Church & Dwight (CHD) Q1 2026 Earnings Transcript

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DATE

Friday, May 1, 2026 at 10 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Richard A. Dierker
• Chief Financial Officer — Lee B. McChesney

TAKEAWAYS

• Net Sales -- Church & Dwight (NYSE:CHD) reported net sales up 0.2%, surpassing the original company outlook for a decline, driven by volume growth.
• Organic Sales -- Increased 5%, exceeding the 3% guidance, with 5.3% volume growth partially offset by negative 0.3% price/mix.
• Adjusted Gross Margin -- Expanded 130 basis points to 46.4%, with productivity programs, acquisitions, and FX more than offsetting 190 basis points of inflation and tariffs.
• Adjusted EPS -- $0.95, representing 4.4% growth, and ahead of the $0.92 forecast.
• U.S. Consumer Organic Sales -- Rose 5.4%, mainly due to volume, with leading contributions from TheraBreath, ARM & HAMMER, Hero, and OxiClean brands.
• ARM & HAMMER Laundry Detergent -- Consumption growth of 4.1%, outpacing the category’s 2.7%, and achieving record market share despite lower promotional activity.
• ARM & HAMMER Cat Litter -- Consumption up 6.8%, with market share increasing 0.4 points to 24.6%.
• TheraBreath Mouthwash -- Share gained 3.5 points to 24.1%, reinforcing its position as number two in total mouthwash.
• Hero Acne Brand -- Maintained category leadership with consumption growth above category pace, achieving share twice that of the next largest competitor, attributed to expanded distribution and activation events.
• Online Consumer Sales -- Reached approximately 24% of total consumer sales.
• Distribution Gains -- Dierker stated, "Church & Dwight Co., Inc. was number one across all of CPG on total distribution points gained year over year," with recent resets delivering a 10%-11% increase, double the CPG peer average.
• International Organic Sales -- Expanded 3.7%, led by TheraBreath, Hero, and Batiste, but partially offset by decreased sales in the Middle East region.
• Marketing Expense -- Accounted for 9.5% of sales, up 20 basis points, with full-year target maintained at approximately 11% of net sales.
• Adjusted SG&A -- Rose 110 basis points, largely due to the Toppik acquisition and amortization costs.
• Cash Flow from Operations -- $174.8 million for the quarter.
• Capital Expenditures -- $31.9 million, with full-year guidance of about 2% of sales.
• Full-Year 2026 Outlook -- Organic sales projected to grow 3%-4%, reported sales to decline 1.5%-0.5% reflecting 2025 portfolio actions, and adjusted EPS growth maintained at 5%-8%.
• Inflation Exposure -- Facing $25 million-$30 million of incremental inflation primarily from oil-based derivatives, mostly offset by hedging and productivity gains.
• Q2 2026 Guidance -- Projected reported sales decline of 1%, organic sales growth of 3%, gross margin expansion of 50 basis points, and adjusted EPS of $0.88, reflecting higher anticipated marketing and SG&A spend.
• Segment Outlooks -- U.S. organic sales expected to be approximately 3%, International around 7%, and Specialty Products Division about 5% for the year.
• Toppik Brand -- Management expects double-digit annual growth, although consumption trends vary depending on data sources and timing of promotional events.

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RISKS

• Lee B. McChesney cited, "the situation in the Middle East is fluid and is creating some incremental volume and inflationary pressure on commodities and transportation," with estimated $25 million-$30 million incremental inflation exposure.
• Sales in the Middle East region have softened, partially offsetting international segment growth.

SUMMARY

Management affirmed confidence in the full-year outlook despite operating challenges, emphasizing that broad-based volume growth and substantial distribution gains are providing momentum. Distribution expansions now reach a 10%-11% lift, more than double the peer average, driving market share gains across key categories. Margin gains are supported by ongoing productivity improvements, with mitigation plans in place to offset inflation driven by Middle East conflict-related commodity volatility. The company does not plan to pass on current cost inflation to consumers, instead favoring productivity and promotional efficiency. Toppik’s annual growth trajectory remains double-digit according to internal figures, while reported consumption data is affected by promotional timing and holiday product shifts.

