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Church & Dwight (CHD) Q3 Earnings Beat Estimates, Sales Miss

Zacks Equity Research

Church & Dwight Co., Inc. CHD reported third-quarter 2019 results, wherein the top line and the bottom line improved year over year. Also, earnings surpassed the Zacks Consensus Estimate for the third straight time. However, the company’s positive sales surprise streak came to an end in the quarter. Let’s delve deeper.

Quarter in Detail

Church & Dwight posted adjusted earnings of 66 cents per share that surpassed the Zacks Consensus Estimate of 60 cents and improved 13.8% from the year-ago quarter’s level.

Net sales of $1,089.4 million advanced 5% year over year. However, the top line missed the Zacks Consensus Estimate of $1,103 million. Results were backed by consistent category growth and 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 3.6% and surpassed management’s 3% growth projection. The uptick was fueled by positive product mix and pricing to the tune of 4.3%, partially offset by volume decline of 0.7%.

Gross margin expanded 230 basis points (bps) to 46.6% on retroactive tariff exemption benefit and gains from the acquisition of FLAWLESS.

However, marketing expenses increased 3.9% to $125.2 million. As a percentage of sales, it contracted 10 bps to 11.5%. Adjusted SG&A expenses increased 13.5% to $153.7 million. As a percentage of sales, adjusted SG&A expenses increased 110 bps to 14.1%, owing to intangible amortization costs related to acquisitions.

Adjusted income from operations, as a percentage of sales, rose 130 bps to 21%.

Segment Details

Consumer Domestic: Net sales of the segment rose 5.4% to $827.6 million due to higher household and personal care sales. Organic sales improved 3.3%, driven by positive impact of 5.1% from price and product mix that offset lower volume of 1.8%. The primary growth drivers in the segment were ARM & HAMMER liquid, ARM & HAMMER clumping cat litter, ARM & HAMMER liquid laundry detergent, WATERPIK oral care products, VITAFUSION and L’IL CRITTERS gummy vitamins, ARM & HAMMER scent booster and BATISTE dry shampoo.

Consumer International: Net sales of the segment rose 7.1% to $186.4 million, backed by broad-based sales growth for household and personal care products as well as improvements in Global Markets Group business. Organic sales increased 8.7% on higher volume of 5.4% as well as favorable price and product mix of 3.3%. Organic sales were mainly driven by BATISTE and VITAFUSION in the Global Markets Group business, BATISTE dry shampoo, STERIMAR, ARM & HAMMER liquid laundry detergent and ARM & HAMMER toothpaste. WATERPIK and FLAWLESS buyouts also contributed to the international business.

Specialty Products: Sales in the segment decreased 4.1% to $75.4 million. Also, organic sales slipped 4.1% due to lower volumes of 3.1% and unfavorable pricing in the tune of 1%. Further, management stated that demand for dairy products declined. However, demand for non-dairy products remained strong.

Other Financial Updates

Church & Dwight ended the quarter with cash and cash equivalents of $114.7 million, long-term debt of $1,809.6 million and total shareholders’ equity of $2,559.3 million.

In the first three quarters of 2019, the company generated cash flow from operations of $617.5 million and incurred capital expenditure of $39.7 million.

In a separate press release, the company announced quarterly dividend of 22.75 cents per share, which is to  be paid out on Dec 2, 2019 to shareholders on record as of Nov 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.

The company now anticipates sales growth of 5% for 2019, compared with the earlier projection of 6%. Organic sales are still expected to rise 4%.

Gross margin is likely to increase 100 bps. Excluding the FLAWLESS acquisition accounting, gross margin is anticipated to increase 60 bps. Marketing expenses are likely to improve. As a percentage of net sales, marketing expenses are projected to be 11.7%.

The company still expects adjusted earnings growth of 9% to $2.47 per share. The Zacks Consensus Estimate for full-year earnings is currently pegged at $2.49.

For the fourth quarter of 2019, management anticipates sales growth of approximately 6% on a reported basis and 3% on an organic basis. The company expects improvement in gross margin, higher marketing expense and increase in SG&A (related to FLAWLESS buyout and reinvestment in the business).

Adjusted earnings are projected to be 54 cents per share for the fourth quarter, excluding the FLAWLESS acquisition related adjustment. In the prior-year period, the company posted earnings of 57 cents a share. The Zacks Consensus Estimate for the quarter currently stands at 61 cents.

Shares of the Zacks Rank #2 (Buy) company have gained 17.7% in the past year compared with the industry’s rise of 27.8%.

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