Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Church & Dwight Co Inc  (NYSE:CHD)
Q3 2018 Earnings Conference Call
Nov. 01, 2018, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning ladies and gentlemen and welcome to the Church & Dwight Third Quarter 2018 Earnings Conference Call. Before we begin I have been asked to remind you that on this call the company's management may make forward-looking statements regarding among other things, the company's financial objectives and forecasts. These statements are subject to risks, uncertainties and other factors that are described in detail in the company's SEC filings.

I would now like to introduce your host for today's call Mr. Matt Farrell Chief Executive Officer of Church & Dwight. Please go ahead, sir.

Matthew Farrell -- Chief Executive Officer

Good morning everyone. Thanks for joining us today. I'll begin with a few comments on the quarter, then I'll turn the call over to Rick Dierker our CFO. When Rick is finished we'll open up the call for questions. Q3 was an outstanding quarter for our company. Q3 net sales grew 7.2%, which reflects both strong organic sales growth and sales from prior year acquisitions. Sales growth is clearly a powerful earnings lever in an environment with rising input costs. Organic sales growth was 4. 7% which exceeded our outlook of 3%. Global consumer organic net sales have accelerated sequentially over the last five quarters as price mix continues to improve and this performance was a clear standout in comparison to our peers.

Earnings per share was $0.58 which exceeded our outlook by $0.05. In the U.S. organic sales grew 4. 7% with both volume growth and positive price. Our categories are growing and our market shares are healthy. 11 of our 15 categories grew during the quarter. Nine categories have grown for at least four consecutive quarters. And beyond category growth, our share results are solid with seven out of 11 power brands growing share.

As we have said in the past, we have low exposure to private label, about 12% share on a weighted average basis. Now we're having success in the online class of trade. Global consumer online sales continue to grow and we continue to expect it to exceed 6% of sales in 2018. With respect to the promotional environment, 8 of our 11 power brands have a lower percentage of products sold on promotion in Q3 compared to Q3 2017 and still we grow. And this is the second quarter that we've seen this and we don't expect that to change in Q4.

Our International Consumer business delivered 8.3% organic growth. As you know, International has emerged as a growth driver for our company for the past four years. International markets are a bright spot for Church & Dwight unlike many of our peers. Canada, Mexico and export had particularly strong quarters. The investments that we've made in new leadership regional hubs and our brand focus continue to pay off.

On August 29th the company entered into a long-term cooperation agreement with Shanghai Jahwa, a respected and well-established local Chinese CPG company. Shanghai Jahwa will be the exclusive omnichannel distributor for four of our categories and they would be, baking soda, toothpaste, dry shampoo and fem hy and this is in Mainland China. This is an important step in our Asia Pacific strategy and we're very excited about the partnership as Jahwa has demonstrated the ability to build strong brands for themselves and other CPG companies in the past in Mainland China.

Our algorithm is 6% annual organic growth for the international business and we expect to meet or beat that number in 2018. Now turning to Specialty Products. Q3 was another challenging quarter for us with a 3.3% decline in organic sales. And this of course reflects lower demand for animal productivity products from our dairy customers who continue to be hurt by low milk prices. However we still feel good about our long-term 5% organic sales algorithm as a result of our acquisitions of businesses, serving other species like cattle, swine and poultry.

Now let's go back to the U.S. business for a moment to call out a couple of the big consumption winners in the quarter. In household ARM & HAMMER detergent reached an all-time high quarterly share of 10.3% and ARM & HAMMER unit dose consumption grew 31%. In personal care BATISTE continued to gain share with 33.5% consumption growth in the dry shampoo category while the category grew 26.7% in the quarter. BATISTE is the number one dry shampoo for the 11th consecutive quarter and continues to be the number one dry shampoo in the world.

So to conclude, we had a terrific quarter. We have a sustainable evergreen business model because we have brands consumers love, our company is a friend of the environment and that is important both to us and to our consumers and our people make Church & Dwight a great place to work.

Next up is Rick to give you details on the third quarter and the outlook for Q4 and full year.

Rick Dierker -- Chief Financial Officer

Thank you Matt, and good morning everybody. We'll start with EPS. Third quarter adjusted EPS was $0. 58 per share, compared to an adjusted $0.49 in 2017, up 18.4%. The $0.58 was better than our $0.53 outlook due to stronger top line and lower tax rate.

Reported revenues were up 7. 2%. Organic sales were up 4. 7%, exceeding our Q3 outlook of approximately 3%. The organic sales beat was driven by our global consumer growth of 5.4%. We're extremely pleased with our results. This is the second consecutive quarter of global consumer product growth in excess of 5%.

Now let's review the segments. First, Consumer Domestic. Organic sales increased by 4.7%. As communicated last earnings call, we expected price mix to be positive in the back half of 2018 which is exactly what happened in Q3 with 2.1% price mix growth, largely due to year-over-year couponing declines and lower promotional levels.

International organic growth was up 8.3%, driven largely by BATISTE, VITAFUSION, and FEMFRESH and the export business. We also had strong growth in Canada and Mexico. For our Specialty Products division, organic sales declined 3.3%, due to lower volume as the dairy economy continues to struggle.

