Church & Dwight Co., Inc. (NYSE:CHD)
Q4 2009 Earnings Call Transcript
February 9, 2009 12:30 pm ET
Jim Craigie – Chairman & CEO
Matt Farrell – EVP & CFO
Good afternoon. So then the entrée is here, but I want to thank you all for coming to our presentation today. Our timing is quite precipitous, you’d be in a foot of snow tomorrow, but we’ll guarantee to get you out of here before the snow starts hitting today.
We have a very full agenda, I have a few opening remarks in a second, then Matt’s will be up here and give you some more color on the Q4 and tell the 2009 financials. I’ll let Matt give you some more details about the businesses in terms of share and what’s going on with our competition, and then I’ll tell you about our outlook in 2010, and then we’ll be glad to take any questions from the floor.
If I were to say to you is, our business results reflect an organization that’s highly motivated and firing on all cylinders. Our product portfolio consisting of premium and value brands puts us in a position to thrive in any economy, as shown by our consistently strong EPS growth over the past 10 years. In the recessionary economy over the past year, our value brands, which are 40% of our portfolio have experienced exceptional growth. We spindly [ph] reinvested some of the profits from that into increased marketing spending in our premium brands, are having some exciting new products to drive share growth in those brands despite weakening consumer demand in many of our categories.
Now on the cost side of our business, our supply team is working very closely with our business team to deliver exceptional gross margin expansion. We also kept a very tight rein on overhead costs, as proven by the fact that we have the same number of employees today as we had four years ago despite a 50% increase in sales during that time.
And finally, we squeezed more dollars out of our working capital to drive a significant increase in our cash flow. That increased cash flow and a strong balance sheet has enabled us to smartly invest in our future through investments in our supply chain, such as the brand new laundry plant we just finished in York, Pennsylvania, that will further lower our cost structure and strengthen our future competitive advantage.
All these factors make me feel very bullish about my company’s future despite the very tough – and I’d say toughening business environment we face going forward. In my bias opinion, no other consumer package this company, this is well suited to thrive in any type of business environment as Church & Dwight. We were delivering exceptional EPS growth before the recession. We are delivering exceptional EPS growth during the recession, and we are taking actions to ensure that we continue to deliver EPS growth going forward regardless of the future economic environment.
Now before I go forward, let me just say, that was my opening remarks, that’s our pretty product line. Safe harbor statement, we are going to make forward-looking statements today that are based on best intentions and our best forecast, but, of course, they are based on factors that could be out our control. So, if you believe in anything we say today, proceed at your own risk.
And with that I will now the turn the podium over to Matt who is going to come up here and provide greater insights on our financial results for the fourth quarter and for the total year.
Okay I am going to start with the fourth quarter. I am sure everybody has read the release. I think one thing is most remarkable about the third quarter is although we had 3% organic growth total company, that we had 5% organic growth for the total consumer. And of course the difference between our -- that is specialty products business and specialty products business had a really rugged 2009 and a very great 2008, and that took our organic growth rate from 5 to 3.
Gross margins have been up all year long, so again 400 basis points in the fourth quarter, and operating margin up to 10. There is so -- some of the numbers, just a couple of things to point out here, you know that our model is such that when we expand gross margins we also spend back on our marketing – and we have seen marketing was up in the fourth quarter 120 basis points. Now this is the fifth consecutive quarter that we have put marketing into overdrive and Jim is going to talk about that a little bit later on what impact that is going to have on our 2010 call.
Get down the page a little bit more SG&A. SG&A was a little bit high in the fourth quarter. Reasons for that is R&D, so we were up about $8 million year-over-year, and SG&A 92 going to $100 million. And $4 million of that was R&D, and we’ve got another 2.5 was FX. And you can see the rest, effective tax rate was up a little bit year-over-year and EPS up 26%.
And in fourth quarter, five of our eight power brands grew share in the fourth quarter. As you know, we talk about our power brands all the time because its 80% of our revenues and profits. In 2008, we have eight out of eight group shares, and in the fourth quarter we had five out of eight, and I am going to show you the slide in a minute for the full year.
Here is the full year number so EPS up 22%, and organic up 5% for the company and 7% for consumers, so that's domestic plus international combined up 7%. And I am going to show you chart in a minute that’s going to show you the breakout between the volume and price mix of that 7%. And remember the reason its five total company and 7% for consumer is because this is specialty products business drag.
Gross margin is consistent with the fourth quarter, full year was up 430 basis points, and free cash flow was up to $339 million. That number by the way excludes our new plant. We had $85 million of spending on our new plant in York County, Pennsylvania. And we have set a legal settlement, which after-tax helped us by $12 million in 2009, that is also excluded from the 339.
And here is just the numbers, if you roll down the page again, you could another appreciation for what our model is, is at 7% consumer growth. And, so that's the backdrop with a call for 2010, which is 5%.
So now going down the page, you see marketing as a percentage of sales up 190 basis points, so it’s about half of the gross margin increase. Operating margin up 220, and again EPS and free cash flow up significantly year-over-year.
And here is the slide I mentioned before, were as in the fourth quarter, we had 5 of 8, on a full year basis 7 of 8 power brands were up year-over-year and we have a similar objective for next year.
Here is how the quarters work down in 2009, and you can see we were up double digits each of the quarters. The sell side analysts here are consumed with the quarterly numbers, we are not. We are more focused on the full year, but if you look at how this shake-out for 2009, reason in here is because 2010 is going to look just like this. So we expect our very first quarter to be our biggest quarter, and Jim is going to talk about that call in a few minutes.
And here is the last three years, so the backdrop has been up 5, up 7 and up 5. This is organic growth total company. This is all in, but this is the backdrop for the 4 to 5% call up [ph] for 2010. And here is a little more detail, if you look at what are the components of the 5% total company growth in 2009, you see consumer in the far right is up 7%, but Specialty was down 11%. So that’s net down to 5%. And the highlighted number on this slide is volume. So consumer volume in 2009 was up 5%.
Price mix helped despite to -- that’s how we got to seven, you don’t expect price to be up in 2010. But the important thing is volume; headed volume performance in 2009. So again, since 2010 is going to be more of a volume year than price, this also gives us a lot of confidence.
