Church & Dwight Q4 2021 Earnings Report

Church & Dwight EPS Results

• Actual EPS: $0.64
• Consensus EPS: $0.58
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $0.53

Church & Dwight Revenue Results

• Actual Revenue: $1.37 billion
• Expected Revenue: $1.35 billion
• Beat/Miss: Beat by +$23.38 million
• YoY Revenue Growth: +5.70%

Church & Dwight Announcement Details

• Quarter: Q4 2021
• Date: 1/28/2022
• Time: Before Market Opens

Church & Dwight (NYSE:CHD) Co., Inc. develops, manufactures, and markets household, personal care, and specialty products. It operates in three segments: Consumer Domestic, Consumer International, and Specialty Products Division. The company offers cat litters, carpet deodorizers, laundry detergents, and baking soda, as well as other baking soda based products under the ARM & HAMMER brand; condoms, lubricants, and vibrators under the TROJAN brand; stain removers, cleaning solutions, laundry detergents, and bleach alternatives under the OXICLEAN brand; toothbrushes under the SPINBRUSH brand; home pregnancy and ovulation test kits under the FIRST RESPONSE brand; depilatories under the NAIR brand; oral analgesics under the ORAJEL brand; laundry detergents under the XTRA brand; gummy dietary supplements under the L'IL CRITTERS and VITAFUSION brands; dry shampoos under the BATISTE brand; water flossers and showerheads under the WATERPIK brand; cold shortening and relief products under the ZICAM brand; oral care products under the THERABREATH brand; and acne treatment products under the HERO brand. Its specialty products include animal and food productivity products, such as ARM & HAMMER baking soda as a feed additive to help dairy cow; BIO-CHLOR and FERMENTEN used to reduce health issues associated with calving, as well as needed protein; CELMANAX refined functional carbohydrate, a yeast-based prebiotic; and CERTILLUS a probiotics products used in the poultry, dairy, beef, and swine industries. It offers sodium bicarbonate; and cleaning and deodorizing products. The company sells its consumer products through supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, dollar and other discount stores, pet and other specialty stores, and websites and other e-commerce channels; and specialty products to industrial customers and livestock producers through distributors. The company was founded in 1846 and is headquartered in Ewing, New Jersey.

Church & Dwight Q4 2021 Earnings Call Transcript

Presentation

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Thank you all for dialing into join us today. I'm going to begin with the Safe Harbor statement. I recommend you to read it at your leisure. We have our entire management team on the call today. We are all available for Q&A after the formal pitch.

We have a lot of slides and several presenters. I'm going to give you the short story upfront. 2021 was the year of supply chain disruption, inflation, and high consumer demand. We acted quickly in response. We raised price and we added a significant number of co-packers and suppliers to our network.

Consumer demand drove significant sales growth, which enabled us to offset some of the inflation. Because of the demand, we are now planning to significantly expand our capacity for vitamins, litter, and laundry in the next two years. During the past year, we kept our focus on being digitally savvy as our online sales grew to 15% of our global sales.

We posted full-year 2021 organic sales of 4%, which was broad-based across all our businesses. US, international, and specialty products. Our full-year 2021 EPS growth of 7% is down in the middle of that 6% to 8% EPS outlook that we announced 12 months ago. We feel very good about hitting our EPS range given all that happened in 2021.

Looking ahead to 2022, we expect strong growth in both our US and international businesses driven by consumer demand, which we expect to stay elevated for most of the year. Regarding inflation, we expect an incremental $155 million of cost inflation in 2022, some of which has already been priced. But we expect to take more pricing actions this year.

As always, we have innovative new products to announce today and I'm especially proud of some sustainability news that we will share in a few minutes.

On the M&A front, we are quickly integrating our recent acquisition THERABREATH, which is our 14th power brand and we are hunting for a number 15.

As you saw in the press release, we expect 3% to 6% organic sales growth and 4% to 8% EPS growth. The top end of the sales and EPS ranges are dependent upon our ability to improve our fill rates. As supply improves, our shares are also expected to increase as well. Long-term, we believe our Evergreen model is alive and well. Now let's jump into the formal part of the program.

Let's start with our performance over time. Just about any period you would pick, you would conclude Church & Dwight is a stellar performer within the CPG space and we are known for our consistency. 2021 was another year with 17.9% total shareholder return. We have an Evergreen business model, which calls for a 3% organic sales growth and 8% EPS growth.

If you said how's that Evergreen model working out for you? Well, let's take a look. We've averaged 4.3% organic sales growth for over 10 years. And if we take a look at EPS, we've averaged over 10% EPS growth over the same period. The sources of our 3% organic growth are 2% U.S., 6% International, and 5% Specialty Products.

We have 14 power brands and they drive more than 80% of our revenues and profits. We have a well-balanced portfolio with a pretty even split between household and personal care. Specialty Products rounds out the portfolio, representing 6% of sales. Our business has been known to perform well in virtually any economic environment because we have a balance of 60% premium products and 40% value. We are well positioned for good times and bad times.

About three quarters of our business is in the U.S., which means we have a lot of room to grow internationally. We believe one of our competitive advantages is we can move fast and adapt to a changing market, that quality was clearly demonstrated over the past 18 months, given all the obstacles we have overcome. We have experienced significant headwinds in 2021, which will continue in 2022.

You may have heard me say that it feels like we have been chasing a ball downhill. Well, that illustration you see was drawn by Scott Druker, the Head of our Animal Productivity business. Obviously we're very frugal here at Church & Dwight.

Regarding the inflation headwinds, we will have raised prices on 80% of our portfolio by February and we are not done. We are planning for more price increases in 2022. And later on in the presentation Rick Spann, our Supply Chain leader will discuss our actions to address supply shortages.

We have a long history of growth through acquisitions. Since 2004, we have completed an acquisition in almost every year as we have grown from a $1.5 billion company to over $5 billion today. Later on, Barry Bruno, our Chief Marketing Officer will take us through our most recent acquisition TheraBreath.

Back in the year 2000 we had only one power brand and that was ARM & HAMMER. Today we have 14 power brands that are leaders in each of their categories. We've become a digitally savvy company. Only 1% of our sales were online in 2015. Today it's 15%.

This is another example of our ability to adapt. We have a low exposure to private label, the weighted average private label share in our categories is 12%. Actually only five of our 17 categories have meaningful private label exposure. In general, private label has not been a significant factor in our categories over the past year.

Now I'll turn the mic over to Barry Bruno, our Chief Marketing Officer.

[Barry Bruno, Executive Vice President and Chief Marketing Officer at Church & Dwight]

Thanks, Matt, and hello, everyone. I'm Barry Bruno. And for the last several years you've been hearing from me about our international business. But in October, I took over as our Chief Marketing Officer. So, while I still love our international business and team, you're going to be hearing from me now about our U.S. domestic business. And that business which as you heard earlier represents over 75% of total Church & Dwight sales is in a great place and is well positioned for future growth.

And I can say that with confidence because, first and foremost, we compete in healthy growing categories in which we often hold the number one or two market share position. Second, there are a number of macro trends, some of which are established and some of which are just emerging, which provide huge tailwinds to our brands going forward. And finally, our two most recent acquisitions have, for different reasons which I'll get into shortly, huge room to run ahead of them.

To my first point about healthy growing categories. Here you can see the top 17 categories in which we compete and whether [Phonetic] they've grown in green or contracted in red in each calendar year. And what you'll see overwhelmingly is a lot more growth in contraction and if you look more closely at 2021 performance, you'll see sequential aggregate weighted growth across all categories of plus 6.1% in 2021, which was on top of exceptional plus 12.5% growth in 2020.

And if we drill one level deeper on 2021 performance, here you can see which categories drove that growth with gummy vitamins, dry shampoo, power water flossers and pregnancy test kits leading the way, and more than offsetting softness in baking soda, electric grooming, and cold shortening, which was driven down by an almost non-existent flu season in 2021.

Despite excellent growth, our market share suffered in 2021, as persistent supply challenges and related in-stock levels left us with demand we just couldn't fulfill. This was especially impactful on our fabric care, VMS and cat litter businesses. As supply improves throughout 2022 we see a corresponding tailwind and expects market shares to improve accordingly.