• April marked the company’s transition to its upgraded ERP system, supporting international operational resilience.
• Recent portfolio actions, including past business exits and the inclusion of Toppik, are described by management as providing "nothing but tailwinds" for growth and category selection going forward.
• Lee B. McChesney highlighted that innovation-led product launches this year are expected to drive half of organic growth.
• Category trends accelerated in March to roughly 3.5% growth, but softened slightly in April, with management noting stronger than expected performance for the company during that period.
• ARM & HAMMER laundry’s value proposition of lower pricing and high efficacy is contributing to share gains without higher promotional spending.

INDUSTRY GLOSSARY

• CPG: Consumer Packaged Goods; refers broadly to companies producing branded products sold in retail channels.
• TDP (Total Distribution Points): A measure capturing both distribution breadth and product count across retail shelves, used for benchmarking market presence versus competitors.
• VMS (Vitamins, Minerals, Supplements): Segment of the business related to dietary supplements, often referenced in portfolio discussions.
• RGM (Revenue Growth Management): Strategic levers such as pricing and promotions used to optimize revenue and balance cost pressures.
• ERP (Enterprise Resource Planning): Integrated business management software suite supporting core functions like finance, supply chain, and operations.

Full Conference Call Transcript

Richard A. Dierker: Alright. Thank you. Good morning, everyone. Thanks for joining the call. We had a fantastic quarter. I want to start by thanking all of our Church & Dwight Co., Inc. employees around the world for executing so well in a volatile environment. I will begin with some thoughts on the macro environment, then review our Q1 results. Then I will turn the call over to Lee B. McChesney, our CFO. And when Lee is done, we will open it up for questions. Starting with the broader environment, conditions remain dynamic. The consumer backdrop continues to be mixed.

Consumer sentiment remains pressured by inflation, borrowing costs, and geopolitical uncertainty related to the Middle East, which, as you know, is also contributing to significant inflation in commodities and transportation costs. That said, the consumer remains resilient. Employment remains stable, and our largest categories grew 3% in the quarter. Our portfolio, with its balance of value and premium offerings, continues to perform well in this type of environment, supported by strong brands and innovation. Turning to the Q1 results, we delivered a strong start to the year and exceeded our outlook across key metrics. Net sales increased 0.2%, ahead of our expectation for a decline, and organic sales grew 5%, well above our 3% outlook.

This growth was driven by volume. Adjusted gross margin expanded 130 basis points to 46.4%, and adjusted EPS was $0.95, up 4.4% year over year, above our $0.92 outlook. Overall, this was a high-quality beat driven by strong execution across the business. Now I am going to turn my comments to each of the three divisions. First up is the U.S. consumer business. Organic sales increased 5.4%, which was primarily volume. Across the portfolio, our brands continue to perform exceptionally well. Growth in the quarter was led by TheraBreath, ARM & HAMMER, Hero, and OxiClean, supported by strong innovation and distribution gains across all classes of trade.

Global e-commerce also remained a key contributor, with online sales now representing approximately 24% of total consumer sales. Innovation and distribution gains continue to be key drivers of our performance, and the first quarter of this year is no different. We are confident that our relentless focus on innovation will continue to drive industry-leading growth, distribution gains at shelf, and market share expansion. In fact, we are just finishing tabulating all of the distribution gains looking forward, and I am proud to say Church & Dwight Co., Inc. was number one across all of CPG on total distribution points gained year over year.

New product launches this year are expected to account for half of our organic growth as we innovate in key categories across our portfolio of industry-leading everyday products. The ARM & HAMMER brand had another quarter of growth with laundry hitting record shares across total laundry detergent. ARM & HAMMER laundry detergent consumption grew 4.1% in the quarter compared to category growth of 2.7%. The value segment of laundry continues to grow. ARM & HAMMER laundry grew despite a lower level of promotion in the quarter.

Our newest innovation in laundry is ARM & HAMMER Baking Soda Fresh with 10 times the amount of baking soda, and it is off to a great start with a 4.9 consumer rating where most laundry items are around 4.5. Our ARM & HAMMER laundry sheets also continue to do well, growing consumption by 30%. We like the category-building potential of EVO, and we are well positioned to win in value. Next up is litter. It is fantastic results as ARM & HAMMER cat litter consumption grew a robust 6.8%, and share increased 0.4 points to reach 24.6%. While category promotional levels remain elevated, they did decline sequentially from Q4.