And here is the gross margin history. You see 39.1 going to 44.8, since 2007, up 430 basis points in 2009. I will stop on this one. This is a little bridge. Where did the 430 basis points come from? So, we like, all CPG companies have the benefit of lower raw material prices in 2009. That helped us by 200 basis points in gross margin. We have a good to great program, which we talk about all the time. Now this is a program where we have hundreds of products that are directed towards improving the efficiencies within our company, and Europe contributed to gross margin expansion. And then price mix, we took lots of price up in the fourth quarter of 2008, and we got 130 basis points in that – help from that.
And then let finally Orajel, we acquired Orajel in July of 2008, so we get a full year benefit of that in 2009 and that added 50 basis points. So that is the math to get to 430 year-over-year.
Free cash flow, we’re very focused on free cash flow within the company. A 25% of our incentive comp is tied to free cash flow targets. And so our definition of free cash flow, by the way its operating cash minus CapEx. So we’ve just used base CapEx in this equation. That’s because we spent $50 million in 2008 and $85 million in 2009 on the new plant. So, the base CapEx is around $50 million, so we go $200 million, $280 million, $339 million. And free cash flow conversion again, that’s a comparison of free cash flow to your net income. Again, we are well over 100% into the last three years, and we’re targeting a similar result in 2010.
And here’s the CapEx slide. So you can see 2007, '08, '09 base CapEx 49, 47, and 50, and you can see what we’ve spent on the new plant in 2008, it was 51 and an 85 in 2009. But we typically are around 2% to 2.5% of sales for CapEx. And looking ahead to next year, you may have noticed in our release that we’re doing an SAP upgrade within the company, we expect CapEx to be $60 million to $70 million in 2010. The lion’s share of that increase is the SAP implementation.
And it is our balance sheet, you know, Jim talked a lot about our strong balance sheet. This is the reason why we are always in the hunt for new acquisition, and you can see we have been improving that markedly over the last couple of years. To give you some statistic we have about $450 million of cash in the balance sheet right now, and we have a $180 million of un-drawn lines and you can see our net debt-to-EBITDA is 0.7. So strong balance sheet, and I am going to add on this, why, here you know this company is totally focused on total shareholder return. These items here are in order deliberately. So number one is, TSR accretive acquisitions. The acquisitions we acquired something generally about every 18 to 24 months. So we bought Orajel in 2008; we bought Oxiclean in 2006.
New product developments, and the biggest one there you have seen more recently is Arm & Hammer with Oxiclean. CapEx organic growth, obviously we spent a lot of money on that plant. Debt reduction, we were very vigilant about our total debt-to-EBITDA ratio. Our is target is 2:3, but we have been well above for a good period of time. And return to cash to shareholders, this is last on the list, but this is something that we on the board re-evaluate just about at every board meeting, but we have concluded that the best use of our cash is -- the number one use of our cash would be TSR accretive acquisition.
And with that I am going to bring Jim back up.
Thanks, Matt. I will try to give you some insights on the business right now going forward. I would say of the insult [ph] when you asked about my competition in the Q&A. This is one of my favorite slide. I always want to show this, I mean, what a great we have. We are involved with 688 trillion choco-chip cookies. We have 7 billion gallons of milk coming from animal division business. We have 5 billion teeth brushings every year from our business. We have 740 million loads of laundry done with OxiClean, and $520 million sex act and they don’t necessarily happen in that order, but anyway, it’s a fun company to be involved with on everyday basis.
We have over 80 brands in our company, but we have eight power brands, as we call them, they do 80% of our sales and profits. And that’s where we focus the bulk of our marketing spending, and our success heavily rides on those. And those brands are very premium brands and market leaders across the board, as you can see from that chart.
Now this is the part, you always think its certain delight, you have to think of this. Our company is very unique. Nobody else that I know of had this kind of a portfolio. 40% value of our revenue base, 60% premium. Now, hey, okay you can us lucky, whatever you want to call us; in a recessionary economy value brands are thriving. And just I want to show you, what does that mean? That’s not $0.10, that’s a lot of money. In the laundry category, our biggest business, a very big driver where consumers constantly purchase. Here’s the index, if you look out, they are comparing the key brands in the marketplace. Tide, the most premium brand out here, you give that a 100 index, how does everything else compare? As you can see on this chart, ARM & HAMMER would be a 48 index to Tide, XTRA would be a 32 index to Tide, half to one-third the price of Tide.
Now, I want to also make a point you’ve heard a lot about price declines out there recently by one our competitors. Shear and Era [ph] who have taken price declines on. Shear used to be a 100, it’s now at 86. Who cares? Era, usually about a 70, its now at 54, a little closer, a little more to worry about, but you're talking about a one and a half share brand, maybe two at its best day, a third of our size.
So don’t get overly worked up about what's going on with the competition. We still have a significant price advantages in the marketplace, first, the bulk of our competitors, which is why our brands have done so well.
Folks this is what's going on. It makes total sense, consumers have shifted from premium and mid-tier brands, the value brands. This is Neilson Homescan data from the marketplace. We didn’t make this up. It's straight from out there hardcore data. You can see the kind of shift going on in the premium brands and the mid-tier brands, the value and extreme value. Get this number. We have captured 90% of the growth in the value tier over the last year. Better yet, we have captured 80% of the liquid laundry growth in 2009 for the total category. We had a great year. People are coming to value. It makes total sense. It’s a recession folks, 70% of this country is unemployed.
You are going to ask. I beat you at the question, “Hey Jim, is the economy recovering? Is this going to stick to the ribs, it’s going to flow back to mid tier and premium tiers.” I won’t answer the question; I will let two creditable sources to answer the question. Adage in May of this year did a whole study, whole point was -- consumers are now trading down. They are making smart choices in their own research. We had nothing to do with this. Based on pie they picked it out, god knows why. 90% of Tide [ph] users were trading down and they said 80% of those people are likely to keep trading down.
Better yet, a little known consulting firm name McKenzie did a study in August and November of this year. Talk about the new normal for consumers. Two things they saw, two shifts going on. Changes in the ability to pay. Hey, no kidding, people don’t have as much money as they used to, and better yet changes in perception. And as a result of both shift this is a quote from McKenzie, “the majority of consumers plan they will stick with lower price brands.” What does that mean? Question, what about liquid laundry]? Well McKenzie did this study, gave these numbers across many categories. I will give you the ones on laundry, most important to us. McKenzie’s numbers
20% of consumers have traded down on laundry category. 48% of those consumers have better experience than they expected. Net 10% of the business they see shifting down in the business. We love that. We are the ones that are there waiting for it.
