. That's not fair, folks. The overall truth, and we've done this through studies in major universities, lubricants users fulfill wants and needs across a wide range of users and situation. And lubricants ensure pleasure, fun and comfort.

Big category, $250 million in sales. Actually been a little soft or stagnant the last few years, because of a lack of innovation. We're going to bring it to the category. It's very high margin. We love this business. Also, interesting story about lubricants and vibrators. Condom usage, the lower line there, declines over age. Lubricants and vibes stay high, and over the entire life span of a Trojan user or people's lifespan. So they're going to help build the Trojan franchise over the age of consumers. This is all part of our strategy to turn Trojan into our next megabrand, a sex megabrand. We want to become the leading brand in 3 key sexual health segments. The condom category, which is a $500 million category in North America, where we have a 66% share right now. The vibrator category, we want to become the leading premium brand in this category. We look to the premium side, about a $300 million category. And the lubricants business, I just told you about the $250 million category in North America. We're already the leader in the condom business. We've had tremendous innovations over the last few years. And in all 3 major countries U.S., Canada and Mexico we're growing our share position. And like I said, we're about a 66% share of North America.

The vibrator business, we now have a full line of vibrators, from vibrating rings to full-sized vibrators. And here's some fun facts. Next time you have little coffee with folks you're going to be the hit of the party. Get these facts. Nearly 2x more adults use vibrators than condoms. 53% of women and 46% of men have ever used them. So look to your left and look to your right, one of you is having fun. 41% of adult women and men have used it with their partner. And get this one, 56% of women and 69% of men who have never used a vibrator believe that vibrators use is a healthy part of a woman's sex life. So that says tremendous potential growth in the future. So we decided to have a little fun with this in 2012. First, what I should say to you, hey we all know sex. Thank God, the Democratic Party is finally getting some mainstream acceptance out there. You saw Fifty Shades of Grey last year, #1 bestseller for 25 weeks. The movie comes out in 2014. The vibrators. This is where we had the fun. We went out last year, in New York, and gave away 10,000 vibrators free. It caused traffic jams for 5 blocks. The mayor, who won't give you a 16-ounce soda stepped in and shut it down that day. The New York Post, you can see in the left, the front page, the next day says, "Buzz Kill!" Well, we would -- the next -- that night, we got a permit to do it in the meatpacking district. No pun intended. And the next they gave away the rest of the 10,000 vibrators in New York. And you can see the headline the next day, the New York Post, "Free Vibrators On Again! Oh, Yes!" Well we're not stupid. We found the greatest PR program in America. We're going to expand this to 15 cities next year across America. And the whole point is to prove to the retailers of the world, and the consumers, that vibrators are mainstream. Everybody wants them they should be in the shelves just like condoms, just like facial cream, just like anything. So we're going to, hopefully, use this program to convince the retailers of the world to carry a full line of vibrators. Most of them carry part of the line. We want the full line out there.

So I showed you we have tremendous innovative new products. Like I said, I think it's the best new product pipeline we've ever had in the history of Church & Dwight. Now we back that with increased marketing spending. This is an interesting chart, we've never shown this before. This isn't just advertising, this is advertising, consumer promotion spending and trade spending. And you look at what we've done across our brands over the last 4 years, we have steadily increased that total marketing spending pot at about an 8% compound average growth rate. So we are spending more money to support our great new product innovations. You do that and you have a great sales force that we have, that takes those new products, increased marketing spending to retail and increases distribution. This is the chart I promised you a few moments ago. Here's a case -- if you looked at our power brands back in 2009 and set that base as 100, you can see, through the end of 2012, how we've increased the distribution on all of our major power brands, as much as 43% on our laundry detergents. And I put -- that's before, this year where I think we'll have the greatest increase, ever, in our laundry detergent business. You can see the results we've achieved across the board.

So, again, you take those 3 factors: Great new products, increased marketing spending, increased distribution, and you get share growth. And this is one of my favorite charts. Over the last 5 years we have grown share 75% of the time on our 8 power brands. You've heard other companies in this conference are trying to brag about getting to 50%. We are at 75% growth rate on our brands. Here's my favorite chart. Look at what we've done with laundry detergents, going back to 2003 through 2012. Our great new products, our great execution and distribution out there, 16% compound average growth rate in our laundry detergent brand. Cat litter, a product we introduced in 1998, has grown at a compounded average growth rate of 14%. We are now #2 cat litter brand in the marketplace. OxiClean, a business we bought in 2006, has grown at a 22% compound average growth rate, if you count the OxiClean brand by itself and all the brands we've co-branded them. We had tripled the size of this business in 6 years. FIRST RESPONSE, here's a brand we bought back in 2000. It was a measly 12% share, a distant #3 competitor in the category, and by 2012 we are the dominant #1 brand with over a 30% share of the marketplace.

So, as I told you, I believe my company is great brand builders. We grew 6 out of 8 power brands share in 2012. We, actually, in the fourth quarter, exited the year with 7 of 8 of the brands growing, 4 hit all-time share levels. We're doing -- getting a posting here. In the last 3 nanoseconds, all 8 grew share, okay? I just want to make sure that was clear out there.

