Matt Farrell: Well, Chris, we feel great about the business. You see the kind of numbers we just posted in Q3 and the gigantic number, 5.8% organic growth for the consumer business. And then when thinking about Q4, we got another 4% organic growth and that’s got a drag from SBD as well. And we expect a second consecutive quarter of volume growth. So we hope to start stringing these together. We’re going to have volume growth a quarter, each quarter for the next four or five quarters. Gross margin, you’re right. As Rick said, if we hit the number that’s in the box right now, we’ll be 150 basis points short of our high watermark for gross margin, which was 45.5 back in 2019. So we would expect to get more of that back next year.
Not all of it, of course, but we expect gross margin expansion. And one of the good things about this year is we came all the way back with marketing as percentage of sales. Last year at 10%, we started the year seeing, hey, let’s try to get to 10.5% and then we’re all the way to 11%. So that’s behind us now. So then I say, the other thing I said was we have one of our best new product pipelines coming in 2024 and it’s pretty broad based. So now we got this, a lot of things we feel really great about. And so we’re very confident in the strength of the business.
Operator: The next question comes from Steve Powers from Deutsche Bank
Steve Powers: Great. Good morning. Thank you. A question first is on the fourth quarter guidance. There are two questions actually. The first one, maybe my numbers are off, but it feels like you kind of need to do $0.64 or even $0.65 in the fourth quarter to get to $3.15 based on what you’ve done the first nine months. Just want to see if I’m missing something in that math. And then as we’re talking about that just the gross margin, because it implies about a couple hundred basis points of gross margin expansion. I don’t know. Which you’re able to kind of preview how you think the bridge between price volume and productivity and inflation will kind of battle out in that [inaudible].
Matt Farrell: Yes, no problem on the first one, Steve, but if you could repeat the second one, it would be helpful, you are breaking up.
Steve Powers: Sorry, I think it’s about 200 basis points of gross margin expansion implied in the fourth quarter. Just how you think that’s going to kind of shake out between the benefits of price and volume versus and productivity offset by the by the lingering inflation.
Matt Farrell: Yes, got it. Okay. Well, the first one is on EPS. We’ve, if you take a big step back, we’ve looked at we typically repurchase shares on annual basis to offset share creep. We didn’t do that this year. We may get ahead of that in 2023 for 2024. So that in rounding will probably get you most of the way to the difference on your EPS for Q4. The second thing on your gross margin bridge questions, I would say, of course, the price component of — the price volume mix component, the gross margin bridge comes down a little bit more in Q4. The price piece, but the volume and mix piece are going to go up because we used to have acquisition by itself, which was HERO and that gets blended into kind of the mix of the portfolio.
So I would probably say in Q4, a big tailwind from price volume mix, a little bit lower productivity just because it’s timing and those projects are choppy. And then, of course, we go backwards a little bit on manufacturing costs and inflation year-over-year. So those are kind of the three pieces to the main three pieces for the gross margin bridge.
Steve Powers: Okay, that’s perfect. And if I could just, I guess this is more, this is nine ‘24 question, one of sort philosophical question. So, if we go back to 2021 and coming into ‘22, the original expectation was that everything was on the table. It didn’t play out that way, obviously, but if you think about that, if we had grown evergreen in ‘22 and ‘23, we’d be looking at $3.50 there about of earnings in ‘23, not 3.15. So I guess the question is as we look forward is, are you guys approaching the future trying to claw back that $0.35 over time or have we sort of written off ‘22 and we’re kind of philosophically running evergreen from here.
Matt Farrell: Well, Steve, I mean, everybody, any public company that is with a question like that is going to say, hey, 2022 was and it was the last year of a three year COVID event. In 2023, there were three things that hit us. It was a WATERPIK and vitamins post COVID and then Flawless. And so the business and gets to re-baseline. WATERPIK, vitamins and Flawless in 2023 and then we kind of grow from there. So I think that’s the simplest way to think about it. The three isolated incidents that affected us in 2022. We’ve got our eyes open about that. Those businesses, vitamin is certainly stabilized. Pardon me, WATERPIK is stabilized, vitamins is still declining, but we have a path back to stabilize that business next year.
Operator: The next question comes from Dara Mohsenian from Morgan Stanley.
Dara Mohsenian: Hi, guys. So can you give us a little bit more of an update on the vital VITAFUSION business? You obviously mentioned the weak retail sales. We can see in the scanner data with the distribution losses. Do you have visibility that can snap back going forward in 2024 that you can in fact regain shelf space based on your plans and perhaps that business can return to growth at some point. And maybe just in general, help us understand your plans on that business for 2024.
Matt Farrell: Yes, well, it’s kind of a simple problem. We weren’t able to supply in 2022. So we got punished by retailers in 2023 losing shelf space, little interest in making new product launches et cetera. And so consequently, you lose shelf space, you’re going to lose consumers. And so now the whole game is this win in the resets in 2024, which now is, do we have a lot of visibility to that? We have some right now. We’ll have more. And we thought they’re everybody in January, but the fight is really to win back more shelf space in 2024. That’s some good news with respect to vitamins. We are the number one gummy vitamin on Amazon. And we have been doing extremely well there this past year. So that’s going to be a bigger focus for us going forward as well. But we do think it’s just execution and blocking and tackling, Steve, to get that business on firm footing.
Rick Dierker : And meanwhile, we’re investing in a big way on marketing to drive awareness, new packaging to pop at shelf. And displays, all those tactical things that you can do as the momentum will build back.