My second reason for confidence in the future as that multiple trends both established and emerging point to long-term future growth. The first trend centers around pricing where you heard Matt confirm earlier that we've taken price on 80% of our portfolio and we think pricing is a muscle we're going to continue building as we expect a prolonged inflationary environment and see future price increases is likely.

The second trend is in elevated and we believe permanent consumer focus on maintaining a cleaner and healthier home. The third is a belief that from a health standpoint, both mental and physical, prevention is the best medicine.

The fourth is that self-care has gone beyond just an occasional splurge and has become an essential and permanent part of so many more consumer's daily routines. And finally that a gradual return to normalcy despite what we've seen in the past few weeks is inevitable. And when consumers are ready to return to their pre-COVID social routines, we're ready for them.

So let's dive deeper into each. On pricing, we took price on laundry and litter in mid-year 2021 and we're taking price in VMS and across multiple personal care categories right now. We'll have a full year benefit in 2022 on the majority of those increases and the early read is that competition has followed or is following in all key categories.

Prices are sticking and elasticities are better than our initial forecast, and should we move into a recessionary environment, our value brands, which make up 40% of our portfolio, are well positioned for a consumer who is looking for deeper value.

In terms of consumers who are spending more time at home today and we think will continue to spend increased time at home in the future and will therefore be even more focused on a clean and healthy home, we see great inroads with 3 million incremental households now using ARM & HAMMER and OXICLEAN each versus pre-pandemic levels in 2019.

We don't see this going backwards and in fact see household penetration continuing to build year-over-year. In the spirit of consumers looking to stay healthy, both mentally and physically, we see a continuing trend where consumers are looking to vitamins to help out and not just any vitamins, but the gummy form in particular, which is where consumers are migrating to from pills and capsules is up 7 points since 2019.

Equally important is that we're well positioned in the category with offerings that match up nicely to all of the consumer need states that are growing, including sleep, stress, mood among the others you can see here and all of that translates to an incremental 5.7 million households buying VITAFUSION in 2021 than were buying in 2019. Likewise, brand awareness continues to grow and our aided brand awareness is up an incredible 53 points since 2012.

The fourth trend we see as not so much emerging, but is already established is the belief that self-care is not just an occasional splurge, but is an increasing part of daily routines. A few statistics that bear this out include that 87% of consumers now claim to actively practice self-care, while 70% have established specific self-care goals and 59% are practicing self-care more in 2021 than in 2020.

A group of some of our most important brands including WATERPIK, SPINBRUSH, VITAFUSION, VIVISCAL and TheraBreath are benefiting from this trend already and stand to benefit even more in the future. WATERPIK in particular has a lot of runway ahead since the household penetration for Water Flossers is 23% compared to power toothbrushes at approximately 40%.

Finally we're as eager as our consumers in each of you for a return to normal and we're starting to see a reestablishment of social interaction, which is driving categories like skin and nail care, dry shampoo, hair growth and depilatories to high single-digit or even double-digit growth and we see that continuing.

One interesting statistic to make this runway real is that BATISTE, which is one of our fastest growers in 2021 still has years of runway ahead as U.S. household penetration for dry shampoo is only 4.5% compared to the UK where the brand was born, where household penetration is 8%.

Finally, one category that continues to lag is condoms, but we don't believe sex is over with just yet. So we're ready with America's number one condom brand when the category inevitably bounces back. And if that's not enough, we still have huge runway ahead on our two most recent acquisitions.

With regard to ZICAM, we haven't had a normal cold and flu season since COVID struck. As we emerge from COVID and consumers are increasingly social, experts predict there is an inevitable return of the flu and those peak seasons that we see in Q1 and Q4 will provide material growth that we haven't experienced since acquiring the brand. And now that we're launching ZICAM in a new gummy form, which I'll talk about more in a bit, there is even more reason to believe.

Finally, TheraBreath was a great holiday present when the deal closed on December 24th. And when we combine significant new distribution opportunities with our great WATERPIK dental hygienist detailing force, we see significant room for growth ahead.

Speaking of TheraBreath; just about everyone suffers from morning breadth and over 2.5 billion people worldwide or almost 30% of the world's population suffer from some sort of chronic bad breath. And that bad breath starts most of the time in the mouth, throat, and tonsils; driven by sulfur producing bacteria that lingers there.

Dr. Katz who we bought the brand from realized this not only as a dentist himself but as the father of a daughter who was struggling with chronic bad breath. So Dr. Katz invented this alcohol-free mouthwash designed to specifically target sulfur producing bacteria. It was a home run with his daughter and you can see here that it's been a home run with consumers everywhere as it has been materially outpacing total mouthwash category growth and the alcohol-free category subset every year since the launch.

Better yet there is still huge room to run ahead of us. This slide captures total retail points of distribution for our top competitors and for TheraBreath. And what you'll quickly see is that even though TheraBreath is driving category growth as you saw in the last slide, we're way behind in total points of distribution with ample room to launch new variants, new sizes, and expand into new channels ahead.

So, in summary, we participate in great, healthy, growing categories, multiple key trends are our friend, and our most recent acquisitions have tremendous room to run, all of which give us confidence in our future and we haven't even talked about new products yet.

Okay. Now, let's move over to new products where we have a long history of launching new product innovation across our portfolio of power brands, and 2022 will be no exception. So let's dive into a sampling of some of our 2022 new products. The new VMS consumer who enter during the pandemic is more likely to purchase gummies, seeks products with multiple benefits, and is a more immune conscious consumer. And as the category continues to shift to gummies, VITAFUSION set out to expand the relevance of gummies in order to continue to win at shelf.

Introducing VITAFUSION by Bi-Layer Gummies. These two-in-one gummies provide two benefits, two flavors and two colors to deliver multiple benefits in a fun and visually appealing way. This multi-plus platform clearly articulates product benefits to e-shopability, and researchers told us that the platform is expected to grow the VMS retail market basket, as nearly 30% of respondents said they would take these in addition to their current multivitamin. The immune SKU is a multivitamin, plus zinc and vitamin C. The beauty SKU is a multivitamin, plus biotin and retinol. And we're looking forward to both driving great continued growth.

Now, moving over to our specialty haircare franchise, you heard me say earlier that over the past several years, there has been a shift in consumer priorities towards selfcare. And during COVID, this trend has been magnified as consumers are spending much more time at home. One example of the desire to pamper and treat oneself can be seen in 23% growth in hair treatments, and within that segment, 72% growth specifically in hair masks. Hair masks represent an opportunity to care for the health and condition of hair. However, they typically take around 10 minutes to work and need to be rinsed off in the shower.

Introducing BATISTE Leave-in Hair Masks, which deliver selfcare on her terms. These lightweight conditioning formulas are infused with plant-derived proteins and vitamin E and allow her to nourish hair and seal in moisture between washes with no rinsing required.

Now, over to health and well-being, where two-thirds of consumers believe that products sold in the cough, cold and flu aisle are more effective than those sold in the VMS aisle. And the ZICAM consumer is already buying over $40 worth of competitive immune products sold in the cough, cold and flu aisle. So, we're losing out on potential sales by not having any immune products in that aisle.

So, now I'm pleased to share that ZICAM is launching its first immune supplement gummies. The formula features ZICAM Zinc and also has 100% daily value of the top three immune ingredients. The line includes a regular formula and a night-time version with melatonin, as immune plus sleep is one of the fastest growing sub-segments and VMS. Both products are also designed to provide a terrific value versus the competition.

Now, over to fabric care, where the baby detergent segment is currently a $136 million category and is the second fastest growing segment in liquid laundry detergent. However, ARM & HAMMER doesn't have a product here today to meet mom's needs, where we know she is looking for a hardworking product at a reasonable price, so she doesn't have to compromise on what's best for her baby.

Introducing our first ARM & HAMMER baby launch detergent, which is designed to help families do what's best for their babies with zero compromises. Specially created with our ARM & HAMMER babies in mind, it's gentle enough for baby skin, tested by pediatricians and offers a hypoallergenic formula that has zero preservatives, no phosphates and no dyes, and it's even EPA certified as a safer choice. We're very excited about this launch because a baby liquid laundry detergent also helps us down-age the ARM & HAMMER brand, increasing the lifetime value of each consumer.

