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Church & Dwight (CHD) Up 20% in 6 Months: Will Momentum Stay?

Zacks Equity Research

Despite battling cost-related headwinds, Church & Dwight Co., Inc. CHD is a preferred pick for investors. The company flaunts an impressive sales trend, courtesy of its strong Consumer International segment along with focus on acquisitions and brand enhancements. Driven by these factors, shares of this household and personal care products provider have rallied 19.2% in the past six months, outpacing the industry’s growth of 15.6%.

Let’s delve deeper and see if this Zacks Rank #3 (Hold) stock can sustain its solid momentum amid the hurdles. 



Factors Behind Church & Dwight’s Growth Story

The company’s consumer international business has been consistently contributing to organic sales growth of the company. In fourth-quarter 2018, organic sales in this segment increased 9%, driven by higher volumes, and favorable price and product mix.

Overall consumer international sales remained strong, surging 5% on the back of recent acquisitions, broad-based sales growth for household and personal care products, and improvements in export business. As international arena is a bright spot for the company, it continues to invest in this segment to sustain strong sales growth.

Talking of acquisitions, Church & Dwight has acquired a number of premium high margin brands, which have been contributing significantly to the top line. Some noteworthy acquisitions include Waterpik (in Aug 2017), Agro BioSciences (in May 2017) and VIVISCAL business (in January 2017). The acquisitions of ANUSOL and RECTINOL brands from Johnson & Johnson in December 2016 helped the company boost its business internationally.

These factors along with the company’s focus on product diversification and innovation have helped it build a sturdy sales growth record. Incidentally, fourth-quarter 2018 marked Church & Dwight’s sixth 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 11 out of 14 domestic categories. Also, Church & Dwight witnessed organic sales growth, backed by solid focus on product innovations. For the first quarter of 2019, management anticipates sales growth of approximately 3.5-4% on a both reported and organic basis.

Will Margin Woes Be Countered?

The company has a dismal gross margin trend. During the fourth quarter, the metric contracted 250 basis points (bps) on account of rise in input costs, adverse impact of the U.S. tariffs related to Waterpik and increased incentive compensation. In the third and second quarters of 2018, gross margin contracted 100 bps and 140 bps, respectively, primarily due to increased commodity and transportation expenses.

Additionally, Church & Dwight faces intense competition from other well-established players. Nevertheless, the company has initiated pricing actions to improve gross margin performance in the forthcoming periods. This together with Church & Dwight’s top-line drivers is likely to help it remain in investors’ good books.

Looking for More Promising Stocks? Check These

Unilever PLC UL, with long-term earnings per share growth rate of 5.9%, flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Colgate-Palmolive CL, with a Zacks Rank #2 (Buy), has long-term earnings per share growth rate of 5.5%.

Unilever NV UN, another Zacks #2 Ranked stock, has long-term earnings per share growth rate of 6.5%.

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