All right, so people say, okay, Jim, another risk about your company is that you're only $3 billion. I told you that earlier. I'm the smallest company in this conference. They say, Jim, if some of these larger guys here ever turn on you and want to crush you, you're dead. Wrong. Let me show you a great example of what I mean by that. How we ferociously defend our brands. This is a story of the laundry additives category. Again, this is a business -- OxiClean, we bought back in 2006. And between 2006 and 2009, we grew this from 27% share, #1 share position in that category to a 41% share of the category. How we did that, we had some great new products we launched. We increased the advertising spending by 400%. All back to that formula I told you about. But then in 2009, the big dog in the category decided they'd seen enough and they saw this category being very attractive. Obviously a white space for them, and they came into the category with some great new innovations or products under their big brand name. Well what do we do? We didn't just lay down and take it. We launched a whole bunch of new innovative products under the OxiClean brand name. We also co-branded the brand other major products we have, to increase the brand power out there in the marketplace. We increased our ad spending to make OxiClean the #2 most advertised brand in fabric care. And the end result was, not only didn't we lose share, we gained share over that time period, and you can see in that chart, against 3 major, much bigger competitors out there. And you could see who took the hits and you can see you came in and got barely anything out of this category. But not only didn't we lose share, which is pretty hard when you're a 41% share, we gained share over that time period.

Okay, people say, Jim, international. Okay, you're not a major international company. You're mostly a North American company. That's true, we are. But let me show you something. We're doing very well internationally. We've transformed ourselves from being barely 2% of the business back in 2001, to -- international today is almost 18% of the business. We're concentrated in 6 countries. They do the bulk of our business. We're doing very well. In 5 of those 6 subsidiaries we've had good, long-term net sales growth records, in high single-digits or double-digits. And we've done that through a good combination. Some of those countries have their own local power brands, #1 in their categories. They continue to grow. We're expanding some of our U.S. domestic power brands in those countries, like ARM & HAMMER laundry detergent, ARM & HAMMER cat litter, ARM & HAMMER Tooth Tunes we're taking to those countries with good success. We're also building scale in those countries, through acquisitions. We bought the Batiste dry shampoo hair care brand in the U.K. Dry shampoo is a hot trend. Watch for this, keep coming. But we bought that brand, it's a 6% share in that market place now. You say 6%, Jim, not much. Understand something, the #1 wet shampoo brand in that market is only a 12% share. And we're growing at double-digit rates there and we're taking this brand into other countries around the world. And last but not least, we are leveraging one company strength, whether it's supply chain, finance, human resources. We're going to all these countries to drive efficiency and effectiveness in their spending.

Gross margin. Gross margin, folks, to us, is God. Gross margin is the gas to the gas tank. You have to grow your gross margin. And we had a tremendous track record in this regard. From 2001 to 2012, we grew our gross margin by 1,500 basis points. In the past 5 years, it's almost 500 basis points by far. Nobody else is even close to how much we've grown our gross margin. We do that through a combination of factors. We have what we call our Good to Great optimization program, that's everything about reformulation, reducing packaging, reducing SKUs, laundry compaction and hedges. We do supply chain restructuring. We've built some new plants for greater efficiencies, in Pennsylvania and California, the last few years. Acquisition synergies. We love acquisitions. I'll talk more about that in a second. We like to acquire higher-margin brands and then drive the hell out of the cost in those businesses. And then price mix. We want to launch higher-margin products so if they cannibalize any base product, we get higher margin off them. Very simple, very effective. We execute it extremely well.

Acquisition. People sometimes ask me what's the greatest strength of Church & Dwight. And I would say we have a lot of strengths, but maybe the greatest strength we have is our track record on acquisitions. We have very clear guidelines that we will not deviate from, unless there's a very good reason. Those guidelines are, we only a buy #1 or #2 share brand. I do not believe you could take a #3, #4 or #5 and grow it successfully. I want those big brands, I want to grow them. I want higher-margin, higher-growth brands. I want asset-light businesses. We don't really want to pickup plants and headquarters and that. We want the brand, we want to put it in the back of our base and manufacturing purchasing, and drive a ton of cost synergies out of it, and we want the brand we believe has sustainable competitive advantages. This chart's a little busy but it can show that we've been very busy, since 2000, in making acquisitions. And just to make a point, I told you earlier we have 8 power brands. But we acquired 7 of those 8 brands since the year 2000. And since we bought them we've increased share across all those businesses, very successfully, from all the formula I told you earlier.

Let me talk about the latest acquisition, Avid Health. Boy, are we excited about this. Avid Health is a fast-growing vitamin, mineral and supplement business driven by a very unique forum. It only sells one form of vitamins, that's gummies. Why do we like that offer? So the category has had a long-term steady growth rate of 5% or better, and is only going to get better in the future as the population ages and the population wants to be healthier. And here's the big factor that attracted us. Gummies are 58% of the kid category. Already the leading part, bigger than pills in the kids category. But it's only 3% of the adult category, and the adult category is 16x the size of the kid category, $3.3 billion. So the Avid form, Li'l Critters is the brand for kids. It's not only the #1 gummies brand, it's the #1 overall brand in kids vitamins. And in the adult side, the brand name is Vitafusion, you want to find. It's the #1 gummy form. But, again, as I told you, that's only part of a 3% of the total adult category. And this is where we see the explosive growth coming.

