Church & Dwight Management Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 1.13 | About: Church & (CHD)

Church & Dwight (NYSE:CHD)

Q3 2013 Earnings Call

November 01, 2013 10:00 am ET

Executives

James R. Craigie - Executive Chairman and Chief Executive Officer

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

Analysts

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

John A. Faucher - JP Morgan Chase & Co, Research Division

Olivia Tong - BofA Merrill Lynch, Research Division

Caroline S. Levy - CLSA Limited, Research Division

Kevin M. Grundy - Jefferies LLC, Research Division

William Schmitz - Deutsche Bank AG, Research Division

Christopher Ferrara - Wells Fargo Securities, LLC, Research Division

Alice Beebe Longley - The Buckingham Research Group Incorporated

Michael Steib - Crédit Suisse AG, Research Division

Dara W. Mohsenian - Morgan Stanley, Research Division

Wendy Nicholson - Citigroup Inc, Research Division

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Lauren R. Lieberman - Barclays Capital, Research Division

Leigh Ferst - Wellington Shields & Co., LLC, Research Division

Constance Marie Maneaty - BMO Capital Markets U.S.

Operator

Good morning, ladies and gentlemen, and welcome to the Church & Dwight Third Quarter 2013 Earnings Conference Call. Before we begin, I have been asked to remind you that on this call, the company's management may make forward-looking statements regarding, among other things, the company's financial objectives and forecasts. These statements are subject to risks and uncertainties and other factors that are described in detail in the company's SEC filings.

I would now like to introduce to you your host for today, Mr. Jim Craigie, Chairman and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

James R. Craigie

Good morning, everyone. It's always a pleasure to talk to you, particularly when we have good results to report. I'll start off this call by providing you with my overview on our third quarter business results, which you read about in our press release this morning. I'll then turn the call over to Matt Farrell, our Chief Financial Officer. Matt will provide you with his perspectives on the financial details for the quarter. When Matt is finished, I'll return to provide some more detailed information on the performance of our key brands and discuss our earnings guidance for the year. We'll then open the call to field questions from you.

Let me start out by saying that I'm very proud of my team for delivering the excellent third quarter business results in such a difficult business environment. Despite headwinds from weak consumer demand and increased competitive pressures, the third quarter results reflect double-digit net sales growth of 11% versus year ago, an all-time company record for gross margin of 45.4%, which was 20 basis points above year ago. This is also the fifth consecutive quarter of gross margin expansion, an 8% increase in marketing spending versus year ago, with supported share growth on 7 of our 9 power brands, a 15% increase in operating income and an 80-basis-point increase in operating margin versus year ago, a 15% increase in earnings per share versus year ago, and a 75% increase in free cash flow versus year ago.

In addition, I'm pleased to report that we have finished the integration of our most recent acquisition, the Avid Health gummy vitamin company, across every business function. The Avid acquisition continues to deliver outstanding results, with double-digit sales growth and better-than-expected cost synergies. So despite continued headwinds, the excellent results for the first 3 quarters of 2013 make us feel very confident in achieving our aggressive annual EPS growth target of a 14% increase versus year ago.

I'll now turn the call over to Matt to give you more details on our third quarter results, and then I'll return to provide some further insights on the results of our key brands and provide additional details on my outlook for the year.

Matthew Thomas Farrell

Thank you, Jim, and good morning, everybody. Third quarter EPS was $0.76 per share compared with $0.66 in 2012, as Jim said, up 15.2%. Our reported earnings were up 11% to $804.8 million. Organic sales was up 1.6%, which was slightly above the midpoint of our previously communicated expectations of a range of 1% to 2%. I'm now going to review the segments.

The organic sales of the Consumer Domestic business increased by 0.8%, primarily due to higher sales of ARM & HAMMER liquid laundry detergent, OXICLEAN laundry additives, TROJAN products and FIRST RESPONSE diagnostic kits. These increases were partially offset by lower sales of ARM & HAMMER powder laundry detergent, ARM & HAMMER cat litter, NAIR depilatories and SPINBRUSH battery-operated toothbrushes.

Volume growth contributed 4.5% to the increase in sales and, as expected, was partially offset by 3.7% unfavorable product mix and pricing. In contrast, price mix in Q2 was a negative 2%. So the result is consistent with our plans to remain price competitive in Q3 and also in Q4.

International increased organic growth by 3.7% in Q3, due to higher sales in Canada, France, Mexico and the U.K. This increase of 3.7% was entirely driven by volume gains.

For our Specialty Products Division, organic sales increased by 3.7%. This was a nice rebound from the weak second quarter. Volume increases drove a 7.9% increase in sales, partially offset by 4.2% unfavorable product mix and pricing.

Turning now to gross margin. Our reported third quarter gross margin was 45.4%, a 20-basis-point expansion from year ago. This is our fifth consecutive quarter of gross margin expansion. The increase in gross margin is primarily due to the positive impact of productivity programs and is remarkable as we overcame considerable negative price mix in the third quarter. Year-over-year commodity costs were relatively neutral for the quarter, with a notable exception of resin, which, many of you know, is at a 3-year high right now. As a result of our Q3 gross margin performance and our expectation that Q4 will be the sixth consecutive quarter of gross margin expansion, we now expect gross margin for the full year 2013 to expand by approximately 75 basis points.

With respect to marketing, year-over-year marketing spend increased 8% to $99.7 million or 12.4% of revenues, which is a 30-basis-point decline from the prior year spend rate. We continue to support new product launches and grew dollar share on 7 of our 9 power brands. This is due to great execution by our sales and marketing teams. For the full year, we expect marketing, as a percentage of sales, to increase approximately 25 basis points.

SG&A year-over-year increased by $7.8 million in the quarter, primarily reflecting the inclusion of the Avid business. SG&A, as a percentage of sales, was 12.1%, down 30 basis points from year ago in the quarter. For the full year, we expect SG&A to be about 13% of sales, and that would be 30-basis-points improvement from year ago. And we continue to focus on SG&A as a lever to drive future operating margin expansion.

The reported operating margin for the quarter was 20.8%, which was 80 basis points higher than last year's 20%. Income from affiliates was flat in the quarter year-over-year. Other expense was unfavorable year-over-year, primarily due to interest expense related to the Avid acquisition. And this holds true on a full year basis as well, as we expect a decrease of $14 million in other income on a full year basis, primarily related to interest expense.

Next is income taxes. Our effective rate for the quarter was 33.9% compared to last year's 35.7%. The full year effective tax rate, we now expect to be approximately 34%.

A little bit of history on the tax rate. Our effective tax rate in Q1 was 34%. Q2 was 34.5%, so we're already trending lower with respect to our effective tax rate versus our 35% call for the year. With the 33.9% rate in Q3, it's pretty obvious now the full year will be closer to 34%. So we got a couple pennies of benefit in the first half versus our full year expectation.

Cash flow. Turning now to cash, we generated $376.6 million of net cash from operations for the first 9 months of 2013. We have spent approximately $30 million year-to-date in CapEx, which is approximately $90 million decrease from a year ago, which included the construction of our California plant. We expect to spend approximately $70 million on full year CapEx.

There were no share repurchases made in either the second quarter or the third quarter, and we have no plans for share purchases in the fourth quarter. That will leave us with approximately $220 million remaining on our share purchase authorization by year-end. Our cash balance right now is approximately $450 million, and we expect to end the year with a cash balance approaching $500 million and levered approximately 1.2x versus EBITDA.

