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Church & Dwight's (CHD) Buyout of Hero to Bolster Portfolio

Church & Dwight Co., Inc. CHD has remained focused on achieving growth via acquisitions. The company inked a deal to buy the Hero Mighty Patch brand (or Hero) and other acne treatment products for $630 million. The deal, which will comprise cash and stock, is anticipated to close in the fourth quarter of 2022.

Mighty Patch, the number two brand in the acne space in the United States, is likely to be a solid addition to Church & Dwight’s existing Specialty Hair and Skin portfolio, including Nair, Batiste, Viviscal, Flawless and Toppik. This will mark Church & Dwight’s 15th power brand and help the company meet its buyout criteria.

Hero generated net sales of nearly $115 million in the trailing 12 months through Jun 30, 2022. Its trailing 12-month EBITDA as of Jun 30 was nearly $45 million, with an EBITDA margin of 40%. CHD anticipates strengthening the distribution of Mighty Patch by utilizing its domestic retailer relationships and solid international presence.

2022 & 2023 Guidance

Church & Dwight now anticipates a reported sales advancement of 2-4% for the full year compared with the previous guidance of 4-5%. The updated view represents increased growth from the inclusion of Hero, countered by persistent sluggishness in more discretionary brands.

For the third quarter, this Zacks Rank #4 (Sell) company expects sales to decline 1% due to soft demand for Waterpik, Vitafusion and Flawless. The company reiterated its earnings per share (EPS) guidance of 65 cents for the third quarter. This suggests a 19% decline from the year-ago quarter’s adjusted figure due to inflation, elevated expected SG&A expenses and promotional spend.

The abovementioned buyout is likely to dilute Church & Dwight’s EPS by a negative 5 cents due to transition costs, costs associated with buyouts, interest expenses, intangible amortization expenses and increased marketing. Management now expects the adjusted EPS for the full year to be $2.97, including the five-cent dilutive impact of the acquisition.  

Moving further, in 2023, the Hero acquisition is envisioned to augment cash earnings by 3%, while it is likely to remain neutral to adjusted EPS. Net sales of Hero are estimated to increase around 15% to $150 million in 2023.

All said, Church & Dwight’s inclusion of Hero is likely to add to its growth via the acquisition story. Markedly, in the second quarter of 2022, contributions from buyouts aided the company’s top line, with both Zicam and Therabreath delivering a double-digit consumption increase.

Consumer Staple Stocks Worth a Look

Some better-ranked stocks are The Chef's Warehouse CHEF, General Mills, Inc. GIS and Celsius Holdings CELH.

Chef’s Warehouse, a distributor of specialty food products in the United States, currently sports a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 355.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Chef Warehouse’s current financial-year sales suggests growth of 40.7% from the year-ago reported number.

General Mills, which manufactures and markets branded consumer food worldwide, currently carries a Zacks Rank of 2 (Buy). GIS has a trailing four-quarter earnings surprise of 6.5%, on average.

The Zacks Consensus Estimate for General Mills’ current financial-year sales and EPS suggests growth of almost 2% and 1.5%, respectively, from the corresponding year-ago reported figures.

Celsius Holdings, which develops, processes, markets, distributes and sells functional drinks and liquid supplements, carries a Zacks Rank #2 at present. Celsius Holdings delivered an earnings surprise of 50% in the last reported quarter.
The Zacks Consensus Estimate for CELH’s current financial-year sales suggests growth of 97.3% from the year-ago period’s reported figure.

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