Church & Dwight 2026 Q2 Earnings Call

Good morning, everyone. Thanks for joining the call. We had a strong second quarter and first half. I want to start by thanking all of our Church & Dwight employees all around the world for executing so well in a challenging environment. I'll begin with some thoughts on the broader environment, a review of our Q2 results. I'll turn the call over to Lee McChesney, our CFO, and when Lee is done, we'll open it up for questions. Starting with the broader environment, conditions remain dynamic. However, our categories are growing ahead of our original expectations. Church & Dwight is growing even faster. Consumer spending remains resilient. Our teams are executing with excellence. We remain focused on offering high-quality, solution-oriented products to consumers at the right value.

Our brands continue to perform exceptionally well, driving a second straight quarter of industry-leading organic sales growth. Turning to the quarter, net sales increased 1.6%, which was ahead of our outlook. Organic sales grew 5.8%, almost six, well above our 3% outlook. This growth was broad-based across all three divisions, primarily driven by volume growth of 4.3% and positive price mix of 1.5%. Adjusted gross margin was 45.4%, up 40 basis points. Adjusted EPS was $0.89 above our $0.88 outlook. Overall, this is a great result. With the first half of the year behind us, it gives us great confidence to raise our sales, EPS, and cash flow outlook for the full year. In Q2, we also completed the acquisition of the fast-growing Miss Mouth brand, the number one stain remover brand on Amazon.

We're encouraged by the strong initial sales results from the brand since the June acquisition. I'm especially excited about the growth opportunities for Miss Mouth over the next 12 to 18 months. In the second quarter, Miss Mouth's consumption grew over 50% and gained almost three and a half share points. We think this is just the beginning, as household penetration for the brand is currently just 2.5%, compared to the category, which is 50%. Additionally, ACV for Miss Mouth is only 35%, compared to 80% for the category, which again indicates plenty of room to run on distribution. Innovation and distribution gains remain a significant competitive advantage for Church & Dwight. They were a major contributor to our industry-leading growth. We're confident that our relentless focus on innovation will continue to drive strong growth, distribution gains at shelf, and market share expansion.

New product launches this year are expected to account for about half of our organic growth as we innovate in key categories across the portfolio. Consumption across our largest categories grew at 2.7% in the second quarter, which exceeded our category growth expectations of around 2%. I'm going to turn my comments to each of the three divisions. First up is the U.S. business. Domestic organic sales increased 5.1%, with sustained growth in both of our household and personal care portfolios. Growth was driven by volume and favorable price mix with strong performance from TheraBreath mouthwash and toothpaste, Hero, ARM & HAMMER Cat Litter, and ZICAM. The ARM & HAMMER brand had another quarter of growth, with laundry maintaining record shares across total laundry.

ARM & HAMMER laundry detergent consumption and category consumption grew about 1% in the quarter, despite a step-up in competitive promotions and a lower level for ARM & HAMMER. The value segment of laundry continues to grow. Next up is litter. Continued fantastic results as ARM & HAMMER Cat Litter consumption grew a robust 7.5%, and share increased 0.8 points to reach 24.5. Category promotional levels declined slightly, they remain at historically high levels. ARM & HAMMER Cat Litter launched Dual Defense with Microban clumping litter earlier this year, and that launch continues to do very well. Hero and TheraBreath continue to contribute considerably to overall performance. TheraBreath achieved another quarter of record share gains, jumping 4.5 points to a 25.3% share and further solidified our number 2 position in total mouthwash.

Even with that growth, household penetration remains relatively low at only 14%, compared to the mouthwash category of 65%. Our TheraBreath toothpaste launch continues to perform well. It's still early in the launch. It's off to a great start with a 1-point share in total toothpaste, despite only just fully entering brick and mortar in the last several months. Hero consumption outpaced the patch category. With the cleanser launch just starting now, we're confident in Hero continuing to gain share in total acne. Facial cleansers represent a $650 million category and accounts for approximately 30% of the total acne category. Lots of runway as Hero has, again, relatively low household penetration at 10%, compared to the category of 30%, which gives us confidence in the continued growth of this brand.