Turning now to gross margin. Our third quarter gross margin was 44.3% a 100 basis point decrease from a year ago. This includes 160 basis point drag for higher commodities, a 70 basis point drag from higher transportation costs and a 60 basis point drag from other manufacturing, offset by 100 basis points for our productivity program and 90 basis points of favorable volume and price.

Moving now to marketing. Marketing was up $8.6 million year-over-year. Marketing expense as a percentage of net sales was flat at 11.6% despite recent acquisitions which have a lower spend rate. For SG&A, Q3 SG& A decreased 20 basis points year-over-year. The $7.5 million increase was primarily due to acquisitions, including intangible amortization costs, incentive comp and IT plus R&D investment spending.

Now to operating profit. The operating margin for the quarter was 19.7%. Other expense all-in was $16.9 million primarily driven by interest expense and higher debt levels, related to acquisitions. Next is income tax. Our effective rate for the quarter was 21.9%, compared to 28.7% in 2017, primarily due to tax reform.

We now expect the full year rate to be approximately 22%. And now to cash. We had a strong cash flow quarter. For the first nine months of 2018, net cash from operating activities was $568 million, an increase of about $145 million from the prior year due to higher cash earnings and a smaller increase in working capital. A bit of housekeeping here. Diluted shares outstanding for the quarter were approximately 251 million and that is the expectation for the full year. So in conclusion the third quarter highlights are 4.7% organic sales growth and adjusted EPS growth of 18.4%.

Now turning to the fourth quarter outlook. We continue to expect Q4 organic sales growth of approximately 3%. We expect fourth quarter earnings per share of approximately $0.57, a 10% increase over last year's adjusted Q4 EPS or a reported decline of 64% due to 2017 tax law changes.

And now turning to the full year. We now expect organic sales to be approximately 4%. We continue to expect reported sales growth to exceed 9%. We continue to expect full year gross margin to be down 120 basis points in line with previous guidance and we are tightening our EPS range to $2.27 per share or adjusted EPS growth of 17%. We're raising our marketing for the full year to be in excess of 11.5% as we spend back any earnings beat to continue our momentum as we enter 2019.

And with that we'll turn it back over to Matt to discuss pricing before we open it up for questions.

Matthew Farrell -- Chief Executive Officer

Okay. Thanks Rick. Yeah, before we open up the line for Q&A, I'm going to cover a couple of topics, few words about pricing and tariffs. So rising commodity and logistics costs have put pressure on our gross margin. So over the last few months, we've had discussions with our retail partners and made decisions on pricing. In several household categories and geographies, we are raising list price in the high single-digit range and the price increases will start showing up on shelves in Q4, and the pricing covers about one third of our portfolio.

Other categories are being planned for early 2019, too early to talk about those. Naturally if input costs remain high, promotional support in 2019 would be reduced and that would be consistent with the recent trends. And then beyond cost inflation, we are impacted by the tariff war notably in Waterpik Water Flossers, and as a result we are raising price there as well to protect gross profit dollars in 2019.

And with that, I'll turn over to Q&A.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Kevin Grundy with Jefferies. Your line is open.

Kevin Grundy -- Jefferies -- Analyst

Thanks. Good morning guys. See -- and congratulations on a great quarter. Matt, can we start on the detail, little bit more color on the China agreement? How quickly can that ramp for you guys? What does that mean for the growth of the international business? That business has obviously been doing very very well. What -- why should we not think that this would lead to an acceleration above the 6% target at this point?

Matthew Farrell -- Chief Executive Officer

Yeah. Kevin, like 6% is not high enough huh? Hey look, we started making investments almost a year ago in Southeast Asia. You may recall we signed up with DKSH, early this year. They're a massive distributor. We've done a lot of training with their people early this year and it's starting to pay dividends, later in the year in that part of the world. China is more of a long roll too. I mean this company has in the past, been a partner with both Cal (ph) and S. C. Johnson, and they're going to be our exclusive distributor in Mainland China. But we think it's going to be a slow build but once again just like DKSH, we think Shanghai Jahwa is going to make sure we sustain comfortably a 6% growth rate in the future.

Kevin Grundy -- Jefferies -- Analyst

Okay. All right. That's helpful. And then just one more for Rick. Rick, can you talk a little bit, not that I am asking you guys to guide on fiscal '19 but the higher input costs pressure that everyone is dealing with, higher freight cost that everyone is dealing with, can you talk a little bit about, how much visibility you guys have looking out to 2019 at this point in time? Maybe a little bit of color on how much you have hedged at this point? And then maybe even comment a little bit if we kind of stay where we are at this point in time? What level of pressure should we consider on the company's gross margins both with respect to commodities freight tariffs? So we can kind of ascertain that relative to what might be necessary from a pricing perspective, so that the company may or may not be able to deliver on its longer-term algorithm? Thanks.

Rick Dierker -- Chief Financial Officer

Yes Kevin. I would just say that, we don't really go into a lot of detail, at this point in time on 2019. What I would tell you is, you were very smart with our long-term evergreen model. We aim to have gross margin expansion. We aim to have 3% organic sales growth and around 8% EPS growth. All that is kind of the framework in which we operate under, yeah as you know, commodity costs are high but that is also why companies are leading with pricing decisions and also with lower promotional support. And we're also encouraged as our supply chain continues to build even more incremental productivity programs and progress. So we're not going into gross margin expectations now. I'd tell you, just like any year, we do have a big chunk of the portfolio hedge for next year, so we do have good visibility into what we think is going to happen but we're doing everything we can to make sure we're in a great position for '19.

