Church & Dwight Co Inc

NYSE:CHD

Earnings Call Analysis

Church & Dwight's Q3 Performance Exceeds Expectations with Strong Growth Prospects

Church & Dwight reported a robust Q3 with sales up 3.8% and organic sales growth of 4.3%, exceeding guidance. Adjusted EPS rose to $0.79, surpassing the $0.67 forecast. The U.S. segment achieved 3.3% growth despite market challenges. Notably, innovation in laundry and personal care products has driven strong consumer interest. For the full year, the company expects approximately 4% organic revenue growth and about 3.5% reported sales growth. Adjusted gross margin is anticipated to expand by 110 basis points, while marketing costs will exceed 11% of sales, highlighting commitment to growth and market share gains.

Strong Sales Growth in Q3

Church & Dwight reported impressive results for the third quarter of 2024, achieving a 3.8% growth in reported sales, surpassing their forecast of 2.5%. Organic sales rose by 4.3%, driven notably by a volume increase of 3.1%. This marks a consistently positive trend with the U.S. business experiencing a 3.3% organic sales growth, constituting the fifth consecutive quarter of volume growth. Noteworthy is that five out of seven of their power brands gained market share during the quarter.

Product Innovation as a Growth Driver

Innovation remains a cornerstone of Church & Dwight's strategy, especially within categories such as laundry detergent. The ARM & HAMMER liquid laundry detergent saw a 2% consumption growth, while its new premium offering, Deep Clean, has been a significant contributor to growth, accounting for over 40% of ARM & HAMMER's consumption increase. Concurrently, the introduction of POWER SHEETS marked a first in the U.S. market, elevating consumer interest and positioning ARM & HAMMER as a leader in this emerging segment.

Mixed Performance Across Categories

While overall sales flourished, certain categories showed variability. The litter category experienced flat growth, attributed to competitive dynamics and promotional pressures. Conversely, there were improvements in other segments, particularly with the Specialty Products division, which reported organic sales growth of 7.5%. This division has shown resilience, particularly with its focus on innovative products.

Financial Metrics and Guidance

Adjusted earnings per share (EPS) for Q3 stood at $0.79, beating expectations of $0.67, which translates to a 7% increase from the previous year. Furthermore, the adjusted gross margin improved by 60 basis points to 45%, a reflection of productivity gains despite rising manufacturing costs. Looking ahead, management has provided guidance projecting organic revenue growth of around 4% and reported sales growth at approximately 3.5% for the full year. They also noted an expected adjusted effective tax rate of around 22.5%, lower than earlier expectations.

Cash Flow and Capital Expenditure Outlook

Cash flow from operating activities for the first nine months of 2024 totaled $864 million, reflecting a year-over-year increase of roughly $70 million. The company anticipates a full-year cash flow from operations at about $1.1 billion. Capital expenditures (CapEx) also showed an increase, with $125 million spent in the first three quarters and an expectation of approximately $80 million for the full year as projects initiated in 2023 reach completion.

Market Challenges and Consumer Behavior Insights

Even amidst strong performance, management expressed caution regarding potential headwinds in U.S. consumer spending. Consumption trends fluctuated throughout the year, seeing a decline in some categories earlier but rebounding somewhat in September and October before management anticipated returning to trends akin to mid-year levels. This cautious outlook underscores the importance of maintaining competitive positioning and innovation to navigate market challenges.

Future Growth Potential and Strategic Focus

Church & Dwight emphasizes future growth through continued innovation, notably with THERABREATH and HERO brands, both of which are expected to contribute significantly as they expand internationally. The company is also focusing on strategic marketing investments to support this growth trajectory, raising their marketing spend to above 11% of sales. This investment aims to boost brand recognition and shore up market share in key categories.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the Church & Dwight's Third Quarter 2024 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'd now like to introduce your host for today's call, Mr. Matt Farrell, Chairman, President and Chief Executive Officer of Church & Dwight. Please go ahead, sir.

[Matthew Farrell, executive]

Good morning, everyone, and thanks for joining us today. I'll begin with a review of the Q3 results. Then I'll turn the mic over to Rick Dierker, our CFO and Head of Business Operations. And when Rick is done, we'll open the call up for some Q&A.

All right. Q3 was another solid quarter for Church & Dwight. Reported sales growth was 3.8%, which beat our outlook of 2.5%, and that was thanks to strong results from our domestic, international and specialty products businesses. Organic sales grew 4.3%, which exceeded our 3% Q3 outlook with volume accounting for a very healthy 3.1% of our growth.

Adjusted gross margin expanded 60 basis points, at the same time, we increased marketing spending and we gained market share in the majority of our categories. Adjusted EPS was $0.79, which was $0.12 higher than our $0.67 outlook, [ a nice beat ]. The quality results were driven by higher-than-expected sales growth and gross margin expansion. Our online class of trade continues to perform well with online sales as a percentage of global sales. approximately 21%.

Next, I'm going to comment on each of the 3 businesses, and the first up will be the U.S. business with 3.3% organic sales growth. Volume growth was 2.6%, and this is the fifth consecutive quarter of volume growth in our U.S. business with 5 of our 7 power brands gaining market share in the quarter.

Now let's look at a few important categories in the U.S. Innovation, of course, is a big contributor to our success this year and every year. As I comment on the categories, I'll highlight the success of the new product launches. Let's start off with laundry detergent. ARM & HAMMER liquid laundry detergent consumption grew 2%, which outpaced a flat category with ARM & HAMMER share in the quarter reaching 14.7%. The Unit Dose category declined 1.1%. However, ARM & HAMMER Unit Dose saw a consumption growth of 16.5%, and we grew share 70 bps to 4.8% unit dose.

Regarding new products, this year, we launched 2 new products into the detergent category, ARM & HAMMER Deep Clean and POWER SHEETS. Deep Clean is our most premium laundry detergent, where we entered the mid-tier of liquid laundry. Deep Clean accounted for a little over 40% of ARM & HAMMER's liquid detergent consumption growth in the quarter, and it's highly incremental to our franchise.

The second new product is POWER SHEETS. This is a new form of laundry detergent. And you may remember in August of 2023, ARM & HAMMER was the first major brand to offer this new unit dose form in the U.S. Our fresh linen scented sheet is now the #2 sheet on Amazon. And since launching this product into bricks and mortar this year, we have seen high consumer interest in the form. ARM & HAMMER is the #1 sheet brand at Kroger. It's also the #2 brand in [indiscernible]. We feel great about the future prospects for this new form.