OxiClean share declined in the quarter as we continue to be impacted by distribution loss and lapping that from a large club retailer a year ago. The good news is that the trends on OxiClean improved throughout the quarter, and sales growth surpassed our expectations. Hero and TheraBreath continue to contribute considerably to overall performance. TheraBreath achieved another quarter of record share gains, up 3.5 points to 24.1%, further solidifying our number two position in total mouthwash. Household penetration remains low relative to the category. In fact, even with these great distribution gains recently, we still have less than 20% of the shelf, so there is more room to run even in mouthwash.

Early days, but the TheraBreath toothpaste launch is off to a great start. Hero consumption growth also outpaced the category, leading to share gains and remaining the share leader, two times larger than the next competitor. Hero’s growth was driven by distribution expansion and strong Q1 activations led by brand ambassador Jordan Chiles on Mighty Patch Original and Mighty Shield innovation. Mighty Shield is already achieving retailer hurdle rates. Finally, Toppik. In Q1, consumption grew low double digits, but sales were impacted by a strong Q4 holiday multipack sell-through. Recent consumption has slowed as we lapped year-ago launches. Internally, we are hard at work on integration and innovation.

Turning to international, our international business delivered organic sales growth of 3.7% driven by our G&G and our subsidiaries. Growth was led by TheraBreath, Hero, and Batiste brands, partially offset by lower Middle East regional sales. Of note, in April we went live with our upgraded ERP system. Our project leader, Nicole, said it best: our customers did not notice the transition. Thank you to the entire team. I will close by saying that we are very pleased with our start to the year. Our brands remain strong. Our portfolio is well positioned. And our strategic actions continue to support long-term growth.

I am proud of our Church & Dwight Co., Inc. team as we perform well in a volatile environment. As we look forward, our TSA agreement with the VMS business is winding down, and the organizational time that has been freed up is being spent on our forward-looking growth initiatives. We are laying the groundwork for ARM & HAMMER expansion, oral care growth behind TheraBreath, and international M&A. I will now turn the call over to Lee B. McChesney for the financial results. Thank you, and good day, everyone.

Lee B. McChesney: Back in January at our 2026 Investor Day, we shared an industry-leading outlook for 2026. The highlights of that outlook included organic sales growth of 3% to 4% and EPS growth of 5% to 8%, in line with our Evergreen Model. As we now share results from the first quarter, we are delighted with the execution of our Church & Dwight Co., Inc. team members across the globe. The first quarter highlights once again the many strengths of our portfolio and the team’s execution capabilities. Let us jump into the details and provide you an update on our views for the year.

Starting with EPS, first quarter adjusted EPS is $0.95, up 4.4% from the prior year, and $0.95 was better than our $0.92 outlook, driven by higher volume and gross margin results. Organic sales in Q1 were up 5%, above our outlook of 3%. Organic sales were broad-based across the globe with volume growth of 5.3%, partially offset by a negative price/mix of 0.3%. Our organic growth was fueled by a steady stream of market-leading innovation, and strong distribution wins with our commercial partners. The organic results also drove our reported revenue up 0.2% versus our original outlook of negative 1% back in January. I want to put our reported results in perspective.

Due to our portfolio actions, our reported sales results would naturally be down 8%. However, organic growth of 5%, our Toppik acquisition, and some FX favorability fully closed the gap. The first quarter, fueled by volume growth, was certainly a strong start to the year. Our first quarter adjusted gross margin was 46.4%, a 130 basis point increase from a year ago. Our results versus last year were driven by 150 basis points from productivity programs, 110 basis points from higher-margin acquisitions combined with the impact of the strategic portfolio actions, 50 basis points from the combination of volume, price, and mix, and 10 basis points from FX. These factors offset 190 basis points of inflation and tariff costs.

Let us jump to our investments in marketing. Our marketing expense as a percentage of sales was 9.5%, or 20 basis points higher than the first quarter of last year. Looking forward, we are continuing to target investments at approximately 11% of net sales, in line with our Evergreen Model. Q1 adjusted SG&A increased 110 basis points year over year. As we noted in our January Investor Day, SG&A in the first half of the year is primarily growing versus last year due to the inclusion of Toppik SG&A and amortization expense. Adjusted other expense increased by $5.2 million due to lower interest income compared to last year.