You can see, in the left-hand side there, the adult version, Vitafusion, we just launched in the year 2008. And through 2011 was growing at over 200% compound average growth rate, approaching $100 million in sales in just 3 years. Li'l Critters brand has had very steady growth rates, already the leading brand in the category, but again good growth behind it. Now we looked at this acquisition, we said, boy, this really plays to our strengths. It's a fragmented category that has an opening for a very strong agile competitor, that's Church & Dwight, it's got a track record of -- we have a track record of building market share; we have field sales resources to expand the distribution base; we have internal manufacturing know how on batch systems and packaging, which is the bulk of this business; we have economies of scale in purchasing logistics; and we have understanding of the regulatory environment, this is regulated by the FDA. So this really plays to our strengths and we really believe we can do tremendous things. We just took control of this business back in October 1. We paid $650 million for it. If you check what we paid, on a multiple basis, versus other recent acquisitions, we got a great price at about half of what other people are paying for VMS-type businesses out there. We expect to realize at least $15 million in cost savings in this business by the end of 2014. The margin of this business did break one rule. The margin was below the corporate average to start with, in the high 30s. But our goal -- and will dilute -- when you add it to base Church & Dwight, that'll keep us down in gross margin expansion, in total, over the next few years. And that'll give you total -- or keep us flat for the next year. We believe we get that 38%, up to our corporate average, around 45%, and even beyond that in future years. A lot of hard work were doing, and that integration is on track and doing exceptionally well. And if you haven't tasted this, please do. We put this in your goodie bag that was delivered to your rooms. I swear to God, if you try this -- if you're a hard pill, Centrum or One A Day user right now, try our gummy vitamin. I swear, you will not go back. It turns a meaningless boring experience in the morning to a great experience getting up and having your gummies. And you got to eat 2 of them, okay? So try that.

Number 7. I'm going to move a little fast here. Give it over to Matt in a second. Best in class free cash flow. I watched a few of the conferences -- presentations in the day or 2, and it's amazing how people try to complicate this. Free cash flow is pretty simple. We have increased that from 450% to over $400 million a year now. And free cash flow conversion, in the way it's always calculated, we are best in class. I don't care what people say or how they manipulate these numbers. The blue parts of the chart there are from 2007 to 2011, because we don't have all the competitors' 2012 numbers there. You can see in that time frame our free cash flow conversion was 118%. Nobody topped that in this industry. In 2012, we just reported -- we again did 118%, and we'll wait to see our competitive numbers, but we are truly best in class, of free cash flow conversion. Cash is king, cash enables you to do a lot of great things and grow your business and pay dividends, and drive your earnings.

Overhead management. This may be the most unique thing about Church & Dwight. We have a very different philosophy about overhead management than anybody else. And the results have been tremendous while our revenues have grown 93% from 2004 to 2012, our headcount only grew 15%. And honestly, that was all because of the Avid acquisition. We picked up 750 employees in the Avid acquisition. Without that, our number of employees would have gone down, but we grew our revenues 93%. And all that led to earnings per share growth of 260% over that time frame. Again, I saw some fascinating ways people calculated this, adjusted for this, adjusted for that, adjusted for whatever. We don't adjust it. We just take your revenue divide it by number of employees. And Church & Dwight has the highest revenue per employee of any company here. And folks we walk the walk on this. As a management team, we don't have company cars. I wish I did. We don't have company planes. I really wish I did. I don't have -- we don't -- golf club memberships. I don't care, I don't play. But, anyways, we don't have perks that other companies have. We deliver, we believe in taking all the money we make and dropping it at the bottom line. Now you say, Jim can you continue to drive overhead down? The answer is, yes. We put in place a new health care plan starting last year. We put in place a new information system last year. And we believe that it'll enable us to keep the growth rate on SG&A, lower than our revenue growth rate and continue to drive great earnings per share for the company.

That's -- almost last. Expert management team. This is something that is also very unique about Church & Dwight. We don't believe on moving people around. I don't believe in taking my top management team, and every function, and moving them from finance to operations or operations to marketing. Getting them some more training makes them better. I believe they are experts. And I want to keep them in their function doing their jobs for the rest of their life. And it has great benefits. The average tenure of our 8 strategic business unit leaders is 5 years. It was 8 years last time I was here, and we lost one of our guys, he's CEO of another company. But we keep our people in their place. And the average experience of those people is over 23 years in this industry. And how does that pay off, it pays off big time. I told you earlier, our 8 power brands have grown their share 75% of the time in the last 5 years. I don't think anybody comes close to that. We're able to minimize headcount growth. Hey if you're an expert in your business you don't a whole big team of people to help you learn your business and get you up to speed. Just as you get to speed you move to some place else and they got to train the next turkey coming in. We don't believe in that.

