Church & Dwight (CHD) Beats Q3 Earnings Estimate, Ups Sales View
Church & Dwight Co., Inc. CHD posted third-quarter 2023 results, with the top and bottom lines beating the Zacks Consensus Estimate. Net sales increased year over year, but earnings declined.
Results gained from strong consumer demand across its portfolio. Church & Dwight also benefited from buyout gains. Its recently acquired THERABREATH mouthwash and the HERO brand delivered impressive consumption growth and grew market share. Both businesses saw solid distribution gains across retail.
The company increased its 2023 reported sales guidance while reaffirming its adjusted earnings per share (EPS) outlook.
Church & Dwight Co., Inc. Price, Consensus and EPS Surprise
Church & Dwight Co., Inc. price-consensus-eps-surprise-chart | Church & Dwight Co., Inc. Quote
Quarter in Detail
Church & Dwight posted adjusted earnings of 74 cents per share, beating the Zacks Consensus Estimate of 68 cents. However, the bottom line fell 2.6% year over year due to increased incentive compensation and marketing investments.
Net sales of $1,455.9 million advanced 10.5% year over year and beat the Zacks Consensus Estimate of $1,432.8 million. Results continued to be driven by robust consumer demand for the company’s brands.
Organic sales increased 4.8% on the back of gains from volume to the tune of 2.7% as well as favorable product mix and pricing of 2.1%. We had expected organic sales growth of 4.2% in the quarter.
The company’s domestic brands grew consumption in 11 of 17 categories. CHD’s global online sales continued to grow. Notably, global online sales, as a percentage of total consumer sales, stood at 17%.
Gross margin expanded 270 basis points (bps) to 44.4%. The upside can be attributed to better pricing, volume, productivity and gains from the Hero acquisition, which more than offset manufacturing cost inflation. We had expected the gross margin to expand 220 bps to come in at 43.9%.
Marketing expenses increased by $27.1 million year over year to $167.8 million. As a percentage of net sales, the figure rose 80 bps to 11.5%. Adjusted SG&A expenses, as a percentage of sales, increased 310 bps to 14.8% due to increased incentive compensation, among other reasons.
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Segmental Details
Consumer Domestic: Net sales in the segment increased 12.1% to $1,133.1 million due to both household and personal care sales growth. Our estimate for segment sales for the third quarter was $1,105.1 million.
Organic sales increased 5.5% due to favorable price and product mix (up 1.9%) and volume (up 3.6%). Organic sales growth was backed by strength in THERABREATH mouthwash, ARM & HAMMER Cat Litter, XTRA Liquid Detergent, WATERPIK and BATISTE dry shampoo. These were somewhat offset by declines across the vitamin business and FIRST RESPONSE.
Consumer International: Net sales in the segment increased 11.2% to $244.4 million. Our estimate for segment sales was $230 million. Net sales benefited from favorable currency to the tune of 2.8%. Organic sales were up 7.3%, driven by favorable pricing and product mix of 5% and higher volumes to the tune of 2.3%. Organic sales growth was fueled by STERIMAR, OXICLEAN, THERABREATH and the vitamin business.
Specialty Products: Sales in the segment dropped 10.1% to $78.4 million. Organic sales fell 10.1% due to soft volumes (down 8.3%) and a reduced price/mix (down 1.8%), mainly due to challenges in the dairy business.
Other Updates
The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $573.3 million and long-term debt of $2,401.5 million. For the nine months ended Sep 30, 2023, cash from operating activities was $795.1 million. Capital expenditures were $121.5 million in the same time frame.
The company expects about $230 million in capital expenditures for 2023. It anticipates annual capital expenditures to return to nearly 2% of sales in 2025.
For 2023, Church & Dwight expects cash flow from operations of nearly $1 billion.
Guidance
Church & Dwight has witnessed solid sales growth and gross margin expansion for the first nine months of 2023, a trend that is likely to continue in the fourth quarter.
Management expects to witness solid operating fundamentals with full-year adjusted operating profit to increase nearly 8%. CHD anticipates adjusted EPS of $3.15, which implies growth of 6% from the year-ago period quarter. Reported EPS is likely to be $3.03 in 2023.
The company now expects 2023 reported sales growth of nearly 9%, up from the 8% growth projected earlier. Organic sales growth is still likely to come in at almost 5%. Management expects volumes to gain from marketing investments, new product innovation and effective execution during the back half of the year.
Church & Dwight now envisions the 2023 gross margin to expand roughly 210 bps, higher than the earlier projection of 200 bps growth. The company continues to anticipate a double-digit percentage rise in gross profit during the year.
Management expects marketing as a percentage of net sales to be 11% in 2023, reflecting an increase from 10% in 2022. Other expense is now anticipated to be approximately $95 million in 2023, a decrease from $100 million projected earlier. For 2023, CHD envisions a tax rate of nearly 22%.
Q4 View
For the fourth quarter of 2023, Church & Dwight expects a nearly 5% increase in reported sales. Organic sales are estimated to rise nearly 4%. Management expects to witness gross margin expansion in the quarter alongside expecting a significant rise in marketing and SG&A spending. It also expects a higher tax rate in the fourth quarter.
Management expects adjusted EPS of 63 cents, indicating a 2% increase from the year-ago quarter’s figure. Reported EPS is likely to be 60 cents in the fourth quarter.
Shares of the company have dropped 2.8% in the past three months compared with the industry’s 5.5% decline.
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