Now I'm going to switch over to litter. The category was flat in Q3. That's category consumption, as expected, ARM & HAMMER litter consumption declined 1.5%, and this reflects the absence of a competitor out-of-stock situation, which benefited our prior year market share. The good news is we've held on to about half of our prior year share gains. Our new lightweight ARM & HAMMER clumping litter, which is our new product this year, is outperforming our expectations as our share of the lightweight category continues to grow. This is important because lightweight accounts for 17% of the Clumping Litter category. Hardball became the #2 major brand with segment in Q3.

Now I'm going to switch over to personal care. The gummy vitamins business continues to be a drag on the company's organic growth. The gummy vitamin category declined 0.3%, well, we can call that flat in Q3, which is an improvement from the category declines in the past few quarters. The bad news is our consumption was down even greater. We were down 10%. The improvement of this business is taking far longer than we expected, and as you saw in the release, has reduced our expectations about the long-term growth and profit of the business. This resulted in a $357 million write-down of the book value of the assets. We continue to move forward with our stabilization actions, which include new packaging, upgraded formulas to improve the consumer experience and higher marketing investments which gives us some degree of optimism for the business is the innovation that we have coming in 2025.

Next up is BATISTE, which continues to see strong growth, with consumption up 6% in Q3, growing share to 46%. BATISTE continues to be the global leader in dry shampoo. This year, we launched BATISTE Sweat Activated and BATISTE Touch Activated. These innovations continue to bring new users to the category, which is very important. And already these 2 new products account for 2% of the dry shampoo category, and Sweat Activated is the #1 new product in dry shampoo.

Over in mouthwash, THERABREATH continues to perform extremely well. The mouthwash category was up 5% in Q3, but [ here's ] a few stats, alcohol-based mouthwash was down 1%, while nonalcohol category grew 11%. THERABREATH is the #1 alcohol-free mouth wash with [ 35 ] share and is the #3 brand in total mouth wash with an [ 18 ] share. [ Getting ] over to new products. This year, we entered the antiseptic segment of the category with the launch of THERABREATH Deep Clean Oral Rinse. It's important to note that the antiseptic subcategory represents about 30% of the $2 billion mouthwash category, and our launch into antiseptics has accounted for 100 basis points of our 400 basis point year-over-year growth in market share. So a great indicator of the future for the antiseptic launch.

HERO is the #1 brand in acne care with a 22 share and continues to drive the majority of the growth in the category. The patch category grew 42%, while HERO grew patch market share by 1.7 basis points to 57 shares. So HERO continues to launch innovative solutions and patches and we're very bullish about the future of that brand. I'm going to provide you with a couple of remarks on promotional levels in our household categories.

In the liquid laundry detergent, we've seen stable sold on promotion in the low 30s over the last few quarters. Over in Unit Dose, pretty much the same story, percentage sold on promotion is also stable, averaging in the low 30s over the last few quarters. Litter is a different story. In litter, conditions are different and promotional levels have increased. And here's the trend line. So if you look at Q1, [indiscernible] was 15.5%. Q2 was a little over 18%. In Q3, it was 19.5%, but it's going to be even higher in Q4. The increase in litter promotions is primarily driven by one major competitor were [ sold on deal hits ] 40%.

All right. Turning now to international and Specialty Products. Our international business delivered organic growth of 8.1% in Q3. That's right on our algorithm of 8%. This was driven by strong growth in every one of our subsidiaries as well as our Global Markets Group. Finally, Specialty Products. Organic sales increased 7.5%, that's 3 quarters now of solid organic growth for this business. We're confident that this division will achieve 5% organic sales growth this year and will hit our evergreen growth target. So we feel great about our progress in Specialty Products.

This commentary on the consumer. In July, we noted a deceleration in consumption in our categories. This continued in Q3 as we expected. After seeing 4.5% growth in our categories for the first 5 months of the year, June, July and August were closer to 2.5%. Now in September, we saw consumption in our categories strengthened to about 3%. And then in October, category consumption was up 5%. But let's all remind ourselves that the hurricane and the port strike, no doubt influenced those results. So we remain cautious in Q4 regarding the U.S. consumer and category growth rates.

I want to wrap up my comments by reiterating that the company is performing well with all 3 divisions delivering strong growth. I want to thank all the Church & Dwighters out there for doing such a great job each and every day. It's a great team.

And now I'm going to turn it over to Rick to provide more color on the quarter and full year outlook.

[Richard Dierker, executive]

All right. Thank you, Matt, and good morning, everybody. We'll start with EPS. On a reported basis, we had a loss of $0.31 a share primarily due to a noncash asset impairment of our vitamin business. Third quarter adjusted EPS was $0.79, up 7% from the prior year. The $0.79 was better than our $0.67 outlook and is a high-quality beat primarily driven by higher-than-expected operating profit.

Reported revenue was up 3.8% and organic sales were up 4.3% Organic sales were driven by volume of 3.1% and positive price/mix of 1.2%. Volume was again the primary driver of organic growth, and we expect volume growth to continue in Q4. Our third quarter adjusted gross margin was 45%, a 60 basis point increase from a year ago primarily due to productivity, volume, mix, net of the impact of higher manufacturing costs.

Let me walk you through the Q3 bridge. Gross margin was made up of the following: positive 140 basis points impact from volume and mix, a positive 130 basis point impact from productivity and a 10 basis point positive impact related to acquisitions. This was partially offset by 220 basis points from higher manufacturing costs.

Moving to marketing. Marketing was up $18 million year-over-year. Marketing expense as a percent of net sales was 12.3% or 80 basis points higher in Q3 last year and helped drive share gains. For Q3, adjusted SG&A increased 20 basis points year-over-year, primarily due to international R&D and IT investments. Other expense decreased by $11.9 million. We now expect other expense for the full year to be approximately $65 million on an adjusted basis.

In Q3, there was a tax benefit of 25.9%, and this was related to the vitamin impairment. Excluding that impact, our effective rate was 23.8% and that compares to 24.1% in Q3 of 2023. The expected adjusted effective tax rate for the full year is now approximately 22.5% versus the previous outlook of 23%.

And now to cash. For the first 9 months of 2024, cash from operating activities was [ $864 ] million, an increase of almost $70 million driven by higher cash earnings. We now expect full year cash flow from operations to be approximately $1.1 billion. We're having a great year in regards to cash.