Here is the other good news, not only our value detergents growing, but, that’s driving the growth of laundry out of this like OxiClean, Shower [ph] and things like that. That category is up 10% in 2009, and 55% of that growth is coming from the growth of value laundry buyers. Hey, why? That’s just not again being stupid, that's being very, very smart. If you take a value laundry detergent like our XTRA, it costs about $.065 a load. For a really, really tough stain, you can throw in a scoop of watery additive like OxiClean, costs about a $0.11 a load. For a total of $0.17 you can get the cleaning power of a premium detergent, which cost you 29% more.
So really smart consumers are realizing they can get the same performance of a premium brand for almost 30% less by buying a value detergent and a laundry additive. And I told you many times before, for everyday sweat all you need is a detergent, you don’t need a laundry additive. For really tough stains, blood stains, grass stains then throw in the laundry additive or buy the premium brand but smart consumers are realizing, they can save significant dollars by buying a value detergent, and when necessary tossing in a scoop of a laundry additive. You guess what brand that benefit. Thank you.
OxiClean, our number one brand in the laundry additive category. Our sales were up 16% last year, our shares up to a 38, almost up three points last year. Keep in mind we bought this business three years ago with a 26 share of market, we have grown that with our marketing power and sales power to a 38 share. You might also wonder somebody else entered this category this past year, and now you know why. That's our value business, value business has been doing great, let's talk about the premium side, the 50% of our business.
We have smartly taken the growth we’ve had in the value side, taken some of that, taken some of the growth margin growth and put in the higher marketing dollars on our power brands. Why? You can always go back on the Graw-Hill the research few years ago, back in the 80s, the lastly recession, companies in this case we just held their marketing spending, didn’t cut it versus companies that cut it, did hugely better than the years after the recession ended. It makes total sense, research proves it. What have we done? This past year we increased our marketing spending by $60 million, and two years before that was up $77 million in total for a $137 million total over the last three years we invest in our business.
What have done with that money? Well, look, we’ve done a lot of studies. In our eyes when you share a voice, you share the advertising, the category gets to an index of an 150 over your share market, it really drives your business ahead, results in share increases and we’ve shown all the categories we have done that in the past two years. What’s the results, okay this past year? Arm & Hammer and liquor laundry Trojan grew eight times faster than the category.
Xtra grew six faster than the category. OxiClean two times faster than the category that had some good growth last year, I just told you. Arm & Hammer Clumping Cat Litter grew three times faster in the category.
Condom, not too much growth, but we grew 1.5 times faster in the category, and I got a really good success story in that one coming up. SpinBrush, top category, premium toothbrush obtained at least six bucks as much as a 100 bucks for a toothbrush here. A category that was hurt last year in recession, we actually grew. Same thing with diagnostics, very expensive. Pregnancy kits cost anywhere from eight to twenty bucks, category actually suffered this past year; we grew because we increased the marketing spending in the category.
So, across the broad our increased marketing investments is paying off. We are growing fast in the categories we are gaining share. In fact, if you look over the last three years over our eight power brands, so that’s 24 opportunities over three years, eight times three, we had been in the category growth 20 out of 24 times.
I defy any other CPG company to show that chart for their power brands, I can’t believe those will even come close to that.
Let me talk about 2010 for a minute. Business environment, though it’s going to be even tougher than 2009, you’ve got four things going on. You’ve got a minimal economy rebound. Do the numbers, there is going to be more unemployment over the course of 2010, even if it stays where it is right now, and then there wasn’t 2009 where it was building. So you got a rough economy.
Two, you got companies spending more on trade spending. They are trying to buy their share back. As add to the fact there won't be any pricing in 2010, which help businesses out there. So no pricing and increased trade spending.
Three, you got continue SKU rationalization. You saw the news the other day, as that was quite shocking but it's very typical, glad and hefty. We’re thrown out of the sandwich bag category in one of our major customers. If that big, it's not just a little guy, it’s just their pressure is across the board.
And four, commodities which were favorable in the past year are a headwind. So you've got what’s in my mind is a much tougher business environment out there in 2010 than even 2009. Yet we will be very successful in that environment for all the reasons I’ve told you and more to come here. First, we have and I’m this is the best new product pipeline ever out there. We’re going to continue strong marketing support, we’re going to continue our gross margin improvement, and we’re positioned well for acquisitions, and I will tell you about each one of these here. The pipeline is great. Again the best I have ever seen.
In laundry detergents, we’re launching what we called Power Gels, which has the new formula on the detergents, there is much more power in the cleaning of the laundry detergents going out there better than watery liquid. We will be launching shortly in our ARM & HAMMER line. On OxiClean, we have a whole line called Max Force, which gives you better stain fighting than ever before across the line, it will come in every form including the new little powder puck [ph] going out there. That’s unsuccessful for one of our competitors, so it's the very good, better cleaning line in OxiClean going out there.
Condom, I know one fell off the podium here, hang on a second. This is so hot I can't stand still here. This story, the condom business is on fire literally, but the second quarter of last year we launch Ecstasy which is the new shape condom, more sensitive. This is already in six months the number one selling condom in America. It's the best new product launch we ever had. In fact, we couldn’t keep up with demand on this until late in the fourth quarter of this year. We are finally catching up with demand for this product.
We are going to -- that success is going to ride in 2010. On top of that we are about to launch a new product call Fire and Ice. If you see the lubricant category, it has been very successful for KY Jelly with kind of leveraging kind of off that idea with our own version of it. It’s got very interesting lubricant for both the inside and the outside of the condom, a very unique experience. So literally this business is going to be on fire. We just hit an all-time record share in this four weeks for almost 77. I am optimistic that this business is going to get at 80 a share in 2010 based on the success of these two new products.
SpinBrush, the number one battery toothbrush for the past 17 quarters. We had a huge success in 2009. We launched Sonic battery powered SpinBrush. Sonic SpinBrush has been much faster than a normal spin brush would. Better cleaning power out of it. Highly successful, the fastest growing brush in the category. Just in this past month it has got a best five rating by top consumer magazine. I am not allowed to say their name, but you think who is the top consumer magazine out there. It just got a Best Buy of all toothbrushes out there in, which is their top rating.
