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Church & Dwight (CHD) Q2 Earnings Top Estimates, Sales Up Y/Y

Zacks Equity Research

Church & Dwight Co., Inc. CHD reported second-quarter 2019 results, with the top and the bottom line improving year over year and beating the Zacks Consensus Estimate. In fact, this marked the eighth consecutive quarterly sales beat by the company. Further, management updated the outlook for 2019 and provided projections for the third quarter. Let’s delve deeper.

Quarter in Detail

Church & Dwight posted earnings of 57 cents per share that surpassed the Zacks Consensus Estimate of 52 cents and improved 16.3% from the year-ago quarter’s level.

Net sales of $1,079.4 million advanced 5% year over year and surpassed the Zacks Consensus Estimate of $1,074 million. Results were backed by consistent category growth and healthy market share gains.

Church & Dwight Co., Inc. Price, Consensus and EPS Surprise


Church & Dwight Co., Inc. Price, Consensus and EPS Surprise

Church & Dwight Co., Inc. price-consensus-eps-surprise-chart | Church & Dwight Co., Inc. Quote

Organic sales rose 4.9% and surpassed management’s 3.5% growth projection. The uptick was fueled by 5.7% rise in global consumer products, 0.7% volume growth as well as improved product mix and pricing to the tune of 5%.

Gross margin expanded 30 basis points (bps) to 44.6% on higher pricing, gains from the acquisition of FLAWLESS and productivity programs. This was somewhat countered by increased commodity and manufacturing expenses.

Further, marketing expenses fell 5.4% to $129.1 million. As a percentage of sales, it contracted 130 bps to 12%. SG&A expenses were $165 million. As a percentage of sales, SG&A expenses increased 120 bps to 15.3%.

Income from operations, as a percentage of sales, rose 40 bps to 17.3%.

Segment Details

Consumer Domestic: Net sales in the segment rose 5.8% to $819.3 million, courtesy of higher household and personal care sales. Organic sales improved 5%, driven by positive impact of price and product mix that offset lower volume. The primary growth drivers in the segment were ARM & HAMMER liquid, ARM & HAMMER clumping cat litter, OXICLEAN stain fighters, XTRA liquid laundry detergent, WATERPIK oral care products, VITAFUSION gummy vitamins, ARM & HAMMER scent booster, and BATISTE dry shampoo.

During the quarter, the company witnessed improvements in 13 out of 15 domestic categories. Moreover, within the domestic business, 9 out of 12 power brands have either met or exceeded category growth.

Consumer International: Net sales in the segment rose 6% to $186.6 million, backed by broad-based sales growth for household and personal care products as well as improvement in Global Markets Group business. Organic sales grew 9.1% on higher volume as well as favorable price and product mix. Organic sales were mainly driven by VITAFUSION, FEMFRESH, BATISTE, STERIMAR, and ARM & HAMMER baking soda in the Global Markets Group business, L’IL CRITTERS gummy vitamins, ARM & HAMMER liquid laundry detergent, ARM & HAMMER toothpaste, and WATERPIK.

Specialty Products: Sales in the segment improved 5.4% to $73.5 million. However, Organic sales slipped 5.4% due to lower volumes, partially cushioned by favorable pricing. Further, management stated that demand for poultry products remained strong. However, lower milk prices continued to dent demand in the dairy industry.

Other Financial Updates

Church & Dwight ended the quarter under review with cash and cash equivalents of $97.9 million, long-term debt of $1,809 million, and total shareholders’ equity of $2,604.8 million.

In the first half of 2019, the company generated cash flow from operations of $351.2 million and incurred capital expenditure of $23.6 million.

In a separate press release, it announced quarterly dividend of 22.75 cents per share, which is payable Sep 3, 2019, to shareholders of record as of Aug 15.

Other Developments & Outlook

Management is encouraged with the results delivered so far in 2019. Further, it is on track with product launches and brand investments to bolster market share. It has also announced launches under the household products and personal care portfolio. These are likely to boost revenues in the forthcoming periods.

Moving on, the company updated its view for 2019. It anticipates sales growth of 6% compared with the earlier projection of 5-6%. Organic sales are expected to rise 4%, indicating an increase from the earlier view of 3.5% growth.

Gross margin is likely to increase 80 bps compared with 50 bps growth expected earlier. The upside is likely to be supported by lower inflation and gains from acquisitions.

Adjusted operating profit expected to be in line with the company’s Evergreen model (up 50 bps). It expects adjusted earnings growth of 9% compared with the earlier view of 7-9% increase.

For the third quarter of 2019, management anticipates sales growth of approximately 6% on a reported basis and 3% on an organic basis. Adjusted earnings are projected to be 60 cents per share, indicating a year-over-year increase of 3%. The Zacks Consensus Estimate for third-quarter earnings is currently pegged at 63 cents.


Price Performance & Zacks Rank

Shares of the company have gained 4% in the past three months compared with the industry’s rise of 8.1%.

Currently, Church & Dwight has a Zacks Rank #2 (Buy).

Looking for More Consumer Staples Stocks? Check These

The J. M. Smucker Company SJM, with a Zacks Rank #2, has long-term earnings growth rate of 4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Campbell Soup Company CPB, with a Zacks Rank #2, has long-term earnings growth rate of 5%.

General Mills, Inc GIS, with an expected long-term earnings growth rate of 7%, also carries a Zacks Rank #2.

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