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Church & Dwight Beats on Q1 Earnings

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Church & Dwight Co. Inc.’s (CHD) first-quarter 2014 earnings per share of 73 cents came a penny ahead of the Zacks Consensus Estimate. However, additional costs related to product launches and foreign currency fluctuations led to a 4% year-over-year decline in earnings per share.

The top line for Church & Dwight inched up 0.3% to $782.0 million but fell marginally short of the Zacks Consensus Estimate of $783 million. Organic sales increased 1.2% driven by 4.4% growth in volume, partially offset by an adverse impact of 3.2% due to pricing.

Gross profit decreased 3.1% year over year to $339.4 million.  Also, gross margin contracted 150 basis points (bps) to 43.4%, resulting from to higher investments in slotting, trade, and couponing, partly offset by productivity programs.

Operating income fell 4.3% year over year to $162.0 million in the quarter. Moreover, operating margin contracted approximately 100 bps to 20.7%, due to investments made for new product launches.

Segment Details

Consumer Domestic's net sales rose 0.4% year over year to $593.3 million, driven by a 3.7% increase in personal care products revenues to $240.8 million. This was partly offset by a 1.7% decline in household products revenues to $352.5 million.

Organic sales also nudged up 0.4% in the quarter due to a rise in sales of VITAFUSION vitamins, ARM & HAMMER CLUMP & SEAL cat litter and OXICLEAN liquid laundry detergents. This was, however, partially offset by sluggish sales of ARM & HAMMER and XTRA laundry detergents.

Increase in sales marked a 4.4% improvement in volume, while product mix and pricing hurt sales by 4.0%.

Unfavorable currency fluctuations led to a 4.2% fall in Consumer International's sales of $123.8 million. Organic sales remained flat attributable to healthy sales in U.K., and Brazil offset by weak sales in Canada and Mexico. Volume fell marginally by 0.6% whereas favorable product mix and pricing impacted sales by 0.6%.

Specialty Products' sales increased 10.0% to $64.9 million while organic sales grew 12.4% in the said quarter. Moreover, the segment witnessed volume growth of 15.3%, attributable to the animal nutrition business, partly offset by unfavorable product pricing that adversely impacted sales by 2.9%.

Other Financial Details

Church & Dwight, which competes with The Clorox Company (CLX), Colgate-Palmolive Co. (CL) and Procter & Gamble Company’s (PG), ended the quarter with cash and cash equivalents of $300.0 million, long-term debt of $649.6 million and shareholders’ equity of $2,113.4 million. Moreover, the company generated cash from operations of $102.4 million and incurred $6.3 million in capital expenditures.

Moreover, the company announced its quarterly dividend of 31 cents, payable on Jun 2, 2014 to stockholders of record at the close of business on May 12, 2014.

Also, the company bought back shares worth $260 million through two accerelared share repurchases programs.


Management expects the introduction of innovative products and cost containment to boost bottom-line results. However, sluggish product demand and rising competition has compelled the company to tighten the earnings growth range. The company now anticipates earnings per share to be in the range of 7%–9% as against 6%–10% projected earlier in 2014.

Church & Dwight continues to expect organic sales growth of 3% to 4% in 2014. Further, it expects gross margin to contract 50–75 bps year over year in 2014.

The company noted that most of the earnings growth will be achieved in the second half of the year as the first half is likely to see various expenses related to product launches. Therefore, for the second quarter, the company expects organic sales of 3%, a decline of 100 bps in gross margin and earnings per share of 61 cents. The current Zacks Consensus Estimate stands at 68 cents.

At present, Church & Dwight has a Zacks Rank #3 (Hold).

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