In Q1, our adjusted tax rate was 20.3% compared to 21.8% in 2025, a 150 basis point year-over-year decrease, and our expected adjusted effective tax rate for the year remains at 21.5%. Now turn to cash flow. We delivered strong cash results in the quarter as cash flow from operations was $174.8 million. Our higher year-over-year cash earnings were partially offset by an increase in working capital in support of growth. Capital expenditures for the period were $31.9 million, and we continue to expect full year capital expenditures to be approximately 2% of sales. Let us now turn to our 2026 outlook. While the macro environment remains dynamic, we remain encouraged with our path forward.

The strength of our brands, our strategic portfolio actions in 2025, and our growth initiatives continue to provide us confidence. As we noted in our press release, the situation in the Middle East is fluid and is creating some incremental volume and inflationary pressure on commodities and transportation. For example, currently we are estimating $25 million to $30 million of incremental inflation pressure. Our teams across the globe are responding to these developments and are taking actions across the P&L. As a result of our mitigating actions, we are reiterating our full year 2026 outlook. We remain on track to deliver full year organic growth of approximately 3% to 4%.

We continue to expect reported sales growth to decline approximately 1.5% to 0.5% as a result of the strategic portfolio actions taken in 2025. We continue to expect full year gross margin expansion of approximately 100 basis points versus 2025, and this outlook reflects the breadth of actions we discussed in January and the balance of incremental headwinds and actions we have identified since the Middle East conflict began. Marketing as a percentage of sales remains at approximately 11%. SG&A as a percentage of sales will be higher than last year, reflecting the impact of the Toppik acquisition in the first half of the year and our focused growth investments.

Our adjusted EPS expectation for 2026 remains at 5% to 8% growth. If we turn to the second quarter, we expect reported sales to decline approximately 1% with organic sales growth of approximately 3%. We anticipate gross margin expansion of approximately 50 basis points, reflecting transportation cost pressures ahead of the mitigation efforts that will take effect later in the year. In the quarter, we continue to expect higher marketing and SG&A, and in Q2 the investment in marketing and higher SG&A will more than offset the gross margin expansion, resulting in an adjusted EPS of $0.88 per share for the quarter. Recall, we continue to expect flattish EPS growth in the first half of 2026.

To conclude, we remain confident in our 2026 outlook. We began the year with strong execution and are taking the steps to ensure continued success this year. My final prepared remark is for the Church & Dwight Co., Inc. associates: thank you for all of your efforts in the first quarter, and congratulations on the robust execution. Well done. We will now open the call for questions.

Operator: Press star followed by the number one on your telephone keypad. Your first question is from the line of Christopher Michael Carey with Wells Fargo Securities.

Christopher Michael Carey: Hi, good morning, everybody. Richard, you mentioned that distribution gains were number one in CPG. Not exactly sure of the timing of those gains, but nevertheless a very strong number. When you think about your Q1 delivery, how important are those gains to what we are seeing today, and really speaking to the durability of some of the volume growth that we are seeing relative to perhaps some of the tailwinds that may have been caused by some inventory reductions in the base? I just wonder if you could contextualize the quarter as you see it and what Q1 means for go-forward top-line, volume-driven results. And then I have a follow-up.

Richard A. Dierker: Yeah. Sure, Chris. Q1 was phenomenal organic growth, and I think more than anything, it was great to see our categories growing around 3%, and we grew a little bit faster than that. We talked a year ago about retail inventory dynamics, and so we had a tailwind of a couple of points from that as well. That is how we get to about 5% for Q1. Now on the distribution gains, that is really just hitting now. It depends how you look at the metric. On an average basis over 13 weeks, it is about a 7% TDP lift.

In more recent time, as these resets are happening, it is closer to 10% or 11%, which is about double what most of the CPG peers are getting. That is not just TheraBreath and Hero. That is across laundry and litter and personal care, so it is across the whole portfolio. We believe that is a great tailwind to our business, and it is really a payoff of all the innovation that we are doing. So it is a tailwind as we look forward and gives us confidence.

