Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the Company’s financial condition and results of operations should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which was filed with the SEC on February 13, 2025, and the unaudited condensed consolidated financial statements and related notes contained in this Quarterly Report on Form 10-Q.

Overview

We develop, manufacture and market a broad range of consumer household and personal care products and specialty products focused on animal and food production, chemicals and cleaners. Our well-recognized brands include ARM & HAMMER® baking soda, cat litter, laundry detergent, carpet deodorizer and other baking soda-based products; OXICLEAN® stain removers, cleaning solutions, laundry detergents and bleach alternatives; VITAFUSION® and L’IL CRITTERS® gummy dietary supplements for adults and children, respectively; BATISTE® dry shampoo; WATERPIK® water flossers; THERABREATH® oral care products; HERO® acne treatment products; TROJAN condoms, lubricants and vibrators; FIRST RESPONSE home pregnancy and ovulation test kits; NAIR depilatories; ORAJEL oral analgesic; XTRA laundry detergent; and ZICAM cold shortening and relief products. Seven of those brands are designated as "power brands" because they compete in large categories, and we believe they have the potential for significant global expansion. Those seven brands are ARM & HAMMER®; OXICLEAN®; VITAFUSION® and L’IL CRITTERS®; BATISTE®; WATERPIK®; THERABREATH®; and HERO® and represent approximately 70% of our net sales and profits.

We sell our consumer products under a variety of brands through a broad distribution platform that includes 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, all of which sell our products to consumers. We sell our specialty products to industrial customers, livestock producers and through distributors.

We operate in three principal segments: Consumer Domestic, Consumer International, and our Specialty Products Division (“SPD”).

Recent Developments

Global Economic Conditions and Trade Policies

We are experiencing increased supply chain challenges, commodity cost volatility, and consumer and economic uncertainty primarily due to rapid changes in U.S. trade policies including recent sweeping tariff increases, as well as retaliatory tariffs by foreign countries. This global uncertainty has also resulted in product purchase cancellations and boycotts by customers and consumers globally. Additionally, U.S. consumers are increasingly worried about persistent inflation and looming tariffs, leading them to cut back on discretionary spending. We believe that retailers are lowering their consumer-packaged goods inventories and making targeted decisions to build inventory of certain products in advance of additional tariffs. We will continue to evaluate these evolving developments and have begun to take action to mitigate their impact on our business, including taking strategic actions for certain business lines (see Strategic Business Decisions), shifting production and relocating manufacturing operations, finding alternative sources of supply, most notably ceasing the import of Waterpik flossers from China into the U.S., potential price increases, adjusting inventories, lobbying and seeking exemptions with respect to tariffs. While the tariff situation remains fluid, we are focused on managing through these challenges. From a gross risk perspective, we are currently projecting a twelve-month run-rate gross tariff exposure of approximately $190.0. We expect that the impact of our strategic business decisions and a series of rapid supply chain actions, such as ceasing the import of Waterpik flossers from China into the U.S., will reduce our tariff exposure by approximately 80%. Over the next 12 months, we believe our remaining tariff exposure can be mitigated through additional supply chain efforts and surgical pricing.

Strategic Business Decisions

On May 1, 2025, we announced that we will be taking strategic actions for the Flawless, Spinbrush and Waterpik showerhead businesses, which includes shutting down or selling these businesses. These businesses generate approximately $150.0 of annual Net Sales. We expect to record a charge of $60.0 to $80.0 in the second quarter of 2025 as a direct result of these actions, primarily comprised of non-cash charges related to impairments of intangible and fixed assets, as well as inventory reserves.

Other

For additional discussion, please refer to Item 1A, "Risk Factors", and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K.

Results of Operations

Consolidated results

	Three Months Ended				Change vs.		Three Months Ended
	March 31, 2025				Prior Year		March 31, 2024
Net Sales	$	1,467.1			-2.4%		$	1,503.3
Gross Profit	$	659.6			-4.0%		$	687.0
Gross Margin		45.0	%		-70 basis points			45.7	%
Marketing Expenses	$	136.6			-10.1%		$	152.0
Percent of Net Sales		9.3	%		-80 basis points			10.1	%
Selling, General & Administrative Expenses	$	227.7			-1.0%		$	230.0
Percent of Net Sales		15.5	%		+20 basis points			15.3	%
Income from Operations	$	295.3			-3.2%		$	305.0
Operating Margin		20.2	%		-10 basis points			20.3	%
Net income per share - Diluted	$	0.89			-4.3%		$	0.93

Net Sales

Net sales for the quarter ended March 31, 2025 were $1,467.1, a decrease of $36.2 or 2.4% as compared to the same period in 2024. The components of the net sales decrease are as follows:

	Three Months Ended
	March 31,
Net Sales - Consolidated	2025
Product volumes sold(1)		(1.4	%)
Pricing/Product mix(2)		0.2	%
Foreign exchange rate fluctuations		(0.7	%)
Exit of product lines (net of acquisition)(3)		(0.5	%)
Net Sales decrease		(2.4	)%

(1) The volume change reflects decreased product unit sales in the Consumer Domestic segment, partially offset by increased product unit sales in the Consumer International and SPD segments.

