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Church & Dwight (CHD) Q4 Earnings Meet Estimates, Sales Up

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Church & Dwight Co., Inc. CHD reported fourth-quarter 2019 results, with the top line improving year over year. Earnings where in line with the Zacks Consensus Estimate. However, the bottom line declined year over year.

Quarter in Detail

Church & Dwight posted adjusted earnings of 55 cents per share, in line with the Zacks Consensus Estimate. However, the metric declined3.5% from the year-ago quarter’s level. This downside was caused by increased marketing spending and higher SG&A investment.

Net sales amounted to$1,144.2 million, up 6.5% year over year. The Zacks Consensus Estimate was pegged at $1,142 million. Results were backed by consistent category growth and market share gains.

Organic sales rose 4.4% and surpassed management’s 3% growth projection. The uptick was fueled by positive product mix and pricing to the tune of 2%. Moreover, volume improved 2.4%.

Gross margin expanded 170 basis points (bps) to 45.8% on improved pricing, efficiency and benefits from acquisition accounting.

However, marketing expenses increased 28.6% to $162.6 million. As a percentage of sales, the metric expanded 240 bps to 14.2%. SG&A expenses increased 7.6% to $166.2 million. Adjusted SG&A expenses increased 70 bps due to impacts of acquisitions and increased R&D investments among other factors.

Income from operations came in at $195.2 million which rose 0.9%.

Segment Details

Consumer Domestic: Net sales in the segment rose 6.3% to $870.8 million owing to higher household and personal care sales as well as acquisitions. Organic sales rose 3.5%, driven by positive impact of 2.6% from price as well as product mix and higher volume of 0.9%. The primary growth drivers in the segment were ARM & HAMMER liquid laundry detergent, WATERPIK oral care products, VITAFUSION gummy vitaminsand OXICLEAN stain fighters.

Consumer International: Net sales in the segment increased10.1% to $196.6 million, backed by broad-based sales growth for household and personal care products and acquisitionsalong with improvements in Global Markets Group business. Organic sales increased 10.6% on higher volume of 9.9% as well as favorable price and product mix of 0.7%. Organic sales were mainly driven by BATISTE dry shampoo and STERIMAR in the Global Markets Group business, ARM & HAMMER clumping cat litter and liquid laundry detergent in Canada, BATISTE in Germany, ARM & HAMMER liquid laundry detergent in Mexico and WATERPIK in various countries.

Specialty Products: Sales in the segment inched up 0.7% year over year to $76.8 million. Also, organic sales moved up0.7% owing to higher volumes of 1.5% that was offset by unfavourable pricing in the tune of 0.8%. Further, management stated that demand for dairy products increased. Also, demand for products in poultry industry remained strong.

Other Financial Updates

Church & Dwight ended the quarter with cash and cash equivalents of $155.7 million, long-term debt of $1,810.2 million and total shareholders’ equity of $2,667.8 million.

During 2019, the company generated cash flow from operations of $864.5 million and incurred capital expenditure of $73.7 million.

In a separate press release, the company announced quarterly dividend of 24 cents per share, up 5.5% from the dividend of 22.75 cents paid out in the last reported quarter. The dividend will be paid out on Mar 2, 2020 to shareholders on record as of Feb 14.

Other Developments & Outlook

Management is encouraged with the results 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 anticipates sales growth of 6.5% for 2020. Organic sales are expected to rise nearly 3.5% in the same period.

For2020, gross margin is likely to increase 10 bps. Excluding the FLAWLESS acquisition accounting, gross margin is anticipated to increase 50 bps. Marketing expenses are likely to increase 10 bps.

The company expects adjusted earnings growth in the range of 7-9% to $2.64-$2.69 per share. The Zacks Consensus Estimate for full-year earnings is currently pegged at $2.68.

For the first quarter of 2020, management anticipates sales growth of approximately 6.5% on a reported basis and nearly 3% on an organic basis. The company expects improvement in gross margin and higher marketing expense.

Adjusted earnings are projected to be73 cents per share for the first quarter, excluding the FLAWLESS acquisition related adjustment; a 4% year over year improvement. The Zacks Consensus Estimate for the quarter currently stands at 77 cents.

Price Performance
Shares of the Zacks Rank #3 (Hold) company gained 6.2% in the past three months compared with the industry’s rise of 0.3%.

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