Kevin Grundy -- Jefferies -- Analyst

Okay. I'll pass it on. Thank you very much.

Operator

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

Rupesh Parikh -- Oppenheimer & Co. Inc -- Analyst

Good morning. Thanks for taking my questions and also congrats on a really nice quarter.

Matthew Farrell -- Chief Executive Officer

Thanks Rupesh.

Rupesh Parikh -- Oppenheimer & Co. Inc -- Analyst

So on pricing, two questions. So first in the -- I guess the categories that you plan to take pricing in Q4, are you seeing other players within your categories also taking pricing? And secondly related to pricing. Do you historically see a negative impact on volume when you have the price increases?

Matthew Farrell -- Chief Executive Officer

Yeah, about first question, one of the obvious ones I'm sure is, one of the category is litter, and yes it is. And we saw earlier in the year that, Clorox announced publicly that they were going to raise price and we also know that Nestle has done the same with Tidy Cats, so that's one that we're following on. As far as how we plan these things, yeah we're planning that, conservatively that there will be some impact on volumes as a result of the price increases and that's sort of baked into our thinking not only for the fourth quarter but for next year.

Rick Dierker -- Chief Financial Officer

And the other thing I'd add to that Rupesh is, these price changes are just hitting retail, right in Q4. So it's too early to see or tell you if any private label or other competitors would be following.

Rupesh Parikh -- Oppenheimer & Co. Inc -- Analyst

Okay. Great. And then a second question. On the M&A front, clearly we're now in a rising rate backdrop. So from a Church & Dwight perspective, do you guys think you're better positioned in this type of environment on the M&A front, maybe versus some of the other players out there?

Rick Dierker -- Chief Financial Officer

Yeah we absolutely do, Rupesh. I think as you know we're significantly under-levered. We're right around two times. We have a lot of firepower in the balance sheet. So I think we're in a great spot.

Rupesh Parikh -- Oppenheimer & Co. Inc -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Jason English with Goldman Sachs.

Jason English -- Goldman Sachs -- Analyst

Hey, good morning guys. Thank you for squeezing me in.

Rick Dierker -- Chief Financial Officer

Hey, Jason.

Matthew Farrell -- Chief Executive Officer

Hey, Jason.

Jason English -- Goldman Sachs -- Analyst

Congratulations on a great quarter.

Matthew Farrell -- Chief Executive Officer

Jason, you are the third caller man, we are not squeezing you in.

Jason English -- Goldman Sachs -- Analyst

Yeah, I know. I am sorry. I'm used to being squeezed in. It's just -- you are right, it's just a matter or habit. I know. Thank you guys for spotting me early. I really appreciate it. This is special -- it's a special day for me. I had a question on M&A, the contribution from Waterpik. You came in, you're looking for around $10 million of synergies. Where do you stack and rank on that? And you flagged some of the tariff rates going forward, can you comment on where the profitability of the business is today?

Rick Dierker -- Chief Financial Officer

Yeah, so two things. So yes you're right, we had signed up for $10 million of synergies. A lot of that was also international growth, incremental international growth, and we're happy to say that we expect all that to come, which is great. We really integrated the operations, part of the operations, part of the IT piece and then largely international. So that's where we've been on integration and synergies. Your other question was Waterpik margin, yeah it's what we said, it's been after the last, maybe 1 year, 1.5 years. It's right at company average, around 45%.

Jason English -- Goldman Sachs -- Analyst

That's great. When we slow our best estimate of profitability on that business through, we're kind of landing that organic profit line, EBIT line for you guys, it's been kind of flattish for the year, maybe down a little bit, and is -- A) Is that consistent with how you're seeing it? And B) if so, can you unpack some of the headwinds? How much is commodities and it's probably the vast majority of it and how much is reinvestment? And as we think forward, clearly pricing has been the new news today. Do you expect the pricing of the commodities to be enough of a swing factor going to next year to accelerate the organic EBIT?

Rick Dierker -- Chief Financial Officer

Yeah, a lot of questions there to unpack. I probably won't go back through our full year gross margin bridge. And we early on, we said we were getting a little bit of help from acquisitions and divestitures, not necessarily Waterpik in nature but some of the smaller bolt-on deals that we had done. I think from an EBIT growth perspective, again we decided to make some choices. When we got great benefit from tax reform, we felt like really we are one company out of many that let most of the tax form benefit fall through down the EPS. If you look at our peer group, many people ended up spending that or competing another way, we did not, right? We are going to deliver around 17% EPS growth in 2018. So EBIT growth is -- for the quarter was actually up as well, but remember, we made some choices to spend back part of that in things that will help us the next two, three, four, five years. And so we kind of went through that back in February when we gave original outlook. So I wasn't really going to go through that again today.

Jason English -- Goldman Sachs -- Analyst

All right. Very well. Thank you very much. I appreciate it. I'll pass it on.