Execution. When you'd know your business cold, and other people, other functions, the better parts of the business cold, the execution's outstanding. And I think Church & Dwight excels at this. Despite Nik Modi sucking up the clock a few minutes ago, we are best in class in sales force execution out there.

And as far as acquisitions, this is big. This is a really big one. Hey, my folks -- you'd say, well, don't they get bored doing what they're doing? The truth is, a little, yes. The woman who runs my Pregnancy Kit business, been doing for 15 years. So you say, she might be a little bored, she knows the business cold, she can do it in her sleep. True. The good news is, she, like the other ones, begs me for the acquisition. She says, gives me something new to work on. So when we buy a big acquisition, I don't have to hire a lot of new top managers to just run that acquisition. My existing team begs me, they almost fight just each other to get the acquisition, give them something new to manage. And I don't have to add a lot of heavy expensive headcount to bring on the acquisition, it keeps the overhead costs down.

You add up those 9 factors and you truly get a culture which is a total shareholder return junkies, which we are. I mean, look at that incredible decade of growth that we've had that has transformed my company, tripling the revenue growth, gross margins up 1,400 basis points, marketing spending up 500 basis points. You can read the rest of the list. Tremendous, tremendous thing. And the market cap of this company, in my tenure, has gone from $2 billion to $8 billion. And if you're a shareholder since the beginning, when I took over, you have got a 19% return on the stock. I don't think any company here touches that.

So, you get that, there's my team. We rang the closing bell, on February 5, on New York Stock Exchange. And we're very proud to be there and very product of our track record. And let me tell you something, too. We are 100% in the game. Our bonuses are tied, 100%, to the 4 factors we believe are probably the most important 4 factors in your model. The most important 4 factors of driving any company. 25% of our bonus is based on hitting our net revenue growth target. 25% of our bonus target is tied to hitting the gross margin target. 25% to hitting our aggressive EPS target, up 14% this year. Who the hell in this whole conference is that high? That's our target, we have to get to, to get our bonus on that. And 25% of -- our free cash flow, our cash flow target, again, we're the best in class on that one. Equity compensation. This is the big factor. We are tied 100% to stock options. You should not invest in a company, in my mind, if the management team is not 100% with stock options. We only win if you win. Companies who have restricted stock, performance shares and that, makes me sick to see how they get paid for mediocre results and you don't get anything on your stock return. We are 100% stock option. Stock price doesn't go up, we don't win, you don't win. And we're required to be heavily invested in our company's stock. Over 80% of my net worth is in the Church & Dwight company. I watch that damn stock price everyday at my desk. And it's very important because that's who we are. We are TSR junkies. It pays off for our company, it should pay off for you if invest in our company.

Okay, let me sit down for a few minutes. Take a drink and let Matt Farrell say about our great financial results.

Matthew Thomas Farrell

Jim delivers at 78 RPM, and I'm at 33. Sometimes when I got people ask me a word that I'm impaired in some way. I assure you I'm not. Okay. So everyone in this room and listening on the webcast in some way is a financial modeler. So I'm going to begin with the Church & Dwight model. And this is a very simple model, and it influences a lot of things for us. So it influences our annual operating plan, it influences our strategic plan, it influences the acquisitions that we evaluate, and it frankly, it bears on virtually any investment decision that we make within the company. So if you want to bomb down the page now, you see organic sales 3% to 4%. If you're a shareholder, you're well aware that that has been our target for many years now. Gross margin expansion of 25 to 50 basis points, leading to operating margin expansion of 60 to 70 basis points. And that then would drag EPS growth of 8% to 10%. And if you combine that then with the dividend yield of approximately 2%, you wind up with total shareholder return of 10% to 12%. And remember that excludes any net reductions that we might make in our outstanding shares. It would exclude any improvement we might make in our effective tax rate, and it also excludes the benefit -- the first few years of benefit from a major acquisition.

And of course, our history has been to exceed this model. I'm going to you show that in a minute. So let's look first at 2012. So 2012 was marked by over 5% organic growth. And it was driven by volume and not price. Our price mix was about a negative 1%. And our gross margin did expand 30 basis points, and this excludes the gummy vitamin acquisition. And our all-in operating margin expanded by 80 basis points. And that led to EPS up 11%. This is adjusted because on a reported basis, we're actually up 15%. And in free cash flow, exceeded $400 million, with $413 million. On a reported basis, we were $450 million in 2012.

So if you look over the last 5 years, you can see that we have had double-digit EPS growth pretty nicely. And if you look at our organic growth over that period of time, you can see in 4 of the 5 years, we've actually exceeded the 3% to 4% organic target. With respect to gross margin in 2012, as I mentioned, if you exclude the Avid acquisition, the gross margin expanded by 30 basis points. If you want to understand the history of gross margin, in 2009, it was marked by 2 things. One was the last year of compaction, and then also we had the full-year benefit of the Orajel acquisition which was acquired in 2008. So 2009, 44.8% gross margin, and excluding the Avid acquisition, we floated down to 40.5%. Largely, that is driven by mix, because our household business has been growing very rapidly over that period of time.

