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Church & Dwight (CHD) Gains on High Demand & Online Strength

Zacks Equity Research
·4 mins read

Church & Dwight Co., Inc. CHD appears to be in a decent spot amid the otherwise jeopardized economy, owing to the coronavirus outbreak. The company’s shares have rallied 31.8% so far this year, outperforming the industry’s growth of 11.5%. Markedly, this manufacturer of household, personal care and specialty products has been benefiting from rising demand for essentials amid the pandemic.

Apart from this, Church & Dwight’s online business and brand enhancement endeavors through innovation and acquisitions have been bolstering its growth. Let’s delve deeper into the factors boosting this Zacks Rank #3 (Hold) company and helping it battle escalated costs.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Adding Spark to Church & Dwight

The company’s second-quarter 2020 results gained from the robust household and personal care businesses owing to consumers’ shifted preference for essential products amid the coronavirus outbreak. In this regard, the company witnessed double-digit growth in the consumption of products like gummy vitamins, women’s hair removal, cleaners and baking soda. Notably, Church & Dwight had earlier announced that all its products were categorized as essential commodities, per the requirements and guidance of the government. Hence, the company has been witnessing a significant increase in demand for its products, especially household cleaning products. Also, the demand for brands like FLAWLESS is benefiting from elevated at-home grooming sessions.

Other consumer staple stocks gaining from the increased demand trends include Clorox CLX, Colgate-Palmolive CL and Procter & Gamble PG, to name a few. Meanwhile, Church & Dwight’s e-commerce sales have also been playing a strong role amid the pandemic, with more consumers buying online. The company’s online sales surged 72% in the second quarter with growth in all retailer websites. The company expects online sales to remain solid in the second half of 2020.

Certainly, Church & Dwight is benefiting from its robust brand portfolio, which is a result of its focus on innovation and buyouts. Notably, the company earlier said that it looks forward to having 20 power brands in its portfolio, over time. Talking of buyouts, FLAWLESS has been a prudent addition to Church & Dwight’s portfolio. The brand witnessed robust consumption growth from May to July due to customers’ reduced access to salons. FLAWLESS is poised to keep gaining from rising at-home grooming trends and management has solid advertising plans in place for the brand for the second half of 2020.

Is All Rosy for CHD?

Church & Dwight’s adjusted SG&A expenses increased 30 bps in the second quarter of 2020 due to the impacts of acquisitions, elevated incentive compensation, and R&D investments. Additionally, the company witnessed escalated manufacturing costs due to COVID-19 supply-chain expenses. Management expects gross margin to fall in the second half due to new product promotional support, FLAWLESS accounting effect, increased tariffs on WATERPIK and additional investments in manufacturing and distribution capacity. Management in its last earnings call informed about plans to make additional investments to boost manufacturing, R&D, consumer research, digital advertising, new product development and predictive analytics in the second half of 2020. We believe that this is likely to raise the cost burden.

Nevertheless, the abovementioned upsides, especially strong demand, are likely to help Church & Dwight counter these headwinds. In fact, the solid year-to-date results had encouraged management to raise its sales and earnings guidance for 2020, when it reported second-quarter results. The company anticipates sales growth of 9-10% compared with 6.5% growth mentioned earlier. For 2020, adjusted earnings per share are expected to grow 13%, higher than the previously mentioned 7-9% increase.

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ColgatePalmolive Company (CL) : Free Stock Analysis Report
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