Church & Dwight Co Inc

NYSE:CHD

Earnings Call Transcript 2020-Q4

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Thank you all for joining us today. I'm going to begin with the safe harbor statement. I recommend that you read it at your leisure. We have an entire management team on the call today available for Q&A after the formal pitch. We have a lot of slides and several presenters, but I'm going to give you the short story upfront.

2020 was a turbulent year. We emerged from 2020 much stronger as a company. We like to say that we do our best work when we're in a jam. That's true for 2020. We protected our people. We found a way to run the plants and warehouses safely. We set production and shipping records.

We figured out how to make hand sanitizer in our U. K. plant. We operated the company with 2,000 remote employees. We pivoted our marketing messages to support a 60% increase in e-commerce sales. We installed new packaging lines with the assistance of off-site engineers using Google Glasses.

We added overflow warehouses. And we validated new suppliers and co manufacturers. In our communities, we delivered masks and hand sanitizers to hospitals where we live and donated to food banks. And recently, our Mason City, Iowa plant loaned an ultra cold freezer to a local hospital to store the COVID-19 vaccine.

Consumer demand drove huge sales growth, which enabled us to overcome significant incremental COVID costs and incremental U.S. government tariffs, but it also gave us the opportunity to invest in our future, which we did in the second half.

Looking ahead to 2021, we are optimistic that the vaccine will help the global business environment. We operate in many categories, and we do expect pluses and minuses, depending on the category. All in, we expect to deliver 3% organic sales growth and 6% to 8% EPS growth in 2021. And this is on top of almost 10% organic growth and 15% EPS growth in 2020, which exceeded our 2020 outlook when we last spoke in October. Our evergreen model is intact.

Before we start the formal part of the program, here is a brief video that is a look back on 2020.

[Video Presentation]

Okay. Here's today's agenda. I'm going to begin by describing who we are as a company. I'm going to be followed by Britta Bomhard, who's our Chief Marketing Officer. Britta is going to talk about the categories, how they performed in 2020 and how we expect them to perform in '21.

Steve Cugine is going to come up and tell us about our new products in '21. Steve Cugine, by the way, will be retiring in the middle of '21. Steve has had a spectacular career with Church & Dwight spanning over 20 years. For the past 7 years, he's been running our international business, which has been a stellar performer. And Steve is going to introduce Barry Bruno, who has been with the company for a number of years, and he has been Steve's right-hand man in growing the international business. So I'll give him a warm welcome today.

I'm going to come back and talk about the animal productivity story, as well as how we run the company and also talk about our M&A platform. We're going to wrap up with Rick Dierker, our CFO, to run us through the financials.

Now who we are? Whether you've been a short-term, 1-year shareholder of Church & Dwight, 3, 5, 10 or 15 years, you're very pleased with our performance. We have been a stellar performer in the CPG space for many, many years. We're known for our consistency. And one of the reasons for our consistency is our evergreen model. Every year, we expect to grow our top line organically 3% and our bottom line 8%. That's true in '21. That will be true in '22, '23, '24, '25.

You might ask, how has that been working out for you? Well, if you take a look back over the last 10 years, you'll see that we've exceeded the 3% target every year, except 2013 and 2017, with respect to 8%, 8% EPS, you can see over many, many years, we're consistent. So Church & Dwight is a consistent performer. We have an evergreen model that is very familiar to all of our existing shareholders, 3% top line, 8% bottom line.

Now where does this 3% organic growth come from? Well, 2% from the U.S., 6% from international and 5% from specialty products. This is our evergreen target, but it also happens to be the targets for 2021. We expect to deliver these 3 numbers for each of those divisions in '21.

We focus on power brands. We have 13 power brands in our company that are displayed here on this chart. And those 13 power brands deliver 80% of our revenues and profits. And we're very balanced as a company. About half of our consumer business is in household and half is in personal care and we have a small specialty products business, which is a combination of bulk sodium bicarbonate and animal productivity products.

We have a nice split between premium and value, 58% premium and 42% value. What this means is we operate and perform well in virtually any economic environment. With respect to our geographic split, we have a lot of room to grow internationally. We're largely a U.S. company. Only 17% of our consumer business is international. So lots and lots of runway, that's going to generate a lot of growth for us in future years.

One of our big advantages is that, we're nimble. We're small. We only have 5,000 employees. We have the highest sales per employee of any CPG company. And it helps us 3 ways: quick decision-making, easy communication and ability to adapt. And the ability to adapt was highlighted in 2020 when you saw how we reacted to the pandemic.

We have a long history of growth through acquisitions. If you went back to the year 2000, the only brand we owned was ARM & HAMMER. We were only $800 million in sales in the year 2000. In '21, we're going to cross $5 billion. And of those 13 power brands, 12 of them were acquired since 2001. If you go back just a few years, in 2015, we were a laggard when it came to online sales. Less than 1% of our sales were online. At the end of 2019, it was 8%. At the end of 2020, largely due to COVID, it's over 13%. So we regard us as a leader now with respect to e-commerce.

We have a low exposure to private label, only 12%. And if you look at the categories, there's only five of our 17 categories where we have significant private label share. And those shares have been pretty stable over the last five years.

Now, I'm going to bring up Britta Bomhard, our Chief Marketing Officer, to take us through the categories in the U.S. business.

[Britta Bomhard]

Welcome to our biggest business, Consumer Domestic, with over $4 billion in sales. As you have heard from Matt, we plan to deliver another year of growth in 2021 on top of an outstanding performance in 2020 and in line with our evergreen model.

There are five distinctive drivers for growth in 2021. Number one, tailwinds on vitamin gummy category growth, accelerated by strong brand VITAFUSION. Second, WATERPIK. Despite dental offices and many retailers being closed for part of the year, we sold slightly more power flosses in 2020 than in 2019. Removing these roadblocks, growth will be even stronger.

Three, flawless sales will benefit from new products, a great influencer boost and a rebound of footfall. Four, some brands will rebound where social distancing really impacted sales. With vaccines coming, consumers will socialize more.

And five, last, but most importantly, we strengthened our brands and improved our media spend effectiveness. We create brands consumers love. 2020 was a year of dramatic changes how consumers use media, which allowed us many tests and learn experiments, feeding our predictive data models and giving us confidence that our media dollars will be again more effective in 2021.

But let's start with tailwinds. We are in the right categories. We saw growth in 12 of our 17 categories, average 9.8% overall. We saw an over 50% growth in vitamins, double-digit growth in baking soda and single-digit in many other categories.

The only category of double-digit decline is power flosses and that is in the Nielsen universe. This is important, as Nielsen only measures about one-quarter of power flosses sales, and I will show you numbers from the whole universe later.

We have high expectations for category growth in 2021, and I will speak to them in more details. Four categories will stay on elevated levels. Five categories will come down from COVID peaks, but some to higher levels. Five categories will bounce back from COVID impact. Three categories will be steady.

The underlying trend for category growth is household penetration. As you can see in this chart, 11 of our 17 categories increased household penetration. This means more consumers are buying this category.

It wasn't only consumers buying these categories, they bought our brands in unprecedented numbers. We added 8.6 million households to ARM & HAMMER, More Power To You, 2.4 million to OXICLEAN Stain Figther. And in the second half alone, VITAFUSION added 3 million more households.

We know that we have category-leading repeat rates. This means once these households experience our brands, they enjoy them and come back to them, laying the foundation for strong growth in 2021.

Let's look at some of the category behaviors one by one. Vitamins grew an amazing 58% in consumption. You can see the original stock-up peak in March, but also that the increased levels continued for the rest of the year. It takes 66 days to form a new habit and consumers clearly form new habits regarding taking vitamins.

20% of consumers started taking vitamins. 57%, that means more than half, are now taking vitamins daily. So, it's not only more consumers taking vitamins, they also take them more frequently. And another one-third of consumers plan more types of vitamins to their baskets, planning to add immune strengthening, for example.

Last but not least, when taking vitamins, consumers prefer gummies of other forms. You can see that the share of gummies on total increased by nearly one-third. That is it is now 23% and who would be better placed to profit from that growth than the number one vitamin gummy, VITAFUSION.

Let's look at the category of power flosses. Nielsen only captures about one quarter of category sales. That is why I show you unit sales across all classes of trade and you can see that after the decline at the beginning of the year with the lockdown, there was a strong rebound.

In total for 2020, we achieved slightly more unit sales than in 2019 despite dentists and certain retailers being closed for significant periods of time, which also means that we came out strong by the end of the year and this momentum will continue and only accelerate with more dentist office opened up and resuming higher traffic. There's only upside.

