Buyouts & More to Fuel Church & Dwight (CHD) in Q1 Earnings

Church & Dwight Co., Inc. CHD is slated to release first-quarter 2018 results on May 3. This consumer goods behemoth has surpassed earnings estimates for five consecutive quarters now, courtesy of its robust international presence, solid organic sales trend and focus on buyouts. However, the company is plagued by escalated expenses, which remain a threat to margins. So, let’s see if Church & Dwight can keep its splendid surprise streak alive this time around as well.

 

Church & Dwight Co., Inc. Price and EPS Surprise
 

Church & Dwight Co., Inc. Price and EPS Surprise | Church & Dwight Co., Inc. Quote

 

International Business: A Major Strength

We expect Church & Dwight to continue gaining from its international business, which has been a growth driver over the past few years. In fourth-quarter 2017, organic sales in the international segment jumped 5.8%, courtesy of higher volumes. Further, overall international sales surged 33.3%, receiving considerable impetus from STERIMAR and OXICLEAN in the export business; STERIMAR, ARM & HAMMER toothpaste and OXICLEAN in Mexico; and ARM & HAMMER cat litter and BATISTE in Canada. Well, ARM & HAMMER remains the company’s biggest international brand, which is well placed to grow further in emerging markets. Well, international sales have also been contributing strongly to the company’s organic sales growth. Thus, the company continues to invest in the international consumer business to sustain its strong sales growth, as evident from its considerable investments in Southeast Asia and China. Also, the company is opening new offices to support increase in export business and expects its international operations to remain strong,

Markedly, analysts polled by Zacks expect net sales from Consumer International to surge 20.3% to $172 million in the first quarter. The Zacks Consensus Estimate for sales of Consumer Domestic and Specialty Products segments are pegged at $728 million and $78 million, respectively, in comparison with $660 million and $74 million reported in the year-ago period.

Other Drivers

Church & Dwight is also likely to continue witnessing organic sales growth, which has long been backed by the company’s solid focus on product innovations. Evidently, organic sales jumped 2.3%, 1.8%, 3.2% and 3.4% in the first, second, third and fourth-quarter 2017, respectively. In the fourth quarter, organic sales growth was driven by higher volumes and better-than-expected sales at all the three segments. In 2018, management expects organic sales to grow 3%, which also gives out positive signals for the quarter to be reported. In fact, for first-quarter 2018, the company expects organic sales growth of 2%.

Apart from these factors, Church & Dwight has been benefiting from its focus on acquisitions. The company started with only one brand, i.e. ARM & HAMMER and since then has acquired a number of brands which are generally number-one or number-two brands with high margin. These businesses are likely to have boosted the company’s revenues from $1.5 billion in 2004, to reach $4 billion in 2018. Progressing on these lines, Church & Dwight concluded the buyout of Waterpik in the third quarter and is on track with its integration.

Considering all aforementioned factors, management projects first-quarter reported sales growth to be 11% year over year. Also, the Zacks Consensus Estimate for revenues is $979 million, up 11.6% from $877 million recorded in the year-ago period.

Will Cost Woes be Offset?

However, Church & Dwight continues to battle increased commodity and transportation costs. Management expects these headwinds to weigh on gross margin in 2018. Further, the company plans to increase marketing expenditure, while it also expects SG&A expenses (as a percentage of sales) to increase, owing to intangible amortization expenses, integration costs and higher levels of SG&A from recent acquisitions. This may impact the operating margin.

Nevertheless, it looks like the company expects strength of its international business and revenue-driving initiatives to compensate for these obstacles, as it envisions adjusted earnings per share of 61 cents for the first quarter, reflecting year-over-year growth of 17.3% (on an adjusted basis). This also falls in line with the Zacks consensus estimate that has remained stable over the past 30 days.

What the Zacks Model Unveils

To top it, our proven model shows that Church & Dwight is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Church & Dwight carries a Zacks Rank #3, which when combined with its Earnings ESP of +0.52%, makes us reasonably confident of an earnings beat.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Under Armour UAA a Zacks #3 Ranked stock, has an Earnings ESP of +11.31%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Colgate CL, a #3 Ranked company, has an Earnings ESP of +0.37%.

Estee Lauder EL has an Earnings ESP of +0.67% and a Zacks Rank of 3.

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