Let's take a look at some videos that bring this new offer from ARM & HAMMER to life.

So, in closing, these are just a few highlights from another great year of innovation from Church & Dwight.

Okay. Now, let's switch gears and move over to the steps we're taking on our path to a more sustainable future. Starting with the reality that climate is more relevant than ever, especially for our younger consumers. Gen Z in particular is two times more likely than baby boomers to say they've been personally affected by climate change. And the expectations for businesses and brands are very high. Consumers expect companies to take care of the planet and make progress on societal issues at the same time.

As a company, our recent actions such as offsetting 100% of our global electricity demand by moving to green energy and in partnering with Arbor Day Foundation to plant millions of trees in the Mississippi River Valley have helped set the stage for our next move, which is formalizing our climate strategy by submitting our application to the Science Based Targets initiative. We recognize the importance of taking a science-based approach to the environment and ensuring that the targets we set and corresponding actions we take are aligned to industry standards and best practices. Included in our application to SBTi is a commitment to slow the warming of the planet, increase the use of renewables and report on our progress through our annual sustainability report.

So, you can see that we're taking this problem seriously at a corporate level. But our consumers, who have always been proud problem solvers, want to get involved as well. And our goal is to engage them through the power of our most iconic brand, ARM & HAMMER, which is why today, we're pleased to announce, we're kicking off a new campaign starting with ARM & HAMMER baking soda to show consumers we're taking responsibility for our impact on the environment, brand by brand. To get started, we measured our carbon footprint on baking soda and are working to reduce it to zero, initially through verified carbon offsets.

Allow me to share a video with you that illustrates how we plan to bring this to life.

Throughout this journey, our goals are to drive awareness, engage consumers and inspire action. We'll have more news to share on this space around how we can work in partnership with our consumers to multiply our efforts and invite you to follow our journey as we build new strengths here and do our part to protect the environment.

Okay, now over to my friend, Mike Read, to talk about our growing international business.

[Michael Read, Executive Vice President, International at Church & Dwight]

Thanks, Barry, and good morning, everyone. Over the next few minutes, I'd like to run you through the International consumer highlights, followed by our specialty products story.

For the International division, our evergreen model target is 6% in organic sales growth. In 2021, we posted organic growth of 5%, slightly below our evergreen model of 6%, but lapping 8.6% growth in 2020. And while we're below our evergreen model target, 2021 is a strong delivery in the face of widespread global supply disruptions, impacts from COVID-19 and weather-related events.

Q4 finished at 4.7% growth combining our two International segments: first, our subsidiary markets, which are fully staffed Church & Dwight teams, Canada, Mexico, the UK, France, Germany and Australia; and secondly, our Global Markets Group that covers more than 130 markets and represented by over 400 distributed partners around the globe. Both our subsidiary and GMG segments posted positive growth in 2021 and continue to have strong consumer demand and improving market share positions in key categories. The result is we've built an international consumer business that is now in excess of $900 million in sales and approaching scale in several markets.

Let's take a closer look. GMG now represents our largest segment at 35% of total International net sales and has doubled in size over the past five years, followed by Canada at 28%, Europe at 22%, and Australia and Mexico at 8% and 7%. Across all our segments, we continue to gain distribution, introduce new brands and innovation, enter new channels, and widen our geographic reach to drive growth.

From a growth standpoint, our subsidiary markets grew 3% in 2021 and GMG grew almost 11%. Important to note, international mix is heavily weighted towards personal care and OTC categories versus household, many of which have faced category setbacks due to COVID-19.

So what's driving our international growth? We have a portfolio of brands that consumers love and that's not limited to the U.S. market and we are early days in many of the world's largest economies. We continue to expand our U.S. power brands into global power brands. Brands like ARM & HAMMER, OXICLEAN and TROJAN continue to gain momentum, all of which have long International runways in our global markets.

This includes selectively leveraging innovation source out of our GNPI organization and launching locally relevant new products under our global brands. We continue to widen our personal care and OTC portfolio presence in emerging markets like China, Southeast Asia, the Middle East and Latin America with particular focus on brands like BATISTE, ANUSOL, GRAVOL and STERIMAR.

Our portfolio has proven over and over it can travel with success. We continue to drive household penetration of more recent acquisitions like WATERPIK and FLAWLESS. Acquisition has been a key growth driver for International and TheraBreath offers our latest installment.

Let's turn now to some of the key investments and capabilities we're focused on. First, we continue to widen our support of a booming e-commerce business in China with local resources and expertise to partner closely with our valued distributors. As one example, in 2022, we are investing behind a direct sell model in China which will enable us to sell new brands directly to consumers online via e-commerce portals.

Second, we continue to evolve our manufacturing footprint strategy to help service the needs of a fast growing international business, particularly in Asia. This includes select local manufacturing and the use of co-packers where scale warrants and lower costs can be achieved. We've added people resources on the ground in our newest GMG office in Mumbai, India, to support our local distributors and growth throughout the region.

We continue to build e-commerce and digital marketing capability across the globe to connect better with our consumers and drive consumption in e-commerce platforms. And we continue to approach pricing with discipline important in an inflationary environment and we're adding dedicated resources in revenue growth management to support this capability moving forward.

Well this isn't an exhaustive list. It provide some examples of the investments we're making internationally to continue to drive profitable growth for years to come. As we continue to build scale leverage pricing and improve brand mix towards personal care and OTC, we continue to deliver on our Evergreen target to expand operating margin in the international division by at least 50 basis points per year. We did better than expected in 2020 where we grew 120 basis points and 2021 is more of the same, growing operating margin another 120 basis points.

In closing on international, we've had a stellar track record of growth since 2014. And more than $900 million in net sales we are pacing ahead of the long-term Evergreen model target by leveraging our portfolio of brands that consumers love including our newly acquired acquisitions and innovation, continuing to expand our global market footprint and by investing in key capabilities, international remains committed to delivering our Evergreen target of 6% organic sales growth and expanding operating margin by 50 basis points.

Okay, let's switch gears to our animal productivity story. Our Specialty Products division from an Evergreen model perspective aims to deliver 5% organic sales growth. Our Specialty Products division is now more than $330 million in sales and posted strong growth above plan in 2021 at 12%. 70% of the business is animal productivity while the remaining 30% is supported by specialty chemical sales.

As you can see, animal productivity is split into two main segments; dairy and non-dairy. We produced three types of products; prebiotics, probiotics and nutritional supplements. This is important as today's consumer continues to move away from foods produced with antibiotics and our portfolio is geared directly to support this growing trend.

The dairy business is a cyclical market and represents the biggest part of the animal productivity business. Typically every few years we see an up year as evidenced by 2011, 2014 then again in 2017. Due to COVID-19, we did experience a delay in the up cycle in 2020 and we did anticipate a strong recovery in 2021. But with healthy milk prices forecasted and strong demand for dairy products, we do expect back to back years of organic growth in 2022, breaking the animal productivity cycle.

Back in 2015, non-dairy sales were largely non-existent. Today, non-dairy sales represent approximately 26% and has balanced out our portfolio. We expect our non-dairy sales to grow double-digits in 2022. Similarly, we are adding resources and growing our animal nutrition business globally. In 2021, our international business has grown to represent 16% of total sales, again, offering further balance and revenue growth streams in our portfolio.

In summary, Specialty Products has delivered an impressive 12% growth in 2021. We're backed by a trusted brand in ARM & HAMMER. We're aligned to growing consumer trends towards prebiotics and probiotics. We continue to widen our species footprint to include cattle, swine, and poultry and we're adding resources to grow our international business.

Thanks for listening. Now over to Rick Spann to talk about supply chain.

[Rick Spann, Executive Vice President, Global Operations at Church & Dwight]

I'm going to take a few moments to talk about our efforts to secure the performance of our supply chain. Like many manufacturers, we have stepped up our focus on resiliency over the last two years.

Here's how we articulate our strategy; Church & Dwight has a short, resilient, and tariff proof supply chain serving Western and APAC markets with local manufacturing. We have implemented several initiatives to reduce the length of our supply chain over the last two years.