Women's grooming saw two opposing trends. On one hand, retailer stores closed or have reduced foot traffic, reducing sales. On the other hand, spa closures and COVID concerns, driving do-at-home movements and increasing sales.

Our FLAWLESS team quickly spotted the trend and turned it around with spa at home products, which have just launched. We now offer solutions for women who do not want to go to a beautician and get a face massage or do not want to visit a nail salon. And as nail salons and spas have closed down due to COVID, we believe that women will continue to prefer at home treatments.

So, here are two of our exciting new products; a facial massage cleanser and a salon nail toolkit. Steve will talk more about them later. Moreover, we have secured an icon to speak for the brand, Halley Berry, who will be even more popular, if that's even possible, in 2021, due to the launch of a new film Moonfall.

In addition, we have Ashley Gram, Amelia Hamlin, and Duff Cameron as enthusiasts promoting FLAWLESS. It will be an exciting year for FLAWLESS. FLAWLESS means being perfectly you, be you, be flawless.

Now, to our biggest category, laundry. As you can see, laundry grew 5.5% in 2020, but with a lot of swings due to consumer stockpiling and changing habits. Being more concerned about germs and being home, allowing for more time to do laundry that will continue as tailwinds for 2021.

Cat litter will also benefit from changed habits that continue. It is hard to get good statistics on cat ownership, but we do know that 6% more households bought cat litter in 2020, leading me to believe that this is the minimum of additional cat owners. What this number won't capture's the households who got additional cats. And as consumers want to spend more time with their cat instead of going to stores, we have seen a significant increase in online sales, which are not captured in these Nielsen sales.

Then there are categories, which are impacted by social distancing. We call these the social interaction categories. One of them is dry shampoo, where we have seen category decline due to store closures and not browsing in store. Here, the advance of vaccination and the associated expected increase of socializing will bounce back the category.

An even more eagerly awaited bounce back of sales is in the condom category as condoms mean pleasure. 18 to 24-year olds can't wait to get their social lives back, and with college campuses reopening, 2021 looks promising.

Now that we've gone through the different categories, let me summarize changed consumer behaviors due to COVID that we think will stay and help our business. Number one, self-care at home, fall hair care and removal hair businesses, like NAIR and FLAWLESS; cat ownership for cat litter; higher consciousness of germs and cleanliness benefiting ARM & HAMMER, OXICLEAN, XTRA, but also KABOOM; and four, awareness trend, with a regular daily intake of supplements, VITAFUSION, L'IL CRITTERS and VIVISCAL will benefit and WATERPIK for gum health.

It is not only category growth that will drive our business, it will also be the strengths of our brands and the ability to win market share, which we have proven year-over-year. We have brands consumers love. In 2020, a year with difficult supply situations, the majority of our brands, which means seven out of our 13 power brands have grown share. We are set to continue our market share winning streak.

Let me get back to what I outlined at the beginning as growth drivers; brand equity and media tech business. 2020 was a year where consumers radically changed consumption, but also media behavior. This is a marketer's dream because it allows for a lot of tests and learns and very distinctive data sets.

As you are familiar with data analytics, we now have great input to our media effectiveness models and are confident to drive even better ROIs in 2021. Let me just share one area. It is not only consumers who love our brands, it is influencers as well. We have more than 500 influencers globally enjoying and recommending our brands. We have reached more than 200 million consumers via those recommendations, and this number will definitely grow in 2021. What will the influencers write about? About some of our exciting new products. I hand over to Steve Cugine to share what we are launching. Enjoy.

[Steve Cugine, Executive Vice President of International & GNPI]

Church & Dwight has delivered consistent new product innovation year-in and year-out in support of our global growth objectives. 2021 is no different. We have a super lineup of brand-building innovation. So much so, we do not have the time to take you through the fullness. So we have curated a few of our favorites. Every new product is born from a consumer insight. 79% of consumers want germs removed from their laundry, introducing OXICLEAN Laundry & Home Sanitizer. This product kills 99.9% of bacteria and viruses. It also removes germs, odors and stains. Check out this video.

[Video Presentation]

Consumers have been hyper-focused on cleaning household surfaces. Introducing OXICLEAN multipurpose disinfecting sprays. This product kills COVID. It is powerful, cleaning and disinfecting without chlorine bleach. Two-thirds of consumers find flossing difficult and only 16% floss daily, introducing WATERPIK Sonic-Fusion 2.0, the most successful new product launch in power flosser history just got better.

It has two times the bristle speed, greater flossing power, multiple head sizes and two brush speeds. Here's another consumer insight. Consumers with smaller bathrooms struggle with counter space and outlets. Introducing Waterpik Ion, the same amazing clean, unplugged. This product is 30% smaller than traditional plug-in models, has 90 seconds of water capacity and with the lithium-ion battery that lasts up to four weeks with a single charge. Check out this video.

[Video Presentation]

Here's another consumer insight. Men see condoms that fit and feel the best. Introducing TROJAN all the feels, is a selection of our best condoms, with personalized fit and feel, and better feel more usage. Here is a video featuring our ECSTASY condom.

[Video Presentation]

One more consumer insight is that consumers are becoming more confident in doing beauty routines at home and they are aware of the cost savings. Introducing finishing touch FLAWLESS facial cleanse and salon nails. And one last consumer insight, 33% of consumer’s plan to purchase more immune support supplements, introducing VITAFUSION Super Immune Support, it is the only gummy to deliver over 100% daily value of the top 3 immune ingredients, Vitamin C, Zinc and Elderberry. It also includes a new ingredient, Manuka honey.

This is the first VITAFUSION item in the cough and cold aisle. VITAFUSION has been increasing the amount of new items it has been launching. 2021 will be no different, we have an exciting list of new items coming. I'm also excited to share with you the details of another fabulous quarter and year for the international division.

2020 was like no other year, as we track the coronavirus as it surged across the globe, starting in Asia in Q1. We planned for its impact and pivoted to areas of growth as our international mix is heavily weighted toward personal care versus household products, and therefore, more susceptible to global store closures, particularly in Europe. We finished 2020 posting organic growth of 8.6%, well above our 6% evergreen goal.

This is remarkable given the fact that during Q2, at the height of the pandemic, we delivered less than 1% organic growth for the division. Q4 finished up a remarkable 14.9%, behind growth in both our domestic subsidiary markets as well as our GMG business, where our surge in Asia was a key driver of performance.

We have now built an international business that's over $800 million and approaching scale in key markets. And we feel that there is not a market that we cannot reach. We've also tripled the historic CAGR of the division from 3% to 9%. Wait a minute, I didn't label this slide a continued effect, it must have come from my friend, Barry Bruno.

Well, this seems like a good transition point, from looking at the past performance, to Barry Bruno and his focus on the future. I will be retiring from Church & Dwight in June of this year. Barry Bruno has been promoted to Executive Vice President of the International Consumer Products division.

Barry was one of my first hires when I moved into this position almost 8 years ago. He has been the co-architect of the existing international strategy. Barry has led the design and execution of the Global Markets Group and the division-wide global international marketing team. His fingerprints are all over the success of this business in conjunction with the other members of the division leadership team.

Barry came to Church & Dwight from Johnson & Johnson, where he worked for 14 years across consumer, pharmaceutical and medical device businesses, where he developed a depth of experience in both U.S. domestic and global markets during his time there.

He turned that experience into a great start here at Church & Dwight, and I have confidence in his ability to continue what we've started here in International. Congratulations, Barry, and good luck.

In closing, it has been my sincere pleasure to work for this great company for the past 20 years. The culture at Church & Dwight is a place where performance matters, straight talk is encouraged and teamwork is a differentiator.

I stayed at Church & Dwight because I felt that I could bring my unique self to work every day, table big ideas that challenges status quo. And when the decision was made, I know I had to support my peers to make it happen. This is as true today as when I joined in 1999. I am confident in the future, as the company and the International team is stronger today than ever before.

Thank you. And now over to Barry.

[Barry Bruno, Executive Vice President of International]

Thanks, Steve. It's been an honor to work alongside you these last seven-plus years here in International, and I can assure you that the Cugine-effect is felt far beyond just us here in International and your work over 20-plus years has impacted the entire Church & Dwight organization. You will be missed by so many, Steve, but I think, most of all, by me.

As you saw, under Steve's leadership, we've built International into an $820 million business that's growing faster than ever. And as a reminder to this audience, we think about our international business in two buckets: our subsidiaries where we have fully staffed Church & Dwight teams on the ground, in Canada, Mexico, U.K., France, Germany and Australia; and our Global Markets Group, which covers 130 other markets via distributors who represent our brands.