So in conclusion, the third quarter highlights include 1.6% organic sales growth, it's the fifth consecutive quarter of gross margin expansion, and 15.2% earnings per share growth. We expect fourth quarter EPS of approximately $0.65 per share compared to $0.57 per share last year.

I'm going to turn it back to Jim right now.

James R. Craigie

Thanks, Matt. I'll finish up the call today by adding a little color to our third quarter results, which Matt just took you through, and my outlook on the year. As stated earlier, those of you who've heard me speak before, know that I've been a long-term pessimist about the business environment. The latest forecast of weak GDP growth, continued high unemployment and weak same-store sales by major retailers provide little hope for significant near-term improvement in the U.S. economy.

In fact, of the 14 categories in the U.S. that Church & Dwight operates in, 6 experienced lower category dollar sales in the third quarter versus the prior year. When a category is flat to down, it creates a much more intense competitive environment, as the only way to drive organic growth is to gain market share through higher marketing spending, new product innovations and/or aggressive pricing.

All consumer packages companies are fighting these headwinds. But as I told you many times before, I believe no other consumer packages company is as well suited as Church & Dwight to deliver exceptional performance in a tough environment.

There are 7 key factors to support that statement. First, we have a unique product portfolio within the CPG industry. It consists of both premium and value brands, which puts us in the position to thrive in any type of economy, as exemplified by our ability to deliver double-digit EPS growth for the last 12 consecutive years. In particular, our value brands, representing over 40% of our revenue base, have experienced strong growth in this recessionary economy as consumers are generally making smart choices by switching to and staying with our high-quality but lower-priced brands. A great example of this is our value-based Laundry Detergent business, which consists of 2 brands, ARM & HAMMER and XTRA. These brands fell for 1/2 to 2/3 less than premium price brands and delivering exceptional cleaning performance. Consumers love our value brand detergents, as proven by the fact that more U.S. households buy a value brand than premium or mid-priced laundry detergent brands. The great value delivered by our 2 brands have resulted in steady share growth.

In the third quarter, ARM & HAMMER liquid laundry detergent achieved a record quarterly share of 10.1%, which was its 15th consecutive quarter share growth versus year ago, and has now clearly surpassed the all brand to become the #3 liquid laundry brand in America. ARM & HAMMER was 1 of only 2 major brands to deliver share growth in both the third quarter and the latest 52 weeks.

Our other liquid laundry detergent brand called XTRA also achieved a record quarterly share in the third quarter. It is now the #2 liquid laundry detergent brand on a wash load basis, representing 1 out of 7 wash loads in America.

As a result of the strong performance by both ARM & HAMMER and XTRA liquid laundry detergents, Church & Dwight was the only major manufacturer to grow total detergent dollar sales in the third quarter. The strong consistent share growth on both of these brands has enabled Church & Dwight to increase its liquid laundry detergent market share by 50% over the past 5 years and become the #2 laundry detergent company in America.

The second factor, which is a key driver of Church & Dwight's success, is that we have a proven record of building share on our power brands. We have over 80 brands in total, but 8 of our brands are historic power brands, which generate 80% of our sales and profits. We have now added a nice power brand with the acquisition of the Avid gummy vitamin business. From 2008 through 2012, we grew market share on each of the 8 historic power brands in almost 75% of the quarters. In the third quarter of this year, we grew market share on 6 of our 8 historic power brands and 7 of our 9 power brands, including the gummy vitamin business.

Three key factors drive these excellent results. First, we have effectively reinvested some of the increased profits from the strong growth of our value brands to increase marketing support on our power brands. In the third quarter of 2013, we increased our marketing support by 8% or $7.5 million versus year ago. This increased marketing support was a key driver behind record quarterly shares achieved in ARM & HAMMER liquid laundry detergent, our FIRST RESPONSE pregnancy test kit business and our OXICLEAN laundry additive business.

The second factor driving this growth of our power brands is our robust pipeline of new products. Over the past 4 years, new products delivered about 50% of the company's organic revenue growth. We have launched innovative new products in almost every key category this year. A sample of these new products includes ARM & HAMMER's new Ultra Power laundry detergent, which provides consumers with a more concentrated liquid laundry detergent in a smaller bottle, which is easier to handle, more environmentally friendly and enables dosage control for lightly soiled or heavily soiled wash loads. This new product drove 70% of the total third quarter sales growth on ARM & HAMMER liquid laundry brand, which enabled the brand and our total business to achieve its 15th consecutive quarter of share growth.

Other new products that have been launched in 2013 or late 2012 include: a new line of sexual lubricants under the TROJAN brand name; a new toothbrush under the ARM & HAMMER Tooth Tunes brand, which plays music by the One Direction boys band; a new single-dose cold sore treatment under the Orajel brand. More detailed information on all these innovative new products is on Church & Dwight's website.

Part of the increased marketing spending behind these innovative new products is increased sampling. For example, we are driving awareness in trial of our new TROJAN lubricant line by providing samples in 4 million boxes of TROJAN condoms. And to drive awareness in trial of our great-tasting line of gummy vitamins, we are increasing in-store sampling by over 50% versus last year.

In addition to the increased marketing spending on innovative new products, the other key driver of share growth on our power brands is increased distribution. As a result of the consistent strong share growth on our power brands over the past 5 years, the Church & Dwight sales force has worked closely with our retail partners to increase the shelf space of our brands to meet the increased consumer demand and minimize out of stocks. The distribution gains achieved to-date in 2013 across all brands has been the greatest of my 9-year tenure as CEO.

The combined effect of the innovative new products, increased marketing spending and increased distribution, delivered share gains in 7 of our 9 power brands in the third quarter, which puts us in the position to deliver stronger organic growth in 2014, behind an incredible pipeline of innovative new products in our core business, continued strong growth of new Gummy Vitamin business and an improvement in the sales of our cyclical Specialty Products business.

Let me just wrap up at this point about my company's ability to grow our power brands with the following Q3 share results on our other power brands. OXICLEAN powdered laundry additive grew its category-leading share by 1.8 percentage points to a record quarterly share of 42.9%. It is now over 2x larger than its nearest competitor. TROJAN grew its leading position of the combined U.S. condom, vibrator and lubricant business by having great new products and increased marketing spending. For example, the new TROJAN lubricant line, which was launched in the second quarter, has already achieved a 7% share of the lubricant category. And our Condom business has an industry-leading 76% market share, driven by constant product innovations, which has resulted in TROJAN having all 10 of the top 10 selling condoms in the market. FIRST RESPONSE pregnancy kits achieved a record quarterly share of 31.8%, up 1.2 percentage points versus year ago. And it's been the #1 selling pregnancy test kit for 35 consecutive quarters. NAIR achieved share gains in the third quarter to maintain its share leadership position for the 36th consecutive quarter.

And finally, our new Gummy Vitamin business had a terrific third quarter. Li'l Critters, our kids vitamin brand, grew its dollar share to maintain its position as the #1 kids gummy for the eighth consecutive quarter. Vitafusion, our adult vitamin brand, grew its share, driven by a 40% consumption growth. Vitafusion is the #1 adult gummy vitamin for the past 8 quarters, with 6 of the top 10 SKUs, and is the fastest-growing adult vitamin brand for the past 52 weeks. In total, Church & Dwight is the market leader in gummy vitamins, with a 37% share. The gummy vitamin category grew 27% in the third quarter versus year ago, which is 6x faster than the growth rate for the overall vitamin business consisting largely of hard pills. We believe that the gummy category should continue to deliver double-digit growth for the foreseeable future, as it only represents about 9% of the total vitamin business.