CapEx for the first 9 months was $125 million, almost a [ $4 ] million increase from the prior year as capacity expansion projects proceeded as planned. We expect 2024 CapEx of approximately $80 million as we complete the majority of those investments that were initiated in 2023, and we continue to expect CapEx to return to historical levels of 2% of sales in 2025 and beyond.

And now for the full year outlook. As Matt mentioned, while we saw U.S. consumption in our categories improved slightly towards the end of the third quarter, we remain cautious regarding the U.S. consumer and category growth rates for the remainder of the year. We continue to expect our organic revenue outlook to be approximately 4% and reported sales growth to be approximately 3.5%. We continue to expect full year adjusted EPS to be approximately 8%.

Turning to gross margin. We now expect expansion of approximately 110 basis points at the high end of the previous range, and we now expect marketing as a percent of sales to be above 11%. And as you read in the release, to the extent our business does better than our outlook, we plan on incrementally investing behind marketing and SG&A to help enter 2025 with momentum.

And with that, Matt and I would be happy to take any questions.

[Operator]

[Operator Instructions] And we will take our first question from Chris Carey with Wells Fargo Securities.

[Christopher Carey, analyst]

I'm going to start with the outlook for Q4. I want to understand if there are any inventory timing dynamics, which are going into Q3 or Q4? Or if this outlook is primarily reflecting, I guess, a view that consumption trends should start to decelerate through the quarter as you lap some of these atypical benefits that maybe you've seen of late, and so we should be expecting that and perhaps just [ some ingrained ] conservatism about not trying to call any improvement in category growth rates versus, say, again, some sort of inventory or shipment timing dynamic?

[Richard Dierker, executive]

Yes. I'll take the first one, part of it on inventory, maybe Matt will talk about the category consumption [ growth rates ]. We hear small things on retail inventory, but not anything that we would call out and not enough to impact anything. There's small examples, but not enough to influence what we would be calling.

[Matthew Farrell, executive]

Yes. And Chris, as far as the categories grow, if you kind of look at Q1, Q2 and Q3 for some of our major categories. So if you look at the liquid laundry detergent, Q1, Q2, Q3, the category was up 3%, up 1%, flat. You look at later, up 5%, up 2%, flat. And then going to mouthwash, up 13%, up 9% and then 5%. Patches are pretty steady, high double digits. But the acne category is 14%, 8%, 7% but obviously, HERO being patches, so we're somewhat unaffected by that.

But if you just look at the trend, you can see a deceleration. So that's one of the reasons why I would say, hey, we're still cautious about the economy. That's the categories we tend to be doing better because we're taking share. But that's always the only lever you have is when things are starting to slow down. So yes, we feel good about our performance. We call it 3% in Q3. We put up the [ 4% ]. We had some good performance in our brands and some share take, but kind of like where we are going into Q4.

[Christopher Carey, analyst]

Okay. That makes sense. Then one quick follow-up would be there's an expectation over time for the U.S. business to be delivering 4% top line growth. Clearly, you're still trying to figure out what the appropriate level is in the current environment relative to where the categories are going. But how much visibility do you think you have in that top line growth objective in the U.S. from here? It's not really a 2025 guidance question per se, but just the ability to deliver against an objective which came up by about one point relative to past in the current environment? And if not, how long do you think you'd need to get there again?

[Matthew Farrell, executive]

Yes. That was sort of a veiled attempt at the 2025 guidance...

[Christopher Carey, analyst]

You can take that how you will, thanks.

[Matthew Farrell, executive]

I want to correct you on one thing. As far as our algorithm goes, when we moved to from 3% to 4% top line. The U.S. portion of that was going from 2% to 3%. So obviously, that's the big dog. It's the lion's share of our business. So the expectation is that [ we're going to grow with ] 3% going forward.

[Richard Dierker, executive]

So 3% for the domestic business.8% for international, 5% for SPD. That's how we get to our 4% [ comment ].

[Christopher Carey, analyst]

Yes. Sorry, if I [ didn't come ] across. That was really embedded in the question.

[Matthew Farrell, executive]

Yes. And look, we kind of look at our portfolio and say, when you have a long-term algorithm, it's not just '25, it's '25, '26 to '27. So we look at the strength of our brands, we look at the innovation we have planned over a 3-year basis, '25, '26, '27. And consequently, we encouraged that if you look back, our history is we hit our algorithms is about every year. In fact, you know yourself over the last 10 years, we've hit 4% one of the reasons why we said, "Hey, we make that our algorithm going forward."

[Richard Dierker, executive]

Yes. And I think just to add to that, why do we take share over time? Well, one of the reasons is we have great innovation, and we're putting support by innovation to go drive trial, to grow households, and that's kind of also where we're reinvesting as we overdeliver in 2024. So that's why we think we're going to [ head to ] 2025 with momentum.

[Matthew Farrell, executive]

Yes. So when you have contracting categories the way home is always going to be innovation and share gain.

[Operator]

We'll take our next question from Rupesh Parikh with Oppenheimer.

[Rupesh Parikh, analyst]

So just going back to the vitamin business. So an impairment this quarter, how are you thinking about the path to stabilization and then growth? Do you think in '25, we maybe start to see stabilization in that business? And just any green shoots maybe you're seeing with the efforts there.

[Matthew Farrell, executive]

Yes. What would be -- we've been at this now for probably more than 1.5 years, the things such as graphics and packaging and messaging, those things that we can control are in place. As far as innovation goes, that has not hit the market. We really haven't had any meaningful innovation for a few years now. And that's what, as I said in my earlier remarks, that's what gives us some optimism about stabilizing this business in 2025.

[Richard Dierker, executive]

Yes, maybe other green shoots. And as Matt said, we have probably 10 different things that are happening. But the core of it is we got to get the consumer being delighted in our product again, right, and making sure that we're doing all of our reformulations so that consumers are picking our product and our brand that they know and they love for a long period of time. But some green shoots, I would say, we've seen some lift and some retailers where a few of these things are kind of ahead of the curve. And so that's been encouraging. We did -- 1 of the 10 levers was looking at price gaps, and we adjusted the price gap in a couple of areas and units are up dramatically. So there's good progress. Like Matt said, innovation really is coming in March, April of next year, so we have to get a better shot, and we're optimistic.