(2) Price/mix was favorable in the Consumer Domestic and SPD segments, partially offset by the Consumer International segment.

(3) In the first quarter of 2024, we exited the MEGALAC supplement portion of the SPD Animal Nutrition business. In the second quarter of 2024 we acquired substantially all of Graphico and sold the Passport food safety business.

Gross Profit / Gross Margin

Our gross profit was $659.6 for the three months ended March 31, 2025, a $27.4 decrease as compared to the same period in 2024. Gross margin decreased 70 basis points (“bps”) in the first quarter of 2025 compared to the same period in 2024, due to higher manufacturing costs including labor and commodities of 230 bps, unfavorable foreign exchange of 20 bps, partially offset by the impact of productivity programs of 160 bps, benefits from the Graphico Acquisition of 10 bps and favorable price/mix/volume of 10 bps.

Operating Expenses

Marketing expenses for the three months ended March 31, 2025 were $136.6, a decrease of $15.4 or 10.1% as compared to the same period in 2024. Marketing expenses as a percentage of net sales in the first quarter of 2025 decreased by 80 bps to 9.3% as compared to 10.1% in the same period in 2024 due to 100 bps on lower expense primarily due to marketing program timing.

SG&A expenses were $227.7 in the first quarter of 2025, a decrease of $2.3 or 1.0% as compared to the same period in 2024. SG&A as a percentage of net sales increased 20 bps to 15.5% in the first quarter of 2025 as compared to 15.3% in the same period in 2024. The increase is due to 40 bps from lower sales partially offset by 20 bps on lower expenses. The lower expenses for the three-month period ended March 31, 2025 compared to 2024 are primarily due to lower expense on Company issued equity awards.

Non**operating Expenses

Interest income for the three months ended March 31, 2025 increased $5.9 to $9.3, as compared to the same period in 2024, due to higher interest income primarily associated with higher cash balances.

Interest expense for the three months ended March 31, 2025 decreased $1.7 to $23.3, as compared to the same period in 2024, primarily due to lower average outstanding debt.

Other income (expense) was nominal for the three months ended March 31, 2025 and 2024.

Income Taxes

The effective tax rate for the three months ended March 31, 2025 was 22.0%, compared to 19.9% in the same period in 2024. The increase in the tax rate is primarily from a lower tax benefit on reduced stock option exercises in 2025 compared to 2024.

Segment results

We operate three reportable segments: Consumer Domestic, Consumer International and SPD. These segments are determined based on differences in the nature of products and organizational structure. We also have equity in earnings of affiliates which is not reflected in a reportable segment.

Segment			Products / Other
Consumer Domestic			Household and personal care products
Consumer International			Primarily personal care products
SPD			Specialty chemical products

Segment net sales and income from operations for the three months ended March 31, 2025 and March 31, 2024 are as follows:

	Consumer				Consumer
	Domestic				International				SPD				Total
Net Sales
First Quarter of 2025	$	1,129.8			$	261.9			$	75.4			$	1,467.1
First Quarter of 2024		1,165.2				255.0				83.1				1,503.3
Income from Operations
First Quarter of 2025	$	244.8			$	37.7			$	12.8			$	295.3
First Quarter of 2024		257.5				35.9				11.6				305.0

Product line revenues from external customers are as follows:

	Three Months Ended
	March 31,				March 31,
	2025				2024
Household Products	$	614.9			$	638.9
Personal Care Products		514.9				526.3
Total Consumer Domestic		1,129.8				1,165.2
Total Consumer International		261.9				255.0
Total SPD		75.4				83.1
Total Consolidated Net Sales	$	1,467.1			$	1,503.3

Household Products include laundry, deodorizing, and cleaning products. Personal Care Products include condoms, pregnancy kits, oral care products, skin care and hair care products, cold and remedy products, and gummy dietary supplements.

