Church & Dwight (CHD) Q1 Earnings & Sales Beat on Solid Demand
Church & Dwight Co., Inc. CHD has reported impressive first-quarter 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Results gained from robust consumer demand for the majority of its products.
Notably, seven of its brands, including ARM & HAMMER Scent Boosters, ARM & HAMMER Baking Soda, ARM & HAMMER Clumping Litter, BATISTE dry shampoo, WATERPIK Water Flossers, ZICAM zinc supplements and THERABREATH mouthwash, witnessed double-digit consumption growth. Its recently acquired ZICAM and THERABREATH have been performing well, driven by increased market share and distribution.
However, supply-chain headwinds and elevated inflation acted as deterrents. Shares of CHD slumped more than 4% in the pre-market trading session on Apr 28. This might be due to drab bottom line view due to rising inflation costs.
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 has posted adjusted earnings of 83 cents per share, which beat the Zacks Consensus Estimate of 76 cents and remained flat year over year.
Net sales of $1,297.2 million moved up 4.7% year over year and surpassed the Zacks Consensus Estimate of $1,286 million. Results were backed by the solid consumption of the company’s brands. Organic sales rose 2.7%, with a favorable price and product mix of 7.8%. However, volumes declined 5.1% due to supply-chain disruptions and pricing elasticities. The company saw consumption gains in 11 out of 17 domestic categories.
The gross margin shrunk 190 basis points (bps) to 42.6% due to the adverse impacts of increased manufacturing costs, net of pricing, productivity and favorable mix.
Marketing expenses rose 3.2% year over year to $101.9 million. As a percentage of sales, the figure shrunk 10 bps to 7.9%. Adjusted SG&A expenses, as a percentage of sales, expanded 50 bps to 13.1%.
Segmental Details
Consumer Domestic: Net sales in the segment increased 5.6% to $995.1 million, owing to higher household and personal care sales. Organic sales improved 2.7%, driven by a higher price and product mix, somewhat negated by reduced volumes. Strength in ZICAM zinc supplements, OXICLEAN Versatile Stain Remover, BATISTE dry shampoo, ARM & HAMMER Cat Litter, and ARM & HAMMER Liquid Detergent aided the segment, offset by weakness in FLAWLESS, WATERPIK Shower Heads, and XTRA liquid detergent.
Consumer International: Net sales in the segment fell 0.8% to $214.6 million mainly on the back of the improvement of the Global Markets Group. Organic sales were up 0.3%, with a higher price and product mix, somewhat negated by reduced volumes. Organic sales growth was mainly driven by STERIMAR, BATISTE, OXICLEAN and VMS in the Global Markets Group business, which somewhat offset international supply-chain issues and impacts from laundry portfolio decisions in Canada.
Specialty Products: Sales in the segment advanced 9.2% to $87.5 million. Organic sales increased 9.2% on favorable price and mix. Dairy and non-dairy sales increased in the quarter.
Other Updates
Church & Dwight reported cash on hand of $174.4 million and total debt of $2.4 billion as of Mar 31, 2022. In the reported quarter, cash from operating activities was $152.8 million. Capital expenditure amounted to $15.6 million in the first quarter.
For 2022, the company anticipates cash flow from operations of $920 million and capital expenditure of $200 million.
2022 View
Management retained its 2022 sales view. It expects year-over-year sales growth of 5-8%, while organic sales are likely to rise 3-6%.
The company expects to witness additional cost inflation of $85 million related to higher oil and transportation costs from that mentioned in January. That said, it is on track to offset inflation via price increases, laundry concentration and productivity efforts. However, management expects to face inflation at a greater rate than effective price increases in 2022.
For 2022, the gross margin is likely to be down from the 2021 reported level due to inflation, which is anticipated to more than offset pricing and productivity benefits. Management anticipates earnings per share (EPS) to grow at the lower end of the earlier mentioned 4-8% from the year-ago adjusted EPS.
The metric is expected to be driven by operating income growth of 10%, offset by a major rise in the effective tax rate. Marketing expenses are likely to rise in 2022. However, it anticipates normalized promotional levels, as well as supply-chain improvement for the second half of 2022.
Q2 Outlook
For the second quarter of 2022, the company expects a 5-6% increase in reported sales. Organic sales are estimated to rise 3-4%. EPS is projected to be 70 cents in the quarter, suggesting an 8% decline from the year-ago quarter’s adjusted figure. The gross margin is likely to contract 200 bps year over year.
Image Source: Zacks Investment Research
In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 1.4% against the industry’s decline of 3.8%.
Business Developments
CHD remains focused on product innovation for further growth. The company launched the VITAFUSION brand’s 2 in 1 Bi-Layer Gummies. The ZICAM brand is on track with the launch of the first immune supplement gummies for both day and night, which comes with the benefit of Zinc + Vitamins C&D.
The TROJAN brand is likely to introduce two condoms, TROJAN ULTRAFIT and TROJAN BARESKIN RAW. Some other notable launches include Leave-in Hair Mask by BATISTE for moisture and nourishment without any rinsing needed, FLAWLESS Bikini line in sync with At-Home Beauty and self-care trends, and THERABREATH’s Whitening Rinse.
The company also announced a new segment with ARM & HAMMER Baby Hypoallergenic Detergent. The product comes with zero preservatives, phosphates or dyes. It is also gentle on baby’s skin and EPA Safer Choice certified.
In another development, the company is expanding ARM & HAMMER Forever Fresh Clumping Cat Litter to include the use of Essential Oils in a bid to provide long-lasting odor control and freshness.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely The Duckhorn Portfolio NAPA, McCormick & Company MKC and Dutch Bros BROS.
McCormick is one of the leading manufacturers, marketers and distributors of spices, seasonings, specialty foods and flavors. It also currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests growth of 5% and 3.9%, respectively, from the year-ago period’s reported figures. MKC has a trailing four-quarter earnings surprise of 7.3%, on average.
Duckhorn currently has a Zacks Rank #2 and an expected long-term earnings growth rate of 11.3%. NAPA has a trailing four-quarter earnings surprise of 122.4%, on average. The company has declined 1.7% in the past three months.
The Zacks Consensus Estimate for Duckhorn’s current financial-year sales and earnings per share suggests growth of 9.6% and 3.5%, respectively, from the year-ago reported numbers. The consensus mark for NAPA’s earnings per share has been unchanged in the past 30 days.
Dutch Bros currently has a Zacks Rank #2. BROS has a trailing two-quarter earnings surprise of 93.75%, on average. It has an expected long-term earnings growth rate of 35.9%. The company has gained 4.8% in the past three months.
The Zacks Consensus Estimate for Dutch Bros’ current financial-year sales and earnings per share suggests growth of 42.7% and 3.3%, respectively, from the year-ago reported numbers. The consensus mark for BROS’ earnings per share has been unchanged in the past 30 days.
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