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Church & Dwight (CHD) Q3 Earnings Top Estimates, Sales Rise

·6 min read

Church & Dwight Co., Inc. CHD reported solid third-quarter 2021 results, as the top and bottom lines grew year over year and beat the respective Zacks Consensus Estimate. Results continued to gain from solid demand for the company’s products. However, supply-chain hurdles, and input and transportation cost inflation remained hurdles. That said, the company is on track with its pricing actions to counter the cost woes.

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

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

Quarter in Detail

Church & Dwight posted adjusted earnings of 80 cents per share that topped the Zacks Consensus Estimate of 71 cents and jumped 14.3% from the year-ago quarter level. This upside was mainly backed by the greater-than-anticipated revenues from the company’s consumer domestic business.

Net sales of $1,311.4 million advanced 5.7% year over year and surpassed the Zacks Consensus Estimate of $1,283 million as well. Results were backed by the continued increase in demand for a number of the company’s products. Global online sales increased 2.2% and formed 14.3% of quarterly sales. Organic sales rose 3.7%.

Church & Dwight continued to witness robust consumption in the third quarter. The company saw consumption gains in 12 out of 16 domestic categories.

The gross margin shrunk 130 basis points (bps) to 44.2% due to Hurricane Ida as well as elevated manufacturing costs, which in turn was due to a rise in commodities, tariffs, transportation, as well as co-manufacturing rates. This was partly offset by productivity and improved price.

Marketing expenses fell 5.9% to $160.9 million. As a percentage of sales, it shrunk 150 bps to 12.3%. Adjusted SG&A expenses, as a percentage of sales, contracted 180 bps to 12%, thanks to the reduced litigation costs and incentive compensation.

Segment Details

Consumer Domestic: Net sales in the segment rose 4.6% to $998.1 million owing to higher household and personal care sales, as well as gains from buyouts. Organic sales improved 2.8%, driven by higher price and product mix, somewhat negated by reduced volumes. ARM & HAMMER clumping cat litter, ARM & HAMMER Liquid Laundry Detergent, VITAFUSION gummy vitamins, BATISTE dry shampoo and OXICLEAN powder aided the segment.

Consumer International: Net sales in the segment increased 6.3% to $227 million, mainly on the back of organic sales improvement of Global Markets Group, positive currency impacts and higher organic sales in Europe. Even amid lockdowns, organic sales were up 2.3% on higher volumes. Organic sales gained from the strength in WATERPIK and STERIMAR in Europe; along with STERIMAR, FEMFRESH, and VITAFUSION and L’IL CRITTERS gummy vitamins in the Global Markets Group.

Specialty Products: Sales in the segment advanced 18.5% to $86.3 million, mainly on robust demand. This upside was backed by the solid baseline demand in all categories, higher pricing for dairy products as well as a tight transportation market for competitive imports. Meanwhile, milk prices have been stable in the U.S. dairy market.

Other Financial Updates

Church & Dwight ended the quarter with cash on hand of $180 million and total debt of $1,794.1 million. During the first nine months of 2021, cash from operating activities was $653.6 million and the company incurred capital expenditures of $64.1 million. Cash flow from operations is likely to be around $950 million in 2021.

On Oct 28, management approved a new share-buyback plan of up to $1 billion, and terminated the previously-approved plan.

On Oct 27, the company announced a dividend of 25.25 cents per share, which is payable on Dec 1, 2021, to shareholders of record as of Nov 15. Notably, this marks the company’s 483rd straight regular dividend.

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Cost Woes & Guidance

Management stated that consumption continued to outdo shipments during the third quarter, due to the prevalent supply-chain hurdles. Further, case fill rates recovered at a softer-than-anticipated rate, and remained much below the normal levels. Hurricane Ida had a major impact on the fill levels, as it constrained the availability of raw materials. As a result, Church & Dwight reduced marketing for products that were most impacted by raw material shortages — particularly household products.

Management expects the supply-availability hurdles to reduce in the first half of 2022 for most of the company’s brands. It remains focused on making capital investments in 2022 and 2023 toward expanding its factory as well as supplier network capacity, thanks to the constant strength in consumer demand for its products.

Management expects input and transportation costs to remain elevated in the fourth quarter. It expects major cost hikes in 2022. That said, Church & Dwight has been on track with its pricing efforts to counter the cost inflation. Despite all hurdles, the company remains encouraged about its 2021 performance on category growth and impressive brand performance.

Management now expects reported sales growth of roughly 5.5% compared with the 5% rise anticipated earlier. Organic sales are still expected to rise nearly 4%. Management now expects 2021 adjusted earnings per share growth of 6%. Earlier, it was envisioned at the lower end of the 6-8% range.

Management now expects additional input costs of $170 million for 2021 compared with the $125 million expected before. However, this is likely to be partly negated by reduced coupons and promotions, lower SG&A, reduced marketing and the announced price hikes. However, the increased inflation is unlikely to be fully offset by these upsides this year.

Due to the increased cost inflation, gross margin in 2021 is expected to shrink 170 bps now compared with the earlier view of a decline of 75 bps. The company still expects adjusted operating margin to expand 70 bps.

Q4 Outlook

For the fourth quarter of 2021, the company expects roughly a 3% increase in reported sales and organic sales are estimated to rise nearly 2%, given the temporary supply constraints. Adjusted earnings per share are projected to be 61 cents in the quarter, suggesting a 15% increase from the year-ago quarter’s figure.

In the past three months, shares of this Zacks Rank #4 (Sell) company have dropped 1.2% compared with the industry’s decline of 2.4%.

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