[Matthew Farrell, executive]

Yes. If you're looking for green shoots, the one, this is a smaller part of the business, but L'IL CRITTERS has been really responsive so far. In fact, L'IL CRITTERS gained some share in the past quarter. So that's a good thing. But really, the lion's share of the business is adult, and that's where we need innovation.

[Operator]

We'll take our next question from Bonnie Herzog with Goldman Sachs.

[Bonnie Herzog, analyst]

I had a question on your marketing investments. You called out expected stepped up spend in Q4, and you raised your guidance a bit this year to more than 11% as a percentage of sales. So could you give us more color behind the greater investments in terms of types of spend, any changes with strategy, either channel, medium, et cetera? And then I would be curious to hear if more of the dollars will be shifted internationally. And then if I may, finally, just on a go-forward basis, should we assume you're going to continue to step up this spend as a percentage of sales in the next several years to support your 4% organic sales growth expectations as you've called out in your evergreen model.

[Richard Dierker, executive]

Bonnie, good detailed question. I'll start, and I'm sure Matt wants to add a couple of thoughts. But when you look at our raise of marketing spend, I mean going to 11% to somewhere between probably 11% and 11.5%, that's meaningful. That's $20-plus million in some cases. And some of that is international across markets because we're driving different brands, and they're doing really well, too. But THERABREATH expansion, HERO expansion, STERIMAR, BATISTE internationally.

But in the U.S., we have a lot of places where we're spending, but most of that [ spend is find our ] innovation again. Like this is one of our best years of innovation. We believe that's why we're getting share in many cases, that's why we're doing so well and over-delivering even our timing expectations. And so a lot of the marketing spend goes behind things like Deep Clean on laundry, things like Sheets on laundry, things like Hardball on litter, and our new BATISTE Touch and [ Move ].

[Matthew Farrell, executive]

Yes. And the other thing I would add to that is 85% of our advertising is digital right now. So we have a great ability to move around and take advantage of different vehicles at different times of the year. So I wouldn't say any more than that and go brand by brand. But Rick's right, international is part of where the spend is and fourth quarter as is domestic, even a little bit in Specialty Products.

[Richard Dierker, executive]

And as far as our future-looking marketing as a percentage, our algorithm is around 11%. It all depends on how our share the score cost. So our shares are doing fantastically. Well, you heard in the release, 5 or 7. I think year-to-date, we're 10 or 14 for all of our brands, all of our old power brands. So that scorecard is what really matters. And as long as we're gaining share and more often than not, I think that's the right level. And if we feel like it's not, then we'll adjust.

[Operator]

We'll take our next question from Steve Powers with Deutsche Bank.

[Stephen Robert Powers, analyst]

Actually, to follow up on that -- sorry, I might have missed it in your answer, but the marketing spend in the third quarter came in a little bit lower than least external expectations, obviously, made up for in the fourth quarter. But was there anything from your perspective that shifted that marketing support from 3Q to 4Q? Or is it just more of anomaly versus how we all on the outside modeled it?

[Richard Dierker, executive]

Yes, I think it is more of an anomaly. We're getting very specific, but we were up 80 basis points in Q3, which is a significant increase. We had told everybody that we were going to be down a few hundred in Q4 because we were spreading that spend that was maybe a little higher in Q4 last year over to Q1, Q2 and Q3 to better support innovation. And I wouldn't even call it [ timing ], it's probably just a disconnect between the outside models and what we were going to do.

[Stephen Robert Powers, analyst]

Okay. Cool. I guess more of an overarching question. You've kind of touched upon some of this -- some of what I think is going to be [ in your ] answer. But the perception among many investors of late is that Church & Dwight in a relatively [ threshold ] position navigating in the second half heading into next year, just given that so much growth has been driven by THERABREATH and HERO, whereas investors view the core legacy business as being a bit more choppy probably with added focus there on categories like vitamins and litter of late. But just how do you respond to that, either with respect to -- [ lead us ] to believe in the resilience of THERABREATH and HERO? Or conversely, reasons for more holistic confidence in that legacy core business?

[Matthew Farrell, executive]

Yes. I'll take a swing at that and Rick can kind of pile on. Look, we manage a portfolio, and we're in a lot of different categories. And yes, it's true that THERABREATH and HERO have delivering outsized performance over the past year. But this ebbs and flows over the years. If you look back over many years, it's different times with different businesses pull the train. So I think the new products that we have in those -- some of the categories that you may be referring to, like laundry and litter, are going to be a big part of our growth in the future that will be sheets and that will be Hardball. And also the innovation and other categories outside of patches as well.

But if you look long term, the THERABREATH is not done. When we bought this business, we said this can be a $0.5 billion business over time. So whereas we'd say, yes, the distribution for that business has probably been achieved as far as number of doors. We haven't done a spread out on shelf with other variants. So I think there's still significant growth for THERABREATH. And as far as HERO goes, we don't want to get distracted by moving into other categories. We want to make sure we nailed and grew patches and created more awareness around that and more household penetration. But the HERO brand has the opportunity to spread to adjacent categories going forward. So I think the investors should be confident that those 2 brands will continue to grow in the future. And because of the innovation we have in laundry and litter, dry shampoo, et cetera, we have differentiated products that will drive growth in the future as well.

[Richard Dierker, executive]

Yes. And I would just echo a few of those comments. I think THERABREATH and HERO have years of runway. TDPs in some cases, but just household penetration like mouthwash is an example, is 65% household penetration and THERABREATH is around 9%. It's now the #2 mouthwash. So there's lots of runway for those 2. But really, the crux of your question is, what about your base business? And so I would say a lot of optimism [ are ] on the base business. Litter, for example, kind of messy right now as you look at year-over-year comps because some competitor was out of stock for such a long period of time. But if you look back before the outage that they had at our share and in our share today, we've maintained about 40% of those share gains.

And so I don't really look at the week-over-week or month-over-month numbers are kind of meaningless right now. But if you look at baseline, that's what I look at. And so I feel like litter is strong and getting stronger. Innovation, as Matt said, laundry, we're still at all-time high shares. We feel like over a long period of time, we have the same stair step-up that we've experienced before. We're entering the mid-tier with Deep Clean, that's doing well. It's driving incremental category growth for retailers. Unit Dose is hitting all-time share highs, we're going into sheets and sheets is a category that's growing 30%. So a lot of optimism.

[Operator]

We'll take our next question from Dara Mohsenian with Morgan Stanley.