We are leveraging successful launching every chargeable version of that out there. In 2010, since you got all the benefit of rechargeable brushes out there at about 55% lower costs. So, great technology at a low cost, had a great success in driving our SpinBrush business again. We were one of the only guys in the whole toothbrush category who were up last year in a down overall category. First Response, this is a business again, had a tough year last year. If you know the history of pregnancy, kit everyday sooner you can get a reading before the missed period counts. When the world has four days, begin then with five days, big jump in the business. We were the first guys coming out with the Test [ph] Flow Read six days before the missed periods. A date doesn’t sound like much, but if you are pregnant or you don’t want to be pregnant, that day is an eternity. And with the first folks out there with it is just launching at the marketplace, and then last year was so rising success, we launched our fertility test kit out in the marketplace, its been very successful. So big new news on FIRST RESPONSE.
Last but not least there, we had great success last year with a brand called product – a called Shower Power, about 90% of women love to shave their legs in the shower until that product is launched you couldn’t use a (inaudible) it washed up before it had its effect. With this product you could actually apply to your leg, go and take a shower, in the shower it’s great but it also have all the benefits of (inaudible) which takes the hair off right at the skin whereas a razor or blade leaves nubs (inaudible) and it lasts twice as long as shaving. So we hit that last year, we are launching in a new form this year with a pump, again and continue good success for that business.
And there is more to come. We have one or more major product innovation to launch in the back of the year, I can't tell you what it is, I don’t what to you tip off the competition but it is big and you'll hear about it as soon as this is ready – as soon as we announce it to the trade.
Strong marketing support, what I will tell you on this, we're going to be 14% plus or minus of sales. Again we went up a 190 basis points from the last year, an extra 60 million in spending. We will be in that neighborhood in 2010, very strong levels. And keep in mind, our share of voice that will give us share of voice greater than share of market in almost everyone of our segment, and not just slightly bigger but way bigger. So again, we're going have that share of voice out there with that kind of starting to continue to drive share gains in the marketplace.
Again, as Matt showed you before, four to five I think I’m a little surprise, some of you look at it like, that’s like something new for us. That’s not new for us at all. We've done 5-7-5 in last two years. In fact in 2009, as Matt told you, the consumer business, which is 90% of our business did 7. So actually we're stepping down a little bit to 4 to 5, an SPD, which was a drag last year is no longer a drag. The milk market has come back around and SPD there will be a growth by this year. So we feel very comfortable coming out with the number that you might think is pretty aggressive, but again our history says that not aggressive and we feel very comfortable coming out in a tough environment with our great new product pipeline, and with our marketing support.
And I am sorry, I have to brag a little bit. I have already -- we’re going to have our first billion dollar brand. Arm & Hammer will cross a billion dollars in 2010. I know some of our competitors have 21 or 22 or 23 of those, but we have our first one. We are crossing one of the big leagues and this one we’re very proud of it, that this brand continues to grow.
Gross margin improvement, it’s going to continue. If you look at what’s going on with gross margin interest, and we’ve got a new laundry plan that we have been bragging about. We just commissioned it couple of weeks ago and it’s incredible. New York, Pennsylvania, if anyone (inaudible) visit it, we will set up a date and go see it. I have seen a lot plans in my time but never seen a plan as incredible as this plan. We are pumping out laundry bottles like crazy. It came out ahead of schedule and ahead of budget. It’s going to deliver significant savings to us, and keep in mind this is our biggest business laundry. So it’s very important.
Cost savings from the good to great program. Our crony [ph] name is going to continue, lots of various projects going on of our businesses to save money. But three headwinds, raw materials, which were up favorably, coming into this year, we think, are going to drag on the year. Trade spending, hey, you are reading about it. We have seen it out there. Competitors are spending more in the trade line to try to win back their business, and business mix, not that’s kind of funny one. As PDS [ph] is going to have volume growth but because its margin is lower, it will be a slight drag in our gross margin.
Net-net, we are going to be up on gross margin. We always target about a 100 basis points. We did a 100 the prior four years up until 2009. We did that over 400 in 2009 itself. We are targeting a 100 basis points. It will be plus or minus. If things go on that can be out there with promotional spending, we will react to it. We are not going to let anybody have an advantage from us. So we will be in that ballpark. A little early in the year to call exactly, it will definitely be up. It will be about that range whether it’s a little less or a little more, wait till you see what happens. That’s a picture of our new plant, 1.1 million square feet our New York, Pennsylvania. Incredible facility, over 200 trucks a day goes flowing out of there with products. It’s just an unbelievable automation, and this has been going on, and it gives us ability to compete even more effectively in the laundry business going forward, and it helped continue to drive our gross margins up. And it all ends up with continue strong EPS growth. At this point in time we are coming a little bit aggressive at 13 to 15% so you can honestly see that's not unusual for us in that past, having done 19, 16 and 22.
I would tell you, just try to put together your pro formas. Put four to five on the top line, put 13 to 15 in the bottom line, you figure out the rest in between, things will flow around, I’ll guarantee you those two numbers.
And finally we’ll position for acquisition. (inaudible) was sitting on $450 million in cash, we have $180 million in undrawn facilities, our debt to EBITDA is very low, and we got $300 million more of cash flow coming in this year. So we are actively working on that. You can’t account them till you find the papers. There is opportunities out there, which nobody know what happens until the day come, so we are well-positioned for that, as matt said to you, we had a great history here.
Now keep in mind, we are not going to buy junk, we are not going to overpay for anything premium. We want businesses that have primarily number one or two share brands. We want higher growth, higher margin brands, want asset life, I don’t want plants, I don’t want headquarters, we want to just totally integrate into our current business, leverage that capital base of ours with manufacturing, with just some purchasing and deliver sustainable competitive advantages. And we’ve had a great track record. This chart shows our track record since the year 2000.
You’ve heard us say before, we have eight power brands that do 80% of revenues and profits. We acquired seven of those in the past ten years. We hope to add to that going forward to buy another and another power brand add to our portfolio, that stick to dynamics I just told you. So, we are working on it. I do think the M&A market is heating up, it’s good or bad, there is now because of the capital markets have opened up, people who wanted to sell are now going out to try to sell. I will tell you the competition is a little fiercer. I think a lot of other companies who don’t have the organic we have, are seeing acquisitions as the only way they can drive EPS accretion on the bottom line. So I think you’ll some more competition out there, so again.
We are actively working on it. We are well positioned for it. We are in a great position money wise, and we hope it happens this year. However, we make it perfectly clear, all the numbers I quoted to you, 4 to 5 and 13 to 15 EPS, there is nothing built in there for acquisitions and there is nothing built in there right now for any use of our cash other than its sitting in the bank. Okay.