I'm going to get into both shortly. However, this chart shows the relative size of each in net sales. As you've seen, GMG has been on a tear and now represents 34% of all international sales, followed by Canada and our European subsidiaries and then our Australia and Mexican subsidiaries.

From a growth standpoint, our subsidiaries grew plus 4.8% in 2020, and GMG continued its stellar run with explosive growth of plus 19%. What's noteworthy here is that our international business is much more heavily weighted towards personal care products than our U.S. business, which makes these results even more impressive in an environment where COVID slowed down many personal care categories.

For some additional context, our subsidiaries have been delivering outsized growth, more than double historical CPG category averages. And some of our key subs are now, for the first time, approaching scale, which we'll talk about as a margin improvement enabler a bit later. As mentioned earlier, GMG is now our largest entity, with outstanding growth of plus 19%. Emerging markets in Asia, the Middle East and Latin America have been and will continue to be growth drivers going forward.

Last but not least, you know how acquisitive we are, and I'm happy to share that we've delivered double-digit growth on WATERPIK and FLAWLESS in 2020, and they remain far underrepresented in international household penetration than in the U.S. lead market.

If we look a level deeper at key drivers in our subsidiaries, we continue to make great headway in turning our U.S. domestic power brands into international power brands. ARM & HAMMER, OxiClean and TROJAN are all examples of U.S. power brands which still have long international runway in our subsidiaries.

Likewise, WATERPIK and FLAWLESS household penetration in our subs trails the U.S. significantly and we're lifting and applying best practices from the U.S. to drive subsidiary success on these brands.

Finally, we're approaching pricing with greater rigor and discipline and hiring dedicated resources in international to help us understand where pricing opportunities exist. From a GMG standpoint, emerging markets have been a big area of focus, and we are significantly under-indexed in these key markets versus our competitors.

For context, our top CPG competitors derive over 25% of international sales from emerging markets in which we both compete, while C&D only realizes 7% of our international revenue from them. Today, we're spending more in these markets, and we'll continue to prioritize them going forward.

From an acquisition standpoint, our distributor coverage in 130-plus markets gives us a great footprint for expansion and we've been making excellent headway on new acquisitions, like WATERPIK and FLAWLESS, but we're also still making excellent progress on some of our older acquisitions like BATISTE and our VMS brands.

Last but not least, we're working with our supply chain partners to evolve from our export origins, where we ship products from the U.S. and the U.K., where they're made today, to more local manufacturing, particularly in Asia. Speaking of Asia, I don't think it will come as a surprise to you that the region contains some of the largest economies in the world.

However, what you might find interesting is the visualization here showing that there are more consumers living in Asia than in the rest of the world combined, including 4.5 billion middle-income consumers who represent our target audience for Church & Dwight brands.

In recognition of this and the terrific future growth opportunity that exists in Asia, we now have C&D representative offices in Shanghai, Singapore, and just last month, opened our first India office in Mumbai to help drive growth in that new market for us.

From an acquisition standpoint, WATERPIK and FLAWLESS are our primary areas of focus. In our key subs, we've de-layered by removing distributors and are now leveraging our own sales force to sell direct.

In terms of GMG, we continue to expand into new markets via distributors, with two very recent examples being our launch of WATERPIK in Japan and a FLAWLESS in India in just the past few months.

Finally, we're bringing C&D's marketing, e-commerce, and pricing expertise to bear on these brands to make sure we're leveraging our capabilities, which are often broader than those of the companies from whom we acquire brands so that we can drive efficient, profitable growth all around the globe.

If we dive deeper into WATERPIK as one example, we've doubled the business in the last three years, growing from $50 million when we acquired the brand to $100 million in international sales in 2020. And we're doing it by leveraging best practices and proven successes, like professional detailing, consumer marketing, and compelling in-store display activation, all borrowed from the U.S.

We know this is a winning formula as we doubled the business already. However, what's even more exciting is the runway ahead of us that exists due to very low household penetration in comparison to the lead U.S. market.

In terms of FLAWLESS, it's a brand we love that's still in its very early days internationally. However, you heard Britta talk about the power house influencers that we're leveraging in the U.S., and I'm happy to share that we're using them abroad as well, with plans in 10 of our largest global markets that are sure to drive awareness and trial of this great new addition to our portfolio.

I mentioned earlier that we love all of our acquisitions here in international, even those that are a bit older. And an example of how we're still greenhousing some of these older brands can be seen first with BATISTE, where we've grown at a 20% CAGR over the last five years and are still under-indexed in household penetration versus our lead market in the U.K.

We continue to launch in new markets and drive household penetration in existing markets and, again, have lots more room to run with household penetration less than 2% in most global markets.

Finally, we can't forget about VMS. We've owned it a little bit longer, but the trends that we see in the U.S. are the same abroad. And I'm happy to share that VMS is booming for us internationally as well. One example of a market where we're investing significant time and resources on VMS is in China, where sales were up more than 30% in 2020. So again, long runways even on acquisition we've owned for a while now.

Okay. So how are we doing it? Well, we're making strategic investments in areas that have the biggest impact. For example, to support our booming e-commerce business in China, we're ramping up hiring of our own e-commerce staff to help augment and better direct the efforts of our multiple partners in China. India is a vast and complicated market, and we knew we needed boots on the ground. So we've hired our first staff there just a few weeks ago.

Another complicated area is global pricing, where we're now building strategies to take advantage of pricing power in order to understand where we can take price. And we now, for the first time, have dedicated international expertise there as well. From a manufacturing standpoint, we're evolving from our historical export routes, where we manufactured product in developed western markets and shipped it around the world, to local manufacturing, especially in Asia, where our business is now big enough to justify bringing co-packers online to deliver better costs and faster supply to customers.

Finally, we're investing for the first time in global marketing campaigns, like ARM & HAMMER's, More Power to You campaign, where we leverage proven insights, while localizing the talent and messaging to make sure we're relevant in the markets, in which they're launched. Individually, none of these might seem all that impactful to you. However, cumulatively, I assure you, they represent a significant investment in resources and capability building that we're confident will keep international growing long into the future.

Last but not least, we remain committed to doing all of the above while continuing to use our increasing scale, pricing power in key markets and our personal care weighted mix to keep increasing operating margin by 50 basis points per year. We did even better than that in 2020 where we grew 120 basis points, and we remain committed to further continuous improvements here.

So in closing, we remain very excited about international and remain committed to our 6% organic growth target, which is also consistent with our outlook for 2021. And as a reminder, this is on top of almost 9% organic growth we experienced in 2020. We've got a long runway on U.S. power brands going global, a number of acquisitions with very low household penetration versus their lead markets, an enormous opportunity in emerging markets, where we've just started opening new offices to help us reach these consumers, and a number of strategic investments in resources and capabilities like e-commerce and pricing to help make sure our great international team is working as efficiently and effectively as possible to drive profitable growth long into the future.

Thank you for your time and interest in our international story. Now back to you, Matt.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Thanks, Barry. I'm going to run you through the animal productivity story right now. You heard me speak earlier about what our evergreen model is. It's 3% annual organic growth, 2% from the U.S., 6% from international and 5% from specialty products. Our Specialty Products business is a $300 million business. Two-thirds is animal productivity and one-third is specialty chemicals. If you look at the animal productivity piece, you'll see it's split between animal dairy and animal nondairy. Historically, dairy has been the biggest part of the business.

The three types of products we produce are prebiotics, probiotics and nutritional supplements. Now why is that important? It's because the consumer is moving away from wanting to consume food that is produced with antibiotics. The dairy business has been cyclical.

As I said before, it's been the biggest part of the business. If you look at this chart, in 2011, 2014, 2017, those were up years. So typically, it's a three-year cycle. The expectation was that 2020 was going to be a big up year. It didn't happen. Why? Because of the pandemic. So we expect a strong year from the dairy business in 2021.

Now if you look at dairy versus nondairy, we were monolithic back in 2015. Less than 1% of our sales were from nondairy. In 2021, we expect it to cross 30%. So just wrapping up here, we have a trusted brand. All of those products I described are ARM & HAMMER products. We're aligned with the consumer trend to move away from antibiotics to prebiotics and probiotics. We've moved from dairy to other species, catalyst wine and poultry, and we have a lot of runway internationally.

Now I'm going to talk about how we run the company. It's pretty simple. We have five operating principles: One, leverage brands; two, friend of the environment; three, leverage people; four, leverage assets; and finally, leverage acquisitions.