Now if you look at marketing. Marketing was 12.2%, that's on an all-in basis for 2012. If you take the gummies out, you're closer to 12.5%. 12.5% is what we think is the right long-term target for the company. As you can see, we took the number up very significantly in 2009 as we spent back the gross margin expansion that I just told you about. But the most important thing in marketing to look at is your relationship of Share of Voice to Share of Market. The Share of Voice, of course, is what is our percentage of the media spend within a category and to compare that to what is your market share. Now we like to be over-indexed in that relationship. Of course, the proof is in share growth. So if you look at the last 52-week period, on an all-out basis, you can see that 6 of our 8 power brands grew share. And this is really a testimony to our new product development team, our marketers and to our sales force. And the red color always attracts a lot of attention. So you see Nair was red for 2012, but Nair actually grew more than 4% year-over-year. The reason it's red is because the category grew faster. And Orajel, we continued to struggle with some private label attacks in that category.

Free cash flow, as I said, in 2012, we exceeded $400 million. We have a 9% CAGR from 2008 to 2012. And as Jim said, we're best in class for free cash flow. And of course, free cash flow is the relationship of how much cash you're generating cash from operations minus CapEx in comparison to net income. So we consistently exceed net income.

And we've had a lot of luck with our cash conversion cycle. You can see, over the last 5 years, we've actually cut it in half, from 52 days to 26 days since. And even in this past year, we picked up 2 days from 2011 to 2012. And we do have a continuous improvement mentality within the company, so we want to beat that in 2013. We are having unlevered balance sheet. Some people would say it's under-levered. Even after the acquisition of Avid, you can see we're only 1.4x total debt-to-EBITDA. And we like to think of ourselves as a company that requires very minimal capital, so our targeted CapEx as a percentage of sales is about 2.5%. And you can see for the last 3 years, '10, '11, '12, we've been around that number. Prior to that, in 2008 and 2009 is when we built the York plant, a big laundry plant in Pennsylvania that Jim mentioned in his pitch. And we have -- still have plenty of dry powder, about $600 million. And we're BBB-rated, BBB and Baa2, by our friends at the rating agencies.

And the question always is what is the destination for free cash flow. And this is a very deliberate order. So number one for us is TSR-accretive acquisitions. Number two is new products because, of course, your top line is very dependent upon the ability to develop new products. Three is CapEx, not only maintenance and organic growth, but also our Good to Great program. That's our continuous improvement program. So we're constantly trying to reduce our unit costs for our products in our plants. Number four is return of cash to shareholders. Up until recently, we only did that via dividends, but we've more recently have also added share buybacks largely to cover share creep. And then finally, debt reduction. We did increase our dividend by 17% a couple of weeks ago when we announced 2013 numbers, and we do target a 40% payout of dividend in relation to our net income.

I'm going to wrap up and look at the numbers for 2013. So I see 3% to 4% in organic growth for 2013, no surprise there. As far as gross margin goes, we have a full year of the gummy vitamin business that has lower than our corporate gross margins. We're starting with 38% gross margin in that business. So sort of a reset year for us in 2012. However, the core business will be expanding its gross margin by 25 to 50 basis points. A similar story with marketing. So we have a full year of the new gummy vitamin business. This spend rate historically was around 6% to 7%. We expect to take that up to a double-digit, but still all-in, we're going to have a flattish year of 12.2%. But again, the most important metric there is Share of Voice versus Share of Market. And we're very vigilant about that relationship for all of our power brands. And of course, as Jim said, resulting in 14% EPS growth in 2013. And this is just a summary and takeaway. I've covered most of these items, but the operating margin expansion that we're targeting in 2013 is 60 basis points.

So 2012 was the 12th consecutive year that Church & Dwight had over 10% EPS growth, and 2013 will be the 13th year in a row. And now we're like to take some questions.

Question-and-Answer Session

James R. Craigie

Jason?

Jason M. Gere - RBC Capital Markets, LLC, Research Division

Just looking at your margin target for this year, 25 to 50 basis points on the core business. It just seems a little bit light. You still have the Good to Great program, commodity costs are more neutral and the plan in California, I still think, has some upside. So can you maybe talk about some of the x factors out there. Promotional spending, slotting fees with innovation. Is there anything there or this just that you guys being conservative as normal?

Matthew Thomas Farrell

Jason, we called the 25 to 50 basis points -- where are you? I want to look at you. Yes, 25 to 50 basis points is what we called. Obviously, there are a lot of factors that influence that. Our household business has been growing extremely rapidly over the last few years. In the fourth quarter, our personal care business actually grew 4%. That was after the first 3 quarters of 2012 being down. So there is some optimism with respect to our personal care business for 2013. However, the 25 to 50 basis points, we think, is a wide enough band to drive our operating margin expansion of 60 basis points.

James R. Craigie

I will add to that. Matt and his team have done a great job over the last few years, and it's true for this year that they've hedged a lot of our commodities. So we feel pretty locked in, that if there's any commodity headwinds, if the prices rise up here, that we should be protected against that in 2013. So yes, I would hope that we can hit towards the upper end of that band, but it's still early in the year, and there's a lot of stuff going on in the marketplace out there right now. So give us a couple of months before we update you on that factor.