In total, that's a pretty impressive scorecard for Q3 share results for our power brands. Now let me quickly run through the 5 other key drivers of Church & Dwight's success.

Number three is that we have a proven history of ferociously defending our brands, as evidenced by our ferocious defense of OXICLEAN when a large competitor entered the category several years ago. OXICLEAN not only deflected the impact of the attack on other competitors, but has now strengthened its leadership position through the record share levels achieved in the third quarter. OXICLEAN is now larger than the combined share of the #2, 3 and 4 competitors in the laundry additive category.

The number four factor behind our continued success is the strong growth of our international business. While our international business represents only about 20% of our total revenues, it has delivered strong sales growth and double-digit operating profit growth over the past 5 years. The growth continued in the third quarter, with 3.7% organic growth, driven by excellent results in Canada, France, Mexico and the U.K. The international organic growth would've been even stronger, except for lower sales of our NAIR brand, which is impacted by the cooler-than-expected weather this summer in Europe.

Factor number five is our long history of success in expanding gross margins through cost-optimization programs, supply-chain restructuring, acquisition synergies and launching higher-margin new products. Driving improved gross margin is deeply ingrained in Church & Dwight's organization. We not only talk the talk, but we walk the walk. 25% of every Church & Dwight employee's annual bonus is based on achieving our gross margin improvement target. I am not aware of any other consumer packages company that explicitly has gross margin targets in their employee bonus programs. This deeply ingrained focus on gross margin has enabled Church & Dwight to expand gross margins by 1,450 basis points over the past 11 years.

Headwinds from higher commodity costs stalled our gross margin improvement in 2010 and 2011, but we were able to overcome these headwinds by the middle of 2012 to deliver 2 consecutive quarters of 100-plus-basis-point gains in gross margin versus year ago in the third and fourth quarters of 2012. This momentum continues in the first half of 2013, with 110 point -- basis point increase in gross margin versus year ago in both the first and second quarters of this year. Despite the fact that we are now lapping the 100-plus-basis-point gross margin gain achieved in the third quarter of 2012, we still achieved a 20-basis-point improvement in the third quarter of 2013 to achieve a record quarterly gross margin of 45.4%. And as Matt and I mentioned earlier, the cost synergies from the integration of the gummy vitamins acquisition are exceeding expectations. So as a result, we expect to continue to deliver gross margin improvement versus year ago in the current fourth quarter.

The sixth factor behind our continued success is our ability to reduce SG&A as a percent of net sales by tightly managing overhead costs and leveraging our strong organization via acquisitions. We reduced SG&A as a percent of net sales to 12.1% in the third quarter and expect to continue to reduce SG&A costs as a percent of net sales in the fourth quarter. This should enable Church & Dwight to continue to have the highest revenue per employee of any major consumer packaged goods company.

Finally, factor number seven is our strong record on free cash flow conversion. Like gross margin, free cash flow is another one of the company's key components on our annual bonus program for all employees. As a result of having every employee focused on and incentivized to deliver higher free cash flow, we have quadrupled our free cash flow over the past 10 years. Over the past 5 years, our free cash flow conversion as a percent of net income averaged 122%, which was best in class in the consumer packaged goods industry.

As Matt told you a few minutes ago, we delivered a strong increase in free cash flow in the third quarter. This cash flow and our strong balance sheet has enabled us to smartly invest in our future through both investments in our supply chain, including construction of more efficient new plants, and the acquisition of leading brands. All these factors give me great confidence about our ability to deliver our aggressive 2013 EPS target of $2.79, which is an increase of 14% over 2012 EPS. We believe we can deliver that aggressive EPS target despite continued headwinds from weak consumer demand and increased competitive pressures.

Our confidence in delivering this aggressive EPS target is based on 2 key factors. First, we believe we can continue to deliver the market share gains in our power brands. These share gains are expected to result from innovative new products, increased marketing spending and significant distribution gains across the majority of our power brands that I've mentioned earlier. Second, we believe we can deliver gross margin expansion of approximately 75 basis points on our total business in 2013, including new Gummy Vitamin business. The higher projected gross margin should enable us to be price competitive and increase marketing spending versus year ago on our power brands to deliver the share gains. Unfortunately, these share gains cannot fully offset the weaker-than-expected category trends and the ongoing need to continue to aggressively compete on pricing in a few key categories. So we are now projecting organic sales growth of approximately 1.5% to 2% for the full year.

While this outlook on organic growth is lower than our initial annual goal of 3% to 4%, the share gains we have achieved on the 7 of our 9 power brands should put us in a position to return to higher organic growth levels in 2014, behind a great new pipeline of innovative new products on our global Consumer business, continued strong growth in our new Gummy Vitamin business and an expected improvement in the sales of our cyclical Specialty Products business.

In conclusion, 2013 has been and continues to be another very challenging year. But when things get tough, you should place your bets in the company with the product portfolio that can thrive in such an environment and a management team that has a track record of knowing how to successfully leverage that portfolio to deliver consistently strong EPS growth.

This ends our presentation. I'll now open the call to questions that you may have, which Matt and I will do our best to answer. Operator, please go ahead.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Bill Chappell from SunTrust.

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

Jim, could you just talk a little bit more about kind of the growth outlook next year? I'm just trying to understand -- I mean, obviously, you have the easy comps on the Specialty business and the Avid business in the mix. But are you expecting the categories to turn up -- I mean, because I would -- seem like you need some category growth to get overall growth for the company.

James R. Craigie

Bill, yes, I actually do, because I've kind of hinted at it, but I won't give you any details. We have the most incredible new product pipeline ever in our history coming next year. We've always found historically that innovations help drive category growth, and I think that will be a key driver of that next year going forward. So I'm very excited about that. I do think the economy is slightly turning here, but I think more importantly is the new product innovations that we're launching across a lot of key categories will be very, very impactful on the category growth next year.

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

Okay. And then, Matt, just I won't even ask the acquisition question, but at what point is too much cash earning 0.1% on the balance sheet inefficient?

Matthew Thomas Farrell

Well, I'm sure many people who know our story know that, if you went back to year 2000, we had one power brand, that was ARM & HAMMER. And since then, we've added 8 others. Today, we have 9, and that was through acquisitions. And we have proven that once we acquire businesses, we're able to grow their market share pretty rapidly. So with that as a core competency in the company, and, yes, you're right, it's a lot of cash that's building up on the balance sheet. The destinations for that are acquisitions; and number two would be buybacks. And we haven't been a company that's done a lot of buybacks historically. And as I pointed out on our call, we do have $220 million remaining on our authorization. But you're right, Bill, we have lots of cash, but we look at that as an advantage with which to go shopping for new businesses. And the Avid business, we've now owned for a year, we acquired it October 1, 2012. And we've done a great job integrating that business, so we are in good shape right now to take on another one.

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

But in terms of just share repurchases or even debt pay-down, there's nothing really you can do on the debt side for the foreseeable future?