Number one, brands consumers love. As we said – we opened the program today, pointing out that we have 13 brands that we call our power brands. These are brands that consumers love. Number two, we're a friend of the environment. And that friend of the environment started back in the 19th century. If you run your eyes across this page, you can see back in 1888, the company introduced pro environmental wall charts and trading cards that we put in our packages as a promotion for the environment.

In the 1970s, we're the first corporate sponsor of Earth Day. If you went 20 years later to 1990, we were still the only corporate sponsor of Earth Day. More recently, in 2016, 50% of our global electricity demand was supplied by renewable energy sources. In 2018, we crossed 100%.

Over the last five years, we've been planting trees in the Mississippi River Valley. Now why is that important? It's because trees take CO2 out of the atmosphere. And this is consistent with our goal of being carbon neutral by 2025.

Here are our three environmental goals: first, water, reduce water and our wastewater by 25% by 2022; for solid waste, to increase our solid waste recycling rate to 75% by the end of 2021; and finally, air, we want to achieve 100% carbon neutral status for all of our global operations by 2025. And of all those three, that's the one I'm most excited about.

Now we've been getting a lot of recognition externally, as you can see on this slide, from JUST Capital, FTSE4Good, the EPA, et cetera. Not because we've been applying for these things and running our business so we can take about, no, we've been recognized because we've been doing the right thing.

Number three, we leverage people. We have the highest sales per employee of any company in the CPG space. This is an underappreciated statistic. If you look at these numbers, we're almost $1 million of sales per employee. You'd normally expect that of a start-up.

We have a very simple compensation structure. We focus on 4 things: revenue, gross margin, cash from operations and EPS. And gross margin is actually an unusual element of our incentive compensation package. The reason why we have gross margin in there is because it creates financial literacy. Gross margin expansion is very important to our operating model and when people think, hey, gross margin is part of my incentive comp, they ask the question, what's gross margin? And how can I get it?

Number four, we consider ourselves asset-light. CapEx as a percentage of sales has been about 2% for as long as I've been with the company. The other thing that may not be appreciated is that about 25% of our global sales are manufactured by third parties. So I just ran through the first 4 operating principles.

Lots going to number 5, leveraging acquisitions. If you do the first 4 principles well, you're going to have good shareholder returns. If you can add to that leveraging acquisitions, you get great shareholder returns which we do. We have a long history of growth through acquisitions, as I mentioned earlier. And the reason why we do so well with acquisitions is because we're disciplined.

So here's the 5 criteria: number one, we only buy brands that are number 1 or number 2 in their categories. Number two, we only buy brands that can grow 3% or better and have gross margins that are equal to or better than our corporate gross margins. Number three; need to be asset-light. Number four, we're always looking for cost synergies. So we're trying to leverage our Church & Dwight supply chain footprint. And finally, these brands need to have a sustainable competitive advantage for many years to come.

Our most recent acquisition is ZICAM, it's the number 1 zinc supplement in the United States in the adult cold shortening category. As many of you have been watching, the cough and cold categories have been – or expected to be down in '21. Why? Because people are wearing masks and using hand sanitizers, etcetera. We expect that as well. But we think this is going to be a wonderful acquisition for us for years to come.

Just to wrap up the M&A section, we have 13 brands today. We're shooting for 20 tomorrow. Why is this important? Well, acquisitions have been a great driver of total shareholder return historically and will be again in the future. And next up is Rick to take us through the financials.

[Rick Dierker]

Okay. Thanks, Matt. I'm going to go through 4 items today. First off, is the evergreen model like we always do? Number two is 2020 results, both for the quarter and the full year. The third thing will be the 2021 outlook. And then the fourth will be the capital allocation discussion.

So first off is the evergreen model, and our shareholders know that we've been talking about this for a very long time. 3% top line, 8% bottom line. And we have a detailed model to go through as well. So 3% for net sales growth, 25 basis points for gross margin expansion; flat marketing as a percentage of sales, which is typically higher dollars as we grow the top line; and then we leverage SG&A by 25 basis points. That gets us to 50 basis points of operating margin expansion and about 8% EPS growth.

Now moving to 2020. So we ended the year in a fantastic way. Q4 2020 was 10.8% organic sales growth, 11% domestic organic sales growth, 14.9% for international and minus 1.2% for SPD. Gross margin was down 280 basis points, but in line with what our expectations were. Remember, our outlook was down 250 basis points for the quarter.

Now that 280 included a 40 basis point drag because we recognized some of our supply chain workers as the pandemic spiked again in Q4. And then marketing change was up 140 basis points in the quarter as we invested behind our brands to enter 2021 with momentum.

SG&A was leveraged by 70 basis points. Despite higher amortization and investments, the top line helped us leverage SG&A in a big way. And then EPS was $0.53. Our outlook was $0.50 to $0.52. So we beat the midpoint of the range by $0.02.

Moving to the full year 2020, organic was 9.5%; domestic was 10.7%; international, 8.6%; and SPD was 0.4%. So just really a strong year to have a 10% organic full year number. Gross margin was 45.2%, or down 30 basis points, really driven because of COVID and incremental tariffs, but we'll get into the detail in a minute.

Marketing was 12.1%, or higher by 30, basis points. That's very significant. It was a huge investment behind our brands. You'll hear in the outlook that we're going to return to pre pandemic levels for marketing support.

Adjusted SG&A is 14.1%, or down 10 basis points. So we did leverage SG&A. And so EPS was up 15% or $2.83. And then cash was up to $990 million, a full $100 million above our $890 million estimate a year ago. And then, finally, that translates into 125% free cash flow conversion. We do a great job converting net income into cash flow.

And now turning to the detail on gross margin. Here's the bridge. So for Q4, we had positive price/volume mix, similar to the way we've had it all year long, plus 130 basis points. Then inflation was a drag of 310 basis points, but that included a few items: commodities, distribution with the tight trucking market, labor increases and then investments.

COVID costs were 150 basis point drag, which included a 40 basis point drag for the supplemental bonus that we discussed earlier. Incremental tariffs for WATERPIK was a 90 basis point drag for the quarter. And then productivity programs were plus 160. So just a lot of great work behind our good to great program.

Acquisition, that's really ZICAM for the month of December, the positive margin mix. And then FLAWLESS accounting was down 30 basis points. Remember, back in 2019, it was a good guy. And so it didn't exist in 2020. So it's a drag year-over-year. And that's how we get to down 280 basis points for the quarter. And then all that translates into the full year to be down 30 basis points. And so we feel like we have a great springboard to have margin expansion in 2021, and we'll talk about that in a minute.

Turning to this slide, this is four reasons why we can expand gross margin in the future and we believe in these things. First off is our Good to Great program. And I just got finished telling you how well we did in 2010.

Number two is supply chain optimization. That's really our footprint, our network. Number three is acquisition synergies. You heard us a few months ago talk about ZICAM. And we signed up for $5 million of synergies for ZICAM, as an example. And then fourth is new products. We want to launch accretive new products. So those four reasons help us have confidence in expanding margin over the long term.

Okay. Moving to the 2021 outlook. So at a high level, our outlook consists of reported sales growth of 4.5%. That's really the organic number of 3% plus the impact of ZICAM. Organic is 3%. Operating profit margin expansion of 100 basis points, which is almost double our 50 basis point expansion for our evergreen model. And then adjusted EPS growth of 6% to 8%.

So here's a detailed outlook for 2021. First, the 4.5% reported, and then we get into 3% organic sales growth. And it's very consistent with what you just heard from Matt and Barry and Britta, 2% for domestic, 6% for international and 5% for SPD.

Now the 3% organic growth, it does have a couple of strategic choices that we've made previously in there. Remember, last year, we communicated that we were gift-sizing in laundry. And we were getting out of the private label vitamin business. Both of those things, this is the second and complete year of those actions and that would have added a full point of organic growth as an example. So, we would have been at 4%. But I just wanted to give you context there.

Gross margin is up 50 basis points. We'll go through that detail in a minute. And marketing is down 30 basis as we get back to kind of the average for pre-pandemic levels is around 11.8% and that's what we plan on doing in 2021.

SG&A, we leveraged by 20 basis points and then we're up 100 basis points for operating margin. Now, you might ask, well, if you're leveraging operating margin by 100 basis points, why aren't you higher on the EPS growth outlook? You're only at 6% to 8%. And your evergreen model is 50 basis points and your 8% EPS growth. Well, it's because of tax. Our tax rate in 2020 was 19%, and we're going back to the consistent average of around 21%, 22%.

In 2019, we had two things that helped us on tax. One was a discrete international planned settlement and then the second one was just a higher number of stock option exercises. And so those two things aren't going to recur to the same extent.

And so as a result, we're up 100 basis points on operating margin. It's a really strong base business plan, up 6% to 8% on EPS and then up to approximately $1 billion of cash flow generation, cash from operations.

