Church & Dwight Co., Inc. 2026 Q3 Earnings Call

Thanks for joining the call. We delivered strong third quarter results, and I want to start off by thanking all of our Church & Dwight employees around the world for executing so well in a volatile environment. I'll begin with some thoughts on the broader environment and then review our Q3 results, and then I'll turn it 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 challenging, including inflationary pressure related to the Middle East conflict and increasing global transportation rates. That said, our teams continue to execute with excellence. Our portfolio of value and premium brands, they are performing well, and we remain focused on offering consumers high-quality, solution-oriented products at the right value.

Our power brands drove our third consecutive quarter of industry-leading organic sales growth, supported by innovation, distribution wins, and targeted marketing investments. Turning to the quarter, we exceeded our outlook across key metrics. Net sales increased 1%, ahead of our outlook of a 1% decline. Organic sales grew 5.1%, well above our 3% outlook, with growth across all three divisions. This performance was driven primarily by volume growth of 4.6% and positive price and mix of 0.5%. Gross margin was up 46.8%, up 170 basis points, and adjusted EPS was $0.92, up almost 14% and above our $0.89 outlook. Innovation and distribution gains continue to be key drivers of our organic growth performance. Our 26 innovations across the power brands are performing very well, and we remain confident that a relentless focus on innovation will continue to drive industry-leading growth on shelf and fuel market share expansion.

Now I'll turn my comments to each of the three divisions. First up is the U.S. consumer business. Domestic organic sales increased 4.4%, driven by 3.6% volume growth and favorable price and product mix of 0.8%. Growth was broad-based across our household and personal care portfolios, led by ARM & HAMMER Liquid Laundry Detergent, THERABREATH Mouthwash and Toothpaste, ARM & HAMMER Cat Litter, and Waterpik Water Flossers. Miss Mouth's is also off to a great start. This quarter, we had such broad-based growth. I didn't list them all, but six brands contributed in a meaningful way. The ARM & HAMMER brand, which had another quarter of growth, with laundry hitting record shares across total laundry. ARM & HAMMER Laundry Detergent consumption grew over 4%, and the category grew about 2% in the quarter. Promotional levels for the category were elevated.

However, ARM & HAMMER gained share as the value segment in laundry continues to be fit for purpose in this economic environment. Next up is litter. Continued fantastic results as ARM & HAMMER Cat Litter consumption grew 5.4% and share increased 0.6 points to reach 24%. While category promotional levels declined slightly, they do remain at historical high levels. Our ARM & HAMMER Cat Litter Dual Defense with Microban Clumping Litter launch continues to do very well. Now turning to the personal care side of the business. THERABREATH continues to contribute considerably to our overall performance as the brand gained 3.5 share points to reach a record share level of 26.8%, which further solidified our number two position in total mouthwash. Even with that growth, household penetration remains relatively low at only 14% compared to the mouthwash category of 65%.

THERABREATH Complete is now the top-selling new rinse nationally, and we recently launched portable rinse sachets for freshness on the go. THERABREATH Toothpaste is building trial in an everyday regimen through a robust marketing campaign with strong average consumer ratings of 4.5 stars. Hero is expanding its acne expertise in the cleansers with a lineup designed to balance efficacy and gentleness. Hero consumption outpaced the patch category in the quarter, and we are confident that the cleansers launch will lead to share gains in total acne. In fact, in the last 4 weeks, that is happening. Facial cleansers represent a $650 million category and account for approximately 30% of the total acne category. Lots of runway for Hero as, again, we have relatively low household penetration at 10% compared to the category at 30%, which gives us great confidence in the continued growth of the brand.

Turning to Waterpik, that business had double-digit sales growth in the quarter and is gaining share in 2026. As we discussed on the last quarter, Touchland sales growth in the U.S. has slowed from our original expectations due to competitive products growing in channels that we did not compete in. The good news is that our plans to expand distribution in the U.S. are on track, and as a reminder, a significant opportunity remains on household penetration in the U.S., where Touchland is only 6% compared to the category, which is around 47%. Additionally, the international rollout for Touchland remains significant. We recently launched Touchland in the U.K. and Australia, and the early results have been excellent. We have plans for a much broader distribution in 2027 and 2028.