Matthew Thomas Farrell

No, the debt side, you're right. We have some commercial paper out there. The reason we have commercial paper out there, while, at the same time, we have cash, is to keep our name in the market such that when we do, do an acquisition, we can avail ourselves of the CP market and keep our name out there.

Operator

Our next question comes from John Faucher from JPMorgan.

John A. Faucher - JP Morgan Chase & Co, Research Division

Just wanted to talk a little bit about the promotional environment. And, Jim, can you talk about what you're seeing from a -- let's say, a channel shift standpoint in terms of consumers trading down by channel versus what you're seeing in terms of just a more aggressive promotional standpoint from the companies themselves? And then is there any particular price point -- you guys have lots of different products at all sorts of different price points. Is it more competitive at the lower end, at the high end? Just some sort of comments on that.

James R. Craigie

Yes, John. I really haven't seen anything new in channel shift. There's just the general trends going on over time. That's not really an issue right now. The competitive pricing situation is only occurring in a few key categories right now. Laundry is certainly one of them. We're seeing a bit of pricing pressure in there. But honestly, things have reached a point where I don't think they're going to go any lower. So I think that, that will stabilize itself, and I think you're going to see a lot of innovations in that category next year, so I think that'll actually help drive the category growth back up. So in general, it's been a little bit of a rough time lately, but I think things will definitely improve next year. As I think all competitors will go back to focus more on innovations to drive categories, and I don't think the channel shifting is any more of an issue than it's been in the past.

John A. Faucher - JP Morgan Chase & Co, Research Division

Okay, great. And then a follow-up on your comments on laundry. I mean, we have seen, as you mentioned, a huge shift out of the middle of the category, right? So the high end with Tide has gained a little bit of share, but you guys have really gained a ton. How much more share is there available from the middle to your brands there? It's been a big move over the last 4 or 5 years, but there's still a lot in that middle. How much more do you think you can get?

James R. Craigie

A lot. A lot. The middle has been the section that's been kind of eroding for the past decade. There's still quite a bit of share left there. And I think consumers will continue to shift one way or the other to the premium side or to the value side because the middle, you can get the quality of those products with the premium brands, and the value side offers great quality at a great price. So it's been the share donor for a long time, and I think it will continue to be the share donor.

Operator

Our next question comes from Olivia Tong from Bank of America Merrill Lynch.

Olivia Tong - BofA Merrill Lynch, Research Division

Want to talk a little about marketing spend. First, was there a shift from Q3 into Q4? Because if I remember correctly, you guys thought that Q3 would be up. And then how do we think about the spend in marketing versus promotion for 2014?

James R. Craigie

Yes, Olivia. Marketing spending was only lower as a percent of net revenue in the third quarter. We actually spent, on an absolute dollar basis, an additional $7.5 million. And we always assess what we're spending. More importantly, is how we're doing on share growth. And we had a great quarter in the third quarter. We grew share in 7 of our 9 power brands. So we always watch what's going on there. We just -- we always have our hand on the lever because we have to watch competition. I'll remind everybody that Procter & Gamble's announced that they're going to cut over $1 billion of marketing spending going forward. So we watch that. We always stay competitive. But most importantly, what we always gauge our marketing spending against is how we're doing on our share growth. And growing share in 7 of our 9 power brands is a great, great result.

Olivia Tong - BofA Merrill Lynch, Research Division

And on the promo versus marketing?

James R. Craigie

Well, no, we always -- that's something where we always -- again, it's -- we consider that all part of marketing, whether it's advertising, consumer coupons or price promotions at the stores. And one of the great jobs of our marketing and sales team is always to gauge how to take the total pot of money we have and most effectively and efficiently deploy it in the marketplace. And I would say we're pretty good masters of that, given our share trends over time. So it's category by category, customer by customer out there, and we just -- we -- one thing about being a small company, and from me on down, we watch that everyday, and we'll shift the levers as needed to, again, most effectively drive the best share results and the best sales results. So we're pretty good against that. It just changes all the time, and that's why we have people in charge of the business and on top of it everyday.

Olivia Tong - BofA Merrill Lynch, Research Division

Got it. And then just one quick follow-up on the organic sales growth target of 3% to 4% for next year. How do you think about the mix between volume versus price for next year, particularly considering the big looming February 2014 launch in laundry?

James R. Craigie

Go ahead, Matt.

Matthew Thomas Farrell

Yes, as far as the 3% to 4%, historically, the company has been dependent upon volume growth as opposed to price mix. I think it's too early to actually call or split that number between how much is going to be volume and how much is going to be price mix. But suffice to say that if, in fact, the current environment continues, it's possible that it can be some price mix negative. It's certainly in the first half of the year, but we'll update that on the first week of February, when we give our 2014 outlook.

Operator

Our next question comes from Caroline Levy from CLSA.

Caroline S. Levy - CLSA Limited, Research Division

I'd like to explore the vitamin category in a little more detail, if possible. Just from what you've seen so far during your ownership, if you could update on any positive, negative surprises. The shelf space often looks like a big mess when you go into any of the stores, really, depending -- no matter what the format is, a lot of private label. And so just a little more in-depth look at how you see the next few years progressing.

James R. Craigie

Caroline, this category and this business has been everything we dreamed of and then some. As I gave you some numbers before, the gummy side of the business continues to deliver very strong double-digit growth, particularly on the adult side. When we bought the business, the adult category of gummies was only about 3% of the business. So now that's growing rapidly. But still, in total, as I've said, gummy as a part of the total vitamin business, is only about 9% of the total business. So as far as we're concerned, there is 91% of the business to go. The gummy form has such huge advantages, and the taste and all the mouth-feel benefits of it. And I have yet to meet a consumer out there who hasn't tried a gummy, who said [ph] to me, that's the last time they're going to take a hard pill. So we love the business. We're doing a great job of driving distribution gains out there. We've done a great job of driving the cost synergies. We got a lot of new products coming. And the shelves, it's funny you say about the shelves, we kind of share your opinion that the shelves could use some better management out there. Retailers tend to think the shelves are okay. They tend to segment stuff between kids and adults and gummies and this or that and letter vitamins versus multivitamins and that. But we are doing a lot of work to try to help figure it out with the retailers and to try to make it more consumer friendly. But it's a great -- as you know, vitamins, overall, is a great growing category, given the health trends and aging trends not only in our country but around the world. So we are just absolutely thrilled that we bought into this business and bought the hot growing part of this business, so we just see great things going forward.

Caroline S. Levy - CLSA Limited, Research Division

And just so I understand, given how much private label there is, and a lot of the retailers have strong brand names, that doesn't keep price pressures on you guys? I mean, what's the price mix outlook like?

James R. Craigie

Price mix is -- yes, we have private labels in this category more than others. But we've been able to -- it was part of -- we had a small part of the business we bought that was private label. We've been able to keep it at that range. And I would say, our -- if you look at our product, our product itself has got a fairly decent value positioning in the category, so we feel fine about that. And like any other category, innovations will help drive the category. And certainly, you got a form here, the gummy form versus hard pills. So price pressures are really not a key issue in this category right now.

Caroline S. Levy - CLSA Limited, Research Division

And then separately, could you say what drove the improvement in Specialty and how sustainable that might be?