One example is how we are supplying our growing business in the APAC region. In 2020, 0% of our business sold in APAC was manufactured there. By the end of next year, 40% will be sourced from within the region. Closer to home, we have added two 3PLs to our distribution network, which has enabled us to position buffer inventory closer to our customer's DCs in the Southeast and South Central regions.

In order to reduce tariffs and our overall dependency on China, we have started to move WATERPIK manufacturing to other Southeast Asia locations. By the end of 2023, 50% of our volume will be produced ex-China. We do a good job of managing a complex base of suppliers and co-packers. In order to add additional sourcing options, we have increased our co-manufacturing base by 19% since the start of the pandemic and our supplier base by 22%. We now have many more options when we face upstream disruptions.

Of course, in addition to a large base of contract manufacturers, we have impressive in-house manufacturing capabilities with an ability to produce a wide array of products in multiple formats across our 15 plants. We have done a lot of work over the last two years to increase throughput out of our plant and to be the best employer in the areas where we operate so that we can retain and attract talented employees and we are making significant capacity investments in-house in order to stay ahead of our growing categories.

We have either completed or have active capacity projects underway for scent boosters, liquid laundry, unit dose laundry, trigger products, VMS, and cat litter. We have a dedicated and talented supply chain team. The vision that they march to is to maintain operational excellence while creating the supply chain of the future. Our talented team has done a great job of dealing with the many urgent issues that the pandemic has put in front of them, while building more resiliency for the future.

And now, back to Matt.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Thanks, Rick. Let's spend a few minutes on how we run the company. We have five operating principles. Number one, we leverage our brands; number two, we are a friend of the environment; number three, we have highly productive people; number four, we strive to be asset light; and finally number five, we leverage acquisitions.

If you do the first four well, you will have good shareholder returns. If you can add solid acquisitions, you can generate great returns. Number one, we are fortunate to have brands that consumers love and we have dozens of brands around the world.

Number two, we have a long history of being a friend of the environment. You can see some of the milestones on this slide. We are very proud of our heritage and you heard Barry take us through our most recent commitment to science-based targets.

In addition to our goal of being carbon-neutral by 2025 through science-based targets, we have a goal of reducing our water usage by 10% annually and maintaining a solid waste recycling rate of 75% and we have received plenty of recognition for our ESG efforts, a few of them are displayed here.

Number three, we have the most productive people in the CBG space. We have approximately 5,000 employees with $1 million in sales per employee. We believe this is an under-appreciated performance measure.

Our people are motivated by a simple compensation structure with four metrics; sales, gross margin, EPS and cash from operations. Our long-term incentives are stock options, so we are aligned with shareholders to drive our valuation. We have a focus on gross margin. This is an uncommon incentive compensation metric.

While we missed our gross margin target in 2021, that hasn't shaken our confidence. We are still focused on the four drivers of gross margin expansion. Good to Great, which is our continuous improvement program, supply chain optimization, new products and acquisition synergies.

Number four is leverage assets. We are an asset light company. Historically, capex averages about 2% of sales. That will be higher in 2022 and 2023 as we expand our capacity in our growing businesses namely vitamins, laundry, and litter.

Number five is leverage acquisitions. As I said earlier, we have a long history of growth through acquisitions. We have clear acquisition criteria and the discipline to apply that criteria, which is to buy number one or number two brands. They need to grow at or above our Evergreen model and have gross margins in excess of corporate gross margins.

We are attracted to businesses that are asset light. Oftentimes, we can leverage our scale to generate synergies. And finally they need to have a sustainable competitive advantage. Our long-term view is this, we have 14 power brands today, 20 tomorrow.

Next up is Rick to take us through the financials.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Thank you, Matt, and good morning, everybody. We have some great results to share. Across the board we finished 2021 better than expected, led by strong consumer demand for our products and we are entering 2022 with momentum.

Today, I will walk through four areas. First, the Evergreen model; second, on 2021 results; third, our 2022 outlook; and then finally I'll wrap up with capital allocation.

Here's our Evergreen business model. We've had this for a very long time and our long-term investors know this; 3% organic sales growth, 8% EPS growth, and the details would be plus 3% organic sales growth, 25 basis points of gross margin expansion; marketing is typically flat, SG&A is leveraged and we get 50 basis points of operating margin expansion, which leads to 8% EPS growth.

We have a lot of different levers to pull in order to get 3% and 8%. So for 2021, we ended the year and the quarter with 4.3% organic sales growth; domestic was 3.5%, international was a little bit better than 4.5% and SPD was 12%.

Gross margin declined by 50 basis points, but this was better than we expected. Marketing change was down 90 basis points at 14.7%, a lot higher than 13%, our outlook had. This is really because we had a great tax benefit that we were able to spend back in marketing.

SG&A was plus 50 basis points and EPS was $0.64 or $0.06 better than our $0.58 outlook. Our full-year 2021 we ended the year with 4.3% organic sales growth; 3.5% for domestic, 5% for international, and 12% for SPD. Gross margin was down 160 basis points as we faced 9% of COGS inflation year-over-year or $250 million.

Marketing was down 100 basis points to 11.1% and adjusted SG&A was down 50 basis points, all to get adjusted EPS at 7% or $3.02 per share. Cash from operations was $994 million and free cash flow conversion was 116%. That's free cash flow divided by net income; how much net income have we turned into cash flow.

Gross margin contracted in 2021; and in Q4, we were down 50 basis points. But price, volume mix was plus 290 [Phonetic], which was partially offsetting the inflation, the massive headwind of inflation, commodities, distribution, labor.

Productivity programs added 110 basis points and then the acquisition was plus 30 basis points. So that's how we get to minus 50. As you can see when you compare Q4 to 2021 full year, you can see the gap between price, volume mix and inflation narrowing and we expect that to continue in 2022.

Now turning to the outlook; 5% to 8% reported sales growth, 3% to 6% organic sales growth, operating profit margin of plus 60 to plus 70 basis points, and adjusted EPS growth of 4% to 8%. And here's the detail, the 3.6% organic sales growth is made up of domestic at 3% to 6%, international at 5% to 7% and SPD at 5%. All these divisions are at or above their Evergreen model for organic sales growth.

Gross margins contracts; marketing, the dollars are higher; we leverage SG&A and that's how we get to 60 basis points to 70 basis points of operating margin expansion. The effective tax rate is higher year-over-year by 320 basis points or 23%. This is a huge headwind to face, but our profit is actually going to be up 10% plus as a result, just showing and demonstrating the strength of our business. Adjusted EPS growth is 4% to 8% and cash from operations is about $920 million as we build back safety stocks on inventory.

Here's organic sales over the 10-year horizon. Our Evergreen model is 3%, our 10-year average is closer to 4.1%, and our 2022 outlook is 3% to 6% and we're focused on gross margin and we have been for a long time. Very few companies have it in their incentive targets. We believe it drives not only cash earnings, but cash flow as well. In 2021, we had a step down largely due to inflation. We had a 9% increase in COGS.

In 2022, we expect a 5% to 6% increase in COGS. All the pricing work that we're doing is offsetting that. But we're going to be continuing to chase that ball downhill. So we're committed to offset it dollar for dollar, but margin will be down in 2022. There is a cadence to the margin. In the first half, we expect it to be down. In the second half, we expect it to be up, largely because of the timing of inflation in 2021. Specifically, in Q1, we expect margin to decline by 250 basis points.

On marketing spend, we have a long track record of spending behind our brands. In 2021, we had 11.1% and in 2022 we're going to have higher dollars than 2021. The percent will be lower as it's impacted by the top line pricing actions that we've taken.

SG&A leverage is a hallmark of Church & Dwight. We have the highest revenue per employee in the industry. We expect in 2022 to, again, leverage SG&A and we have a long track record of great EPS growth, up high single-digit, low double-digit EPS growth for a long, long time. And in 2022, we expect 4% to 8% EPS growth, $3.14 to $3.26. The cadence for EPS growth is similar to gross margin; down in the first half, but up in the second half. We expect stronger volumes in the back half as our supply chain improves and we have normalized promotional levels.