Matthew Thomas Farrell

And just to add to that, we have 8 very powerful commodities. And we have hedged 60% of them, so that does give us further confidence with respect to our ability to hit the gross margin expansion number. Nik [ph]? Nik [ph], will you stand up?

Unknown Analyst

I knew that one was coming.

Matthew Thomas Farrell

Oh, you are standing up? All right.

Unknown Analyst

Yes, like every -- this is like an annual -- it's like an annual thing. So I come prepared, and I have my platform shoes on. So thank you very much. No really I do. So on M&A, just I know you obviously just have done Avid, you have a lot of cash. Just kind of what are you seeing in the environment and what is the appetite if something does kind of come up?

James R. Craigie

Well, funny you'd say that. On my Board of Directors is the CFO of Heinz, the CEO of OfficeMax, and I'm on the board of Meredith. So I see a lot of M&A activities but nothing to do with my company right now. No, it's an interesting environment. I will tell you it's active. Maybe those things I just mentioned, or you're seeing M&A now all the stories about it's heating up out there. There are opportunities. I told you before, we're very selective. I will tell you I'm a little concerned that in some of the businesses we're looking at, some of our competitors have paid extraordinary multiples for these businesses far beyond what we would. But we're selective. It's busy. Probably every month, we go out and look at 2 businesses and that, but we're very picky. And I think it pays off because, like I said, every acquisition we've made, we've paid a fair multiple but not a ridiculous multiple some people had. We paid -- pick businesses up that we believe we can do something with, we've driven tremendous synergies, and it has been a very key part of our long-term growth. So I'm optimistic. We have tons of firepower. As Matt showed you, our -- we're only leveraged 1.4x, we're willing to go up to 3x for that. We have tremendous cash flows. So we're ready and willing to do stuff. And we have our eye on some stuff, obviously, I can't mention, but we're waiting. It's a waiting game. Sometimes I think, Don Knauss mentioned we had 2 acquisitions happen in 1 month. And it's just like that you could never predict them. They can look dry for 1 week, and the next week, you get 3 books on your desk to look at and that. But we're very picky about what we do, and I think it pays off in the long run, and we're hard negotiators. And then, once we take over, I have, I think, the best team in the world for integrating acquisitions. They're very aggressive. We have a policy, within 3 months, we want to get rid of the people we don't want in our company and within 12 months, we get their operations into our operations for the most part or upgrade their operations where we can. So we want synergies flowing through quickly. I mean, you saw with the Avid acquisition. It was earnings neutral in the first quarter, and we're calling it, giving it 5% earnings power growth to us as a company in its first full year. So I know a lot of other companies often take a year or 2 before it becomes earnings accretive. We have a policy, we want to be earnings accretive within the first 12 months.

Unknown Analyst

Moving to detergent business. You seem to have benefited from the bad economy. And if we ever see a recovery in consumer spending, can you talk about what dynamics you think will come into the play in terms of people trading back up, or how you might tackle that, or do you have plans to layer on some upscale brand?

James R. Craigie

That's a great question. Allow me to say, first of all, our value business was growing before 2008 very successfully, because we offer a great product at a great value. The recession that hit in 2008 just accelerated that because more people are forced to try it, and they found out, wow, our brands are terrific. And now I truly believe all the articles we're reading about the new normal with consumers out there. Consumers are much more value-conscious. And I don't think that's going to significantly change if the economy gets better out there. So I think people have really opened up and exposed their eyes to what's considered the value brands. They've tried them and found out that, boy, there a great price out there, a great bundle of products to buy versus the premium brands. And their eyes were open how much they were overpaying in some cases for premium brands. So I see good long-term growth for our laundry business and our other value brands. I think they're here to stay, and the consumers are here to stay with them. Alice?

Alice Beebe Longley - The Buckingham Research Group Incorporated

So back to Avid. How fast should we assume Avid sales are growing on an apples-to-apples basis this year? And within that, kids versus adults? And then why shouldn't we be worried about One A Day and Centrum coming out with great tasting gummy vitamins of their own?

James R. Craigie

Let me handle that part, and Matt will give you his perspective on the numbers. They already have gummy vitamins. And if you taste them, one tastes like Skittles, it'll break your teeth. And the other one tastes like a hard rubber tire. So honestly, when I -- well, let me tell you one reason behind that. They have a huge business in pills, which have a higher margin than gummies, so they don't have a lot of incentive to put out a gummy product to cannibalize their pill products. They go through a co-packer. We produce the product ourselves. And the company we bought was founded on finding a great tasting flavorful gummy. And that's the very essence, and we will not compromise that as we go forward, even as we look for ways to reduce the cost of producing those. So I think we have a competitive advantage. The other guys don't really love this business. They went into it only because they saw the growth behind the business, but the products they put out, in my mind, don't compare at all to do the product we have. And they don't have the incentive to grow the business because it's margin dilutive to them. So we saw all that when we bought the business, and we said, well, I think we got a tiger by the tail. And it's almost like toothbrushes. We started out in the power toothbrush category, we were the only ones who really attacked the manual toothbrushes, because everybody else had power and manual. They didn't want to attack the manual side by telling people how superior power toothbrushes are. And so we had great fun in doing very competitive ads versus manual toothbrushes. Here is the case where we're not in the pill business, we've got a great-tasting gummy forum, we can go out there and just talk about that all the time, and we don't have the issue of cannibalization of pills. So we're going to spend, like Matt said, we're going to more than double the marketing spending on the business next year, do a ton of sampling with it. And I just know from personal experience, once you taste this product, you'll never go back. But we got to get people to taste the product. And that's where we're going to spend a lot of our money, on both advertising and sampling out there next year to get people to try it because our market research data tells us once they've tried it, conversion rate is very high. You want to tell Alice you're not going to tell her any about the numbers?