Matthew Thomas Farrell

It's pretty simple. The second quarter, you may recall, the weather in the United States was so cool such that the demand for our products completely fell off. The reason for that is, just to remind everybody, our product replaces electrolytes in cows. When it's really hot, cows lose electrolytes through sweat, and they don't make milk. So in the second quarter it was cool, so we -- demand fell off tremendously in our Animal Nutrition business, but that recovered in the third quarter. So it wasn't so much what we did, it was sort of business as usual in Q3.

Caroline S. Levy - CLSA Limited, Research Division

Got it. And then just -- sorry, back to vitamins for a second, do you see this as both a double-digit top line opportunity, as well as bottom line opportunity?

Matthew Thomas Farrell

We -- it's a double-digit top line growth expectation for 2014, for sure.

Caroline S. Levy - CLSA Limited, Research Division

And bottom line?

Matthew Thomas Farrell

We don't call the P&Ls for the brands or products. We just only comment on top line growth.

Operator

Our next question comes from Kevin Grundy from Jefferies.

Kevin M. Grundy - Jefferies LLC, Research Division

So, Jim, first, on the slight guide down for the year in organic growth, and I know it's modest, but what's worse? And I know that laundry declined sequentially versus 2Q. Is there anything else specifically that you'd call out other than laundry?

James R. Craigie

No, Kevin, laundry is the key call, but we saw this coming. As it kind of started in Q3 and as we expect some continued pressures in Q4, I can't call the future. We'll do whatever we have to do to stay price-competitive. But that was all we see right now. There's -- yes, and everything else is minor at this point in time, but it's -- that's largely it.

Kevin M. Grundy - Jefferies LLC, Research Division

Okay. And then you provided guidance now for '13. It looks like it only implies about 1.5% organic growth, which I thought you'd get from Avid alone. So is it fair to say you expect the base business to be flat. Is that fair?

Matthew Thomas Farrell

No, we -- Kevin, it's -- to make judgments about the base business is way premature with respect to 2014.

Kevin M. Grundy - Jefferies LLC, Research Division

No, I'm sorry, Matt, I should have been more clear. This is with respect to 4Q, and your guidance now implies about 1.5% organic growth in 4Q, which I thought you get from Avid now in the base.

Matthew Thomas Farrell

Yes, yes, here's another way to think about it. So when we were on the call for -- at the end of the second quarter in August, we said we anticipated pricing pressures in the base business, and they certainly materialized. You saw that in the third quarter with the huge price mix. And although we expect market share gains in Q4, they'll generally be in categories that we expect to be flat or down sequentially compared to Q3. So yes, Q4 on a reported basis for organic is going to be similar to Q3, only this time vitamins is the big driver. So when we said a full year range of 1.5% to 2%, that translates into a pretty big range for the fourth quarter. It'd be more like a 1% to 2.5% range for the fourth quarter to get to a full year range of 1.5% to 2%. So that question is, okay, what's that range dependent upon? It's really a couple things. It's the success of our year-end promotions and our advertising across all categories including vitamins. The second thing is the severity of competitors' price actions. Anybody spending any time in the supermarkets right now has seen that there's tremendous amount of prices being slashed across the board. So yes, it's -- we got a pretty wide range in the fourth quarter, which drives the 1.5% to 2% for the year. But it's those 2 factors, right, it's our year-end promotions and advertising across all the categories and what -- how well would the competitors' pricing actions blunt our actions in the fourth quarter.

Kevin M. Grundy - Jefferies LLC, Research Division

Okay. And then, Jim, speaking with laundry, 2 interesting data points I've picked up from conversations with the folks in the industry. I don't know if you can comment or not or care to, but, first, that you guys are planning on a new product launch with OXI into the premium tier of liquid laundry; and second, that 5 key retailers have indicated they're not going to pick up Procter's new mid-tier-type products, given that the category continues to be in rough shape and that it kind of leaves open the possibility that more dollars come out with the potential for further consumer trade-down. Can you comment on either one of those?

James R. Craigie

Yes, Kevin, I can. But let me just comment that we're fully aware of the launch of the competitive product by Procter & Gamble. I just remind everyone that one of our key success drivers that I've talked about earlier is our ability to successfully defend our brands, as we've done for several years, and as we did when Tide attacked OXICLEAN a few years ago. And for competitive reasons, we're not going to reveal the details of what I would call a ferocious defense that we're going to mount next year. But I also remind everybody, as it often happens in battles like this, it's the weaker players in the categories that are usually the losers, and that's exactly what happened when OXICLEAN was attacked by Tide. Tide has gained some share, but OXICLEAN also gained share, and the share gains that both those brands achieved came out of the weaker brands. So I think that's kind of the forecast I see for next year, but I don't want to reveal what we're going to do, and it's just going to be -- just trust us that we have a long history and a good track record of defending our brands, and we look forward to a good battle.

Operator

Our next question comes from Bill Schmitz from Deutsche Bank.

William Schmitz - Deutsche Bank AG, Research Division

The CapEx budgets, so it seems like you spent $30 million year-to-date, and there's like a $40 million expected investment in the fourth quarter. What's the big step-up for?

Matthew Thomas Farrell

Yes, it's not so much a big step-up, Bill, as timing. We entered the year, we thought we were going to spend an excess of $80 million. And we've only gotten through $30 million of it through the first 3 quarters of the year. So if you've ever worked in a manufacturing organization, you sort of use it or lose it, right? So you got a lot of guys trying to get their projects get completed in the fourth quarter. So it's no one large project we can point to. It's lots and lots of little ones across all the plants.

William Schmitz - Deutsche Bank AG, Research Division

Got you. But would be surprised if it came in below $70 million?

Matthew Thomas Farrell

No, I think it'll be -- I think $70 million is about right. Because remember -- if you remember in August, Bill, we were calling $80 million, so now we knocked it down to $70 million.

William Schmitz - Deutsche Bank AG, Research Division

Yes. I just thought $40 million, I mean, it seems like a lot of money to spend in 3 months.

Matthew Thomas Farrell

Yes, it is.

William Schmitz - Deutsche Bank AG, Research Division

Okay. And then what's the end game in laundry here? Because like you look at some of the price per unit numbers from Nielsen and like guys are taking like 10%, 11%, 8% price decreases. And then obviously, you have to follow there. So like how does this whole thing end? Because volume is not improving. It's actually -- just continues to be flat.

James R. Craigie

Bill, I personally think 2013 is a year more of pricing pressures and things like that. I think 2014 is going to be a year of innovation. And I think forward, I think consumers will respond to that and look at the innovations that are going to come out across the category. And I think things will get better. I think it will. Just there wasn't that much in the pipeline from a lot of us this year as far as really, truly innovative product. I think you will see more of that next year.

William Schmitz - Deutsche Bank AG, Research Division

Got you. And your competitors, I mean, what are they telling the trade when they take like an 8% or 9% price decrease? And then why would the trade want to accept that if it's just going to shrink the category because the volume is not responding?

James R. Craigie

That's a good question, Bill. I think you should ask the retailers that.

William Schmitz - Deutsche Bank AG, Research Division

All right. And then in cat litter, shares are still a bit soft. It seems like you guys are starting a price war there at least in the last couple months. I mean, what's the turnaround plan there?

James R. Craigie

Bring new product innovations.

William Schmitz - Deutsche Bank AG, Research Division

Okay. But in the short term, is there going to be like a pretty aggressive pricing environment?