Operator

Thank you. Our next question comes from Bonnie Herzog with Wells Fargo. Your line is open.

Bonnie Herzog -- Wells Fargo Securities -- Analyst

All right. Thank you. Good morning. I had a question this morning on your guidance. I'm wondering why you guys expect your Q4 organic sales growth to slow versus Q3 levels? I guess I'm asking this especially considering the year-over-year comp is pretty similar and the fact that you're stepping up marketing expense in Q4, I guess I would think you'd expect to see some acceleration. So I guess are you guys just being conservative? Or does it have something to do with the pricing actions that you mentioned, that you're putting into the market?

Rick Dierker -- Chief Financial Officer

Yeah let me try to take that. It's Rick. From Q3 to Q4 deceleration. So Q3 organic was 4.7% right? Our implied organic growth is 3%, 3.5% in Q4, when you say the full year it's 4%. So that's a decline of about 130 basis points. And then if Waterpik is growing around 10%, then that would imply that the base business is decelerating by around 200 basis points, 230 basis points. So that's probably the crux of your question. So around 20 or 30 basis points is because of just year-ago comps. There's a little bit of deceleration, maybe 30 or 40 basis points for SPD further decelerating because of the dairy economy. But then, pretty much the entire piece, around 170 basis points because we have lower promotional spending, it's our lowest trade quarter of the year, it's the lowest couponing quarter of the year. And so what we just saw in Q3 with 8 of 11 power brands being down promotional spending, we just expect that to continue in this environment.

Bonnie Herzog -- Wells Fargo Securities -- Analyst

Okay. That's helpful. And then, I had a question on your sell-in versus sell-through. We're still seeing a pretty big gap in the Nielsen data, I think it's about 300 bps difference in your Consumer Domestic business. This came up on your Q2 call and I think that part of the gap was attributed to certainly the strength you are seeing in non-tracked channels, and then maybe a little bit from a lower couponing. So just wanted to hear from you guys if those are still the key drivers of the difference this quarter? And then how should we see this gap going forward? Would you expect it to kind of close in the future?

Rick Dierker -- Chief Financial Officer

Yeah, it's a good question Bonnie. I think you're right at the recurring theme that we talk about every quarter. We were -- I think measured channels were around 2%. If you look at Nielsen data, we report 4.7% so about 270 basis points. About one-third of that is unmeasured channels, so whether it's online growing strongly or cost cut Costco club those types of unmeasured channels. And then two-thirds of it is coupon reduction and lower promotional spending. So what doesn't show up in Nielsen as we talk about all the time is couponing. And so a big chunk, if you go back to laundry even and we used Nielsen panel data as an indication people can use as an indication. I think the category for laundry was down 300 basis points in couponing. Church & Dwight was down 1000 basis points on couponing.

Bonnie Herzog -- Wells Fargo Securities -- Analyst

Okay. Thank you.

Operator

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

Stephen Powers -- Deutsche Bank -- Analyst

Hey, thanks. Great quarter guys.

Matthew Farrell -- Chief Executive Officer

Hey, Steve.

Stephen Powers -- Deutsche Bank -- Analyst

Maybe to follow up on Jason's question, build on that and also your comments and response Rick. As you said, we started the year you'd elected to reinvest a sizable portion of the tax reform benefits back at the business, given the strength this quarter, obviously you're reinvesting further into year-end which I think makes sense as you set yourself up for next year. I guess I'm just trying to parse that a little bit.

As we think about all the incremental investments that you've made in totality, is there a way to frame, to what degree they are more kind of one-year discretionary investments, they're likely to or at least could fallaway next year versus the more structural investments that you mentioned, the ones that may carry a longer-term ROI and be with us for the next several years?

Rick Dierker -- Chief Financial Officer

Yeah, I would tell you Steve, most of them are longer-term ROI investments right, whether it's marketing spending which is laying the groundwork for not just for next three months, the next 12 to 24 months in the future, as we build brand equity. Incremental spending for R&D, right? As we laid the groundwork to build new product portfolio that continues to perform great, like we have in litter, laying the groundwork, as an example we had a few around our productivity program and how we organize and really get the ideation sessions around that, in order to increase our productivity, target long term. So all these things are building as long-term investments is, what I would say.

Stephen Powers -- Deutsche Bank -- Analyst

Okay. Fair. And I guess just one quick follow-up. It's sort of nitpicky that the Waterpik pricing that you mentioned I just -- I don't have any familiarity with elasticity in that business. So can you based on what you've learned about that business and what you've sort of learned from their past history as that business has taken pricing to the extent sort of the same degree you're playing into next year. What's been the reaction of the brand in the market?

Matthew Farrell -- Chief Executive Officer

Yeah Steve it's a good question. We bought the business last August. Not too long after we bought the business we did some the elasticity studies with respect to pricing. And so we don't think there's going to be a significant downtick in volume and it's a couple of intuitive reasons for that. One is that, purchase cycle for Water Flosser is about kind of every three years. The second thing is that 60% of Water Flossers is a purchased on a doctor's recommendation and the last thing would be, we are kind of like 98% share of the category, so sort of are the categories. So for those reasons, I think there is opportunity to increase price.