Matthew Thomas Farrell

With respect to the Avid acquisition, what we have said is that we expect the business to grow double-digit for the next couple of years. And when we bought it, it had a trailing top line of about $250 million, that was through 12 months ended June 2012. So obviously, a little bit higher than that. Where the growth is going to come from is -- for the future, is primarily adult. We got a pretty great position in kids right now, and it's commonly accepted as a delivery system to children for vitamins. But as one of the charts that Jim put up, is that 97% of adult vitamins today are consumed in pill and tablet form, so it's approximately 3% is in gummy form. So to the extent that, that 3% becomes 6%, we could double our business, as long as we hold on to our share. So I think there's a lot of opportunity in the adult side. And from a distribution standpoint, 70% of the sales are concentrated in 4 accounts today, so that'll be Walmart, Target, Sam's and Costco. So that would suggest that there are plenty of opportunities in the other classes of trade, being food and drug. If you go into some of the drug chains, you may see only 1 or 2 facings for, say, VITAFUSION, but it has a great velocity on shelf. So what we really want to do is get more of a share of shelf in the gummy section.

James R. Craigie

And Alice, I would say to keep in mind, we've only had hands-on control of this business since last October. I can tell you, this is a very top priority of our sales force. They're very excited. They're out there beating on the doors right now. Just day by day, we're hearing about how successful they are in building distribution. I would say, so far, it's off to a great start. But we're still waiting to hear answers from some of the major accounts out there. But I think it will be a very good year for the vitamin business and a very good future long-term growth for the vitamin business so...

Alice Beebe Longley - The Buckingham Research Group Incorporated

[indiscernible]

James R. Craigie

Yes, yes. Yes, I don't want to go to an account by account, but I would just say that probably if you want to see the best portrayal of this line of both the adult and kids out there, go to Target. They have -- they're very big on the vitamin business for a long time. And the goal given to our sales force is try to replicate what's at Target across all the rest of the accounts out there, as far as the breadth of the line. So that's what they're out to go do right now. Let me switch over to this side of the room. Schmitz, put your hand down. Bill?

William B. Chappell - SunTrust Robinson Humphrey, Inc., Research Division

Just going back to compaction. Obviously, it sounds like a win-win, but what's the risk? I mean, is there a risk if your competitors don't follow, is there a risk that consumers don't buy into it? And if there isn't a risk, then why this year, why not last year or the year before? Because it's been 4 or 5 years since the last round?

James R. Craigie

Yes, that's a great question. Any new product has a risk. If we had converted our existing line all to the compacted line, there'd be a big risk because the bottles are slightly smaller than existing sizes that all competitors have. We didn't do that. We went out to the account and said we want to keep every piece of our existing line and we want to take this in incrementally, and if you won't add it incrementally to our distribution, you can't have it. And the account reaction's has been great. Almost every account I know of out there has taken the product in incrementally. So if it doesn't do well, it's not going to hit the existing business because we didn't replace existing business. And I think all of our competitors -- compaction was the biggest one-time gain in margin and sales in laundry detergent business in the last 10 years. And I think our competitors know this. The big dog was unwilling to take the move. We got finally tired of waiting for that, and we felt we had to take the lead, but we did it smartly. It would've been unwise to go out there and replace our existing business with this form and take the risk that people are going to believe that a smaller bottle has as many loads as a bigger bottle. That's the risk, we did not do that. We went out and said, we will just take the lead on this but only as incremental SKUs and facings in a store. And I think the accounts -- that a lot of the accounts across America are waking up right now to what unit dose or pods has done to the laundry category. And they are very upset. They don't like it, and they're very receptive to us taking the lead on the compacted form out there. So it's somewhere that we just began shipping the product. It really won't start hitting results for the next several months. I just hope all the competition, all the retailers see that this is the right move in this category right now. Nothing wrong with pods. It'll stay out there, it will fit, we're playing in that category. But it's not a category grower, it's a category killer. And we're out there to do something that's growing the category, and compaction will do that just as Don Knauss is up here and singing the praises of what it's done for bleach. He said 7% or up to 10% on the accounts that they've taken on the compaction side. That's the kind of effect it will have on the laundry category, and that's the right thing to do to grow this category. And we've got tired of waiting for the big guy in the category to make the move, so we're making the move but incrementally. Mr. Schmitz?

William Schmitz - Deutsche Bank AG, Research Division

So the market cap from went from $2 billion to $8 billion. Can we get you a new presentation tie?