James R. Craigie

No, no, no. Bill, I would tell you, we've never tried to start a price war. We only respond to what's going on out there, and there's been some pretty competitive activity out there. But we have no desire to do that, but we will always do what's necessary to keep our brands competitive. But you're going to see something really big from us next year. We have historically launched a new product every 2 years. We did one -- so next year would be the year to launch a big new product. And this year, we did not have a big new product for our usual schedule, and some activity took on that kind of caught us by surprise, and so we've had to deal with that. But next year, we'll go back to what's always been successful for us, which is kind of a long history of success in this category, which is a big new product innovation coming out of Church & Dwight.

William Schmitz - Deutsche Bank AG, Research Division

Got you. And then I didn't catch the answer, but the reason for not buying back stock in the fourth quarter?

Matthew Thomas Farrell

Why would we want to buy back stock in the fourth quarter?

William Schmitz - Deutsche Bank AG, Research Division

Why aren't you going to buy back stock in the fourth quarter?

Matthew Thomas Farrell

Well, we have an authorization. We've chosen not to. That's a decision we look at every quarter. The management and the board discuss it, and we've opted not to. So we do have a lot of ability to buy back shares next year, and we certainly have the balance sheet to do it.

James R. Craigie

Okay, don't be a pig, Bill. We gave you 4 [indiscernible].

Operator

Our next question comes from Chris Ferrara from Wells Fargo.

Christopher Ferrara - Wells Fargo Securities, LLC, Research Division

I guess I just want to make sure I understand the Q4 sales outlook. Like I hear you, that response to your marketing plan -- those competitive marketing plans matter, but I guess that's always the case. But your outlook for Q4 does -- like it's 0.5 point to 2.5 points of growth implied by the full year. It does seem to imply sequential business slowdown, especially like in light of the fact that maybe your ferocious defense could be starting in that quarter. So I guess I want to understand how you're thinking about it.

Matthew Thomas Farrell

Yes, no, you're right. The -- as I said before that the -- if you have a full year range of 1.5% to 2%, that means that the range for the fourth quarter is going to be pretty wide, like 1% to 2.5%. So there's a lot of room in there for success or failure of our promotions with respect to the competition. And I would say it has gotten sequentially more difficult, Chris, as far as if you look at Q3 versus Q4 and what's going on on-shelf. So we recognize that, so we'd have a pretty wide range in there for the fourth quarter.

Christopher Ferrara - Wells Fargo Securities, LLC, Research Division

And I guess, back to the Tide, simply, launch, I mean, I know you don't want to divulge too much on your defense plans, but you got into the high end of your 3% to 4% for the year. It really doesn't sound like you're terribly concerned about what's going on there. I just was wondering if you could just give a little color on your thoughts. And is that right or you just think that other businesses are going to take the lead from a growth perspective next year?

James R. Craigie

No, no. I don't take anything lightly from the Procter & Gamble company. It's a major initiative by then -- them. We -- so like I said, we're -- we have a quite strong record of ferocious defense. We've taken them out in the past when they attacked OXICLEAN head on. And again, I would just remind you the end game. When 2 big players go to battle like this, and we'll do similar to what we did with the OXICLEAN defense, with the innovative new products, increased marketing spending, increased support, overall, often, the end result is, with us or Procter, Coke and Pepsi is -- usually, it's the other players who take the hit because the 2 guys going head-to-head often end up both winning, and the other smaller competitors often end up losing. So I'm all pleased. Believe me, I take this absolutely seriously. We've been all over this for months, and I feel very confident, though, that what we'll announce to you next year will delight you. And we'll do what we need to do to deliver what we're calling as organic growth at the high end of our 3% to 4% range, with laundry being a key player of that.

Christopher Ferrara - Wells Fargo Securities, LLC, Research Division

And I guess one last one. Just on that OXI defense, obviously, that was very successful, but that was Procter coming into a category where they didn't have much of an equity. Now they're swimming downstream, where they do have a pretty strong equity. And I guess you just haven't seen too many examples of that in these categories. And I guess, how are you thinking about that dynamic? I know you're viewing maybe the OXI example as informative, but I'm just wondering what the differences are in that you have a bigger brand but in -- with an actual equity in the category swimming downstream?

James R. Craigie

I wouldn't say Procter has no equity in the laundry additive category. Well, Procter is the giant in the overall laundry business, with products in almost every segment, and they entered that category with the Tide name, which is an incredibly powerful brand. So I consider it a very strong analogy to what's going on here. And yes, this laundry detergent, there's a lot of brands in there, but they're obviously ahead of that category also, but we're the strong #2. And again, the best way to fight that is to go out with innovative new products and increase marketing spending and have at it. And I feel confident that what we're going to do next year will deliver those results we need to deliver the kind of business results we're going to tell you about in February.

Operator

Our next question comes from Alice Longley from Buckingham Research.

Alice Beebe Longley - The Buckingham Research Group Incorporated

Another question on detergents. Is the increased promotional activity in detergents coming mainly from your biggest competitor above you or from the other 2 players or equally from everybody?

James R. Craigie

Sort of the latter, Alice, but it's all in different formats. The other competitors are mostly doing price. The big dog is mostly flooding the market with coupons. So it's been from all angles and that. So it's a bit of a war going on right now, but our share -- we're hanging in there pretty well. Our share growth is at record levels in Q3. And I just -- we know how to fight those kind of wars, and we'll do what's right to defend our brand.

Alice Beebe Longley - The Buckingham Research Group Incorporated

We know that Procter has got a bunch of innovations coming in detergents, and you apparently do. Do you know if the other players have innovation coming, too, or are they going to keep fighting on price?

James R. Craigie

I don't know that, Alice. I don't -- I can't comment on that.

Alice Beebe Longley - The Buckingham Research Group Incorporated

Okay. And then some housekeeping stuff. Can we expect gross margins again to be up in 2014?

Matthew Thomas Farrell

We're not going to comment on that until the first week of February, Alice.

Alice Beebe Longley - The Buckingham Research Group Incorporated

All right. And then the other one is Avid. You said you -- for sure, it will grow double digits next year. Are you more comfortable with the number closer to 10% or closer to 20%? I'm trying to figure out how fast that double-digit momentum is.

James R. Craigie

Alice, I just won 2 bets about you. Keep going.

Matthew Thomas Farrell

Yes, well, it's not 99, Alice. It's double-digit, that's all we're going to say.

Alice Beebe Longley - The Buckingham Research Group Incorporated

All right. But I mean, is it just barely double digits or is it something stronger than that?

Matthew Thomas Farrell

Yes, I commend you for your persistence. We're going to -- you can see in the Nielsen data how this category has been growing and the fact that it's...

Alice Beebe Longley - The Buckingham Research Group Incorporated

Yes, but that's not very complete data, so...

James R. Craigie

Well, Alice, we invite you to the CAGNY event next February in Florida.

Alice Beebe Longley - The Buckingham Research Group Incorporated

How fast is Avid growing, overall, at this point, including all channels?

Matthew Thomas Farrell

Yes, I mean, on a pro forma basis, it would be growing in the 20s. So if you looked at 2012 versus '13, assuming we owned it in '12, it would be in the 20s.

Alice Beebe Longley - The Buckingham Research Group Incorporated

Including in the third quarter, not just year-to-date?

Matthew Thomas Farrell

That's right.

Operator

Our next question comes from Michael Steib from Crédit Suisse.