Stephen Powers -- Deutsche Bank -- Analyst

Okay. Great. Thank you.

Operator

Thank you. Our next question comes from Nik Modi with RBC Capital Markets. Your line is open.

Nik Modi -- RBC Capital Markets -- Analyst

Yeah. Thanks. Good morning everyone.

Matthew Farrell -- Chief Executive Officer

Hi, Nik.

Nik Modi -- RBC Capital Markets -- Analyst

The -- hey, Matt. Do just two quick questions. One is on just the M&A environment. Obviously you guys have a very good balance sheet with some capacity to do some stuff. So just curious on what you're seeing out there, looks like at least from the publicly traded companies valuation is coming down. I'm wondering if that's also happening in the private world as well. That's the first question. And then the second question is, most companies this quarter had really good numbers in the U.S. and maybe you can just provide some context around is this just category growth picking up all of a sudden or is it the fact that Walmart which is typically everyone's biggest customer is having some pretty good same-store sales numbers? Maybe any color on that, I think would be really useful. Thanks.

Matthew Farrell -- Chief Executive Officer

Hey Nik, in my remarks one thing I said was, in the U.S our categories are growing and they have been growing. We've nine categories over 15 have grown in last four quarters consecutively. So and then if you look at our 15 categories on a weighted average basis, we're over 3% and in last quarter it was, I think we said was 2.7%, a quarter before that was 3-plus as well. So when you look at companies you have to say, in what categories are they in? So we're all not the same. So we happen to have categories that have strength and we also have strong brands as well. Now your question on M&A would be obviously we do have a strong balance sheet. But we're very fussy about what we're going to buy. So you need to be number one and two brands, all right they have to have corporate or higher gross margins, got to be able to grow and they need to be asset light, so it does knock a lot of things out when we start looking at things but we are always in the hunt.

Nik Modi -- RBC Capital Markets -- Analyst

And just on the (Multiple Speakers). Yes, sir.

Rick Dierker -- Chief Financial Officer

I would just say, in terms of your value question Nik, as interest rates continue to go up and you're right, valuations tend to come in. I mean that's overarching will happen over time.

Nik Modi -- RBC Capital Markets -- Analyst

Great. Thank you.

Matthew Farrell -- Chief Executive Officer

Okay.

Operator

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

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Hey, good morning.

Matthew Farrell -- Chief Executive Officer

Hey, Bill.

Rick Dierker -- Chief Financial Officer

Hey, Bill.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Just backing on Waterpik, just trying to understand, I think you walked a little bit through its impact to organic growth but is there a thought that I mean I'm just trying to understand how it's impacting international business? I know it's all kind of classified in Consumer Domestic. But maybe you can help me understand if that's a driver of the international business, and also from the International, like is there a region, I know you had invested in three different regions over the past few years. If there was one that was kind of exceeding expectations or they were all kind of consistent?

Matthew Farrell -- Chief Executive Officer

Let me take a swing at that, Bill. So we had the 6% algorithm. When we look at the 8.3% organic growth in the quarter, we're over 6% without Waterpik. So we're not going to actually call out what -- how many basis points but international is healthy and it's algorithm without Waterpik. But obviously it didn't become part of organic in the quarter, so that helped to pop it a bit.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Got it. So it is split for Consumer Domestic and International, in terms of the organic?

Rick Dierker -- Chief Financial Officer

Yeah, Waterpik goes into both divisions. I would tell you just to expand on Matt's comments, it was, it went organic for about a month, maybe a month and a week, and actually I think with -- over that Waterpik the rate for International would have been the same in the quarter.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Okay. And just sticking on that theme, I mean was there anything else international like, is BATISTE continuing to do extremely well in the U.K. or is there any other key driver or is it just kind of across-the-board steady?

Matthew Farrell -- Chief Executive Officer

If you think about the international business, some of the businesses that are doing really well are in export would be BATISTE, VITAFUSION and FEMFRESH which is a feminine hygiene product but not sold in the U.S. but outside the U.S. But we've had strength in the countries as well. So if you want to know, in Mexico it's pretty much ARM & HAMMER across-the-board, ARM & HAMMER products. So ARM & HAMMER laundry, ARM & HAMMER dental care, ARM & HAMMER baking soda in Mexico doing extremely well. In Canada, BATISTE and VITAFUSION is similar to export but also ARM & HAMMER litter. Remember a few years ago, we took litter up into Canada and that continues to grow. So we've had strength in the countries as well as strength in export this quarter.

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Got it. Thanks so much.

Operator

Thank you. Our next question comes from Steve Strycula with UBS. Your line is open.

Steve Strycula -- UBS -- Analyst

Hi, good morning. I'm not going to ask a Waterpik question, but wanted to ask you on your Consumer Products pricing announcements. Want to make sure, I heard everything correctly. Did you say you're taking 30%, sorry high-single-digit pricing across 30% of the portfolio? Is that math correct?

Matthew Farrell -- Chief Executive Officer

Yes I said one-third, yeah, you're right.

Steve Strycula -- UBS -- Analyst

Okay. And that's on top of the reduced couponing? So I think that this is -- this announcement is incremental to kind of the success we saw in 3Q?

Matthew Farrell -- Chief Executive Officer

Correct.