Christopher Michael Carey: Great. A follow-up on Toppik. You noted that consumption slowed on year-ago activity that was strong in the base period. Can you give us an update on how you are thinking about growth of the business, the sustainability of growth, and whether you think it has runway to sustain perhaps double-digit growth into the back half of the year and into next year?

Richard A. Dierker: Sure thing. When we look at consumption that shows up for you, we understand it shows consumption for the quarter is down 20%. We look at consumption that is all in, including untracked channels, and we are up about 12% to 13%. So there is a difference in what you see versus the entire picture. But it has slowed, partly because of all these holiday gift sets that go out and also because of the club channel. Overall, we believe that we still are going to have double-digit growth for Toppik for the full year. The good news is we have great ratings, we have low household penetration, and we are just starting now to advertise.

A lot of our activations with either collaborations or partnerships are happening in the back half. So we feel good about Toppik.

Operator: Your next question is from Anna Jeanne Lizzul with Bank of America.

Anna Jeanne Lizzul: Hi. Your portfolio actions, I think from last year, helped drive the outperformance here in Q1. How are you looking at the portfolio now given the changes on the VMS business and others that you have exited? And then just to follow up on Toppik, can you comment on where it is performing best in terms of the channel? And further on M&A, where are you more focused in this more challenging consumer environment? Thanks so much.

Richard A. Dierker: There are three questions. On M&A, I am not really going to comment. I would just say that the team is always hard at work. The leadership team spends an inordinate amount of time looking for great businesses and brands to buy. We have gone through our criteria again and again, and the team is hard at work in the U.S. and internationally. It is not an or; it is an and. That is some of the highest and best use of our time, and I continue to be optimistic. On Toppik channels, the channels doing better than most are ones that are not necessarily tracked. The club channel did extremely well. Amazon does well.

Some of the beauty classes of trade, because of the timing of promotions and also some of the innovation, do not look as good, but some of the other channels that you do not necessarily see are doing better. On portfolio, I love our portfolio, short answer. Remember, a lot of categories out there are not growing or are going backwards. We have chosen and selected our categories over many years as we bought businesses. The fact that our categories grew 3% this quarter and we grew faster, as we typically do, bodes well. The portfolio decisions last year provide nothing but tailwinds as we look forward.

Operator: Your next question comes from Rupesh Dhinoj Parikh with Oppenheimer.

Rupesh Dhinoj Parikh: Just going back to organic sales growth expectations, you typically give it by segment. Updated thoughts for the year by segment, including for international?

Richard A. Dierker: Go ahead, Lee.

Lee B. McChesney: We are maintaining the outlook of 3% to 4%. Similar to what we talked about back in January, we still have U.S. at approximately 3%. International is approximately 7%—a little bit softer because of the Middle East situation—and then SPD is still about 5%. Again, it is a range. U.S. hits their number, others may end in the higher end, but we will see how it goes. Only one quarter so far.

Rupesh Dhinoj Parikh: Great. And as you look at the consumer out there, are you seeing any changes in behavior? Historically, when you see spikes in gas prices, do any parts of the portfolio typically benefit?

Richard A. Dierker: Good question. As I said in my prepared remarks, promotional levels are up in laundry for the category. We are hitting all-time share highs, and our promotional levels are down. All three competitors besides us are up. The value segment of laundry is growing. We deliver great cleaning and efficacy at a great value, and that is hitting the mark in this economy. Same concept for litter. Some competitors are promoting very heavily. We are promoting a little more, but we are gaining share again and again. For those two areas of household, which are more responsive to promotions, that is a good sign.

Operator: Your next question comes from Javier Escalante Manzo with Evercore ISI.

Javier Escalante Manzo: Good morning, everyone. My questions have to do with the commodity backdrop. I was expecting a more muted outlook for gross margin given oil derivatives going into detergent. Can you explain how much oil derivatives go into your COGS? You mentioned the impact is $25 million to $30 million. Is that a full-year number? Anything that can help us explain the gross margin expansion going into calendar 2026? And I have a follow-up.