Consumer Domestic

Consumer Domestic net sales in the first quarter of 2025 were $1,129.8, a decrease of $35.4 or 3.0% as compared to the same period in 2024. The components of the net sales change are the following:

	Three Months Ended
	March 31,
Net Sales - Consumer Domestic	2025
Product volumes sold		(3.1	%)
Pricing/Product mix		0.1	%
Net Sales decrease		(3.0	)%

The decrease in net sales for the three months ended March 31, 2025, includes declines from VITAFUSION® and L’IL CRITTERS® gummy dietary supplements, OXICLEAN® Stain Fighters and ARM & HAMMER® cat litter, partially offset by growth from THERABREATH® mouth wash and ZICAM® cold shortening and relief products.

Consumer Domestic income from operations for the first quarter of 2025 was $244.8, a decrease of $12.7 as compared to the first quarter of 2024. The decrease is due primarily to higher manufacturing and distribution expenses of $25.4, the impact of lower sales volumes of $22.2, and unfavorable price/mix of $3.4, partially offset by the benefit of productivity programs of $20.6, lower marketing expenses of $14.1, and lower SG&A expenses of $3.6.

Consumer International

Consumer International net sales were $261.9 in the first quarter of 2025, an increase of $6.9 or 2.7% as compared to the same period in 2024. The components of the net sales change are the following:

	Three Months Ended
	March 31,
Net Sales - Consumer International	2025
Product volumes sold		5.9	%
Pricing/Product mix		(0.1	%)
Foreign exchange rate fluctuations		(4.4	%)
Acquired product lines (1)		1.3	%
Net Sales increase		2.7	%

(1)

The Graphico acquisition is included in our results since June 3, 2024, the date of acquisition.

Excluding the impact of foreign exchange rates, sales growth is driven by ARM & HAMMER® Liquid Detergent, THERABREATH® mouth wash, NAIR® depilatories, and ARM & HAMMER® dental care in Mexico, HERO® acne treatment products, WATERPIK® Flossers and THERABREATH® mouth wash in Canada, HERO® acne treatment products, BATISTE® Dry Shampoo and ANUSOL in Europe, and HERO® acne treatment products in Australia.

Consumer International income from operations was $37.7 in the first quarter of 2025, an increase of $1.8 as compared to the first quarter of 2024. The increase is due primarily to favorable product mix of $7.5, the impact of higher sales volumes of $7.2, and lower marketing expenses of $1.7, partially offset by unfavorable foreign exchange rates of $7.8, higher manufacturing and commodity costs of $3.5, and higher SG&A expenses of $3.2.

Specialty Products (“SPD”)

SPD net sales were $75.4 in the first quarter of 2025, a decrease of $7.7 or 9.3% as compared to the same period in 2024. The components of the net sales change are the following:

	Three Months Ended
	March 31,
Net Sales - SPD	2025
Product volumes sold		0.3	%
Pricing/Product mix		2.9	%
Foreign exchange rate fluctuations		1.1	%
Exit of product lines (1)		(13.6	%)
Net Sales decrease		(9.3	%)

(1) We exited the MEGALAC supplement portion of the Animal Nutrition business in the first quarter of 2024 and sold the Passport food safety business in the second quarter of 2024.

Net sales excluding product line divestitures increased in the first quarter of 2025 primarily due to growth in our Performance Products and Commercial & Professional businesses.

SPD income from operations was $12.8 in the first quarter of 2025, an increase of $1.2 as compared to the same period in 2024, due to favorable price/product mix of $2.1 and favorable SG&A expenses of $2.1 mainly from divestitures, partially offset by the impact of lower sales volumes of $1.9 and unfavorable manufacturing costs of $1.1.

Equity in Earnings of Affiliates

Equity in earnings of affiliates represents the results of Armand in the first three months of 2025 and 2024 and ArmaKleen in the first three months of 2024. In October 2024, the Company sold its 50% interest in ArmaKleen to our joint venture partner.

Liquidity and Capital Resources

On June 16, 2022, we entered into a credit agreement (the “Credit Agreement”) that provides for our $1,500.0 unsecured revolving credit facility (the “Revolving Credit Facility”) that matures on June 16, 2027, unless extended. We have the ability to increase our borrowing up to an additional $750.0, subject to lender commitments and certain conditions as described in the Credit Agreement. Borrowings under the Credit Agreement are available for general corporate purposes and are used to support our $1,500.0 commercial paper program.

As of March 31, 2025, we had $1,074.5 in cash and cash equivalents, and approximately $1,494.0 available through the Revolving Credit Facility and our commercial paper program. To preserve our liquidity, we invest cash primarily in government money market funds, prime money market funds, short-term commercial paper and short-term bank deposits.