Steve Strycula -- UBS -- Analyst

And then. If we kind of like roll that through to think about what that implies for volume, you're still implying the volumes are going to be up slightly for the fourth quarter. Is that the right framework?

Rick Dierker -- Chief Financial Officer

Yes that's correct. We think we're going to have a balanced positive volume and positive price mix for Q4.

Steve Strycula -- UBS -- Analyst

Okay. And then the last one would be for the marketing spend, it sounds like you guys feel pretty encouraged and are putting some more back into the business in Q4. What specific brand is most responsive to the ad spend in the marketplace that you felt like taking that up? Thank you.

Matthew Farrell -- Chief Executive Officer

Well, we have over 80 brands but we have 11 brands that represent 80% of our revenues and profits so we'd be plowing back into the power brands.

Operator

Thank you. And our next question comes from Olivia Tong with Bank of America Merrill Lynch. Your line is open,

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Great. Thanks, good morning. I have two questions around SG&A. First in terms of the marketing spend increase plans. Are there specific categories where you decided you want to push the spend? Or is it pretty much across the board since you have that capability at this point? And then, in terms of the SG& leverage or the SG&A for Q3, I'm surprised that you didn't get a little bit more leverage off of a pretty strong top line beat. So I was wondering if you could go into that a little bit, because your results were pretty impressive but obviously you didn't take too much leverage on SG&A. Thank you.

Rick Dierker -- Chief Financial Officer

Yes. So the first question Matt just answered that for Steve, Olivia if and if you didn't here when you was in queue. But really saying that, we have 80 brands that we are going to be spending back to marketing, incrementally on the power brands that matter. Your second question, SG&A we're actually thrilled that we did leverage it right? We're down 20 basis points from a leverage perspective. And this whole front part of the year we haven't been leveraging SG&A because of all these small deals that have higher SG&A rates. And so just the fact that the Waterpik amortization kind of rolled off, we're comping that now as an example in a large way. It just gives us great confidence that our model is intact once we get through this transition 11, 12 months.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

All right. Thanks. And then mentioned in the China agreement that you referenced earlier in prepared remarks, you must have plan there? Is it going to be more around personal care brands versus household? And just a little bit more color on that would be great.

Matthew Farrell -- Chief Executive Officer

Are you talking about the Jahwa partnership? You kind of broke up a little bit.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Yeah.

Rick Dierker -- Chief Financial Officer

So we did reference it in our prepared remarks.

Matthew Farrell -- Chief Executive Officer

In the category are you interested in? Yeah.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Exactly.

Matthew Farrell -- Chief Executive Officer

Yeah, it's ARM & HAMMER baking soda, ARM & HAMMER toothpaste, BATISTE dry shampoo and feminine hy products would be FEMFRESH. Those would be the four categories.

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Great. Thank you.

Operator

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

Lauren Lieberman -- Barclays -- Analyst

Thanks. Good morning. I was hoping if you could just talk a little bit more about China because I know I think it was about 1% of international back in 2016. So I was just kind of curious why these are the four categories you chose to go with. I don't really know anything honestly about the baking soda, I guess category or sort of the Chinese view of baking soda as an ingredient. So is there anything you could offer on, again, these four categories and what's already in the market, I know it's a little small piece of business before this announcement. Thanks.

Matthew Farrell -- Chief Executive Officer

Yeah. So before going forward and picking a partner, we did a we did a lot of homework on what categories would resonate most with the Chinese consumer. And one in particular we thought was, very important was ARM & HAMMER baking soda. So ARM & HAMMER for our company is $1 billion of our $4 billion in sales. And we've had some success with going internationally with ARM & HAMMER. And we thought that was an important one to sit as the foundation for the future in China. And then the other categories we picked like toothpaste, the dry shampoo and fem hy again because of our more market studies, we thought that we had products that would resonate with the Chinese consumer. So that's why we picked those and our partner is pretty excited about taking those to market for us.

Lauren Lieberman -- Barclays -- Analyst

Great. Thank you.

Matthew Farrell -- Chief Executive Officer

All right.

Operator

Thank you. Our next question comes from Joe Altobello with Raymond James. Your line is open.

Joe Altobello -- Raymond James & Associates -- Analyst

Thanks. Hi guy, good morning and I'd like to say thanks for squeezing me in, by the way.

Matthew Farrell -- Chief Executive Officer

Wow, I didn't know you guys were so sensitive to the queue.

Joe Altobello -- Raymond James & Associates -- Analyst

No, no. I was just kidding. It's OK.

So first question I guess is on guidance. And If you look at the third quarter, you beat your guidance by about $0.05. You're effectively keeping your full year unchanged. Then I know you mentioned you're spending a lot of that upside back in marketing and I'm there is probably some conservatism baked into that as well. But beyond those two items, is there something else that sort of changed materially from 3Q to 4Q? Was it really just a higher marketing and conservatism?

Rick Dierker -- Chief Financial Officer

Yeah not really. You're right. Predominantly higher marketing, we may spent couple of million dollars bucks more on R&D and again to lay the groundwork for the future but those are marketing the bigger one by far.