[Dara Mohsenian, analyst]

So first, just a follow-up on category growth. Matt, you didn't sound particularly excited about the pickup in category growth in September, October. Is that just because you think a lot of it was driven by hurricane volume. And as you parse the underlying data, you didn't necessarily see as much of a pickup. Is it just a short enough period of time that you're not much more enthusiastic around category growth. And I know you touched on it a bit, but just trying to get a sense as we look beyond Q4, if we're in this more muted category growth environment given the lack of pricing or if you think you're starting to see some green shoots from a category perspective?

[Matthew Farrell, executive]

Yes. I guess I must have curbed my enthusiasm. So I would say that, Dara, that if you look at the first couple of weeks of October, you saw like double-digit consumption growth in some categories. [ So ] well, that's not sustainable, and it was so different from what we saw in any week in September or since then. We would say that the hurricane and the [ ports strike ] no doubt influenced the results. So consequently, if there's some [ pantry loading ] that went on in the first couple of weeks, that's just pulling forward from somewhere else in Q4. So we would say, hey, I'm going to kind of look at that as October is maybe an anomaly. And maybe the quarter is more like September, where we inflected from June, July, August in our category is up 2.5% versus 3% in September.

But it's not -- our remarks are not necessarily a broad category -- broad commentary on the U.S. economy, we're commenting on our categories. So we look at the -- our categories, that is what we're commenting on. I think 3% to me is pretty healthy.

[Richard Dierker, executive]

Yes. If you look back at history, if we are growing 4% as a company, many times the categories will be growing 2% or 3% would be taking share, and that's how we got to the 4%. So as it's kind of in line with history.

[Dara Mohsenian, analyst]

Great. That's helpful. And then on HERO and THERABREATH, can you give us an update on how much of the business is international today for each of those brands? And how much incrementality you see looking out to 2025 in terms of expansion potential?

[Matthew Farrell, executive]

Yes. What I can tell you without quoting numbers for sales, is that we've been running really hard to get THERABREATH and HERO registered in other countries. And our goal is to have HERO registered in 40 countries by the end of 2024, and we're there. So we feel good about that. And the impediment of course, is regulatory bodies and a very firm country to country. But we're pleasantly surprised that both brands do travel well. Even THERABREATH, THERABREATH is the highest-priced outwash market today in the U.S.

Naturally, when you go to international markets, there's a raised eyebrow, [ and I'm serious ], how you can be successful with expensive mouthwash. But yet, it has been. So it's -- we'll keep that in mind for maybe end of January when we talk to you guys or have an Analyst Day, and we will frame out a little bit better HERO and THERABREATH percentage U.S. versus international, how many countries were registered in and what our expectations are.

[Operator]

we'll take our next question from Peter Grom with UBS.

[Peter Grom, analyst]

I just wanted to follow up on Dara's question there. And maybe just to be clear, can you just help us understand what you are assuming for category growth in 4Q. Matt, I think you just said you're kind of assuming the September trends for the quarter rather than the stronger October or the weaker July and August. So I just wanted to clarify that. And then I guess, if that is the case, if you are assuming slightly stronger category growth this quarter, and apologies if I did miss this, but can you maybe help us understand what's driving the sequential slowdown in the 4Q organic sales?

[Matthew Farrell, executive]

Well, look, let's go to your first question with respect to categories. It was 4.5% for first 5 months of the year. The next 3 months were 2.5%. And then we'd say, September was 3% and October was a really big number. We'd say Q4 on average would be 2.5%. And we'll say, hey, the October is an anomaly and that November, December will be a lot like June, July and August. And that's no different than what we thought in July. So consequently, yes, we had a really good third quarter, but we beat our number organically. But we're saying for second half, we still feel good about 3% in total for the second half. And that's why we said 2% to 3% is fine as a call for Q4.

[Operator]

We'll take our next question from Anna Lizzul with Bank of America.

[Anna Lizzul, analyst]

I wanted to touch on gross margin, which outperformed this quarter. The guidance for the full year seems a bit conservative. So I was just wondering if you could talk about your outlook on commodity costs and manufacturing. I think you noted in Q3 that manufacturing costs were a bit higher. Is that also expected to impact Q4?

[Richard Dierker, executive]

Yes. Anna, it's Rick. I think from a gross margin perspective, you're right, it's a little bit more conservative if you say the full year is at 110. It means Q4 is up slightly. I would just remind everyone that Q4 a year ago was our high watermark at 44.6. That's part of it. Some of the commodities were flat in the first half, like ethylene or up in the back half or 9% same for linerboard. We have investments in our warehouse that we talked about at Analyst Day and kind of our network and that built throughout the year.

So yes, could that be a little conservative? Maybe. I think also we have -- as we look forward, we still are seeing inflation like that's what we're seeing. And our job is to offset that with productivity, what we're focused on. And the other thing on gross margin is as we make investments to support these new products like [ in trade ] or couponing that also impacts gross margin. So that's kind of an eclectic and wide-ranging view, but that's -- those are the details.

[Anna Lizzul, analyst]

All right. That's helpful. And just as a follow-up on the category discussion here. Are you seeing any difference in customer purchasing habits between retail channels or on quantities here?

[Richard Dierker, executive]

No. I would say -- remember, we've been growing volume for 5 quarters in a row, and we continue to see most of the categories are volume-driven growth in our categories and purchasing patterns are the same.

[Operator]

We'll take our next question from Lauren Lieberman with Barclays.

[Lauren Lieberman, analyst]

Just want to talk a little bit about promotional environment in laundry in particular. In last year's fourth quarter, you talked about pulling some of the unprofitable promotional activity and scanner sales were down. So just want to think about 4Q. Is it kind of like an easy comp as you get into fourth quarter, or is it were at like the right base now and last year was the adjustment period? And anything else you'd add on the promo environment in laundry?

[Matthew Farrell, executive]

Yes. I'd say you're right about that, Lauren. We did eliminate some of what we thought [ weren't ] profitable or uneconomical investments. What's different this year is we have such a great year of new products particularly in household with litter, with Hardball and Deep Clean and sheets and laundry detergent, and so [ they will be following the places ] we'll be investing in Q4 and trade promotion. One of the things that Rick called out in his response to gross margin.