And I guarantee you over the course of this year, if we don’t make an acquisition we are not going to sit with money in the bank. So, whether we buyback stock or do something we will figure that out. But right now we are actively working on some acquisitions. We are keeping our powder dry and if they don’t happen some time this year, we are likely to take some action with our cash, but right now we prefer to find a next-great acquisition to add to our power brands out there.
First quarter, a little guidance for you, organic about 5% and EPS, as Matt told you, the first quarter historically is our strongest quarter. So don’t get funny on me, I would say take your calculator or take your brain out, do four times this is 420 to 440, you only call four bucks. So it’s about three time of four bucks Jim. Now, it’s always our strongest quarter. Don’t go crazy on it, we are telling you right now, we think we will be in that range and then we will come down a little bit off over the other quarters like we do in every year.
That’s about it. We’ll be glad to open the floor now and Matt will do our best for Q&A, but I would just tell I feel great about our business. We are in great shape. We just had another great year, but it’s going to be tough. It’s going to be even tougher than ever out there in 2010 given the economic environment that all companies are facing. But again I think we are well positioned if not the best positioned to take advantage of it because of our unique portfolio, because our great new product pipeline, because of our increased marketing spending. We have been spending out there, and I think it will continue to pay off but it will be tough. But take the numbers that I gave you and put them in the bank.
It will be the largest driver of the gross margin. I won't give you the number.
In fact no. No. No. It will be big, I don’t want to quantity. The plant actually came up a little faster than we scheduled so we got little benefit and little tiny benefit in 2009, but still the bulk is coming in 2010.
But we have other cost saving projects too, that we have a whole slew of other stuff going on with the cost saving. That plant by far will be the biggest benefit to it. There is other positive benefit and there’s some drags. So, your netted out will be in the ballpark of a 100 but I can't, I don’t want to get in the quantifying the exact, everyone of those go on. As we go through the quarters of the year, you’ll watch because, otherwise how do I, promotion activity by competition. It changes everyday. I get news on that. I have to react to it. That’s a drag.
Commodity, I mean, look at oil, oils are popping up and down like the cork out there in the ocean, as we hear things going on foreign government. So there is a lot of balls in the air right now juggling. I think we know enough about our capabilities in this plant. We feel comfortable saying target around 100 could come in a little less, could come in a little more, should be confident enough to give to that ballpark right now but if there is probably more balls in the air right now than there had ever been in any year right now.
Thank god we have new plant, we’re very happy. I would tell you too, I should have seven [ph] I mentioned that plant, that plant has space to integrate other businesses, and we already have one project of bringing another business to that plant, to be able to generate savings more in 2011. And we have land next to that plant, with that plant we could expand that plant another 50%. So this is our new super plant that’s going to help us not only this year, but in future years, drive future gross margin improvement and already actions are on way to do that for years to come. So, it was a big new thing. It was big at almost -- we talked about as an acquisition. It was $150 million, we sunk [ph] it into ground at New York, Pennsylvania and is having the kind of benefits that an acquisition would have to us, so but I will not give you a number.
Two questions, I guess, can you talk a little bit more about the commodity front where we spend a day, typically you do some hedging on food buying, okay where you are lot gaining and where are you more exposed? And then also, I know in the past on acquisition you said you don’t care whether it’s personal care or household, a lot in terms of value versus premium, is there a strong then after going through these past two years? maybe you like that more exposure beyond limited laundry and pregnancy kits in terms of being value exposed?
I will take the second one first, and let Matt answer the one on commodity hedging. We are agnostic between household and personal care. I would tell you we probably -- we actually prefer more premium than value a side, not that I would look at the value business, but I already feel we have very strong value side of the equation and lot of the categories, I mean, we have again value laundry. We have value toothpaste, we have value pregnancy kits out there. So we already have had a good value side. I don’t think I would buy into a large value-based business out there at this point. I would be much more prone to buy premiums. I don’t feel that we want higher margin, higher growth. So that’s kind of where our heads are on buying more premium power brands out there. Matt, on the hedging?
Yes, with respect to our commodity you probably know that the other big ones for us would be resins, surfactants and we have things like fatty acids distillates, latex, diesel and the paper. Every one of those is right now is up. Some as much as 7% year-over-year. We have hedged, we have physical hedges, and we also have some financial hedges, financial hedge is typically on diesel. So right now we have 25% of our diesel need, that’s locked in for next year. And for, remember the other ones we have even higher locked in for physical hedges in our contract. So we acted a little bit earlier with respect to 2010 and its going to payoff for us and you can see that on our clause [ph].
For 2009, I guess it was more share gain than category growth given destocking, can you just talk a little bit about the four to five, what are you assuming in terms of share gains, maybe the planogram reset that are out there or, and then on the same context, category growth you see there is really more second half weighted or do you think the innovations that you're seeing from your competitors is going to try and get people to start spending again?
Yes, let me try to answer that book. If you look at 2009, at just FDMX excluding the big (inaudible) Wal-Mart, only six of our categories showed dollar growth, only one of our categories had unit growth, pretty scary. That’s’ pretty typical what's going on out there. Now think for 2010, there is no pricing by anybody, anywhere on those. So pricing, which benefited dollar growth in 2009 isn't there for 2010. So 2010 to me is the year of units and some of you have been very live and said that in your reports. It's all about unit growth next year, so it’s all going to be about. If you want to gain – grow revenue, you got to grow your share.
And I think you'll see companies realizing that and getting more aggressive on the promotion side, because they are not going to be layback and take price increases and have the price increase flow through, they’re dealing with an economy where people are trading down and actually honestly buying less as shown by the unit growth in 2009. So I don’t see that getting better as far as first half second half. I mean I don’t - I just think overall the year is going to be a pretty sucky year, as far as that’s a technical economic term.
That’s as far as, if you are counting on dollar growth, your category, you better have a pretty good reason for it. It’s going to be unit growth here. It’s going to be a share reward year. And the company is out -- therefore how do you win that great new products, increased marketing support whether it's on the ad line preferably, or on the trade line, if you have to. And you better be out there battling for it. It’s going to be tough. Any one can get the retailers get in tough on SKU consolidation. It’s a really tough environment.