Michael Steib - Crédit Suisse AG, Research Division

I have a couple of questions on costs. First, relating to commodity costs, it was flat in the quarter. What's your outlook, and how much visibility do you have as you enter 2014? And then secondly, have you realized all the cost savings now from the Avid acquisition?

Matthew Thomas Farrell

Yes, with respect to commodities, Michael, we have 8 commodities that represent -- that are our most volatile commodities. And we typically look at what percentage of those are hedged going into the coming year. And right now, we're about 30% hedged. Some of those commodities would include everything from resin to diesel, soda ash, paper products, palm fatty acid distillate, et cetera. So as far as Avid goes, and we have -- we -- when we bought that business, we said we saw $15 million of cost synergies. That number is going to be higher. We just don't update numbers like that after an acquisition. The way the $15 million split was $6 million of SG&A and $9 million of cost of goods sold. The cost of goods sold numbers are certainly going to be higher. So -- and we're making really good progress with respect to expanding gross margin on that business.

Operator

Our next question comes from Dara Mohsenian from Morgan Stanley.

Dara W. Mohsenian - Morgan Stanley, Research Division

For 2014, you didn't guide the EPS growth despite the top line guidance. Why is that? Are you still comfortable, conceptually, that double-digit earnings growth is the right range longer-term as you look out to 2014 and beyond?

James R. Craigie

No, we just don't normally give a forecast at this point in time. And we're still dotting the Is and crossing the Ts in our planning process. So we've always historically done that when we come out to the CAGNY meeting in 2014.

Dara W. Mohsenian - Morgan Stanley, Research Division

Okay. Because last year at this time you've given it, so I was wondering what the difference was versus last year.

Matthew Thomas Farrell

Yes, last year at this time, you may recall, we had just acquired the Avid business, so a lot of interest in how much we thought the Avid business is going to contribute to 2013. So we gave some people -- so we felt like -- obligated to call a number for the year at 14%, and that's where we're coming into, by the way.

Dara W. Mohsenian - Morgan Stanley, Research Division

Okay, that makes sense. And then for 2013 earnings guidance, I guess I'm a bit confused why your earnings guidance isn't moving up. The tax rate's more favorable. Gross margins are coming in at the higher end of your range. Should we think about organic sales growth as maybe at the low end of your new range, or is it conservatism, or something else that's offsetting those favorable factors?

Matthew Thomas Farrell

Yes. Well, look, there's always a lot of moving parts in the P&L. And we were calling 2% organic growth up until this call. Now we're seeing 1.5% to 2%. So obviously, there's some earnings impact as a result of that, so there's some room there. As far as taxes goes, we got the benefit of a lower tax rate already in the first and second quarter. We're at 34% Q1, 34.5% in Q2. We stuck at 35% midyear because we were anticipating some things to happen in the second half but didn't. So then we posted the 34% again in Q3, so the whole year is going to be about 34%. So it's not like we'd kind of woke up to the entire benefit in the fourth quarter of a tax rate change, it's just that we came down off the number today.

Operator

Our next question comes from Wendy Nicholson from Citi Research.

Wendy Nicholson - Citigroup Inc, Research Division

I just had a question about your gross margin and, Jim, the comments you were making at the beginning about how you pay your people partly on gross margin. Can you give us a sense, kind of what the range of gross margins are? You don't even have to tell me what detergents are versus vitamins specifically, but kind of within the company helping a range of gross margins there are, because I'm trying to get a feel for how much some of the negative pricing you're doing might be hurting your gross margins versus favorable mix is boosting your gross margins.

Matthew Thomas Farrell

Yes, the only thing we've said historically with respect to that question is this is -- kind of a walking around number, that will be 20-margin-points difference between an average household versus average personal care, personal care being higher.

Wendy Nicholson - Citigroup Inc, Research Division

And so kind of as you think out over the next -- forget about next year, but kind of over next 3 to 5 years, I mean, you've been -- obviously, you've made huge improvements over the last 4 quarters. But over the last 3 years, you've been kind of in that 44 range. I mean, do you think that, with the benefit of favorable mix, you can break out sustainably and more consistently to sort of a 45, 46, 47 type number? Or what are you thinking about in terms of motivating people internally? Or is that hard to come by?

Matthew Thomas Farrell

Yes. Well, look, the things that move our gross margin is several things. One is new products, right, so new products that we launch are typically going to be higher than the brand average. So that's a mover within the business. And obviously, people are incented to develop products with higher gross margins. The second thing, you're correct, the personal care has been a bit of a drag at least certainly in the third quarter, x the Vitamin business, and that's the higher margin stuff. So that's the side of the business we would need to get rolling on a consistent basis because we've had some fits and starts over the last year or 2, where we were growing and then we were not growing. The third thing is acquisitions. So the acquisitions that we buy, typically, are gross margin accretive. That wasn't true for Avid because when we bought them, they had a 38% gross margin. But we did say that, over time, we expect to get that to corporate gross margins, and we're still committed to that. And so that's going to help us as well as we come up the line on that one. So it's new products, it's personal care improvement, and it's acquisitions. And finally, the most important thing in recent history is our good-to-great program, so our continuous improvement program. So think about the third quarter, where you have a huge negative price mix, and, at the same time, you're expanding your gross margin, and it's really remarkable. And the way this program works is we're always looking ahead the next 2 to 3 years where we can debottleneck plants and change formulations, negotiate with suppliers, through CapEx, automate our manufacturing processes such that we can reduce the cost per unit of our products. So that is central to our gross margin strategy going forward.

James R. Craigie

Yes, let me just jump in and say too, that, that's why 25% of every employee in this company's bonus is based on hitting the gross margin target. So that has been a major change in the culture of this company going back about over 5, 6 years. And I think everybody in this company has been talking gross margin, and that's how it really -- it really pays off when that happens. So that's how we keep getting all these improvements and gross margins. It's been a terrific result.

Operator

Our next question comes from Joe Altobello from Oppenheimer.

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Just want to go back to Avid for a second and try to tease out the growth for next year. I mean, obviously, you got a nice tailwind from market growth. But you also, I thought, when you bought it, it had a fair amount of innovation that was still in the pipeline that haven't come forward yet. And also, you had a nice distribution opportunity as well. So can you kind of just update us on what's going on in both of those fronts?

James R. Craigie

Joe, yes, we do have a lot of new products come in. The distribution gains happened over the course of the year, so we'll get a full year benefit in the next year. There's more distribution gains to come. We're still not where we want to be on that. So there's a lot of upside there. And just always keep in mind that gummy vitamins as a whole business, a whole category, is only 9% of the total vitamin category but growing about 5x to 6x the rate. So there's tremendous upside left for the gummy vitamins out there. The retailers see it, they're supporting it. The sampling, which we're driving hard, that's the best way to get people to understand the whole -- we do -- we've more than doubled the advertising on the business, but the sampling is crucial. When somebody tastes the gummy, they just can't believe that the vitamin -- the same vitamin nutrient as a hard pill is on the gummy that tastes so great. So we're just going to keep pounding that. We've got a tiger by the tail here, and we're going to do everything from increased marketing spending, new product innovations, increased distribution, increased sampling. We're just going to keep pounding it and delivering double-digit growth.

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Where's the biggest opportunity for distribution expansion in '14?