The current economic environment presents risks that could have adverse consequences for our liquidity. See “Our operating results have been, and could be in the future, adversely affected by natural disasters, public health crises, political crises, or other catastrophic events, or unfavorable worldwide, regional and local economic and financial market conditions” under “Risk Factors” in Item 1A of the Form 10-K. We continue to manage all aspects of our business including, but not limited to, monitoring the financial health of our customers, suppliers and other third-party relationships, implementing gross margin enhancement strategies and developing new opportunities for growth. We do not anticipate that current economic conditions will adversely affect our ability to comply with the financial covenant in the Credit Agreement because we currently are, and anticipate that we will continue to be, in compliance with the maximum leverage ratio requirement under the Credit Agreement.

On October 28, 2021, the Board authorized a share repurchase program, under which we may repurchase up to $1,000.0 in shares of Common Stock (the “2021 Share Repurchase Program”). The 2021 Share Repurchase Program does not have an expiration. We continue to maintain our evergreen share repurchase program, authorized by the Board on January 29, 2014, under which we may repurchase, from time to time, Common Stock to reduce or eliminate dilution associated with issuances of Common Stock under its incentive plans.

We have $658.9 of share repurchase availability under the 2021 Share Repurchase Program as of March 31, 2025.

On January 29, 2025, the Board declared a 4% increase in the regular quarterly dividend from $0.28375 to $0.295 per share, equivalent to an annual dividend of $1.18 per share payable to stockholders of record as of February 14, 2025. The increase raises the annual dividend payout from $277.0 to approximately $287.0 on an annualized basis.

We anticipate that our cash from operations, together with our current borrowing capacity, will be sufficient to fund our share repurchase programs to the extent implemented by management, pay debt and interest as it comes due, pay dividends at the latest approved rate, and meet our capital expenditure program costs, which are expected to be approximately $130.0 in 2025 including manufacturing capacity investments for Therabreath and Sterimar and an enterprise resource planning (ERP) project. Cash, together with our current borrowing capacity, may be used for acquisitions that would complement our existing product lines or geographic markets.

Cash Flow Analysis

	Three Months Ended
	March 31,				March 31,
	2025				2024
Net cash provided by operating activities	$	185.7			$	263.0
Net cash used in investing activities	$	(16.7	)		$	(46.8	)
Net cash used in financing activities	$	(61.0	)		$	(209.1	)

Net Cash Provided by Operating Activities – Our primary source of liquidity is the cash flow provided by operating activities, which is dependent on net income and changes in working capital. Our net cash provided by operating activities in the three months ended March 31, 2025 decreased by $77.3 to $185.7 as compared to $263.0 in the same period in 2024 due to an increase in working capital and a decrease in cash earnings (net income adjusted for non-cash items). The increase in working capital is primarily related to lower accounts payable and accrued expense balances because of the timing and management strategy related to marketing spend plus higher inventory partially offset by higher cash collections. The higher inventory balance is mainly due to lower sales in our consumer domestic business. We measure working capital effectiveness based on our cash conversion cycle. The following table presents our cash conversion cycle information for the quarters ended March 31, 2025 and 2024:

	As of
	March 31, 2025				March 31, 2024				Change
Days of sales outstanding in accounts receivable ("DSO")		37				32				5
Days of inventory outstanding ("DIO")		70				67				3
Days of accounts payable outstanding ("DPO")		79				71				(8	)
Cash conversion cycle		28				28				-

Our cash conversion cycle (defined as the sum of DSO and DIO less DPO) which is calculated using a two-period average method, was the same as the prior year. The increase in DSO is primarily due to higher accounts receivable balances as we reduced our accounts receivable factoring program in response to higher interest rates. Higher DIO is generally the result of lower sales in the first quarter of 2025. The increase in DPO is primarily from agreeing to extended payment terms with some vendors. We continue to focus on reducing our working capital requirements.

Net Cash Used in Investing Activities – Net cash used in investing activities during the first three months of 2025 was $16.7, primarily reflecting $16.5 for property, plant and equipment additions. Net cash used in investing activities during the first three months of 2024 was $46.8, primarily reflecting $46.3 for property, plant and equipment additions.

Net Cash Used in Financing Activities – Net cash used in financing activities during the first three months of 2025 was $61.0 reflecting $72.4 of cash dividend payments and $5.9 related to the payment of a business acquisition liability, partially offset by $19.3 of proceeds from stock option exercises. Net cash used in financing activities during the first three months of 2024 was $209.1 reflecting $200.0 of net debt payments, $69.0 of cash dividend payments, partially offset by $59.9 of proceeds from stock option exercises.