Turning to cash flow. This is probably my favorite slide. 10 years of history here, a 122% average free cash flow conversion; and in 2021, 116%. And how do we do that? We do it through a tight control of working capital. We've moved our cash conversion cycle from 52 days down to the 30s, in the 20s, and now 15 days in 2021. In 2022, we expect that to go up a little bit as we build back inventory and safety stock.

We have a strong balance sheet. We ended 2021 with 1.9 times debt to EBITDA. We expect to end 2022 with 1.6 times debt to EBITDA. That's despite doing our fourth largest acquisition recently, TheraBreath. This has been our business model for a long period of time. We buy business, we lever up, and we pay it down. And we have significant financial capacity. We could do a $3.8 billion deal and maintain our credit rating.

And moving to capital allocation, here are the prioritized uses of cash flow. First, far and away, TSR-accretive M&A; number two, capex for organic growth and G2G; number three, new product development; number four, debt reduction; and number five, return cash to shareholders through dividends or buyback.

We're not a capital-intensive company. Our Evergreen model is around 2% of sales for capex and for many years we run below that. But you can see back in 2009 we have to add capacity we do, and it will spike. And in 2022 and 2023 it's no different. We're going to bump up as we add capacity for laundry, litter, and vitamins.

And then finally, we have a 4% dividend increase in 2022. This is the 121 consecutive years of dividends. And in Q3 and Q4, we also spent $500 million on share buybacks. So we always like to return cash to shareholders. This ends the formal presentation.

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

Questions and Answers

[Operator]

Thank you. [Operator Instructions] We have a question from Chris Carey with Wells Fargo Securities. Your line is open.

[Chris Carey, Analyst at Wells Fargo Securities]

Hi. Good morning, everyone.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Good morning.

[Chris Carey, Analyst at Wells Fargo Securities]

Just a question on pricing relative to volumes, kind of a wide range on organic sales. As you get through the year, are you embedding the potential that elasticity is starting to become a bigger factor? As you get through the year, perhaps the consumer is less able to handle the additional pricing.

And then, in the near term, just on Q1, clearly, the organic sales outlook with the pricing and conscious that some [Phonetic] is coming later in the quarter still seems relatively low to the momentum that you've been seeing, cognizant of some of the supply chain headwinds in otherwise. Can you just frame the potential flex in that Q1 topline outlook as well? Thank you.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah, sure. I'll take the quarter. And some of those answers are going to be explained, and we'll talk about the full year as well. So, on Q1, our outlook is 1% to 2%, Chris. And it's largely two reasons, but let me talk about price/volume mix first for the year. So if you take the midpoint of our outlook for organic growth, it's about 4.5%, right? 3% to 6%, midpoint is 4.5%. We would say that price mix is about 5.5%. And we have a drag of volume of about 1%. All that 1% is in Q4 -- in Q1 though, so that's 4%. And the rationale is three things. One is volume elasticities. All the price increases that were effective in 2021 were really in the second half of the year. Number two, we discontinued some club programs for WATERPIK. And then, as we always do, we rationalized low margin volume for laundry. So those are three reasons why we're at 1% to 2% in the quarter, and that's also why price/volume mix actually improves throughout the year, organic improves throughout the year, and gross margin also improves throughout the year.

[Operator]

Chris, does that answer your question?

[Chris Carey, Analyst at Wells Fargo Securities]

Yeah. Thanks so much. And then, just following up on spending levels for this year, marketing back to the lower end of the historical range, can you just talk about how you view that as a flex items in the outlook through the year? Will you stay committed to that level of spending? Should volume elasticity become more of a dynamic, would you look to spend more behind, say, bringing back promotional levels? Just the sorts of actions that you'd look to, should elasticities become more of a factor as we get through the year. Thanks.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah, that's exactly what we would do, Chris. And obviously, we have a wide range for both reported and for organic. So, as our supply chain issues abate and we get more shipments outdoor, got opportunity to spend more on marketing. And the expectation is anyway for '22 versus '21 that our marketing dollars are going to be up year-over-year. Just if you look at the percentage, it may not be lower than '21, but you got to keep in mind, you get big price increases that are driving the top line. So the relationship is a little bit different, percentage of sales, but our dollar spend is up in '22 versus '21.

[Chris Carey, Analyst at Wells Fargo Securities]

Good. Okay, thanks so much.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

All right. Thanks, Chris.

[Operator]

Our next question comes from Olivia Tong with Raymond James. Your line is open.

[Olivia Tong, Analyst at Raymond James]

Great, thank you. Good morning, everybody. I was wondering if you could talk a little bit about the organic sales outlook because this is, perhaps for the full year, the widest range we've seen in a while, obviously starting at a relatively low point in Q1. But your comps are only about 120 basis points of a range from low to high end. So that's a really substantial step-up as the year progresses. And you just noted that every year, you rationalize some low-margin sales. So that should be in the comp presumably as well. So just a little bit more granularity with respect to your views as you implement the price increases and what seems like a fairly favorable view on the volume elasticity as the year progresses. Thanks.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah. You are right about our elasticities. Our elasticities are actually much better than we had expected. So, if you take liquid laundry for example, it's in a 20 to 30 [Phonetic] range, and we expected it to be worse actually. And that'll actually probably improve going forward simply because we know that both Proctor and Henkel are now raising prices. As far as the range goes, it's kind of a wide range. We haven't had a range like that in the past, but it's with good reason. Our fill levels have been low for not just the past 12 months, but almost the past 18 months, and we've had difficulty raising them. So it extended our labor issues a bit, and not only in house, but also out house. Our suppliers are co-packers are also struggling with labor. And as we get more and more product to ship, we're going to have a much higher top line.

Now look, we also know we have a high-single digit price increase. So you think, well, if you got a high-single digit price increase, you would think that you're going to have a pretty robust reported top line and an organic top line, which we will if we can ship the product. But that's -- we had to leave ourselves some room because we're anticipating things getting better but hasn't happened yet.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah, the only thing I would add to that -- Olivia, it's Rick -- is, 2021 was the most volatile year in many, many years. And so, we're used to give in tight ranges. But 2022, we expect to be very volatile as well. And so, like a lot of companies, we're just making sure we have a range of possibilities for the revenue line and the earnings line.

[Olivia Tong, Analyst at Raymond James]

Got it. Thanks. And on the margin guide, looking for 60 basis points, 70 basis points in operating margin, despite gross margin decline, our marketing increasing perhaps looks like as the -- in dollar terms, but maybe not in terms of margin on a year-over-year basis. So, that would imply some pretty nice improvement on G&A. So can you talk about some of the key levers there to improve G&A?

And then, just one last question on vitamins. If you could just talk about the competitive dynamics, given you've obviously continued to add innovative new products. You've got solid demand for the category, but just wondering if you could touch on competition. Thanks so much. Appreciate it.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yes. Okay. Let's talk about vitamins first. So demand is really high for vitamins right now. And the category was up 8% for the full year and our share position is very strong. You heard from Barry earlier, our household penetration is up and is sticking. And we have tailwinds, of course, two of them. One is the wellness trend and the other one is the transition from pills and capsules to gummies. And part of our success in the last few years and we think continuing into the future is going to be our product launches. They've done really well this past year.

As far as private label, those come up from time to time. Private label share of gummies has declined in four consecutive quarters. It went from 25% four quarters ago to now 21% the most recent quarter. And looking ahead to '22, we have a nice lineup for new products. We can sell everything we make, and we have a couple of co-packers that are going to be coming on line mid-year. So, that should give you some relief.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah. And then, in terms of the operating expansion, where that's coming from, you're right Olivia, we've said that gross margin is going to be down, marketing as a percent of sales will be down, dollars will be up, and that means we're going to also leverage SG&A. We've said for many years, when you look at our evergreen model for SG&A, we're trying to get 25 basis points from that. And we've done the math and we've said, hey, if we can grow our SG&A dollars at half the rate of sales in the evergreen model, right, 3% of sales, then it's about [Phonetic] 15 basis points. And so, our revenue is growing anywhere between 5% and 8% next year. So we're going to be able to leverage that because we're still having the same type of dollar increase on SG&A. So we expect that to stop. I'm not going to point to any specific details, but we'll have more leverage than normal because our top line is growing faster.