James R. Craigie

Well, we realized, watching Clorox, we didn't coordinate ties today. They had all deep red ties up here, so we got to work on that for next year. Actually, we hate ties. He wears them every day, he sleeps on them. But I don't like to wear ties at all. So he had to tie my tie for me this morning. We'll get there next year. Now what's your real question?

William Schmitz - Deutsche Bank AG, Research Division

My real question is how do you view succession planning. I mean you've done a great job. It's been sort of 10 years at the helm, it's kind of a long time in this industry. So is there like a process in place at the company, and kind of what would you do if...

James R. Craigie

We -- my board, like any board, it's one of their top 3 priorities. We just did a succession planning review just a month ago. We have our charts that show who the successors, so I would be -- I don't want to go into that. We build both internal candidates in our eyes, and of course, we always look externally, too. So I'm not worried about that. I'm not going anywhere for a couple of years. And I think we already have some candidates who could step into my shoes and continue to lead this wonderful company. And I feel very confident, but again, I have to feel confident because I'm a major shareholder of this company, and I want to make sure if I make any just wise decision in my tenure that whoever succeeds me will continue that track record or they're going to kill my net worth, okay?

William Schmitz - Deutsche Bank AG, Research Division

And then just to sort of drill down more on Avid. I mean, if you look at some of that Nielsen data, it says it's growing like 45% sort of every monthly period. So is that data sort of accurate, or is there some sort of problem there? Maybe is there distribution gains or what in the base period because of the acquisition. And then the other thing is the gross margin, why is it lower than the fleet average? Because if you kind of look at ODC broadly, typically the gross margins are in sort of the 60% to 70% range as I kind of understand it.

James R. Craigie

Yes, the Nielsen number. Well I will tell you, we've already spent several months with Nielsen. There are so many SKUs and so many brands in this category. We spent months just designing what we think is the right database for vitamin, minerals and supplements. Those are 3 big categories that could include a lot of stuff. So I can see where you might have seen a report that said that. That doesn't jive with how we look at the category. And in a future meeting, I'll try to explain that better. Margin-wise, Bill, it's just where the category was, a very competitive category. This company we bought, priced somewhat aggressively back then, they never took a price increase in their history. And as a result, that's where it kind of started out. I will tell you, definitely we believe we can improve that a lot. We're already on a good track to go do that through a lot of cost savings. Not necessarily price increases. Cost savings. And we'll get it up to at least our corporate average at sometime in the near future. But again, we've just had this business 4 months, we literally couldn't touch it or do stuff, and my team -- this business is based out in the state of Washington. And I swear I've had about half a dozen people, a dozen people a week almost living full-time out there. So doing a great job, and we just love it. It's just -- I think other than maybe the Carter-Wallace acquisition in 2000 this will probably be the greatest acquisition we've made since then. Yes, ma'am.

Unknown Analyst

Can you talk about the morning-after pill in the contraceptive category. It continues to gain share at the expense of condoms and -- for better or worse, and how do you see that? How do you think about that? Is that an area where you'd ever get into or do some co-branding with the Trojan brand?

James R. Craigie

Yes, it's interesting. I really haven't followed that closely. It's very controversial. It's something I don't think we'd ever get into as far as an acquisition. You know it's had some serious health risks sometimes, seriously with that. It's a -- yes. And the same thing, we watch, through the overall birth control business, we do try to watch that, particularly as the government's now willing to pay for some of that stuff on health care plans. So we're staying on top of that. But that's why we believe once we stay with great innovations in the condom business and keep our marketing spending up, the business will continue to do well. It's pretty low growth business, believe it or not. I mean, a good year in condoms is 3% to 5% category growth. And we believe we can spur that with innovations and more marketing spending. And now that we're bringing in the lubes and the vibes in a total bundle, our total spending on Trojan, marketing-wise, is going to go up. And we're big mega-brand guys. We kind of -- the ARM & HAMMER brand has been driven by the success of mega-branding of advertising across the entire line across all the categories. And we believe that all the spending we make on lubes and vibes will also help the condom business. And by having all total money because we're doing it as Trojan, we didn't launch this as Brand X lubes or Brand Y vibes, it's all Trojan, Trojan, Trojan. And every study we've ever done said Trojan is the #1 sexual brand in this country. People have told us we could do almost anything in the sexual health, women or children, except for drugs. They would say things like -- what's that called? You use it, what is it?

Matthew Thomas Farrell

No one is safe around Jim.

James R. Craigie

They say we can't put drugs under the Trojan name. They don't believe that -- they said a drug company should do that. But almost anything else, that's what we're doing now. Condoms, lubes and vibes, you've seen the category size and growth. You see the statistics that it's out there, and I think with the trends in America, driven by, whether it's books or things like that, it's become a mainstream. I actually believe that, and we want to take the brand, it is the mainstream brand, and take it across all the categories and create our next mega-brand.

Unknown Analyst

I think that's about all the time we have. We'll go to the breakout room. Thanks again, Jim and Matt, for a great presentation.

James R. Craigie

Thank you.

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