First Quarter Review

Net sales for the first quarter increased 5% to $580.9 million. Organic sales increased by approximately 6% for the quarter which excludes the impact of foreign exchange, acquisitions and divestitures. Foreign exchange reduced reported sales by approximately 4% in the quarter, while acquisitions net of divestitures, increased reported sales by approximately 3%.

James R. Craigie, Chairman and Chief Executive Officer, commented, "We are very pleased with our solid first quarter results particularly in this difficult economic environment. Our results reflect continued strong organic sales growth and exceptional gross and operating margin expansion. The organic sales growth was driven by strong consumer appeal for our high quality value-oriented products, carryover benefits of 2008 pricing actions, new products, and a significant increase in marketing spending, partially offset by soft sales in the Specialty Products Division. The improved gross margin reflects pricing, earlier than expected benefits from lower commodity costs, acquisition benefits relating to the acquired businesses from Coty, Inc. and cost reduction programs."

Consumer Domestic sales were $438.1 million, a $55.3 million or 14% increase over the prior year first quarter sales. The first quarter sales increase was primarily driven by the recently acquired businesses from Coty and higher sales of XTRA Liquid Laundry Detergent, ARM & HAMMER Liquid Laundry Detergent, OXICLEAN laundry additive and ARM & HAMMER Powder Laundry Detergent, offset by lower sales of household cleaners and certain personal care brands. Consumer Domestic sales also benefited from October price increases on liquid laundry detergents, toothpaste and battery operated toothbrushes.

Consumer International sales were $82.8 million, a $16.9 million decrease or 17% below the prior year first quarter sales. Sales increases, primarily in Canada and Australia, were more than offset by unfavorable foreign exchange rates of approximately 20% and approximately $3 million due to the divestiture of a business at the end of the third quarter in 2008. Specialty Products sales were $60.0 million, a $10.4 million decrease or 15% below the prior year first quarter sales. Approximately $4 million of the sales decrease is due to a business divested in the first quarter of 2008 and $3 million of unfavorable foreign exchange rates. A significant decline in U.S. milk prices has weakened the dairy market resulting in lower volumes in the animal nutrition business.

Gross margin increased to 42.9% in the first quarter compared to 40.5% in the same quarter last year. Excluding the $5.2 million plant restructuring charge reflected in cost of sales, gross margin was 43.8%, a 330 basis point improvement from the prior year first quarter. The increase in gross margin reflects price increases, lower commodity costs, the higher margins associated with the sales of products relating to the businesses acquired from Coty, the impact of liquid laundry detergent concentration and the benefits of cost reduction programs.

Marketing expense was $66.4 million in the first quarter, a $12.9 million increase over the prior year first quarter. The increased marketing spending was focused on the brands acquired from Coty as well as higher spending on the Company's 8 "power brands." Marketing expense as a percentage of net sales increased 170 basis points to 11.4% in the quarter compared to 9.7% in last year's first quarter.

Selling, general, and administrative expense (SG&A) was $78.3 million in the first quarter, a $0.5 million increase over the prior year's first quarter. SG&A as a percentage of net sales was 13.5% in the quarter, a reduction of 60 basis points as compared to last year's first quarter. Last year's first quarter included a $3.0 million gain on the divestiture of a small Specialty Products subsidiary. The remaining change in SG&A is attributed to lower costs internationally due to foreign exchange and lower operating expenses and impairment charges of approximately $7 million associated with the divested International business, partially offset by higher information systems costs and amortization and operating costs related to the acquisition from Coty.

Operating income increased 13% to $104.7 million in the first quarter compared to $92.8 million in the prior year first quarter. Operating margin expanded 120 basis points to 18.0% and, excluding the plant restructuring charge, expanded 210 basis points to 18.9%.

The effective tax rate in the first quarter was 37.1% compared to 35.7% in the prior year first quarter due to a higher proportion of projected US taxable income and higher state income taxes. The effective tax rate for the full year is expected to be approximately 37%.

Free Cash Flow and Net Debt

For the quarter, the Company reported $92.0 million of net cash from operations compared to $62.7 million in the first three months of 2008. For the first quarter, the Company generated $70.7 million in free cash flow compared to $56.4 million in the prior period. Capital expenditures in the first quarter were $21.3 million and included approximately $15 million related to the construction of a new laundry detergent manufacturing plant and warehouse in York County, Pennsylvania. The increase in free cash flow is primarily related to higher net income, higher non-cash expenses and improved working capital management.

At quarter-end, the Company had net debt of $591 million (total debt of $871 million less cash of $280 million) compared to net debt at December 31, 2008 of $658 million (total debt of $856 million less cash of $198 million). The leverage ratio of total debt to Adjusted EBITDA (as defined in the Company's principal credit agreement) is 1.9 for the twelve months ended March 27, 2009.

New Product Activity

On the new product front, Mr. Craigie commented, "We will continue to introduce a steady pipeline of new and improved products in 2009 to drive solid organic growth. Specifically, we will introduce over 20 new products in 2009. These products will be largely focused on our 8 power brands and will have a strong value orientation."

In family planning, the Company has two additions to the Trojan product line: TROJAN 2 GO which contains two condoms in a pocket-sized card that makes it easier to discreetly carry condoms wherever you go and a new condom called TROJAN ECSTASY, featuring a unique comfort shape and UltraSmooth lubricant.

In Oral and Skin care, the Company introduced a new line of SPINBRUSH products that use advanced sonic technology for deep cleaning at a price that provides significant value compared to other premium sonic brushes. The Company also expanded the NAIR depilatory product line with NAIR Exfoliator with Microbeads. ORAJEL also added two new products, BABY ORAJEL Cooling Cucumber Teething Gel and BABY ORAJEL Tooth and Gum Cleanser.

In Household products, the Company launched ARM & HAMMER Wet Dryer Cloths, a revolutionary fabric softener that delivers liquid-like softening, freshening and dryer sheet static control all in the convenience and value of just one dryer sheet. The Company also expanded the ARM & HAMMER with OXICLEAN line of detergents with a product designed for High Efficiency washing machines while expanding the environmentally responsible ARM & HAMMER Essentials detergent line with the introduction of a new powder product.

New Manufacturing Plant and Distribution Center

The Company is on track with its previously announced project to construct a new integrated laundry detergent manufacturing plant and distribution center in York County, Pennsylvania and the related closing of the Company's North Brunswick, NJ complex. The new facility is scheduled to open in the fourth quarter of 2009. The Company expects to spend $100 million in 2009, $20 million in 2010, for a total of $170 million in capital expenditures and cash transition expenses from 2008 to 2010 on the project. The new facility is expected to be a significant contributor to gross margin expansion in 2010.

The project resulted in plant restructuring charges in the first quarter of $5.2 million or $0.04 per share.