[Olivia Tong, Analyst at Raymond James]

Understood. Thanks. Best of luck.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Thanks.

[Operator]

Our next question comes from Steve Powers with Deutsche Bank. Your line is open.

[Stephen Powers, Analyst at Deutsche Bank Aktiengesellschaft]

Hi. Good morning, guys. Can you elaborate on the improvement in the North American supply, and so rates that you're anticipating just in terms of your latest best case timing? And just do we improve all the way back to normal by the end of the year or second half? Or is it -- are you still expecting tightness throughout 2022?

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah. Okay, thanks, Steve. We think it's going to be sequential improvement throughout the year. We normally have fill rates at around 98%, 99%. We were low-80s right now. So we hope to be exiting the year in the mid-90s, but we have Rick Spann on the phone who is our Head of Supply Chain. So he's the guy that's going to make it happen. Anything to add, Rick?

[Rick Spann, Executive Vice President, Global Operations at Church & Dwight]

Yeah. Thanks, Matt. So we're doing a lot. We're -- as you saw from the presentation, we're investing in incremental capacity. Those projects take time, of course. So where we need to, we're increasing our third-party manufacturing to supplement supply to hold us over until the capacity projects come on stream. But as Matt said, we will progress up through the mid-90s by the end of the year. Omicron gave us a step back with high absenteeism, but we're already starting to see absenteeism improve in our plants and now we're focusing on upstream supply materials.

[Stephen Powers, Analyst at Deutsche Bank Aktiengesellschaft]

Okay, great. And then just two quick questions -- follow-ups on pricing if I could. Just, first one is, for the pricing, I guess to what degree is there pricing you've announced that hasn't yet hit the market and what's the cadence of that incremental pricing flowing through? Number one. And then, just on some of the new products specifically the ZICAM, VMS products and the Baby ARM & HAMMER detergent. How are those going to be priced relative to the rest of your VMS and laundry portfolios respectively? Thank you.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah, I'll take the incremental pricing. So, we did announce a few months ago that we're going to have incremental pricing hit that extra 30%; now we're 80% plus and that's going to hit in late February. We haven't and we wouldn't front run any other conversations on pricing on this call, but we will report back and let you know when there is incremental pricing above that 80%.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Another question was pricing for the Baby product?

[Stephen Powers, Analyst at Deutsche Bank Aktiengesellschaft]

Yes, the ZICAM, VMS and Baby just relative to the rest of those portfolios.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah, okay. Well, maybe Paul or Barry would like to comment.

[Paul Wood, Executive Vice President - U.S. Sales at Church & Dwight]

Yeah, this is Paul.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

They must be sipping coffee.

[Paul Wood, Executive Vice President - U.S. Sales at Church & Dwight]

This is Paul. I think probably the easiest way to answer all three of them at one is, they're going to be lying price within the set, right. The part of these launches as we want to be complementary to the set or incremental purchase is part of the family brand, so particularly you can imagine on ZICAM and VMS and others.

Baby obviously is a different proposition, but still an incremental purchase, and that a mom is looking for a separate product for the baby loads. But I would say on that one, I don't want to be too prescriptive or detailed on this call, but I would say we're well priced competitively in the category, would be how I'd answer that one in particular.

[Stephen Powers, Analyst at Deutsche Bank Aktiengesellschaft]

Okay, thank you very much. Appreciate it.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Thanks, Steve.

[Operator]

Thank you. Our next question comes from Kevin Grundy with Jefferies. Your line is open.

[Kevin Grundy, Analyst at Jefferies & Co.]

Great, thanks. Good morning, everyone. Question for Matt and Rick on the guidance and then an unrelated question for Barry, if I could squeeze in a second one. The first one on the long-term guidance of 3% sort of in the spirit of the Analyst Day and sort of more longer term oriented, the company succeeded financially for a number of years, you're guiding above that for this upcoming years at about 4.5%.

You have a slide up, which rightly points out the higher category growth alone sort of setting aside which you hope to do from a market share perspective. You talked a lot about some of the stickiness in consumer behavior around health and wellness where I think most people on this call would agree.

And then I suspect for your own internal planning around capacity and around your cost structure, I suspect that's predicated on the growth rate over the next three to five years ahead of that 3%. So that's all a big sort of wind up here. Have you consider revisiting that guidance for investors?

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Kevin, I could have predicted this question was coming. I think you are consistent. I think you ask that question annually.

[Kevin Grundy, Analyst at Jefferies & Co.]

I'm glad I didn't disappoint you on that.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Well I thought maybe we'd duck it this year because we have this range of 3% to 6% and 4.5% in the middle. I think Kevin is going to be happy with that. What you're asking about is, should we change our Evergreen model?

[Kevin Grundy, Analyst at Jefferies & Co.]

Correct. And even Matt if I could -- not because you even consider changing where it's less emphasis on the 50 basis points of margin improvement which is tough to do year-in year-out in the absence of favorable mix from doing deals. So heavier on the top line and even something 25 to 50 on operating margin. So sorry for cutting you off, but go ahead.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

No. I understand the math, but the way we've used the Evergreen model is we do it for our long range planning and yes we don't ever want to leave ourselves short from a capacity standpoint. So, just because we have a 3% Evergreen model, it doesn't mean that we would put any governors or caps on capacity expansion because that's the last thing we want to do is to be completely sold out.

So, I would remind you as well that the Evergreen model is also something that is very important to financial literacy within the company because it's something we talk about all the time. It's familiar to all of our employees. So yeah there is some merit to your argument, where to say we're going to grow at a 4% organic level. It takes some of the air out of the balloon when it comes to gross margin. But it does still -- we will still arrive at the 8% EPS number on the bottom. So, yeah, it's not something we don't think about Kevin -- don't think once a year when you ask this question is when we give it some thought. But stay tuned, it's something we've been looking at.

[Kevin Grundy, Analyst at Jefferies & Co.]

Understood. Fair. And then if I can just squeeze in one more. Just for Barry. Early observations since moving into the CMO role, biggest areas of opportunity that you see sort of fresh set of eyes, fresh perspective of the portfolio, and then maybe areas that perhaps need a little bit more of your attention over the next 12 months?

[Barry Bruno, Executive Vice President and Chief Marketing Officer at Church & Dwight]

Sure. Thanks, Kevin. I think 90 days in or so I think -- I've been telling the international story for so long before about how much opportunity is there. I think I see ample opportunity here in the U.S. as well, right. There are so many of those trends that I took you through earlier in the presentation that are so well suited to our brands and the categories that we're in. So I've been beating up on the U.S., guys when I was in the international for a while, but I'd say equally excited here and whether it's around vitamins or whether it's around laundry, as supply comes back, ample opportunity everywhere.

And then in terms of challenges or things you know I'm looking at, as we spend more in media, where Trick and Matt mentioned, up in absolute dollars next year. What's the best spend of that digital gets really, really attractive because of its perceived perfect measurability, but I think linear still has a role, linear TV still has a role for its broad reach.

So really working on that right mix of linear versus digital and kind of upper funnel brand building versus lower funnel buy now buy here kind of stuff. So those are early thoughts, great opportunity, want to get the marketing mix, right, as it's a large line item in our P&L.

[Kevin Grundy, Analyst at Jefferies & Co.]

Got it. Makes sense. Thank you very much for the color. Good luck everyone.

[Barry Bruno, Executive Vice President and Chief Marketing Officer at Church & Dwight]

Sure. Thanks, Kevin.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Thanks, Kevin.

[Operator]

Thank you. Our next question comes from Rupesh Parikh with Oppenheimer. Your line is open.

[Rupesh Parikh, Analyst at Oppenheimer & Co. Inc]

Good morning and thanks for taking my question. So the first area I want to touch on is just International. I was just curious what you guys are seeing lately in the international front and whether you're seeing any impact from lockdowns or restrictions?

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah. No, we have -- I'm going to dish this to Mike Read in a second. But you're absolutely right that we've had intermittent lockdowns in a lot of markets. International is also hampered by transportation issues and containers and getting product. And if you look at our guide for the next year, you know we said 5% to 7% and you know our Evergreen number is 6%. So we are expecting to be in the sweet spot. But maybe Mike you could give a little bit of color on what we've been experiencing in international markets.