Turning to international, organic sales delivered another strong quarter of growth and grew organically 7.8%, driven by volume growth of 9.1%, partially offset by lower price and product mix of 1.3%. Again, similar to the U.S., growth was broad-based, was led by THERABREATH, Batiste, Touchland, and OxiClean. In fact, nine brands in international had double-digit growth. Global e-comm was once again a strong contributor. Revenues grew 20% in the quarter, and global online sales now represent 25.9% of total consumer sales. Our SPD division also delivered strong results, organic sales growth of 5%, reflecting volume growth of 2.9% and higher price and product mix of 2.1%. These balanced global results contributed to our overall great organic growth performance in the quarter. This was now our 11th straight quarter of organic growth in the SPD business.

Regarding 2026, I continue to be very pleased with our performance in the first 9 months of the year. Our brands remain strong, our portfolio is more focused following the strategic actions we completed in 2025. Our operating fundamentals continue to support volume growth, market share gains, and gross margin expansion. Looking ahead to 2027, I am also very optimistic about the company's performance. We have momentum as we enter the year. Our teams are advancing our 2030 growth initiatives, focusing on expanding ARM & HAMMER, increasing THERABREATH in oral care, and scaling our international business. I look forward to sharing our first formal update on these initiatives at our Analyst Day at the end of January. With that, I will turn the call over to Lee for more detail on the quarter.

All right. Well, thank you, Rick, and good day, everyone. We appreciate you joining the call. As Rick just shared, our teams delivered another strong quarter in 2026. Against the backdrop of ongoing industry headwinds and uncertainty, our team has delivered 3 quarters of 5%+ profitable organic growth. A big thank you to our team members and all of our retail and distributor partners for driving growth. Really well done. Let us get into the details. We will start with EPS. Third quarter adjusted EPS was $0.92, an increase of 13.6% versus last year, and it was above our outlook of $0.89. Stronger-than-expected sales and continued gross margin expansion fueled the earnings growth, enabled healthy levels of marketing, and supported our SG&A investments. Organic sales in the third quarter grew 5.1%, well above our outlook of approximately 3%.

Growth was broad-based and primarily volume-driven, with volume growth of 4.6% and positive price and mix of 0.5%. Our consumer domestic business organic sales increased 4.4%, our consumer international business increased 7.8%, and our specialty products business increased 5%. This steady and broad-based growth continues to demonstrate the strength of our portfolio of categories, our innovation that drives true incremental growth, and the execution mindset of our commercial teams. Let us now turn to gross margin. Our third quarter gross margin increased to 46.8%, an increase of 170 basis points versus last year. Productivity delivered 150 basis points, our acquisition mix and portfolio actions drove 160 basis points, and 40 basis points was a combination of volume, price, mix, and FX. These positive contributions were partially offset by the headwinds from inflation and transportation costs of 180 basis points.

This quarter, our marketing investment levels reached 11.9% of sales as we continue to invest behind our brands and new products. Adjusted SG&A was $261 million, or 16.3% of net sales, an increase of 110 basis points versus last year. The increase reflects acquisition-related amortization and our SG&A investments in international, e-comm, and AI capability building. Adjusted income from operations increased $27 million, or 10.1% to $298 million, reflecting our strong profitable growth results. Let us now turn to cash flow. Cash from operations for the first 9 months of 2026 was $841 million, which drove a healthy cash flow conversion of 114%. Capital expenditures totaled $92 million through the third quarter, and we expect full-year capital expenditures to be approximately $125 million, or about 2% of sales.

As for the third quarter, total debt was $2.2 billion, and cash on hand was $447 million. Our board of directors approved a new share repurchase program authorizing up to $1 billion of common stock repurchases. This program has no expiration date and replaces the prior authorization. This program is consistent with our disciplined approach to capital allocation. It gives us additional flexibility to return capital while continuing to invest in the business and pursue strategic acquisition opportunities. Let's now turn to our 2026 outlook. As detailed this morning in our press release, we are raising our sales expectations and tightening our adjusted EPS outlook. Our outlook reflects the strong year-to-date growth and our confidence in continued fourth-quarter momentum.

It also includes the latest impact of the Middle East commodity pressures and the latest transportation rates that have both increased further over the past 90 days. Overall, our outlook for 2026 includes approximately $150 million of inflation, which brings us up to $50 million more than we had in our original outlook at the beginning of 2026, and $20 million more than our July outlook. This outlook assumes roughly a crude oil price of $100 a barrel. Our teams have continued to focus on delivering incremental productivity and leveraging our RGM toolkit to mitigate this pressure, which has helped our business deliver gross margin improvements every quarter in 2026. For 2026, we now expect organic sales growth of approximately 5%, at the high end of our prior range of 4%-5%.