So what I think again, we didn’t wake up yesterday. We invested in the marketing. We just saw over the last three years a lot in this past year pipeline, new product pipeline has been pumped up. I wouldn’t be this, you know me, I am usually conservative. At the start of the year I wouldn’t be this bulls man at the door if I didn’t feel good about it. I feel good about it, that you mentioned distribution, I am not going to talk accounts at all, but I would just tell you so far it’s positive for us. What we know about shell set, we plan out there. So again I feel good about that. You know we had some blips last year that we had to deal with. So far, no blips this year and so far the shell sets that we have been told about is positive for us. So that’s good for us going forward because he owns the shelf -- would generally does well in the share side. So a bit tough -- it's going to be a tough, tough, year.
Yes, hi. In this morning’ release there was a remark about a decrease in trade spending being behind the decelerating growth in laundry? And I was just wondering if you can comment quickly on any other reason either competitive or environmental, that might have been behind that and secondly something you guys, maybe don’t talk about as much as any differences you see in a performance Xtra versus Arm & Hammer brand in that category?
Right. No, what happened was -- as you know we were starting up our new plant in New York, Pennsylvania in the fourth quarter and shutting down our plant in New Jersey. We didn’t want to flag to the world but we are literally taking lines out of one plant and switching into the next plant. We were concerned, we had great schedules, great people working on it, and in the end it all come up ahead of schedule, we were concerned that if there were any blips we wouldn’t able to supply merchandising setup to our customers. And the last thing I want to do is upset a customer by having them setup a promotion and you can't supply it. So we intentionally pulled back a little on laundry merchandising in the Q4 this year. We didn’t want to sell anybody that because competitors will take advantage of it. We pulled back a little bit, and of course it had an unfavorable impact on our volumes in the fourth quarter.
The plant came up actually a little ahead of time, ahead of speed, producing great. We've restored all of our promotional spending on the laundry business, and I think especially as you see the first quarter come along, you will see us comeback very strong in the laundry side of the world. So that's what that was all about. It was an intentional move to avoid any out of stock risk, in case our new plant had blip starting up. They didn’t happen but we want to be cautious because we didn’t want to offset customers because we have been doing so great in the business. They’ve been big supporters of us and so we didn’t want to short them on any supply going out there. So, that's everything back up to speed and doing great. And XTRA versus – no, XTRA and Arm & Hammer, they both doing fine.
Again we pulled back somewhat possibly a little different than the two. I don’t really want to get into details of that, but you saw the value advantages, XTRA’s you can't get better value in the marketplace than XTRA and Arm & Hammer’s. They are doing great, and the new Power Gel line and Arm & Hammer is getting us increased distribution out there, which I think will lead to a terrific year on Arm & Hammer and XTRA continued to do fine with this huge pricing again that’s out there. Connie?
Hi, I have two questions. First, can you describe a little bit more about the SAP implementation, you called it both an implementation and an upgrade. So, I forget if you already on this, but if you are what the upgrade and if you are not could you talk about the timing now versus some years ago?
Yes, thanking for asking that. We already are on SAP, what we are doing is a major upgrade across the world on that. It will be lot of work behind the scenes in 2010. It will have -- it will not start up until some time in 2011. So, I know one of our competitors has reported some blips on that thing, but there is no way that project will have any impact on 2010 because none of the work will actually go into implementation during 2010. It’s more 2011. And so just to enable us, we honestly consider one of our great advantages is we speed the market, and right now our systems don’t talk to us especially world wide as quickly as wish they would in getting data in-house and this will be an upgrade to increase the speed and the depth of knowledge out of our systems today. Actually should minimize any kind of issues we have some times on volume forecasting, getting the bill of materials collect the plans, and things like that. So, our systems were a little old and antiquated, and now we are bringing them up to life just like we built a new plant that gives us the state-of-the-art plant, so, but nothing, nothing will impact 2010.
Okay, and then secondly, on the quarterly flow of earnings, the reason that the first quarter’s growth is so high, does it have something to do with the timing of shipments, so you ship a lot in the first quarter and advertising doesn’t start till later on?
Yes, kind of, sort of -- the first quarter, one of the anomalies in the first quarter is when our quarter ends, so last year it ended on March 27th. This year it ends on April 2nd. So it’s a number of days in the quarter is an influencing factor as well on top line and bottom line. That’s one.
The second thing is obviously is the marketing spend, and of course, our lowest quarter for marketing. And the third thing would be timing of the shipments. We have less new products going on sort of some pipe in Q1 and also Q2, so it’s a question of when they go out of the door. That may be we have plans for that, but sometimes that can shift between Q1 and Q2.
Just one more question on the flow of earnings. In the way you've mapped out your budget for this year given what would look like tough comps for Q2 through Q4, are you budgeting for any other quarters to decline?
Yes, there is kind of flip side to this. Just as Q1 is a longer quarter. Q4 is the shortest quarter. So that’s one of the reasons why Q4 year-over-year would be have tougher.
First question is on the international business, and where that fits, particularly looking into 2010 and beyond in terms of the acquisition priority list, if you will? And then second question is on laundry compaction, do you think there is another wave coming and if so how far out is that?
Yes, our international business is actually gets stronger over the course of the year. We’re particularly doing very well in Canada, Australia, Brazil’s had a nice quarter. We’re doing a nice job of building our laundry business in Canada in particular. And got a lot of new gains up there in distribution and merchandizing, so we were very happy with that.
As far as acquisitions on that, again we are agnostic. I love to go to the international business, about 17% of our total business right now. But I am not going to intentionally go out there and only say the first priority is international business is – we generally whenever we done acquisitions, part of the acquisition pickup has been international, sometime more, sometime less but honestly we’re still largely in North American business, there is no joke about that. But if I found a great business outside and met the criteria (inaudible) I’d buy it. That’s got to meet those criteria, I am not just going to buy to grow Western Europe or to grow Asia, just buy anything out there.
So what's the second part of your question? Oh, compaction, laundry compaction. I believe one of our competitors has announced compaction coming in the powdered side of the world. Thank you, we like that. We will be glad to follow that. On the liquid side of the world it's possible.
It’s little more difficult for some of our competitor because of the composition of their products. I believe they are smart enough to figure around that, and I believe at some point in time in the future you will probably see one more -- at least one more compaction of the liquid side of the world. There is still lot of water in the bottles and there is no need for that especially in this sustainability environment. So, but -- as in the past nobody wants to leave that because smaller bottles generally means, consumers do that as being cheated. So, as in the past action one of the key retailers draw their -- in the same timeframe, we all followed, it was terrific. We all liked it, consumer has one. They are going to carry home less. Retailers won. They could save money on shipping. We won, less plastic, less shipping for us. So it was a win, win, win, but it has to be coordinated across the industry and that’s very possible, and if that happens we will be very glad to follow that too.