Matthew Farrell -- Chief Executive Officer

And Joe at the end of the second quarter, we had a beat as well. And we said, we're going to -- to the extent that -- would that continues for the year, we're going to spend it back primarily in marketing or any other areas we think can help us long-term and people who have followed us for years that's consistent with our past practices.

Joe Altobello -- Raymond James & Associates -- Analyst

Got you. Okay.Is retailer de-stocking still an issue at this point or is sell-in and sell-through sort of converging?

Rick Dierker -- Chief Financial Officer

Yeah, Joe, you can go back and look at the script for last in perpetuity. We've never called out retail or destocking as an issue. I think it is an issue sometimes in you know different competitors or different categories but it just so happens in our categories, we've never really called that out as an issue.

Joe Altobello -- Raymond James & Associates -- Analyst

Okay. And just last one. SPD, how big is dairy for that business? You have probably have (Multiple Speakers)

Matthew Farrell -- Chief Executive Officer

Just kind of round numbers the -- we've it's a $300 million business, you could see that in the K and the simple way to think about it is, it's two-third, one-third, one-third is bulk sodium bicarbonate, two-third is animal productivity business and that is largely the dairy business. We can't go into too much detail than that.

Joe Altobello -- Raymond James & Associates -- Analyst

That's fine. Okay. Thank you, guys.

Operator

Thank you. Our next question comes from Andrea Teixeira with JPMorgan.Your line is open.

Andrea Teixeira -- JPMorgan -- Analyst

Hi, good morning. Than you. So the, on the organic sales drivers, can you update us on how TROJAN performed during the quarter? So historically, you've seen some share losses but has it stabilized recently? And how are you thinking of the way to reposition the brand to go back to market share gains and potentially build the category again? And on a separate basis, I was wondering how you did so well in laundry and Rick commented on couponing being less of an issue, I was wondering how the pie as in total in the U.S. has been under pressure now for many many quarters and the reason for that is because a lot of other . So I wonder if you can comment on the category from the second quarter to the third quarter, how it expanded. Thank you.

Matthew Farrell -- Chief Executive Officer

Okay. With respect to TROJAN and Condom, so the Condom category has been under pressure now for many many quarters and the reason for that is because a lot of other alternatives that are out there like Plan B for example and the resurgence of IUDs et cetera. So we're the category leader. The good news is that in the most recent quarter we gained share. Although consumption is down in the category our consumption was not as down as much as in the category. And more recently, things have been trending more positive for consumption of TROJAN condoms and this is largely due to we have a new TROJAN campaign. And then we have a new TROJAN man, so I encourage everybody to go out there and look for it, and the new TROJAN man is promoting and it's a big sexy world. So you want to protect yourself with a condom. So condoms like I said there's some secular changes that are going on there with respect to other alternatives but it is up to us to drive the category and we think we have a really great campaign right now, it's going to help us do that.

With respect to laundry, yeah so the laundry category is less promotional than it was. It's down 130 basis points year-over-year. As far as in liquid laundry the liquid laundry category grew 1%; ARM & HAMMER grew 5% and in unit dose, unit dose category grew 9%. So that sort of reaccelerated. In previous three or four quarters unit dose only grew the category, only grew 5% but this quarter up 9% but we grew-- ARM & HAMMER grew 31% and ARM & HAMMER now has a 4.4 share in unit dose, it's up 70 bps. ARM & HAMMER had a really spectacular quarter.The other two brands XTRA, in the prior years XTRA was declining in share. Last quarter it actually held, was up a little bit and this quarter down 10 basis points. So we think we've stabilized XTRA. OXICLEAN on the other hand there was a pullback in the quarter for us. And we found that OXICLEAN does well when it's promoted and less well when it's not. So we've kind of been banging around between 1.1 share when we don't promote and a 1.8 or 1.9 share when we do promote. So all-in I mean ARM & HAMMER was a star in the quarter. OXICLEAN fell back and XTRA was pretty much went sideways.

Andrea Teixeira -- JPMorgan -- Analyst

That's very helpful. And Matt just so make sure it's all your comments on the percentages, it's all in dollars right? I'm assuming. (inaudible)

Matthew Farrell -- Chief Executive Officer

Consumption, yeah, consumption dollars.

Andrea Teixeira -- JPMorgan -- Analyst

Perfect. All right. Thank you. I appreciate.

Operator

Thank you. Our next question comes from Caroline Levy with Macquarie. Your line is open.

Caroline Levy -- Macquarie -- Analyst

Thanks, good morning. Two questions. One is, you talked about being price sensitive on M&A. But I'm just wondering what's the quality of the deals that you are being shown is like compared to history. Are you're seeing things that are very interesting and it's a price issue? Or you're just not seeing anything that interests you?

Matthew Farrell -- Chief Executive Officer

Yeah look, we would never comment on what we're looking, what categories. But we have huge discipline with respect to what we'll buy in the company. And as you know Caroline we don't we look at what the fully synergized multiple is when we pay something. So for example, we bought OXICLEAN we paid 17 times trailing. We bought ORAJEL we paid 13.5 times trailing EBITDA. But when you look at, so you might say well those are expensive but when you look at after we've owned them for a year and after we've increased the distribution or share taken that cost finally we paid close to 10 times for this. So I would say there's always something to buy and so you can only buy what's for sale but there are plenty of things for sale right now.