Okay. Here's a track record of our organic sales over the last 10 years, very consistent. We've typically averaged around 4%. This year, we're calling 3% for 2021. And as I said before, if you add in some of those strategic decisions we made, we are closer to 4% on an apples-to-apples basis.

We focus on gross margin in a big way. Gross margin is a great surrogate for -- and driver for EBITDA margin and then that flows all the way down to cash flow and cash generation, and we believe cash drives value. So, plus 50 basis points in 2021. The detail of the 50 basis points of expansion in 2021 really leads off with price volume mix continuing to expand. We have higher volumes. We have improved price/mix throughout the year.

Inflation and the COVID costs are a drag of around 103 basis points. COVID costs do reduce year-over-year, but they still exist. And then productivity programs are a tailwind of 100 basis points. Tariffs and acquisition, that's again the Zicam acquisition and the favorable gross margin impact to mix. Those two pretty much offset, and we're at plus 50 basis points for the year. So, really happy with that type of expansion.

Now, we're talking about the seasonality of gross margin, the first half, second half dynamic. So, first half gross margin is down 50 basis points. And why is that? Well, we're going back to normal promotional levels. Remember, in 2020, March, April, May, June, promotional levels pulled back in a big way as the pandemic was spiking and couponing as well.

We have higher WATERPIK tariffs in the first half, right? It's not in the comp a year ago first half. And we have COVID costs compared to a year ago when there were none. And plus, there's higher commodity costs.

In the second half, we have lower COVID costs. We have improved trade promotion. We have tariff remediation. We're doing actions. We're taking actions to offset that Chinese supply chain that we have for WATERPIK. And of course, we have Zicam gross margin mix favorability.

Moving to marketing, we have a long track record of spending between 11% and 12% on marketing. It just drives the brand's growth over time and drives our evergreen model. In years past, the average is around 11.8% and we're saying in 2021, we're going to get back to the pre-pandemic average of around 11.8%.

Moving to SG&A leverage, we have a long track record of leveraging SG&A. This is on a reported basis. In 2021, we're going to be down 20 basis points, is our expectation. But if you look at this on a cash basis on the next slide, you can see how much we're actually leveraging cash SG&A, we're going to be down 60 basis points in 2021.

And then finally, on EPS, we have a long track record of great EPS growth, low double digit, high single-digit EPS growth for a long period of time. And in 2021, it's no different, 6% to 8% EPS growth. That's $3 to $3.06 is the outlook. And that's on top of 15% growth in 2020.

The same discussion we just had in gross margin, we have timing dynamic for EPS growth as well, for mainly the same reasons. EPS growth is expected to be down 5% in the first half as we get back to normal promotional levels. We have higher WATERPIK tariffs. And we have higher COVID costs as well as higher commodity costs.

In the second half, we expect to be up around 20% and that's because of a return to historical marketing levels, improved promotional efficiency, lower COVID costs, tariff remediation and those actions that we're taking and 2020 investments that aren't going to repeat in the back half of the year.

Okay. Moving to free cash flow, this is my favorite slide. We have a long track record of free cash flow conversion, 122% over the time period. We had 125% in 2020. How do we do that? Well, we have great working capital management. We've moved from 52 days down to 16 days is the outlook for 2021. And if you strip out the Chinese supply chains that we have for WATERPIK and FLAWLESS, those numbers are actually closer to five days as we approach zero working capital.

We have a very strong balance sheet. We have a lot of financial capacity. We expect to end the year at 1.3 times debt-to-EBITDA at the end of 2021. And so we have a lot of dry powder, what do we do? We have the ability to do up to a $4.2 billion deal and still maintain our credit rating. So just a lot of excess cash and debt capacity.

Now, moving to capital allocation. We're very clear on the top five reasons for capital allocation. Number one, far and away is TSR-accretive M&A. And we're very picky on what deals we do. Number two, we moved this up previously this summer on CapEx for organic growth. And you're going to hear me talk about capacity additions for laundry, litter and vitamins in a few minutes. So number two, is capacity investments for growth. Number three, MPD. Launching an accretive MPD has been just a stalwart of this company, and it helps drive our top line as well. Number four is debt reduction. And as you saw, we're going to end the year at 1.3 times debt-to-EBITDA in 2021 is our expectation.

And then return cash to shareholders through dividends and buyback. We're not a capital-intensive company. If you look back at our history, we usually bump around 2% of sales or below. In the years past, we've had capacity additions, and that's what happened in 2009. We added our York laundry plant, and that's when we bumped up to about 5.5%. In 2011, we bumped up to 2.8% when we added our Victorville laundry plant. And so 2021 and 2022 are no different. We think we're going to spike up to around 3.5% as we add these capacity investments. And so those capacity investments are around laundry, litter, vitamins, baking soda, technology in our distribution network around the country.

And then finally, we have a great history of paying dividends. For over 120 years, we've been paying dividends. And in 2021, our outlook is a 5.2% dividend increase on top of increases of 5.5%, 4.5% and 14.5% these past few years. In addition, we did a $300 million ASR that started in December and we expect to complete by the end of Q1.

And this ends the formal presentation, and now we'll turn it over to Q&A for Matt, myself and the rest of the leadership team.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. Morning, everybody. Thanks for joining us today. We have all the EVPs on the line with us. Many questions were submitted during the rolling of the tape. So Rick is going to read the questions, and we'll take them one by one.

[Rick Dierker]

Okay. Thanks, Matt. First question is from Olivia. Is the new OxiClean sanitizer product getting incremental shelf space? What do you think about the opportunity in FLAWLESS and which brands got more shelf space in 2020?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. All right. Hey, that's a great question. We've got a lot of confidence in 2021. I'm going to dish that to Paul Wood, who is our EVP of Sales.

[Paul Wood, Executive Vice President, U.S. Sales]

Appreciate it. Thanks, Olivia, for the question. Yes. Let me start with Oxy sanitizer, right? I think, as Steve mentioned, the right product, right time, right place and definitely lends itself to the incrementality question that you're asking. So one of the strongest launches will have on the acceptance front, and so feel very good there.

In terms of the other categories, great question, too, because while the headlines are supply and demand, some incredible work by the sales and the commercial team in other categories to strengthen the foundation and some great wins from shelving and placement and brand positioning on condoms, vitamins, BATISTE, laundry and laundry additives throughout the year as well. So we've been busy at work to strengthen the foundation and really excited about some of the things that have already hit market and some yet to come. So it's been a strong year on those elements, Olivia.

[Rick Dierker]

Okay. The next question comes from Rupesh on gummy vitamin. What have you seen lately on the competitive front? And also from the supply chain, have you now fully caught up with demand?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. Yes. Well, gummies has been a big winner for us in 2020. if you look at the – both the category and our performance in the fourth quarter, the category was up 50% and our brands were up about 56%. In fact, if you roll forward into January, you see that we're – our consumption is up still in the 40s. So very strong performance.

Both of our brands gained share in Q4, both VITAFUSION and L'IL CRITTERS. And keep in mind that we've been capacity-constrained during that time. I can imagine if we were not. With respect to capacity, you probably heard us talk on the last call that we have a new third-party that came online in the fourth quarter. And our view long term is that we will have both internal capacity expanding as well as treat this third-party as a long-term partner. So it's not an episodic relationship. Anything to add to that, Rick?

[Rick Dierker]

No. It's a good summary. Next question is from Joe Altobello. Well, Steve, because you need to be moving to Naples to hang out with Lou Tursi. Congrats, Steve.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. Well, we have Steve on the line this morning, I want to caution Steve, that I suspect Lou Tursi is also listening in. So take it away, Steve.

[Steven Cugine]

Yes. Well, certainly, I would say that – I don't have any specific plans to move to Naples in the short term, but I'm sitting here in the Northeast and it's pretty cold. So I'm longing for some warmer weather. So you never know. But no plans as of this moment. And – but when I do get to Naples, I'd certainly hang out with Lou for at least a cocktail or dinner. Thanks.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. Thank you, Joe Altobello, for keeping it light today. All right. What's the next question, Rick?

[Rick Dierker]

Here's a question from Bill Chappel. Is there a target for percent of sales from international over the next five years?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yes. Well, you know our evergreen target is 3% for the company, 2% for the U.S., 6% international and 5% for specialty products. So you're probably asking, Bill, because we've exceeded the 6% year after year for many years, but we're very confident that 6% or better is intact for years to come. And anything to add to that, Barry?

[Barry Bruno, Executive Vice President of International]

No. Matt, I'd just say we aspire certainly to beat that 6% target. But no, there's not a specific percentage of sales that we are shooting for right now.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay.