[Michael Read, Executive Vice President, International at Church & Dwight]

Yeah, thanks, Matt, and thanks, Rupesh, for the question. Yeah, look, we're having similar challenges, as Matt said, from a supply chain perspective. But what I'd point to is, we have really healthy consumer demand for our portfolio across the board. We are seeing really strong growth across all our subsidiary divisions, but also within kind of how we break out our Global Markets Group into kind of five regions. So we are seeing really positive growth in demand. It's really just about fulfilling it. So I'd point to our ability to kind of access our portfolio in multiple markets is still really strong. It's just a matter of kind of keeping up with demand but the orders are definitely there.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah. Rupesh, this is Rick Dierker. I just want to add one line to that. We had 4.7% organic growth in Q4 for international. So somebody might say, "Well, that's little below your Evergreen model for international." But I would tell you, if you look back in Q4 of 2020 we grew 14.9%. So on the two-year stack, the 19.5% growth rate is the strongest quarter actually in the whole year.

[Rupesh Parikh, Analyst at Oppenheimer & Co. Inc]

Great. And then maybe just two quick financial questions. So first, on the CapEx side, any specific guidance you can give on capex? I think last time, you guys said expect to exceed $200 million. And then, on gross margins, is there any additional color you can provide just in terms of drivers for the year?

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah. On the capex side, we have a slide in the analyst deck and we actually put out a number, I think it was $212 million, off top of my head, but it was $200 million-plus for 2022, and it was $300 million -- it was $216 million in 2022 and it's plus $300 million in 2023 is what we're putting out there right now, just for those capacity projects like laundry, litter and vitamins.

In terms of gross margin, I think the biggest thing on gross margin, and we've talked about how it's going to improve throughout the year, is really just the -- when you take price -- or let's talk about inflation. We have $150 million of inflation, right? So the simple math is, when you do that, you're down like 300 basis points on margin. But when you take price, even if you take price about $150 million to offset it, you only get a margin benefit of about 160 basis points or 170 basis points because it impacts the top line and it impacts COGS. So, I think as I said before, gross margin improves throughout the quarter, and we'll exit the year with positive gross margin in Q4.

[Rupesh Parikh, Analyst at Oppenheimer & Co. Inc]

Thank you.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Thanks, Rupesh.

[Operator]

Thank you. Our next question comes from Andrea Teixeira with J.P. Morgan. Your line is open.

[Andrea Teixeira, Analyst at J.P. Morgan]

Thank you. Good morning, everybody. I just wanted to find out, obviously, the M&A priority in your cash allocation. What are the areas that you're thinking there's too white spaces for you to go inorganically? And then, on the fine print [Phonetic] on this, appreciate, Rick, you giving the margin bridge. But I believe you still have the benefits -- in the fourth quarter, you have, I believe, 30 basis points, and for the full year, 20 basis points benefit from acquisition. That is an additional, call it, 20 bps for the year in terms of acquisition? Thank you.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yes. Thanks, Andrea. I'll do some of the margin discussion, and Matt will answer the M&A question. I wasn't really given a margin bridge. I was just given an example on how price doesn't have the same margin impact as inflation would. I wasn't really guiding to specific numbers there. But we're not going to get into the margin details because it's just more volatile than normal. And so, the guidance is that we're going to decline on gross margin for 2022.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah. And as far as acquisitions go, we've had this question from time to time, what categories are we interested in? And if you asked us that two years ago, I think we probably would not have come up with going into cold shortening or going into mouthwash. So what we do, because we have a competency in making so many different types of products in our manufacturing facilities, so we can put liquid in a bottle, we can make aerosols, we can put powder in a box, gels, etc., there's a lot of things that we know how to make and can manage. So, consequently, we throw a very wide net when we're looking at potential acquisitions. And we have a well-worn list of acquisitions that we went through in our press [Phonetic] this morning, the five criteria which -- that does weed out a lot of categories. But we wouldn't be able to call out, hey, here's a couple of categories we're looking for acquisitions, Andrea. Just our process doesn't work that way.

[Andrea Teixeira, Analyst at J.P. Morgan]

Thanks, Matt and Rick. I will pass it on.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Okay. Thank you.

[Operator]

Our next question comes from Peter Grom with UBS. Your line is open.

[Peter Grom, Analyst at UBS Group]

Thanks and good morning, everyone. So, I was kind of hoping to drill down or get back to that slide that showed category growth that Kevin alluded to in his question earlier. I think as you look back to 2017, 2019, it was kind of hovering around that 4% range. Obviously, accelerated a lot in 2022, and I think it showed like up 6% in 2021. So, I'm just curious, how do you see category growth unfolding as you move ahead? I know there's a lot of puts and takes. Some categories are going to be getting better, some probably getting worse. But what is the right category growth rate longer term as we move further away from this COVID environment?

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah. Well, Barry can take a swing at that, but I'll just say, historically, if you're referring to that particular slide, generally are the categories that we're in. And remember, every company is different. So, the organic growth rates are a function of what categories you're in. So, we're different than lots of other companies, I'm sure that you follow. But historically, our average, if you took '17, '18, '19, its around 4%. '20 was gigantic, 12.5%. 6.5% in '21. So, it's going to float down over time. We expect to go back to around 4%, 4.5%, but I think the expectation for '22 would be higher than that. Barry, anything you want to add to that?

[Barry Bruno, Executive Vice President and Chief Marketing Officer at Church & Dwight]

Yeah, you got it right. Again, historically, Peter, 3%, 4% has been kind of the weighted average growth of the categories that we're in. Obviously, elevated in 2020. Still high in '21. There are a number of them that are going to benefit from some of the trends that I touched on. We're look at vitamins as a new behavior that's more permanent and we're in more and more households and vitamins are overall, of course. So, there's a few that'll continue to benefit. But I think there's a reversion to more normal levels as things return back to normal. So, is that in the 4% range versus 6%? I think that's a safe assumption.

[Peter Grom, Analyst at UBS Group]

That's super helpful. And then I guess, maybe like a follow-up on ZICAM and kind of the underlying assumption around like a normal cold and flu season ahead, is there a way to quantify how much of a benefit just a normal season would be in terms of your total Company organic revenue growth? And is that included in your guidance already for '22? Or would that be like a source of upside? Thanks.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yes, I'll give you a little bit of context on ZICAM. It's number one cold shortening. It's got a 76% share. But the recent trends are certainly encouraging. So, if you looked at consumption in Q4 '21 versus '20, it was up 21%. So, it's a brand we bought for the long term and expect it to -- we do expect it to be a contributor to sales and profits in '22, but we wouldn't necessarily call out what the net sales number is for a particular brand.

[Barry Bruno, Executive Vice President and Chief Marketing Officer at Church & Dwight]

Yes, we think it's an -- get to be more like a normal cold and flu season, but probably not all the way too bright.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah, we're not going to get all the way back yet. I think that'll happen in '23.

[Peter Grom, Analyst at UBS Group]

Okay. Thank for that, and best of luck.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Okay. Thank you.

[Operator]

Thank you. Our next question comes from Bill Chappell with Truist. Your line is open.

[Bill Chappell, Analyst at Truist Financial]

Thanks. Good morning. There's a few kind of quick ones. One on pricing, the 80% level, why isn't that a 100% now just because it seems like everybody is pricing everything? And as we look forward over the next few months, will that number go to a 100%? Or is the next vendor pricing more incremental pricing on the first 80%?

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Gee, Bill, that's very critical [Speech Overlap].

[Bill Chappell, Analyst at Truist Financial]

I just -- it was inquisitive.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah, Well, look, there's some things that we didn't raise price on in '21 that we're looking ahead to pricing in '22. We're not going to get all the way to 100% but we expect to get above 80%. Some categories that we haven't priced on we just bought into the mouthwash category. That'd be one. ZICAM is another one that [Indecipherable] for a year, so we haven't taken price on that. But anything that we intend to take pricing, we've already baked in. So it's not -- you shouldn't be thinking that that's going to be all upside.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Right. And there are some areas where there hasn't been cost inflation. They're small, but there are some areas where that hasn't happened and you don't have the cost or to go back to retailers on a few brands.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yes, like condoms for example, latex isn't rocketing.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Right. But I would say, overall, we expect that 80% to go a little bit higher, and we also expect to revisit price increases we've already made.