Matthew Thomas Farrell

Still the traditional food channel because that's the -- not only because the prior owners of the business literally didn't have the arms and legs to calm that channel, we do, so we're in there big time doing that. But there's other distribution opportunities in other channels too, but the biggest difference versus where we want to be, I would say, is still in the traditional food stores.

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Okay, that's helpful. And just switching gears a little bit, I guess, for you, Matt. In terms of the organic growth, you mentioned 1% to 2.5% in the fourth quarter, and then 4-ish for next year. And that's sort of a like-for-like number in the sense that it's got Avid in both periods. So I'm just curious if you can just kind of bridge the gap between the 1.5 -- the 1% and 2.5% this quarter and the 4% next year. I mean, it sounds like you're assuming some moderation in promotional activity and some new products, as well, driving that.

Matthew Thomas Farrell

Yes, well, it's -- the new product introductions are the biggest factor. Well, we can't -- we won't talk about those until the first week of February. We still have vitamin growth next year. And we have the improvement in the cyclical Specialty Products business. So remember that business collapsed in the second quarter from a volume standpoint and, by itself, took our full year down by 50 basis points from an organic standpoint. So that will come back as well. But it's really those 3 factors: new products, vitamin growth and improvement in the cyclical Specialty Products business.

Operator

Our next question comes from Lauren Lieberman from Barclays.

Lauren R. Lieberman - Barclays Capital, Research Division

Two questions. First thing is the implied increase in marketing spending in the second half is actually really -- it's quite large. So could you talk maybe a little bit more about the promotional aspects. I just want to make sure I'm correct that you're also planning a pretty significant increase in more advertising-type marketing spending.

Matthew Thomas Farrell

Yes, in the fourth quarter, Lauren?

Lauren R. Lieberman - Barclays Capital, Research Division

Yes.

Matthew Thomas Farrell

Yes, that's true. That's the plan right now.

Lauren R. Lieberman - Barclays Capital, Research Division

Okay. So that's not necessarily against new products, it's just sort of another way to combat the environment, perhaps, a little bit higher quality than just for pure promotion.

Matthew Thomas Farrell

Right. It's -- again, we continue to support the brands, and we can't -- it's not going to -- the battle won't be fought completely with respect to price.

Lauren R. Lieberman - Barclays Capital, Research Division

Okay. And then the second thing was just, Jim, I was struck by your sort of, for you especially, relative optimism about the sort of competitive and consumer environment for next year and also by the fact that you commented on like innovation being the key, addressing [ph] almost if the innovation hadn't been that interesting this year. It just -- it didn't really feel like consistent with how you spoke about innovation from Church & Dwight at the start of the year. You had the laundry compaction. There was a lot of exciting stuff at that stock exchange meeting. So I mean, is it really just a similar year in terms of innovation? Are you more optimistic about how it plays out in the market? Or I don't know, it just seemed like a little bit different, for you especially.

James R. Craigie

No, Lauren, it's just a relative thing. We had a good pipeline of new products this year. It's just next year, by far, will be the biggest amount of new product launches we've ever had. And like I said earlier in a question, we -- as planned, we didn't have a new cat litter product planned for this year. We will have a big one planned for next year. Laundry will be doing things next year that we would normally be doing, plus maybe a little more because of some of the competitive activities going on. And the other categories, too, all really have some terrific stuff. I just don't want to tip my hat right now on some of the things we're doing, but when you see the first week of February, you will see -- well, we've always had good new product innovations in the past years. This will blow your mind next year.

Operator

Our next question comes from Leigh Ferst from Wellington Shields.

Leigh Ferst - Wellington Shields & Co., LLC, Research Division

I also had a question about Avid distribution. Can you tell us what gains you've made so far and if you are where you want to be in terms of how you planned it for the last year?

James R. Craigie

Obviously, I'm not going to go into specific detail. Obviously, we've had significant distribution gains so far across almost every -- across every channel, period. And -- but I would still say there's a lot more to go. And if so, we've got our sales force every day is cracking accounts out there. See, what happens is accounts don't all make their decisions on the same day every year. Throughout the whole year, accounts -- some accounts make decisions on distribution in the first quarter, some in the second quarter, some in the third quarter, some in the fourth quarter. And so we just -- we have to go with that timing. And so our sales force is doing these accounts constantly out there, so we've had success over every quarter this year. We -- And I think we'll be able to have a lot more success going forward. All I'll tell you is there's some accounts out there that are close to where we want to be in distribution, but the large majority aren't, and we want to all get them there. And then we have a great new product pipeline coming, so great success in 2013, but still a long ways to go in 2014 and beyond.

Leigh Ferst - Wellington Shields & Co., LLC, Research Division

Okay, and you mentioned in your comments that you have achieved distribution to offset some out of stocks in certain brands. Can you give us any more detail on that?

James R. Craigie

No, I think I made the point that our sales force -- we -- our shares are like steadily growing in laundry. It's up 50% in the past 5 years. And when you have that kind of share growth, you need more shelf -- space on the shelves to keep up, otherwise, you'll be out of stock. And that's where our sales force has done a great job. I was going out there and going over those numbers with the retailers. The retailers, yes, they see that. They realize they need to give us more shelf space or they will have out of stock. So it's been a big, big benefit to us, but we've had a big gain in distribution in a lot of categories this year to hopefully minimize the out-of-stock situation. So don't walk away thinking that out of stock has been a significant problem for us. It's not because our sales force has done a great job of getting increased distribution. And all the categories, we had great share growth.

Leigh Ferst - Wellington Shields & Co., LLC, Research Division

Okay. And you had a great track record making acquisitions. It sounds like you want to make another one, but, obviously, it takes 2 to tango. Will you be able to achieve your goals next year without an acquisition if, for any reason, you're not able to consummate one?

James R. Craigie

Yes. With the goals to be announced in February, well, it will not be based at all on an acquisition. We never do that. In the course of the year, we make an acquisition, we'll update the information, but we don't ever base our annual plan on making -- hoping to make an acquisition because you just can't -- you can't guarantee that.

Operator

Our last question comes from Connie Maneaty from BMO Capital Markets.

Constance Marie Maneaty - BMO Capital Markets U.S.

I was hoping you would comment on the impact of compaction. Initially, when you launched ARM & HAMMER, the new concentrated version, you put it on store shelves next to the regular strength. I'm wondering if the shelf space has migrated entirely to the compacted version, if competitors have followed, as they did on the first round, and whether or not the increased profitability that comes out of a concentration like this has been funding a lot of the increased promotional activity.

James R. Craigie

I'll try to answer those 27 questions. No, I think this -- the compacted form of ARM & HAMMER, we call it 4X or Ultra Power, it's done very well this year. I think I said 70% of the share growth that ARM & HAMMER achieved in the third quarter came from that product. It's out there doing very well. Nobody has followed it yet -- but I'd say yet -- out there, but it's doing very well. We're very happy with it. It has not -- we regained distribution far beyond that product in the laundry category last year. So it was not the only gainer. And the product saw a nice contribution to us on sales and profits, but it wasn't the source from which we sourced any money for promotion dollars in that. So just overall, it's a good new product for us. We're very happy with it. Obviously, going forward, strongly, I would wish my competitors would take a closer look at that, but we'll see. I can't -- I can only control what we do, and I'm very happy with the success we've had with that product.

Okay, everybody, I want to thank you very much for participating in the call today on a Friday. I hope you have a great weekend, and thank you very much.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect at this time.

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