[Rick Dierker]

Yes. The only thing I'd add to that, Bill, is probably -- hey, 17% of sales is international today, and we have a good problem, right? Our domestic business continues to grow very strong. And so that percent of sales, plus a lot of the M& A we've done has been more U.S. focused. So over time, even though we've had great growth internationally, the percentages stayed relatively stable.

Next question is from Andrea. It's really about what's the backdrop for commodities and inflation and transportation for Church & Dwight in the outlook?

So I'll take that one. In general, we expect commodities to be up next year. It's really first half, second half story. If we look at some of the big drivers, even in the quarter, HDPE and polypro were up close to 20% and ethylene was up 5% in the quarter. In the first half of the year, we expect those commodities to be up around 20% to 30%. But in the back half, it's pretty flat because we're experiencing that as early as Q3 of 2020. As for the transportation market, we do expect it to be at mid-single digits, but I'll flip this to Rick Spann to add any other color commentary.

[Rick Spann, Executive Vice President-Global Operations]

Yes. And thanks, Rick. Yes, the transportation market is very tight. Spot market rates have increased by more than 30%. In fact, this is the second highest market – the second tightest market that we've seen in the last 8 years. And of course, that's having an impact on our transportation cost.

And just a bit more color on commodities. Commodities were pretty flat on the first half of last year. But as Rick mentioned, we see headwinds on our major commodities right now. But not only on our major commodities, but some of the smaller purchases of raw and packing materials that we use across the rest of our business. Fortunately, we have a robust productivity program to offset some of these headwinds.

[Rick Dierker]

Okay. Next question is from Steve Powers. Is there a specific data that gives you confidence in vitamin usage as a sustainable trend as opposed to something that is correlated with elevated health awareness due to COVID and more time spent at home?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. It's good question, Steve. I'll just say a few words and then I'll dish it to Britta. But you heard in Britta's remarks, the longer a new behavior lasts, the more likely that it's going to continue. And that is our expectation for next year. We think the wellness trend is certainly in our favor. And we don't think that people are going to fall back to their old ways. Britt, anything to add to that?

[Britta Bomhard]

Yes. We do have specific data. So we know that 20% more households bought vitamins. And we also know that 57% of people are using it now daily. So we know that those behaviors have changed and there's more households. We also know that the households currently are buying more than they used to.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Right. And of course, the trend from pills to capsules, we expect that's going to continue, not just in '21, but in future years.

[Rick Dierker]

Okay. Next question is from Lauren Lieberman. 3-part question; first one on the outlook for inflation. To what degree are hedges helping in 2021? And any contracts for logistics? I'll go ahead and jump in and answer that one.

In general, we're about 65% hedged for 2021. So pretty well protected overall for incremental commodity volatility. And then, number two, contracts for logistics. Remember, part of our part of our freight is picked up by customers and some of it is also on dedicated lanes.

And so, really about a-third of it is subject to more extreme volatility and we have to use brokerage and whatnot for that. So we are well protected there as well. Second question from Lauren is -- the next two are on FLAWLESS. To what degree are new products expect to drive FLAWLESS growth this year?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yes.

[Rick Dierker]

And maybe it's a -- part and parcel is her second one. FLAWLESS is historically a hair removal brand. What are you seeing that gives you confidence in the brand expanding into other areas like skincare or facial cleansers?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yes. No, it's a good question. Yes, we bought the FLAWLESS brand in 2018. It was largely a face and brow product and, frankly, a little known brand. And over the past couple of years, we've been working on, not only brand awareness, but also to build out the brand.

So we'd reach far more consumers with other products. And that's the reason why we've introduced this year the mani-pedi product, the body cleanser and also the face cleanser. So we think with respect to 2021, we think FLAWLESS will be up well in excess of 20% from a sales perspective.

And the three reasons for that, one, would be the new products, which we talked about during the presentation. Also, the influencers that we've also had to join the brand this year. And finally, the at-home grooming trend, we think, is still an opportunity for us.

[Rick Dierker]

Okay. Great. Kevin Grundy is up next. He has a few part question. First is, some housekeeping, some questions on investors, mine would be modest lower 6% to 8% EPS growth outlook for 2021 versus the comment on the third quarter call that you'd deliver against 8% evergreen outlook in 2021.

You mentioned the tax rate being higher, but that presumably would have been anticipated a few months ago. Please comment on a more conservative outlook. And let's pause and answer that question first.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yes. Okay. That's a good question, Kevin. So we -- look, we feel really good about 2021. We have a lot of confidence with respect to the categories, because we think we have been really thoughtful about them, as well as the logic with respect to which ones are going to go up and are going to go down.

As you know, as Rick described, there's -- our expectation is 3% top line, but the math is more like a 4% top line, because we have a 1% drag from the second year effects of exiting private label vitamins and also we're exiting XTRA in Canada.

As far as the EPS goes, yes, we're coming off of a little higher base than we thought we were going to be at when we were in October, so we had a range of 50 to 52, we came in at 53. So we're $0.02 better than our midpoint. So we did leave ourselves some room with a range of 6% had 8%.

As you know, we’ve had 8% or better for many, many years. So we don't expect to -- for it to end that streak in 2021. As far as the year goes, there's obviously pluses and minuses. There's probably more pluses than minuses than when you look at the 2021. We have a potential for lower COVID costs, could get some help from currency, as well as promotional levels staying down a little bit longer. Anything to add to that, Rick?

[Rick Dierker]

Yes. The only thing I'd add is, maybe when you look at the two-year stack, just how strong the EPS growth really is, 15% in 2020 and then 6% to 8%. So, 21% to 23% EPS growth. If you look at that versus the peers, peers are closer to 7% or 8% on a stack basis. So, just feel really good about the strength on top of strength.

Okay. The second question that came ahead was really international-related. There's still the areas of biggest areas of opportunity. He imagines that executed in China is certainly one of those and emerging markets. And then comment on margin improvement, firstly, and then where you see in investing for larger, faster growth.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. I'm pretty confident that Barry Bruno is very eager to take a swing at that question with respect to prospects for growth in international. So Barry, jump in.

[Barry Bruno, Executive Vice President of International]

Yes, happy to give it a shot. So, yes, clearly, emerging markets are the biggest opportunity, right? There's increasing household income. Our brands are new in a lot of these markets, specifically China, North Asia, Southeast Asia, all very exciting to us. We just opened an office in India as well to help us start to get a toehold in that important market. And our business in Latin America, even amid a lot of economic turmoil, is really, really booming. So, definitely, emerging markets are a disproportionate area of focus.

In terms of margin improvement, we're working on understanding pricing opportunities better. We've got dedicated resources now looking at pricing around the globe. We're working on improving COGS by local manufacturing as opposed to exporting product. And we've got a host of other areas of improvement that will allow us to keep delivering at least that 50 bps annually that we've committed to.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. Thanks, Barry. Next up.

[Rick Dierker]

The next question is from Chris from Wells Fargo. I thought your comments around returning promotions in the first half 2021 back to pre-COVID levels were interesting. That's a bit more intentional than what we've heard from some of your peers. What wiggle room do you have there, i.e., do you wait and see how things play out with competitors, or do you lead on returning promotional levels? Longer term, what do you think about commercial needs in your categories?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. Let's -- when we talk about sold on deal, we're essentially talking about household categories. So, if you look -- it's laundry and litter. So, the trend year-over-year for laundry sold on deals, like if you looked at Q2, Q3, and Q4, sold on deal for the category was down 1,700 basis points in Q2 and in Q3 and Q4 was down 800 and then 750. So, it's still muted and, frankly, low -- pretty low.

In our fourth quarter, you may recall, we said we were going to spend behind some new products, and that would be clean and simple and ABSORBx. But that's largely behind us now as we go into the New Year.

Q2 year-over-year will absolutely be higher simply because it was so low in Q1 of 2020. So, everybody pulled their promotion. So, there will be a year-over-year increase for about everybody in Q2. So, it will be up in Q2 because Q2 2020 was the low water mark. Anything to add to that, Rick?

[Rick Dierker]

And I think the commentary is true. We have in Q3, Q4 of 2020, it was largely behind new products, and we're past that. And then in Q1, Q2 of next year, we're not saying it's going to be maybe at pre-pandemic levels, that normality, which is going to be above the very, very depressed level that it was in 2020.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yes. One thing I didn't point out was that I talked about laundry, but if you look at litter, so litter, the trend was, if you went in Q2, Q3, Q4, litter was down 800 basis points sold on deal in Q2 and Q3, Q4 down to 70. So the category was a little bit more heated up in Q4, but still down almost 300 basis points year-over-year.