Just coming back to laundry, you talked about not being overly concerned about Era [ph] and Cheer [ph], how you scenario plan around talk to you perhaps doing something more aggrieve with types? Would your price US just to be modeled look like it was threshold of price reduction they have to do to really move the needle against you guys?
There is again, they are 100 and we are about 48 and 32. Obviously, if they do as they have been doing more aggressive stuff on laundry, there is some impact. But we are still so far away from -- they have always, you are going to have more impact on the mid-price tier which they have had for a long time, which is why the mid-price tier has suffered the most over the past 10 years. So, I am not to say I don’t watch what they do. I have the highest respect for that company since I recognized their marketing power. I live everyday thinking about them, and what they do? I don’t see to them, I think our results speak for themselves as far as in the market place. And I think in the laundry side we have had such a huge advantage in pricing and we have been very aggressive on our new product activity.
I feel pretty good. So we watch them, I’m a little distressed, not distress, but couldn’t believe this past weekend they ran to buy ‘one get one free’ coupon on their number one brand, it speaks for itself. I guess they are feeling some pressure, but I think we're well positioned. I’m very, again our new Power Gel line, I think is going to do terrific, it’s gained incremental distribution, we got great marketing plans behind it. Consumers want value, McKenzie, AdAge, all tell you consumers are trading down and realizing what a great experience it is, and going to stick with it. So, I feel good but trust me I watch all competitors, especially them.
And just a quick one on the financial leverage side, maybe clearly not building in much of anything into the model this year. How should we think about financial leverage as the contributed earnings growth looking into 2011?
Well, I'll let Matt say too. But I think you are always going to find us, we're always going to be M&A oriented as far as looking for accretive acquisitions. We usually buy one every 18 months and then pay it off over the next 18 months, and then we are ready to buy again, depending on the size of it. But that’s always going to be our first priority.
And so you try to get at interest expense?
Okay, we wouldn’t be public on that.
Who is that side, Goldman Sachs?
That’s right. What are doing on those retained earnings?
Staying on, well, really talking about pricing, I guess the assumption here is that pricing is neutral in 2010 and we've already seen
Well, neutral from the price increase line, I wouldn’t say its neutral from a promotion line, but go ahead.
Well, that’s what I'm getting at, is we're probably going to see negative pricing in laundry detergents, that’s already started to happen in the category. So I just wondered if assuming to follow and have to do more aggressive pricing in laundry detergents, where would you offset that?
Yes, it's all built into our gross margin expectations. We do expect there will be some additional promotional activity across laundry or maybe across some other categories too. But that’s why we have built some of that thinking already into our gross margin assumptions and that’s why we keep saying to you, thank god again for this new plant. We somewhat -- I wouldn’t say we saw this coming, but we always knew we wanted to do something to help the margin laundry side and because of that other cost savings we will be able to afford. There will be a limit to which we can afford and there will be a limit which we’ll cut into gross margin, but I don’t know I am fearful. I am fearful folks who have lost share out there may do stupid things, excuse me, on the promotion side. I will not let anybody have an advantage from us. We fought too hard to get to where we are. We have the capability to fight full force and we will.
That may have somewhat of impact on gross margin, but I think we have some of the other things in our -- wicker on this one. And don’t forget we have increased marketing a ton. If I had to shade that a little bit to deal with competitive activities and our promotion, I will, and still have share -- the share market advantages out there because we are so high above that rate now. But I hope sanity rules the day here, but if not, I am not going to be the one less standing behind watching my shares erode.
But even if you don’t take a list price reduction, the kind of promotions you are talking about, will come off the top line, wouldn’t they?
Yes, our trade spending -- comes out of the gross margin lines and they are.
The way you are getting that Doug is –
When we say 45% top line, we have baked into that an expectation that this is going to higher trader spends. So just remember if there is a gross margin we say that’s a negative to gross margin year-over-year. We have also baked into the call of 4% to 5% top-line, so we thought about it.
So do you think volumes could be more like 7% to 8%?
No, I am not going to call volume number.
But Doug, I do think if you watched, I mean we, yes, the liquid laundry is our biggest business that you just saw on the fourth quarter where we intentionally pulled back, and it wasn’t a big grower for us, our premium of those businesses is just fantastic. We had terrific quarter around things like cat litter and condoms and other businesses. Matter of fact our personal care portfolio had very strong performance, and we even got brands like little Old Aim [ph] double-digit some things like that a value toothpaste doing good so.
Liquid laundry is our biggest one. It's very important to us but Church & Dwight is much more than liquid laundry detergent, I think we’re proving that with the results returning in right now because we have invested. And now we got great new products, we’ve had and we are going to continue to have great new products, so liquid laundry will always be number one in my head but it's not the only one. And we’ve got a whole portfolio working to our advantage right now.
Especially by stepping will the better, and that's my cow experts, I let him talk about this for a second so.
I have been prepping for this one all morning. Actually, some of you know that I did spend four, five years in the chemical business once upon a time. So specialty products, half of that business, both chemicals half of is animal nutrition. So the business it’s been dragged down, it's animal nutrition and that's tied to dairy. So the Soy with respect to animal nutrition is that there are way too many cows out there so there an oversupply, and the price of milk is plummeted in 2009.
So, the way to think about it is the price of milk in ’08 was about $17.30 per 100 grade, that's a 100 pounds milk. Last year it was like 11 in the quarter. So it’s just way down, and now the future’s right now the average for 2010 is about $15. So, dairy farm, as you are going to start getting help there in 2010 and that’s good news for us, because do you remember the slides we looked at earlier, our SPG was such a huge drag for us year-over-year. We no longer have that drag. So when we look at 4% to 5% for next year that means domestic, international and specialty products business are all going to be pulling on a rope. So that’s going to be a healthier business. First quarter is probably going to be flat up on the top line and then thereafter you are going to see organic growth quarter-over-quarter in quarters two, three and four.
I would also tell we are working some exciting new adventures in the specialty products group, I can’t say anymore about it now, but I hope over the course of 2010 we’ll tell you some new things we are doing that business to help drive growth in that business in the future, some very exciting stuff.