[Lauren Lieberman, analyst]

The one that I noticed also Deep Clean has been really successful and it's maybe me being too picky, but it was interesting to me that some of the Q&A thus far when you've been talking about laundry and innovation, you're putting seems like a bit more emphasis on sheet versus Deep Clean. Can you maybe talk about like the direction travel you see for category development, how significant do you think sheets can be? Because [ Procter ], you know, of course, has been doing a trial of this as they go, probably really helps to amplify awareness in the category this form. So just curious your thoughts on the relevance of sheets as a new form. And then the profitability of that versus the traditional liquid business, even the higher price point Deep Clean?

[Matthew Farrell, executive]

Yes. You're right. It is a good question, and it's true, we're very excited about sheets. But let me go back to Deep Clean, so the whole idea around Deep Clean was to have a good, better, best strategy. So the good is the orange bottle it's based on ARM & HAMMER. The better is ARM & HAMMER with OXICLEAN. And the best is Deep Clean. And Deep Clean is mid-tier, it's our highest priced laundry detergent.

Just to give you some sense, it's got a 90% premium to the yellow box -- not the yellow box, but yellow bottle, it's got like a 40% premium to the ARM & HAMMER with OXICLEAN. But we're still at a 15-plus percent discount to premium. And if you look at the trend, it's mid-tier that's been growing. So we feel good about the timing of our launch. It's important that, that sticks. So we have good, better, best going forward long term. And we think that Deep Clean can be a source of growth for us in the future.

And that's I would say, if you go back to Steve Powers' question about why you feel good going forward about your big businesses like laundry and litter, laundry, in particular, it's reasons like that. And then sheet. Sheet is in its branded form, and it's efficacious. There's no plastic. It's -- yes, could it cannibalize some of your existing business? Yes, that's true, but it's -- we're the first major brand to launch in this form. It's good to be first. So we think that will be a bigger emphasis for us going forward.

Unit Dose today is like 22%, 23% of the category. We have not had a big share in Unit Dose historically, which have been bouncing around between 4% and 5% of that very big subcategory. So sheets then in addition to our existing ports, is the way home for us to grow Unit Dose. So I appreciate the question because we -- this all fits together. And that's why we think we're in a good position going forward in the detergent.

[Operator]

We'll take our next question from Kevin Grundy with BNP Paribas.

[Kevin Grundy, analyst]

Question on litter and the promotional environment there and how you potentially intend to respond. Matt, as you mentioned, Clorox has stepped up promotion levels to remarkably high levels. Most of the regained share that you're seeing with Fresh Step is coming at the expense of ARM & HAMMER. So a couple of questions. Have you been surprised by the magnitude of the spend here on trade support from Clorox. It's taken dollars out of the category. It doesn't do anything to impact consumption. It seems like you're trying to get the share back in sort of one quick swing.

And then how do you intend to respond? It kind of feels like it has [ earmarkings ] of a potential price war like we saw in laundry, like over a decade ago. But Rick, if I'm interpreting your tone correctly, it seems like you're generally okay relinquishing share gains over the past year. So your thoughts there would be appreciated. And then I have an unrelated follow-up.

[Richard Dierker, executive]

Yes. I'll give you a couple of comments, and then Matt will chime in, I'm sure. Like my comments, we're really happy with where we are at litter. This year-over-year as Clorox was back in stock is what it is. Our baseline volumes are higher than they were. Our shares are higher than they were. We are really happy with 40% or so share gain if you look back when this hold up started.

We're not going to go chase share on a race to the bottom to go promote. If we promote, it's going to be behind our innovation to go drive a fair share in lightweight litter because we think that's where the opportunity is. So that's what we're doing. I'm optimistic we're going to retain share because that, over time, it's difficult for cats to switch litters. It just is. After they've been out for a while and they have one product that's what they get used to. So and that's also why maybe the effectiveness of some of the competitor promotions aren't as high as they used to be because it's hard to switch litters or harder. So anyway, that's some context. Matt, anything you'd like to add?

[Matthew Farrell, executive]

No, when you see numbers like in a 40% to 45% sold on deal, we're not going to chase that, Kevin. To the extent we promote, it's going to be behind Hardball, which is our new product. And yes, obviously, when you're hit with a like a cyber event, obviously, the expectation was that, yes, of course, category is going to spend back to try to win back consumers. But yes, we're going to be on the sidelines as far as spend a lot of money to chase that number.

[Kevin Grundy, analyst]

Okay. A quick follow-up, and then I'll pass it on. Just on portfolio pruning. So Rick, I think you've expressed and opened this year, which has generally not been part of the company's strategy for a very long time. We naturally had the CEO transition, which is going to be occurring in March. You need to bring a CFO on board. How -- if you could just give us an update on potential parameters, scope, timing of what seems like it will be a potentially newer sort of leg to the stool, if you will, of the company strategy?

[Richard Dierker, executive]

Yes. I mean as a backdrop, you got to remember, a lot of stuff that we do, we're going to keep doing. The company is performing extremely well. The strategy is sound. We're leaders in e-com growth. As an example, M&A is best-in-class. We can identify, acquire, integrate and grow acquisitions. We do a few things uniquely in the company. Every year, we go value every brand that we have. And we know what brands or businesses are creating value or destroying value. And we take that back, and we usually have internal teams to go turn that around or address root causes and to the extent that we don't, then that's when things -- more strategic conversations are at.

I'm not going to front run any of that. I'd say maybe in early to mid next year, we'll talk more about that. But it's really -- we've been doing it for a long time. It's what we do internally, and we got to hold kind our mirror up to all of our brands, just like we do when we do acquisitions. But remember, we have a great portfolio of brands. We have a high-performing company. We're gaining share in most of our businesses. So we're coming from a position of strength.

[Matthew Farrell, executive]

Kevin, I want to remind everybody, too, if I think back to when I got the job in January of '16. Within a couple of years, I had a new head of marketing, supply chain, R&D, sales, 3 of those 4 came from the outside. So we've been here before. We just got such a rock solid core of the company. There's just a lot of talent here. There's no way we can get the numbers that we get year [ after year, we ] have a lot of talent up and down the line. So yes, I think we're all excited about, there's a couple of searches, get some new people in the company, new ideas, new energy. So I think we're in a really good place.

[Operator]

We'll take our next question from Andrea Teixeira with JPMorgan.

[Andrea Teixeira, analyst]

So on the gross margin side, how should we be thinking about the politics ahead of our commodities and the timing of certain contracts influence your view, especially in fiscal 2025. And a follow-up on the M&A. I think that's the only question we haven't asked yet in terms of like how you're seeing the landscape. I know you're very purposeful and cautious about what your targets are, but just as a follow-up and an update on how you're thinking about [ inorganic ] growth.