Richard A. Dierker: I will start, and then Lee can add comments. It is a full-year number, Javier, for that $25 million to $30 million, and it is primarily, as you would expect, oil-based derivatives like diesel, resins, and surfactants. Remember, in any given year, we enter the year about 60% hedged. These are net impacts for us. Hopefully this is transitory and not permanent, but we have good coverage for an extended period of time, especially in 2026. The team is laser focused on productivity to offset many of these things. There will be some RGM and promotional adjustments, but it is largely productivity. That has been the hallmark of the company.

We have transformed this place on being able to get gross productivity year after year. In a perfect world, if the headwind does not happen, great—we would continue to spend on marketing even higher and drive the top line faster behind our innovation. Lee?

Lee B. McChesney: To put it in perspective, we had about 160 basis points of inflation in the outlook back in January, and we got this $25 million to $30 million, which now brings you up to about 200 basis points. But we have additional offsets we are going after. You saw it last year when we did our work on tariffs—we worked that number down—and that is what we are doing here. We are in a good spot, and that is why we reiterate our outlook for the year.

Javier Escalante Manzo: Very helpful. If this externality continues and commodities remain very high, would you expect then value players to lead in calibrating the promotional environment and then potentially price increases? Is that a good assumption?

Richard A. Dierker: It is probably a better question for those competitors. As I said earlier on laundry, despite competitors promoting a bit more—still within a historical range—we are down on promotions and gaining share. The value segment is growing. That is a great position to be in when consumers are pressed at the gas tank and want to make sure their dollar goes further. One way they can do that is to buy ARM & HAMMER laundry detergent. It is about half the price of the leading detergent with great efficacy and great value. That is true not just in laundry but many of our brands.

Operator: Your next question is from Olivia Tong Cheang with Raymond James.

Olivia Tong Cheang: Great. Thanks, good morning. First question, relative to your expectations, a very nice beat on the top line. Where did you see the biggest positive surprises in your view? Was it more volume, more price/mix? It seems pretty broad-based. I am just curious how you are thinking about it. And then I have a follow-up.

Lee B. McChesney: It is a broad-based improvement across the globe. The only pressure point we saw internationally was the Middle East. On the year, we are generally the same type of view we shared back in January in terms of how we thought growth would play out across the globe.

Richard A. Dierker: Yes, the beat was volume-driven.

Olivia Tong Cheang: Got it. And as more business consolidates into club and online, it feels like the move online should be good for you, whereas club typically keeps brand count tight. Given those dynamics, how do you think about your ability to grow in these channels—whether disproportionately relative to your peer set—and your ability to stand out in both club and online?

Richard A. Dierker: There is no grand new strategy. We are performing really well online and in club. Remember, in 2015 we were 2% of sales online; we are at 24% now. We went from a laggard to a leader, and we moved quickly. We start with great brands—especially after the portfolio realignment—number one and number two brands consumers love. Even our new ARM & HAMMER liquid laundry with Baking Soda 10x has a 4.9 review where the average portfolio is 4.5. That story is playing out across categories and many brands. Then we make sure we have the right pack sizes for dollar, club, and online.

We have proven we can move faster—one of our competitive advantages—to give the customer what they want, where they want. We plan to win across all classes of trade.

Operator: Your next question is from Lauren Rae Lieberman with Barclays.

Lauren Rae Lieberman: I want to talk about your perspective on the consumer’s ability to absorb pricing—not necessarily how you will mitigate cost inflation, you have been clear there—but broadly, the ability to absorb pricing should the industry end up going there?

Richard A. Dierker: Great question. Our view is the consumer is pressed—and more pressed today than three, six, or twelve months ago—because gas costs show up immediately. When that happens, they retrench. The worst thing to do in an environment like this is push price. We have no plans to try to price through this $25 million to $30 million headwind. We will offset it with productivity. There is just no appetite for the consumer to bear something like this. Companies that do that will be more successful than those that do not.

Operator: Your next question comes from Stephen Robert Powers with Deutsche Bank.

Stephen Robert Powers: Building on that, two questions. First, is there any heuristic you could offer as to how external dynamics—volatility in the Middle East, further increases or duration in oil—translate into that $25 million to $30 million growing, and at what pace? Second, if that $25 million to $30 million grows over time and you run dry on incremental productivity, do you approach pricing across different parts of the portfolio with a different mindset—more ability to push price through premium and less on value?