Rick Dierker -- Chief Financial Officer

And as Matt pointed out, comment is really valuation hasn't been the biggest hurdle for us in our past.

Matthew Farrell -- Chief Executive Officer

Yeah.

Caroline Levy -- Macquarie -- Analyst

Okay. And you had a couple of categories where you didn't gain share, and not to take anything away from really spectacular results for the whole year, but what do you think the challenges are in those categories versus others? Is it anything systemic? And was vitamins one of them? If you could just update us on vitamins because it was an area where there was a lot of private label, how are you doing there?

Matthew Farrell -- Chief Executive Officer

Yeah you know we've got 7 out of 11 brands that grew. It's always what's not going well. So of the four, yeah vitamins is one of them. But the good news is vitamin continues to grow, so it's it is a growth area for us. It's just that we're not growing as fast as the category. And certainly there are a lot of entrants into gummy vitamins and that's OK. But even though we didn't grow share and we didn't grow as fast as the category, we are growing. So that's the good news Caroline on vitamins.

Operator

Thank you. Our next question comes from Mark Astrachan with Stifel. Your line is open.

Mark Astrachan -- Stifel -- Analyst

Thanks and good morning everybody. Two unrelated questions. One just back on the specialty business, I think you said at the Investor Day, non-dairy was going to be a little more than 15% of the business, actually sort of directionally answered that to Joe's question. I guess the question there is, diary production certainly seems increasingly competitive. How do you think about where you are in that business at this point, maybe even relative to where you were 12 months ago or the future competitiveness of it or does it need to shift a bit toward other animals, other categories within it?

Matthew Farrell -- Chief Executive Officer

We've made three acquisitions over the last three years to get us into other species and you saw we were down 3% organically this quarter. We would have been way down if we had not gotten into these other species. So that is the good news. As far as the dairy industry goes, the trade war has made things far worse for pricing than we had expected. And so you may know this, is that Mexico is the number one importer of cheese from the U.S. and China is the #1 importer of whey protein from the U.S, all from the dairy industry. So that's put a lot of pressure on exports being particularly to China. It hasn't hurt as much for Mexico. Now those retaliatory tariffs have not come down, yet. All the stuffs has to be ratified before if they're going to come down so they're still in place but we do expect dairy prices to recover next year. And it is a cyclical business, so we've seen this movie before. But because we're getting into these other species, we think that over time it's going to flatten out and we'll be having sustainable organic growth of around 5%.

Mark Astrachan -- Stifel -- Analyst

Great. That's helpful. Then shifting to Waterpik, kind of unrelated to some of the other questions. I guess just thinking about it more holistically. So what are your learnings so far in selling a products that's a bit different than the other products that you're selling? And can you lever the platform for other similar type non-stapley products? And then sort of related to that, the innovation you introduced with the whitening tablets which does seems a little more stapley. How has that performed relative to expectations and kind of what does that mean for the future in terms of what you can do with that?

Matthew Farrell -- Chief Executive Officer

Yeah. The opportunity for Waterpik is both U.S. and international. You may recall when we bought the business that household penetration outside the U.S. was in mid-to-low single digits. And the company had hit upon just a terrific strategy and how to reach hygienists and dentists, and that was by having a large number of hygienists not employees but more third-parties, calling out hygienists and dentists, promoting the product. So in the U.S. we reached about a quarter of all the dentists, in the United States in that manner and we're replicating that model outside the U.S. right now both in Europe and in Canada. So early signs are that the model works outside the U.S. as well as it does in the U.S. So I hope that answers your question about how we expect to grow this in the future and where the growth is going to come from. We still think we've plenty of runway in the U.S. as well.

Operator

Thank you. And I'm showing no further questions at this time. I would like to turn the call back over to Matt Farrell for closing remarks.

Matthew Farrell -- Chief Executive Officer

Okay. Well, thank you everybody. We'll be announcing our fourth quarter results in early February as usual we'll be down at the New York Stock Exchange. When we do that, we hope to see you all then.

Operator

Ladies and gentlemen this concludes today's conference. Thanks for your participation and have a wonderful day.

Duration: 50 minutes

Call participants:

Matthew Farrell -- Chief Executive Officer

Rick Dierker -- Chief Financial Officer

Kevin Grundy -- Jefferies -- Analyst

Rupesh Parikh -- Oppenheimer & Co. Inc -- Analyst

Jason English -- Goldman Sachs -- Analyst

Bonnie Herzog -- Wells Fargo Securities -- Analyst

Stephen Powers -- Deutsche Bank -- Analyst

Nik Modi -- RBC Capital Markets -- Analyst

Bill Chappell -- SunTrust Robinson Humphrey -- Analyst

Steve Strycula -- UBS -- Analyst

Olivia Tong -- Bank of America Merrill Lynch -- Analyst

Lauren Lieberman -- Barclays -- Analyst

Joe Altobello -- Raymond James & Associates -- Analyst

Andrea Teixeira -- JPMorgan -- Analyst

Caroline Levy -- Macquarie -- Analyst

Mark Astrachan -- Stifel -- Analyst

More CHD analysis

Transcript powered by AlphaStreet

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.