[Richard Dierker, executive]

Yes, I'll take the gross margin question. I would say, I kind of commented already on, we do see inflation. As we look forward, we see inflation. Our job is to offset that through productivity. As you take a big step back, though, there was a different macroeconomic indications like China demand and really the U.S. economy stable but not outsized growth. And we have taken a position of not hedging as much as we usually do, believing that some of those commodities will come down over time. So I would tell you that's probably a good indication of our expectations for -- as we look forward.

[Matthew Farrell, executive]

Andrea, could you clarify your other question about M&A?

[Andrea Teixeira, analyst]

Yes. No, Matt. I was just like thinking more how it's been -- I know it's part of your algorithm long term, not necessarily, of course, [ what you give in ] the evergreen model does not include that. But indirectly does because you -- as you create -- as you buy these brands and companies, you create future growth and is part of your long-term algorithm. So I was thinking like more it's been a while since you -- and you're accumulating cash since you've done acquisitions. Of course, the last year were very good, very accretive. So just thinking of how we should be approaching that? Or we should be thinking you're focusing more inorganic at this point?

[Matthew Farrell, executive]

Well, look, we're always on the hunt. We generate so much cash. Of course, our criteria is pretty strict. So we do -- pretty fussy about the things that we'll buy. It is true that you can buy a couple of businesses that could be fast growing for a couple of years, but then they have to grow 3% to 4% or faster, depending on which categories are going forward.

So I would say, no, we're not saying that we're focusing solely on the existing portfolio. But I'll remind everybody, if you go back in time, we've had periods where we've had droughts before, where we didn't buy a business. I think the longest one was probably between '08 and '11. When '08, we bought Orajel, and the next one was BATISTE in 2011. But so if you look at that through a 3-year period, we had 3 great years. So it's -- we're not -- our algorithm isn't dependent upon [ going for ] an acquisition.

[Richard Dierker, executive]

Yes. And the reason we -- as you look back, the reason we are more successful than most to identify and acquire, integrate and grow acquisitions because we're really fussy. And so that's part of the model, and that's what we're going to continue to be. We want to make sure we do the right deal when we do the deal.

[Operator]

We'll take our next question from Filippo Falorni with Citi.

[Filippo Falorni, analyst]

I wanted to ask you about innovation, and maybe you can give us some context of the contribution from innovation this year in laundry and the rest of your business? And just any plans for 2025 and like areas of potential further innovation. And then a quick follow-up. So on the gross margin, as we think about elections and potential for tariffs, last time, there was some implication on the WATERPIK business from some portion that were reported from China. Maybe can you remind us any potential exposure on [ China ] tariffs?

[Matthew Farrell, executive]

Yes, thanks for the question. On innovation, we're actually super excited about innovation. It's close to around 2% incremental net sales for us in 2024. So remember, we have a high bar. We don't call gross sales. We don't call gross new product contribution, that's incremental net sales. So about half of our growth is kind of coming from innovation, which is fantastic. That's been accelerated. It used to be 1%, 1.5%. And so we've built that muscle. We have a lot of different inputs. Carlos, our leader in R&D; Leslie, our leader in NPP, all across the commercial team we are doing really well on innovation.

I expect that to continue. I think as we look forward, we have great pipelines over the next 2 or 3 years. We're not really even talking about 2025 right now. We're talking about 2026 and even early conversations on '27. So that muscle's alive and well, and we're going to keep investing behind it and driving investment behind it.

On China, right, just like everybody, we're well aware of implications there. I would say 2 things. One is we did reclass a lot of our SIC codes, import codes. And so that has helped and as you draw a circle around what may or may not be impacted. The second thing is we have moved some production outside of China. And so it's most material for the WATERPIK business, but there are plans in place and actions that we've taken to mitigate that impact.

[Operator]

We'll take our next question from Bill Chappell with Truist Securities.

[William Chappell, analyst]

Going back to vitamins. So I guess I'm having a tough time [ at work ]. Help me understand 2 things. One, just from a business standpoint, I mean, are you now thinking you need to spend more money behind it in '25? Or is it because with you being down 10% and the category being down basically flat, I'm not sure I understand the green shoots. It seems like things are getting worse. And so you can either step up and put a lot of money behind it or you can kind of ease back and manage it more and more for cash. So are we at that point in a decision standpoint? And then second, kind of related. I also don't fully understand maybe the impairment charge 10 years after acquiring the business. So maybe you can help me understand why that was there and the timing and what that says, if anything.

[Richard Dierker, executive]

Yes. Sure, Bill. I would say, -- let me take the -- I guess, the second one first, is when we do an impairment charge, all that is, is just looking forward of our model on what our growth rates growth rate assumption is and that has -- what the category is growing at and what our expectations are as well as our margin expectations, and they've come down since we originally put all those assets on the book. And so it's kind of a reconciling of that, right?

The original expectations to what our current number is after we have amortization or -- and we have value that versus the intangible numbers, and we say, oh, we have a gap and future growth and profits aren't as strong as they used to be. And so that's how you take a charge 10 years after.

Your first question was on -- why do we think -- will we be putting more money behind it? We're not going to go chase incremental spending on promotions and trade and advertising. That was a few of the levers that we pulled this year. And you're right, some of that is not working as we had hoped. Some of the things are working, and they do have green shoots the biggest, most important single thing that we can do is make sure that our core products are delaying the consumer. And that's why we're so focused on the innovation piece. We think -- this is the first time in a few years that we've put the full strength of the company on reformulating vitamins so that they -- we have our taste advantage back. We're hitting key marks in the market on sugar free, on [ plusing ] up our vitamins. So all those things are, I think, putting us in a better position to compete, and they're way more important than spending more on trade or getting displays or do another packaging spend.

[Matthew Farrell, executive]

Yes. And the only thing I'd add to that is when you buy a business, the excess that we purchased [ pre-overtangible ] assets is largely going to be goodwill. So that's always going to be a big part of any write-off, and it's all dependent upon the DCF model. And as far as green shoots, though, that was not in our commentary. I think somebody offered up that we're asking about green shoots, we would say that we've done the things we can control. We have seen some benefit and some growth in L'IL CRITTERS. It's not the lion's share of the business. And as we -- this business really struggled through and post COVID, [ and realized ] by the retailers.