[Rick Dierker]

Okay. Next question is from Steve Powers [ph]. A lot of investment spending in 2020 clearly. Can you drill down and talk about where that investment spending has been prioritized, whether in terms of specific brands or capabilities or channel development and whether or not that prioritization changes and at all in 2021?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yeah. We wouldn't get into specific brands, but we did -- we have talked about where we spent the money. We spent things on automation of non-plant processes as well as in the factories, new product tests and learns. We had some projects in IT and R&D analytics projects, some consumer research we wanted to get after. So there's pretty broad investment in the second half.

[Rick Dierker]

Yeah. And some of that was really transitory, right? We always have investments, but we were just doing so well in 2020 that we fast forwarded it and made incremental investment. And that's some of the things that I just talked about.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

But the fair amount of those investments were largely nonrecurring.

[Rick Dierker]

Bill Chappell [ph] had a similar question on trade promotion. Why do you expect trade promotion to normalize in 2021? It appears that some of your major competitors are comfortable with lower levels remaining. And did you see a meaningful pickup in competitive activity in Q4?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

I think we already handled that question with respect to the trend for Q2, Q3 and Q4. Now I would say we expect it to continue to be muted. Just in Q2, we do think it's going to be -- year-over-year, you're going to see a pop, but we're certainly comfortable with lower promotional levels in 2021.

[Rick Dierker]

Okay. And then Steve Powers [ph], the new disinfecting products you're rolling out on Oxi seem different. Given that the demand for disinfectant solutions right now seems global, do you see any potential to use those innovations as a way to push the Oxi brand further outside the U.S. market, or is it too early to have that discussion?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yeah. I'll just say a couple of words. Steve and Barry have had some success moving the Oxi brand outside of the U.S. over the past couple of years. And we've had great success in a couple of markets.

I'll let Barry take a swing at where we see some opportunity.

[Barry Bruno, Executive Vice President of International]

Yeah. We've had great success with the brand outside of the U.S. Japan, in particular, has been a real star for us, and we're continuing to invest there. We do have other market launches planned for next year, but I'm not going to get into them specifically, so we don't tip off any competition. But yeah, there are other markets that launch into next year. The brand is strong and definitely relevant internationally.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Thanks, Barry.

[Rick Dierker]

Next one is from Kaumil [ph]. Any changes in the pressure from retailers as they regroup after a year of demand spikes, and things through managing the incremental cost of expanding into the omni-channel?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yeah. I think that's a perennial question that we get is because every year, the concern is that retailers are asking for more and more from the suppliers. We often say that because our power brands are number one or two in their categories, we're in a much better position to have those conversations with the retailers than if we're in either a three, four, five, or six brand.

But Paul, if you have anything to add to that, just go ahead and jump in.

[Paul Wood, Executive Vice President, U.S. Sales]

Yeah, I think the only thing I’d add onto that would be the retailers are under tremendous pressures, right? A lot of them were going down an e-commerce journey, some further along on that than others, but they all having to play catch-up and, whether they're using third parties like Instacart and ship, it certainly pulled their labor in other places, and it's more expensive for them.

At the same time, reaching the consumer through digital means and loyalty card programs, while it's effective, has added costs as well. So there's no question that retailers are under tremendous profitable pressures as they try and get back to normal as well. So those are all challenges, perennial question and perennial answer, probably just heightened a little bit more because the e-commerce and the shifts that we're going through as we speak.

[Rick Dierker]

Okay. Okay. Next question is from Jon Andersen. With all the new consumer trial your brands experienced in 2020, what are you doing to try and retain those customers as we move toward a post pandemic environment?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

And is that brand-specific, that question?

[Rick Dierker]

So it's likely about all the household penetration we had and all the new consumers that we gain in the different brands. How do we retain those consumers over the long term?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. Well, you heard Britta talked about the household penetration that we had in ARM & HAMMER, but I think the household penetration has been even broader than that. I think we have a very robust marketing program, both online, which is now approaching two-thirds of our spend. But I'll let Britt take a swing about why we're going to hang on to those new consumers.

[Britta Bomhard]

Yes. So I would cite two very distinct facts. So the first one is, you have trial and repeat. And all our brands, our repeat rates are very strong, which today indicate that consumers are happy with the product performance. So that gives us confidence. In some areas like BATISTE, we have, by far, the best repeated loyalty rates. So that's number one, just based on product performances.

The second one is we also have a lot of programs where we invite people to join our communities or our e-mail lists or other areas of staying connected and we are actually using that to reach out again and make sure that they feel that brand loves continuing in 2021.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. Thanks, Britta. That's a good add.

[Rick Dierker]

Next question is from Steve Bowers. Do you have data on the longevity of WATERPIK use following dental recommendations? The correlation with dental office openings makes good sense, but I'm wondering about the stickiness of device use as distance in time from that initial visit and recommendation increase.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yes. I don't know if we have that – the statistic that you're asking for, Steve. But Britta, I don't – could you weigh in? Do we know if we have those kind of stat?

[Britta Bomhard]

So we don't have necessarily the statistics and such. But what we do have, and I think that's a very, very interesting data, is when people buy a WATERPIK, they can register with us. So let's assume these are the more serious users who are registering. And we've seen those rates increased more than fourfold in 2021. We also know that for some of our products where we have repeat purchases, be it Sonic Fusion, where we have the dental brushes, or for some of the others to tip, we can clearly see that those repeat rates are increasing.

[Rick Dierker]

Okay. Thanks, Britta. Next question from Lauren Lieberman. Market shares are up in only about 50% of your categories. What do you see as the idea would be?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yes. It's a good question. Historically, what we shoot for is two-thirds. So we think it's a great day. Now we have Zicam, but we had 12 power brands. We'd be shooting for eight out of 12 to be – to gain share or hold or gain share in their categories.

In some of our categories, some of the brands that lost share somewhat related to our – we're out of stocks during the year. So that did hurt a few of our brands. But all in, we feel really good about where our brands stand with consumers going into 2021. Britta, anything you want to add to that?

[Britta Bomhard]

No, I think the only one I can add is, and we do brand equity measurement, so we know that we strengthened brand equities for our significant – for some of-- for the ones we measure. So a very clear indication of consumer being vetted to our brands and loving our brands.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yes. And you saw we spent a fair amount of marketing in the second half to help drive that brand equity.

[Britta Bomhard]

I know you were going to throw back at us. So that was very productive spend. As we talked about, the users, the households we won and lots of the programs we ran were exactly tapping into the current situation and emotion. So some of you might have seen, we did have some, but we people in COVID times are looking for brands to step up and do more than just sell products. We have the VITAFUSION so we had on each of our brands significant emotional connections with consumers.

[Rick Dierker]

Okay. A couple of questions from Bill Chappell. What is the cadence of CapEx spend this year? Have you already started on the expansion project? I'll take that one. Cadence is very consistent with what many years of spend.

It's typically back-end loaded, Bill.

And have you started on expansion projects?

There's a whole list of capacity projects. We mentioned just laundry, litter vitamins, distribution, warehousing and technology stuff. So it's a mixed bag. Some have already started. Some are underway. And some are to be starting.

Second question from Bill, can you talk more about tariff remediation for the second half? Can you quantify the impact?

Well, we've been very vocal about the impact of tariffs on WATERPIK. And with enough lead time, we always believe that we can do things to impact the supply chain. And that's what we did over the last 6 to 12 months. And in 2021, in the back half, we're going to start to see a benefit of a few million dollars and the full year run rate of that is, is even better. So we're just really happy with that team and the progress we've made there.

Next question is Joe Altobello. Which categories are you most concerned about in 2021 with respect to pantry loading or consumption declines?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Well, I'll let Britta comment on the categories because we did bucket all 4 of them. So as far as the ones we might be most concerned with – Joe, we -- the way we bucketed them, we did say which ones we plan on staying elevated, which ones we think are going to fall back. The ones we said we're going to fall back are categories like, like baking soda, for example.

The declines were going to be baking soda, toothache, carpet and pregnancy kits. So pretty confident they're going to fall back. The question is, how far would they fully fall back? And then far as the ones that are going to recover would be condoms and dry shampoo. That's more of a back half view as more and more people get vaccinated and consumer mobility expands. But anything to add to that, Britta?

[Britta Bomhard]

No, I think you captured it. I think the ones we are concerned is where we – where there's COVID uncertainty, right, which has to do with whether the vaccines and whether that will bring people back. But for the majority of our categories, let's remember, they are continuous household consumption categories. So people are washing their clothes, cleaning their houses, having their cats and as I mentioned, having more cats. So for the big majority, we know that we actually have stronger performance.

