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Church & Dwight (CHD) Q3 Earnings Top Estimates, Sales Up Y/Y

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Church & Dwight Co., Inc. CHD reported robust third-quarter 2020 results, with the top and bottom lines improving year over year. Results gained from strong demand for household and personal care products owing to consumers’ increased preference for essential items amid the coronavirus outbreak.

Management highlighted that the pandemic has led to double-digit consumption growth across several domestic categories, especially for products like gummy vitamins, women’s hair removal, cleaners and baking soda. Moreover, the company’s international business remained strong on the back of broad-based consumption growth across several brands. Moreover, management is encouraged with its results so far in 2020. Incidentally, the company raised its guidance for 2020.

Quarter in Detail

Church & Dwight posted adjusted earnings of 70 cents per share that surpassed the Zacks Consensus Estimate of 67 cents and increased 6.1% from the year-ago quarter’s level.

Net sales of $1,241 million advanced 13.9% year over year. Moreover, the top line surpassed the Zacks Consensus Estimate of $1,200 million. Results were backed by solid demand for various products stemming from the coronavirus outbreak.

Organic sales rose 9.9%, fueled by a rise in volumes of 10.2% and partially countered by unfavorable product mix and pricing for new products of 0.3%. Volume growth was driven by increased consumption and retail inventory restocking.

Online sales (as a percentage of total sales) continued to grow and contributed 13% to total sales in the reported quarter compared with 8% in the prior-year quarter.

Gross margin declined 110 basis points (bps) to 45.5% owing to tariffs, pandemic-led expenses, increased manufacturing costs and acquisition accounting. These were partially offset by improvements in productivity.

Marketing expenses increased 36.5% to $170.9 million. As a percentage of sales, it expanded 230 bps to 13.8%. However, SG&A expenses declined 27.2% to $120.5 million. As a percentage of sales, SG&A expenses increased 550 bps to 9.7%.

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

Segment Details

Consumer Domestic: Net sales in the segment rose 15.3% to $954.6 million due to higher household and personal care sales. Organic sales improved 10.7%, driven by volume growth of 11.1% that was partially offset by lower price and product mix of 0.4%. The segment mainly benefitted from strong consumption. Organic sales growth were led by brands like VITAFUSION and L’IL CRITTERS gummy vitamins, ARM & HAMMER liquid laundry detergent, KABOOM bathroom cleaners, WATERPIK oral care products, OXICLEAN stain fighters, FIRST RESPONSE diagnostic kits as well as ARM & HAMMER clumping cat litter and baking soda.

Consumer International: Net sales in the segment increased 14.6% to $213.6 million. Organic sales improved 11.6% on higher volumes. Organic sales gained from the strength in Global Markets Group and Canada.

Specialty Products: Sales in the segment declined 3.4% to $72.8 million. Also, organic sales went down by 3.4% owing to lower volumes of 3.8% and slightly offset by higher pricing of 0.4%. Volumes in the category slipped primarily due to pandemic-led reduced demand in the specialty chemical and non-dairy animal and food production businesses.

Other Financial Updates

Church & Dwight ended the quarter with cash and cash equivalents of $549.1 million, long-term debt of $1,811.9 million, and total shareholders’ equity of $3,210.3 million.

For the nine months ended Sep 30, 2020, cash flow from operating activities was $798.2 million and the company incurred capital expenditures of $54.6 million. For 2020, the company expects capital expenditures to be approximately $100 million.

Other Developments

Under the VITAFUSION banner the company launched new gummy vitamin products like Triple Immune Power, Apple Cider Vinegar, Organic Prenatal Multi, and IRRESISTIBLE SKIN.  Moreover VITAFUSION’s newly launched POWER ZINC and Elderberry gummies are available in both adult and kids variants. Based on consumers growing interests in ‘better for me’ products, the company launched ARM & HAMMER CLEAN & SIMPLE laundry detergent which is made up of only 6 ingredients plus water. Further, the company launched ARM & HAMMER CLUMP & SEAL ABSORBx clumping cat litter, made from DESERT DRY MINERAL that is touted to be 55% lighter than regular litter. Apart from this, the company introduced NU RAZOR by FLAWLESS, which is a waterless whole-body hair removal product for women.

2020 Outlook

Despite the ongoing pandemic, management believes that Church & Dwight’s business is likely to keep growing on the back of strong brands. Moreover, management is impressed with the company’s performance so far in the year and accordingly raised its outlook.

The company now anticipates sales growth of 11% compared to increase of 9-10% mentioned earlier. Organic sales are expected to rise 9% compared with the earlier guidance of 7-8%.

Further, it expects gross margin to decline 20 bps, owing to tariffs on WATERPIK products, COVID-19 related costs, acquisition accounting, new product support as well as incremental manufacturing and distribution capacity investments.

For 2020, adjusted earnings per share are now expected to grow 13-14% compared with 13% increase anticipated earlier.

Q4 Outlook

For the fourth quarter, the company expects 9% increase in sales, while organic sales are expected to rise 8%. Further, management expects gross margin to contract and marketing expenses to rise. Adjusted earnings for the quarter are expected in the band of 50-52 cents per share. The Zacks Consensus Estimate for earnings in the fourth quarter is currently pegged at 56 cents.

Price Performance

In the past six months, shares of this Zacks Rank #3 (Hold) company has gained 26.1% compared with the industry’s growth of 9.7%.

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