And in the meantime, we've been just working on improving our supply chain, which is now we have in a good place and in doing the work on new products. So innovation is ahead of us. And we thought 2024 was going to be an inflection point, it was not. That was dependent upon all the things we have talked about, meaning packaging and graphics and positioning and messaging advertising. But in the end, it's going to be the innovation build and as Rick went through the -- some of the things we're changing that's ahead of us in 2025. So this time next year, we hope we have a different conversation with you.

[William Chappell, analyst]

Got it. Which leads me to just on next year, we won't be having a conversation. So congratulations on the -- I know we'll have you for a few more months, Matt, on the retirement and Rick on the promotion.

[Matthew Farrell, executive]

Okay. Bill, I hope you make it to New York in January.

[William Chappell, analyst]

I wouldn't miss it.

[Operator]

We'll take our next question from Olivia Tong with Raymond James.

[Olivia Tong Cheang, analyst]

Congrats on retirement and promotion to you guys as well. My question is primarily around some of the more recent premium price innovation that you benefited from, particularly in laundry, with Deep Clean and the POWER SHEET [ segment ] and litter as well. So as we go into a potentially more -- or we are in a more challenging backdrop, does your trade-up opportunity become more challenging relative to your peers when macros get more challenging since your consumers obviously skew a little bit more towards value to you, therefore, I would imagine that they are a bit more pressured relative to consumer average. So just wondering about your ability there. And then the mix implications, given that you obviously have been able to continue to eke out a bit of mix benefit in the domestic business despite obviously all the pricing lapping.

[Matthew Farrell, executive]

Okay. We got a lot in there. I think if I want to boil it down [ and you're wondering ], because of our premium offerings of late, would that disadvantage us. And I would say, if you just take them one at a time for -- as Hardball [ goes ], Hardball has been contributing to our share growth quarter after quarter. And we -- last year, our share was like 4.5% of the category, the lightweight category. And that's grown quite a bit. We'll update everybody in January about what our share gain was on the entire year, but we think that's going to continue to grow. It's because of the performance of the product, which is it [ seizes up, close to ] -- as hard as a rock. There's nothing in the category like it.

POWER SHEETS it's laundry in a box. And I think given over time, maybe it's been a slower roll as far as the consumer willing to pay for sustainable products. But this one seems to be a winner for us. So we don't think that simply because our category historically, our portfolio historically has been focused on value that because we now have products in laundry and litter, where our core products, our value. So the yellow box in litter and the yellow bottle in laundry detergent, those are value products. But over time [ we ] offer premium products and our consumer has traded up to them, and we've had other consumers and for other brands trade over to us.

So again, in the end, I think for most consumer product companies, Innovation is always going to be the story in any environment, in any economy. So we feel very positive about those 2 innovations in particular.

[Richard Dierker, executive]

Yes. And just an example, like for Deep Clean, it's mid-tier in the laundry category, that's still a value to the premium tier. So folks can still treat down to that. It's growing categories, though, because folks are trading down and trading up value in other areas. So net-net, we still think it's a positive in [ mostly ] economic environment.

[Matthew Farrell, executive]

And what was your gross margin question, Olivia?

[Olivia Tong Cheang, analyst]

It was just around mix more importantly and the impact of mix as time progresses, but I think you answered that within the top line question.

[Operator]

We'll take our next question from Javier Escalante with Evercore.

[Javier Escalante Manzo, analyst]

I wonder whether you can expand on the international business in the context of the increase in reinvestment in Q4, if you can flag geographies or brands that you are seeing most traction and also whether there is any measurable contribution of the business that you acquired in Japan? Or is it just too early? And then I have a follow-up.

[Matthew Farrell, executive]

Yes. I would say with respect to international, we're doing well like this, considering we have so many countries and so many brands, including [ region ] brands as the call goes out to our general managers in our subsidiaries. And so consequently, where we think we can spend to drive growth or position ourselves well for next year is where we're going to go. But I wouldn't say there's any one particular in international, one particular category or brand that we would be over indexing on in Q4. It's just opportunistic spend.

[Javier Escalante Manzo, analyst]

Understood.

[Richard Dierker, executive]

[ Another ] [indiscernible] was Japan. It's probably too early to talk about that, Javier. I mean we're optimistic. It is a relatively small business, but we're excited about the opportunity to add a few of our global brands into Japan to -- it was a great team that is doing a great job at OXICLEAN. We think they can also do a great job with a handful of other brands.

[Javier Escalante Manzo, analyst]

And the follow-up is on the legacy, let's call it that way. The Belgium business, Deep Clean doing well. Do you try -- this is kind of like the second iteration that you go into mid-tier. You need the OXICLEAN detergent, I believe, and [ didn't pan out ]. So what is driving this success time around? Do you feel it's a consumer something with the competition from our friends in Germany, is that the retailers are more susceptible to this mid-tier, anything that you can that you can contrast relative to the OXICLEAN extension into [ Belgium ] that didn't pan out as well as Deep Clean, that would be very helpful.

[Richard Dierker, executive]

Yes, it's a fair question. I think it's a simple answer. OXICLEAN is [indiscernible] brand, but it's an additive brand. And it was not a consumer -- there was consumer confusion as we try to go into laundry, [ I just -- don't ] make the connection. Here, ARM & HAMMER is well known for laundry and just going up and down the tiers is a much easier proposition. That's why I think we're finding early success

[Operator]

We'll take our next question from Korinne Wolfmeyer with Piper Sandler.

[Korinne Wolfmeyer, analyst]

As we think about some of your innovations next year and particularly around the VMS business, how should we be thinking about R&D spend and some of this extra innovation spend. Is there any risk to the SG&A as we head into next year due to these investments? And then anything else we should be considering? I think you called out some IT spend that was a bit of a headwind. Anything else to consider for SG&A as we head into Q4 next year?

[Richard Dierker, executive]

Yes. We don't -- I mean, over a long period of time, we spent around 2% of SG&A and R&D, and that's been a pretty good number for us. Next year, we're implementing an SAP project, redoing our -- updating our ERP system just -- the last time we did that was 2009, which is time for an upgrade. But I wouldn't really qualify or call anything at this point in time. We'll do that in January at our Analyst Day.

[Operator]

And that was our last question. I will turn the call back over to Matt for any additional or closing remarks.

[Matthew Farrell, executive]

No, I think that kind of wraps it up for today. We're looking forward to seeing everybody at our Analyst Day in New York City at Exchange at the end of January and until then, [ go on ].

[Operator]

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful day.