Richard A. Dierker: We are not going to go through the details of what every $5 or $10 in oil translates to for Church & Dwight Co., Inc. My answer to Lauren was based on the current scenario, $25 million to $30 million. We can handle that. If it becomes a lot more meaningful—$50 million, $100 million, $150 million—then you solve a different problem with different solutions. The first stop is productivity. The second is RGM on promotions, usually in household where a lot of our promotions are. The third would be pricing. You are right, many of our premium products are highly priced and consumers love them, but you have to do that behind innovation.

As we launch innovations, we would look closely at price points. For today, if it is in this range—and we hope it is transitory—then we solve through productivity. If it becomes bigger, we have other tools in the toolkit.

Stephen Robert Powers: If it is transitory, is the productivity you are putting in place structural, or more belt-tightening such that, if it rolls over, some gets reinvested and some backfilled?

Richard A. Dierker: I would not call it belt-tightening. We accelerate projects. We have a three-year pipeline of productivity projects, just like we have a three-year pipeline of innovation. At any given time, we can fast-forward certain projects or slow down others—we can influence timing. If costs drop, perhaps we slow some of it down, or we take that money and reinvest it in marketing and build the virtuous cycle again.

Operator: The next question comes from Andrea Faria Teixeira with JPMorgan.

Andrea Faria Teixeira: Thank you for taking my question. I was hoping to see if you can comment on what you said about outperformance on organic sales growth and the comparison dynamic from last year. With what you guided for the second quarter and more aligned with consumption, is that 2% extra in the first quarter more of an adjustment, not a pull-forward from the second quarter? And then a follow-up: are you going to take price actions to mitigate the $20 million to $30 million impact from the Middle East war, or are you saying potentially you could take some pricing?

Richard A. Dierker: On price, I was clear: the $25 million to $30 million headwind that the Middle East conflict has created, in terms of higher commodity costs and inflation, we believe we can offset with productivity. That enables us to keep our outlook where it is. Steve’s question was, what happens if that doubles or triples—can you still do it with productivity? The answer was no. At that amount, we can do it with productivity. If it goes a lot higher, we would look at RGM actions on promotions. If it goes higher from there, we would look at potential pricing. The normal sequence of events.

At those higher levels, the consumer is pressed, and we do not plan on raising prices at this point.

Lee B. McChesney: And to put a fine point on assumptions, we are using a reasonable average of what we have seen in the last couple of weeks. Obviously it changes daily, but $95 to $100 per barrel is a good base point.

Andrea Faria Teixeira: Thank you, Lee. And on the first question about the 5% and the 2% inventory dynamic?

Richard A. Dierker: Rewind twelve months. In Q1 2025, every CPG manufacturer saw a retail inventory pullback because of all the agitation around tariffs and the consumer. Everyone called out a number back then. This earnings cycle most folks are not talking about it as much; we are just trying to be transparent. We called it out a year ago and said a year later that is worth a 2% help. So we grew our business around 3%, and we had that 2% help—that is 5% organic. Categories are growing well, we continue to take share, and we are getting distribution gains. That is why we gave an outlook we think is really strong for the full year and solid for Q2.

Operator: Our last question comes from Peter K. Grom with UBS.

Peter K. Grom: Thank you, and good morning, everyone. I was hoping to get some perspective on category growth. You mentioned 3%, but some peers have touched on growth showing signs of improvement as you move through the quarter. Can you comment on what you have seen from a category standpoint exiting the quarter and quarter-to-date? And related, given the many things the consumer is dealing with, how do you see that evolving from here?

Richard A. Dierker: Good question. For us in the quarter—talking about our major categories—we were around 3% for the quarter: about 3% in January, 3% in February, closer to 3.5% in March. That bodes well. It came down a little bit in April, but we are doing extremely well in April. It was better than we expected. When we started the year, we were expecting closer to maybe 2% to 2.5% category growth. It is only ninety days, but I am more enthusiastic than I was ninety days ago despite everything else. The categories really matter, and many of our categories—almost all—are growing at least 2.5% to 3%. That is a great thing.

Operator: There are no further questions at this time. I will now turn the call back over to Richard A. Dierker for any closing remarks.

Richard A. Dierker: Alright. Well, thank you very much, and we will talk to everybody in July.

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