Church & Dwight Co., Inc. CHD is certainly a worthwhile bet, given its efficient strategies to drive growth. This Zacks Rank #2 (Buy) stock has increased 12% in the past three months, outpacing the industry’s growth of 8%.
Let’s take a look at the factors set to keep Church & Dwight’s momentum alive.
Pricing to Aid Gross Margin
Church & Dwight is on track with its efficient pricing initiatives, which are expected to enhance gross margin amid rising costs. The same was witnessed in first-quarter 2019, wherein gross margin expanded 20 basis points (bps) to 45.1% on account of favorable pricing and volumes, and gains from productivity programs. For 2019, gross margin is likely to increase 50 bps compared with 10-bp growth expected earlier. This is likely to be supported by gains from pricing, product mix and productivity programs to the tune of about 30 bps, and contributions of nearly 20 bps from FLAWLESS.
Strength in Consumer International Business
The company’s consumer international business has been consistently contributing to organic sales growth. In first-quarter 2019, organic sales in this segment increased 8.5% on volume growth. Organic sales was mainly driven by FEMFRESH, BATISTE, STERIMAR and ARM & HAMMER liquid laundry detergent in the Global Markets Group business, ARM & HAMMER clumping cat litter and liquid laundry detergent in Canada, BATISTE in Germany, and WATERPIK in several countries. Further, overall consumer international sales remained strong, rising 3.3% on the back of broad-based sales growth for household and personal care products, and improvement in Global Markets Group business. As international arena is a bright spot for the company, it continues to invest in this business to sustain its strong sales growth.
Buyouts Aid Top Line
Church & Dwight has acquired a number of premium high margin brands, which have been contributing significantly to top-line growth. To this end, the company recently concluded the buyout of FLAWLESS and FINISHING TOUCH (“FLAWLESS”), which will be a significant inclusion to the company’s specialty haircare category. Markedly, this is expected to contribute to the company’s top line in 2019. Some of the previous noteworthy acquisitions of the company are Waterpik (in August 2017), Agro BioSciences (in May 2017) and VIVISCAL business (in January 2017).
Robust Sales Trend
With first-quarter 2019 results, Church & Dwight marked its seventh consecutive quarter of sales surprise. Sales in the quarter gained from continued category growth and healthy market share gains. Markedly, the company witnessed improvements in 10 of 14 domestic categories. Also, Church & Dwight has been witnessing organic sales growth for quite some time now, backed by its solid focus on product innovations. In the first quarter of 2019, organic sales was fueled by volume growth, and improved product mix and pricing. The company now anticipates sales growth of 5-6% in 2019, owing to the acquisition of FLAWLESS. Organic sales are expected to rise 3.5%, driven by effective product launches across most categories.
Without a doubt, Church & Dwight is set to add new leaves to its growth story.
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