[Rick Dierker]

Okay. Next question from Kevin Grundy. You kind of build on that, on market share, specifically, only seven of 13 power brands gained this year in 2020 and it was a bit unique in 2020. This is due to our confidence to improve market share momentum in 2021.

[Rick Dierker]

Yes. Well, normally, we kind of pick on the ones that didn't grow, I should say, it's seven out of 13. One of the five that didn't grow is because we're using Nielsen data. And so WATERPIK would be one that you would say, well, we lost some share in 2020. Yes, that's a business we expect to grow mid to high single digits in 2021.

XTRA lost some share in 2020? No. Why is that? Well, it's because both XTRA, Sun and Purex, all the deep value brands lost share in 2020. And the benefit, obviously, went to the mid-tier and the higher premium brands.

If you look at ARM & HAMMER liquid laundry detergent in the fourth quarter, we had an all-time high, 14% market share. So there are reasons why some of those brands declined or -- and with respect to Nielsen data, lost share in 2020. But we do expect -- we're targeting two-third of our 13 power brands will gain share in 2021. Anything to add to that, Britta?

[Britta Bomhard]

No, I think you said it really well. And we've seen a couple of our brands, particularly in the last quarter or last month, actually regaining market share, which we see as the positive momentum you've mentioned.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. You’re up.

[Rick Dierker]

Okay. Rupesh had a couple of questions. One was on online penetration. Do you expect to see further increases in online penetration this year, or could it level off or step back? And how are you thinking about the stickiness of 2020 gains?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yes, hey, it's a good question. Online, for us, the history, Rupesh, so in 2015 was 1%. 2019 was 8% and 2020 was 13%. In fact, the fourth quarter, we were at 14%. Our expectation is that for 2021, that 15% of our global sales will be online. So we'll go from 13% this current year to 15% next year. So we do think that's going to remain sticky, as you say.

And, you know what, if you think about some of the categories that did expand online, to be like vitamins, WATERPIK, litter, those were the big growers. But we do think it's going to stick and we think it's going to continue to expand. We think a lot of people that discovered ordering online, like we said with vitamins, is a new habit. So we don't see a fall back in 2021.

[Rick Dierker]

And then the second question is more about modeling. Just remind us about what do you have baked in for FX? And remind us how to think about ZICAM seasonality. I'll take the FX question. If rates stay where they're at, that will be, as Matt mentioned before, maybe one of the tailwinds that we have in 2012. And then, Matt, do you want do ZICAM?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Yes. As far as ZICAM goes, 2021 is really dependent upon the end of the year flu season. Historically, the ZICAM business has 50% of its net sales in the fourth quarter. So that's all ahead of us, Rupesh.

[Rick Dierker]

Okay. Next question is from Mark. Please tell us -- please talk about why specialty product still makes sense as part of Church & Dwight, because it has underperformed longer-term expectations in these recent years. How much time does management spend on that segment? And under what circumstances would you consider it non-core?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. Well, specialty products has historically been a cyclical business. You saw in our presentation that 2014 was an up year, 2017 was an up year and the next up year would have been 2020 if not for the pandemic. So, we think that 2021 is going to be a good year for specialty products.

We have been trying to flatten that business out over time by moving into other species. It is an asset-light business. The products are branded ARM & HAMMER. And if you think about the business, one-third of the business is bulk sodium bicarbonate, which is labeled ARM & HAMMER, which is our legacy business and, frankly, is the soul of the company.

The -- as far as the metrics that, that business throws off; it throws off plenty of cash in relation to the assets that we own. So, we do think this is a business we're going to own long-term. It is -- as you point out, it is a small part of the company. It's only 6% of our revenues, but it doesn't require a disproportionate amount of management's time.

[Rick Dierker]

Okay. Next question is from Bill. He just wanted to say best of luck to Steve, enjoyed working with you. And a modeling question, what is the underlying share count for 2021 implied in your outlook? And that is 252 million, Bill.

Next question from John [Indiscernible]. On international, in 2020, the lower markets growth far outpace that is the sub-market. Do you expect that trend to continue? And what are the key drivers of the outsized GMG growth?

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Well, one thing to keep in mind is that if you look at the percentage of our sales of Church & Dwight sales, that's international, comparison to peers, it's very low. When I joined the company, the international was 17% of our global sales. It's still 17% of our global sales today in spite of the phenomenal growth internationally. I'll have Barry give you a couple of stats, contrasting Church & Dwight with our peers and why we think we have such a great runway going forward.

[Barry Bruno, Executive Vice President of International]

Yes, absolutely. Thanks Matt. So, a couple of thoughts. Most of our peers have over 50% of their sales generated from international, while Church & Dwight has just 17%. So, you can see the runway there.

To drill down another level deeper, in terms of emerging markets, we only get about 7% of our sales there, while the average CPG company gets about 27% of their sales from emerging markets. So, definitely a runway there. Why do we have confidence in it continuing? We're opening offices closest to where the consumers are, right? So, now we have offices in Singapore, Shanghai and Mumbai, in Panama. That's a lot more resources on the ground that are going to keep GMG growing at an accelerated rate in the future.

On the subs, I want to complement them as well. So, you saw they've been growing at a 5%, 6%. Pretty significant for western developed market. So, they're doing pretty well as well. The combination of the two gets us to that evergreen target and hopefully even above that.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Thanks, Barry.

[Rick Dierker]

Okay. We have two questions left. Next question is from Kevin Grundy on unit dose. Years ago, we always talked about getting your fair share in the category. How are share gains in pods have been hard to come by for ARM & HAMMER and P&G still is the leader with 80% share. Please provide some updated thoughts on your outlook for unit dose.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

It's a good question. It is a relevant question, too, Kevin. We did lose share, and we lost 40 basis points of share in the second half. You may have heard us say on previous calls that we did have some internal issues with respect to supply. Rick has described the fact that we've been building capacity and bringing it in-house. So we expect to turn that around. But long term, we need to -- we -- our ambition is to get our fair share, and that means we would have over a double-digit percentage share of the unit dosing. And today, it's less than 4%.

[Rick Dierker]

Okay. And then the final question is from John Andersen [ph] on e-commerce. Now that it's 14% of sales, what's your market share position and profit margin online versus off-line? And then are you seeing more growth through buy online, pick up curb side or pure-play e-commerce like Amazon?

I'll take the first one. Our market shares in general are at or above our bricks and mortar. There's no great measuring stick to use to do that. But our growth is at/or above category averages online. Our profit margin online, we've been very clear about that, in general it's at parity to brick and mortar, but part of that is because we have personal care still growing faster than our household business in general online. And so that's a margin tailwind. As our household business grows faster, we will need to get into more solutions for delivery, et cetera.

So the second question maybe is a good one for Paul. Are you seeing more growth through buy online and pick up curbside or the pure plays like Amazon?

[Paul Wood, Executive Vice President, U.S. Sales]

Yeah, it's a great question. And the frustration I think we all have is very limited data is what's being shared out maybe from the retailers and some of these third parties as they're just trying to catch up. So I think we're all triangulating on that, but yet, by and large, we're seeing a ton of buy online, pick up in store, but that's also blending with same-day delivery expectations, so that last mile piece. It's almost dividing that world into send it in the mail or what's considered old, two to five days. So seeing a heavy propensity towards that buy online pickup today, but also, like I said, that today delivery, tomorrow expectation.

Certainly watching it, the pure plays are certainly blending into brick-and-mortar and the brick-and-mortar, don't have to repeat it, we all know what's going on there. But to say that it's an active conversation and very fluid with a lot of different ways of work in and expectations by the customer, different -- how your product shows up online, you can imagine and all the analytics that go along with it moving very quickly.

So I'm excited about the opportunities ahead, regardless whether it's the traditional brick or the pure plays. I think there's a lot of good momentum for us, particularly Church & Dwight.

[Matthew Farrell, Chairman, President & Chief Executive Officer]

Okay. That was the last question. Just to wrap up. Everybody knows there's a lot of uncertainty in 2021. I don't have to enumerate those for you today. So consequently, we went -- we were pretty painstaking with respect to our press release and the information that we shared today, category-by-category. So we've taken a hard look at it. We feel real good about 2021, both top line and bottom line.

And as I said before, we expect to continue our streak of 8%, but we did leave ourselves a little bit of room when we said 6% to 8%. And we're looking forward to seeing -- well, we won't see you, but we'll talk to some of you again at late February at CAGNY. And if not, we'll talk to everybody again in April. So thanks for joining today.