[Bill Chappell, Analyst at Truist Financial]

Yeah, got it. Well, on the line of inquisitive, not critical, I get the -- this is a normal practice every year of you have tax benefits or other benefits, and you plowed back into marketing in kind of third and fourth quarter. But why does that make sense in this year's fourth quarter when you're having low fill rates to put more into marketing, which would seem to exacerbate the issue?

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah. Well, there were certain brands, particularly personal care, that we decided to put more money behind where our fill rates weren't as bad, that might have been neglected earlier in the year. So BATISTE would be one of those. WATERPIK would be another. And even THERABREATH, even though we own them just for a week or so, we spend money behind that because we want to get that off to a good start, so we put some money behind that late December.

[Bill Chappell, Analyst at Truist Financial]

Got it. So it's more selective in kind of how you reinvest that money?

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah, right. It wasn't peanut butter [Phonetic]. It was very targeted.

[Bill Chappell, Analyst at Truist Financial]

And last, just on the capacity expansions you've talked about, I understand especially on vitamins, it takes longer. But it would seem that, especially for something like cat litter and maybe for detergent, that your facility can be expanded fairly quickly and that you could have the capacity by mid-year or sometime this year. Is that not the right way? Does it take that much longer?

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah, I would say in general, Bill, it takes about 18 months for a capacity project. And you're right, we have available space in the network, not necessarily just York [Phonetic] but in the network. But those capital projects are running into the same things that are happening all over the globe and macro economy in terms of labor availability and timing of machinery and stuff like that. Rick Spann, anything you have to add on that one?

[Rick Spann, Executive Vice President, Global Operations at Church & Dwight]

Yeah. The only thing I would add -- thanks, Rick - is that in some cases, we're doing capacity increases on top of capacity increases. Our litter volume growth has been explosive. And so, we're pouring more money into capacity increases there. So that's part of the dynamic. And then the other piece of it is just what Rick said, our lead times on equipment that we're purchasing for these capacity increases have increased pretty dramatically versus what they were pre-COVID because those supply chains are also impacted.

[Bill Chappell, Analyst at Truist Financial]

Got it. Thanks so much.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Thanks, Bill.

[Operator]

Thank you. Our next question comes from Kaumil Gajrawala with Credit Suisse. Your line is open.

[Kaumil Gajrawala, Analyst at Credit Suisse Group]

Hi, guys. Good afternoon. A little bit more maybe on the impact of supply constraints. It looks like your fill rates were still quite reasonable and maybe just inventories are low. But was there any impact on your top line from lack of supply anywhere?

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah, certainly. I think we've been pretty clear these last few quarters that when you look at ship into consumption, our consumption in Q4 was anywhere between 6% and 7% and our domestic organic rate was 3.5%. And so, that's been a pretty consistent gap these last few quarters. That's also why we think we're going to have a high range in 2022. As the supply chain improves, and Matt and Rick Spann both commented on how that's going to sequentially improve through the year, that's also going to be a tailwind next year.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Yeah. So it's a -- the short story is that we did leave money on the table because of difficulties with getting supply.

[Kaumil Gajrawala, Analyst at Credit Suisse Group]

And then, on capacity, are there -- I guess, particularly for vitamins, is -- these are your own facilities now, or is it capex going into something you might need to contribute to a co-packer or something? And then if you're willing to kind of share, what some sort of -- what sort of underlying growth that you're expecting for that category within the context of the decision to spend more to increase capacity?

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah. So the capital that we're contributing is actually internal capacity for gummy manufacturing. We're also working with third-party manufacturers to increase our capacity but no capital contributions there. The growth rate, if you look back, when we bought this business, the percent of gummies for heart pills in the total vitamin category was 3%. Now we're in the 20s. And we have long term visions that that's going to continue to go to the 30s and 40s over time. So we think that growth rate is high, is what I would tell you.

[Kaumil Gajrawala, Analyst at Credit Suisse Group]

Got it. Thank you.

[Operator]

Thank you. Our next question comes from Lauren Lieberman with Barclays. Your line is open.

[Lauren Lieberman, Analyst at Barclays]

Thanks. Good morning. I just had two questions. One was just in terms of retailer reaction to fill some of these supply chain challenges that you've been having, and I think during 3Q, you talked about kind of pulling -- very rationally pulling some of the promotional support because of those lower -- not wanting to exacerbate the supply-demand issues. So just curious about kind of retailer reaction, because it seems like some of your supply issues maybe at this point are a bit worse than what you're seeing from some competitors in your category. So I was curious about that was one. And then the second thing was, and I apologize that I missed this, the 7% price mix in the quarter for consumer domestic, how much of that was lower promotion versus less? Because if I just think about that was 50% pricing, we're going to 80 -- are we going into double-digit pricing in '22 when we look at the P&L? Or again is that -- was some of that just lower promotion and more matter of timing? Thanks.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Yeah, maybe I'll take that one first.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Will give it -- Paul, you can you can respond to the question about retailers, but you're up first, Rick.

[Rick Dierker, Executive Vice President Chief Financial Officer at Church & Dwight]

Okay. So the positive price mix in the quarter was -- remember 50% of the price and activity has happened. But there is also lower trade spending, lower promotional spending in that number as well. In 2022, we tried to dimensionalize it on an earlier question, and I had said that the 4.5% organic was really 5.5% price mix favorability throughout the year. So hopefully, that can give me a sense of what it is. And we said in the release also, Lauren, that we do expect to be spending back more on trade in the back half of this year as our supply chain normalizes. But Paul, any retail supply constraint color you want to give?

[Paul Wood, Executive Vice President - U.S. Sales at Church & Dwight]

Yeah, Lauren, it's a good question. And I think the difference that we're getting ahead of now is, the partnership with Rick Spann's organization and my sales organization to sit with some of these key retailers and give them a more transparent overview, and in some cases, that meant we couldn't commit to maybe some further out promotions for those retailers that need longer lead times and promote just because of the uncertainty and that inconsistency. I won't comment on competitiveness and where others are. Candidly, it's a little different across, you can imagine, all the categories we play in. But I would say the partnership, the communication -- and communication, I mean more weekly and biweekly communication, which normally doesn't happen. So if anything, we've tightened at least the understanding and the trust, if you will, between us and the retailer's that could kind of help the burdens and the fines and fees and those discussions. But really, we want to be upfront and make sure that we're not holding them out to dry with a promotion or an end cap and just being transparent. So, not easy conversations but we don't want you to misinterpret but, yeah, I'd say transparency would probably be the word of choice to answer your question simply.

[Lauren Lieberman, Analyst at Barclays]

Okay, thanks great. Thank you so much. I appreciate it.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Thanks, Lauren.

[Operator]

Thank you. And ladies and gentlemen, that concludes the Q&A. I will now turn the call back to Mr. Farrell.

[Matthew T. Farrell, Chairman, President & Chief Executive Officer at Church & Dwight]

Hey, thanks, everybody for joining us. We had a spectacular '21 and hope to have another good one in '22. We'll talk to everybody at the end of April after Q1. Thanks for joining us today.

Participants

Corporate Executives

• Matthew T. Farrell, Chairman, President & Chief Executive Officer
• Barry Bruno, Executive Vice President and Chief Marketing Officer
• Michael Read, Executive Vice President, International
• Rick Spann, Executive Vice President, Global Operations
• Rick Dierker, Executive Vice President Chief Financial Officer
• Paul Wood, Executive Vice President - U.S. Sales

Analysts

• Chris Carey, Wells Fargo Securities
• Olivia Tong, Raymond James
• Stephen Powers, Deutsche Bank Aktiengesellschaft
• Kevin Grundy, Jefferies & Co.
• Rupesh Parikh, Oppenheimer & Co. Inc
• Andrea Teixeira, J.P. Morgan
• Peter Grom, UBS Group AG
• Bill Chappell, Truist Financial Co.
• Kaumil Gajrawala, Credit Suisse Group AG
• Lauren Lieberman, Barclays PLC