So you guys, beside the press release some investment that you are making in 2010, is most of that capitalized or is there some S&A implication running through the P&L?
Call me and I will get back up here. – Yes, Chris, say that first part of that again?
With the investments that you guys had, I guess it’s mostly SAP or maybe it’s not I mean, (inaudible) bright side of that, you know, some investments in 2010.
Yes, the SAP upgrade, think about it, round numbers is about 15 a CapEx and about $45 million of expense. And you’re right it’s not always all CapEx, so that’s how we are going to be picking up and mostly SG&A.
Thanks. And I know, I guess, in the environment you are facing now that it doesn’t seem like I know Jim you are saying that. You are saying there is no pricing out there?
(inaudible) yes exactly.
So what is it (inaudible) doesn’t seem likely now, I know there is no pricing out there at all. But commodities were to continue to run off, I mean, is it possible that the entire category has a real tough year, or do you think you would see promo ease a little bit of commodities were to just continue to move upward?
Great question. I think what you would expect to see us promotions ease up first, because there is more spending going into the marketplace on promotion. I think you’d see people pull that back. I think you’d see pricing second. I have a sense so that the big guy in Eatonville [ph] is not going to be take kind to any kind of pricing unless it was really out of this world. That’s just a guess. And so I would think promotional spending would come back first, and yeah we’re count on anything on pricing up as far as in 2010. And we think there will be some pressure from promotion side down as we are already seeing in the marketplace. And we’ve already baked into our plans whether there is more getable deal and if there is more, we’re not going to lead it, but we’re not going to lag it if it happens. Alice.
Yes, it’s been a pretty volatile marketplace, the upfront had certainly declined in the double-digit range of your side. And then as always happens in the ad market its supply demand is crazy. Some players came into the marketplace like that kindles in that who would never bid even players in the outstanding rate and came in and sucked up a lot of spot very quickly in Q4 and somewhat in Q1. And when everybody thought, the week upfront that the spot market could be weak just the opposite happens, at least short-term, the spot rates have sky rocketed.
So, and it's even hard at this point to buy spots, it was hard in Q4 and somewhat still in Q1. Well that will continue its supply demand coming up but it was always that way in prior years. It's not the Olympics through there, but I think it seemed the Olympics stuff hasn’t been that bigger news because the winter Olympics right now, so right now it’s still getting benefits versus prior year’s overall with the upfront by -- but it’s just weird, it’s you know, again this was an unexpected jump in the market place by some West Coast players with their new electronic stuff which drove up spot rates, whether they continue that or not we will see. But I think generally you are going to see some savings on the media side of the world from the rate, but that could change.
In the fourth quarter you have commented R&D was up $4 million year-over-year, was that a specific project or was that part of your plan to spend that you are -- I mean was that a one offer you were expecting?
It’s a bunch just out there. We just have the opportunity. There are a bunch of projects to invest in, have the money so we let it loose some. Those projects will be helping us more in 2011 and that.
And then did you say, I might have missed it, the number of new products launching this year, how it compares versus prior year, and also -- and as we are looking at the growth being largely in unit, I mean, is there any way to look at how much of that growth is coming from new shelf space versus new products?
On your first one, we are still in the Camp (inaudible) more. I believe, I will recall my staff about two years ago we launched about 50 plus new products. This past year 2009 we did about 35, will be in that same ballpark this year. We are literally trying harder and harder every day to only launch stuff which is truly going to have a meaningful impact on the business. No more ideas. There are just a couple of million dollars. We are looking for stuff that’s at least, what you call eight digits, type impact on the business. So we are just doing that. And I feel a lot of the projects, I talked about today almost saw on their camp. And what was your second part of your question?
I couldn’t give you the answer for that. We definitely believe we're going to get gain from shelf space and we definitely gain from new products out there. Like I said shelf space so far, and the thing about shelf stage you have to understand is the world is no longer once a year resets. Almost all the retailers out there are trying to find the best answer to drive growth, they are struggling. And so if they do a reset and it works great and if they don’t they’re thinking and on the fly. So nothing said in stone for a year anymore. Right now what we know is a plus and we are happy.
Second half of the year things may change and the retailers says I certainly then could have drove them I can to stay in the positive side of the equation, I think our new product pipeline will do that but you never know.
And then for new products, again I told you, I think for the best new product pipeline ever, I’m thrilled with this new products pipeline, these are winners across the board. The TROJAN stuff is awesome, FIRST RESPONSE, we've been working, I can how many years we've been working to get that six day claim. It’s a very tough thing to get through the FDA, and has taken us years to get there improve that to, I mean we got it. That was huge, the SpinBrush leveraging the Sonic thing which was a big winner last year, was great.
We actually had a positive year on the toothpaste business, the whitening booster which was over here was a big winner for us. I think it’s all in your bags, in the 30 bags we have here today. Again the laundry stuff, Power Gel line is huge, the Max Force line and OxiClean is huge, and then, that is too great. Everyone of those, that my new products team which went into effect in 2005 just keeps getting better and better and better, and we're putting the money there to the R&D side, and we are forcing them to kill the little puppies and focus on the big stuff, and its really paying off better every year.
Just a quick one on the Q1 organic growth rate. What's the impact of six extra shipping days in the quarter? I mean if you do the straight math on that, it looks like your guiding to no organic growth, which I know wasn’t the case, so I just want to make sure I understand that right.
We won’t know until we get there. The quarter ends, so it can vary from one quarter to next with respect to the last week and how much we shift. But it is going to be an influencing factor. So, we know it was a record four to five for the year. It would be higher than four to five in the first quarter.
Yes, right. So it says five plus for the first quarter, because I am uncertain as to how high is high? Right.
I wish I was in the food business, you know, those terms are good for the food business. Probably going to store yesterday, I couldn’t get a parking lot outside my supermarket. People in there are buying like crazy. So, (inaudible) I have 15 years in the food business, and those terms are good, really good. They are bad for restaurants; they are good for food businesses. So check your food stocks out there. They more so sound like this people are going to load those pantries up and eat at home.
What else you’ve got there, any other questions?
Okay, listen, thank you for coming today. I appreciate it. If you have any further questions, give Marine [ph] a call. We will be glad to help you out. I just want to tell you, feel great about my business. Thank you.
By the way, there is goody bags for all of you, and by the way, you are welcome to take the free samples on the other things that --
Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.
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