For Touchland, sales grew in the second quarter. With back half-weighted innovation, new collaborations, and activations, we expect continued sales growth in the second half of the year. Looking forward further, our international expansion, our innovation into new categories, and future distribution opportunities continue to give us confidence in this brand as we look to 2027. Global e-com was once again a strong contributor. Global e-commerce grew 22.7% in the second quarter. Global online sales now represent 25.5% of total consumer. Turning to international, Q2 is another great success with our international business delivering organic sales growth of 9.1%, driven by higher volume and favorable price mix. Our great international brands are leading to share gains and growth that outpace local countries' GDP.

In addition, our recent U.S. acquisitions are paying dividends across the world in a big way, where brands like Hero and TheraBreath are driving outsized growth. Our ability to scale brands to so many countries so quickly is getting better and better. Overall, our international team is executing very well. Our specialty products division also performed well. We're getting sales growth of 2.8% due to a combination of higher volume and higher price and product mix. I'll close by saying that we were very pleased with the great first half. The benefits of our strategic actions in 2025 are enabling greater focus on our growth initiatives. I am especially pleased with the time the entire organization is spending focused here on the future. Momentum is building. The category work surrounding Arm & Hammer, our acceleration plans for oral care behind TheraBreath, and the pipeline for M&A within the international business are just a few examples.

I'll provide a detailed update in early 2027, but I will say I'm more optimistic about the future than I've ever been. I'm also very proud of our Church & Dwight team as we continue to execute well in a volatile environment. With that, I'll turn the call over to Lee for more detail on the quarter.

Thank you, Rick, and good day, everyone. We appreciate you joining the call. As we now enter the second half of the year, we are encouraged by the results fueled by innovation and share growth, which provides us the momentum to deliver strong Church & Dwight Evergreen model results. The Second quarter demonstrates the strength of our portfolio of categories, our leading levels of innovation, and the execution capabilities of our teams around the globe. Similar to Rick, I also want to recognize our teams across the globe for their focus and execution this past quarter. Very well done. Let's get into the details. We'll start with EPS. Second quarter adjusted EPS was $0.89, exceeding our outlook of $0.88. Stronger than expected sales and continued gross margin improvement fueled our results and enabled increased investments in our brands.

Organic sales in the Second quarter grew 5.8%, well above our outlook of approximately 3%. Growth was broad-based across the business and primarily volume driven, with volume growth of 4.3% and positive pricing and mix of 1.5%. Our power brands once again gained share, fueled by well-received innovation and our robust distribution wins with our commercial partners. Strong organic growth and the contributions from our acquisitions more than offset the impact of our 2025 business exits and led to reported net sales growth of a positive 1.6% in the quarter, ahead of our expectations. Let's now turn to gross margin. Our Second quarter adjusted gross margin was 45.4%, an increase of 40 basis points versus last year.

Our results were driven by 150 basis points from productivity programs, 110 basis points from our higher-margin acquisitions, combined with the impact of our successful portfolio actions, and 180 basis points from the combination of volume, price, and mix. These factors offset the headwinds from inflation, tariffs, and transportation of 400 basis points. We continued to invest in our brands in the second quarter, as marketing expense was $165 million, up $8.2 million or 40 basis points versus last year. Similar to our strategy in past quarters, when our sales and gross margin results exceed our original expectations, we will utilize those opportunities to invest in our brands. Adjusted SG&A was $241.4 million or 15.8% of net sales, a 220 basis point increase versus the prior year.

As we've noted in our 2026 outlooks, SG&A in the first half of the year is primarily growing to the inclusion of Touchland's SG&A and amortization expense. Adjusted other expense increased by $9.2 million due to the lower interest income compared to last year. Let's now turn to cash flow. Cash flow remains a significant strength of the company, for this first six months of 2026, cash from operations was $462 million, an increase of 10.8% versus the prior year, as we delivered improved cash earnings and executed disciplined working capital results. Capital expenditures were $61.8 million in the first half, and we continue to expect full-year capital expenditures of approximately $130 million or roughly 2% of sales. Let's now turn to the outlook for 2026.