Is the Hold Strategy Apt for Church & Dwight (CHD) Stock?
Church & Dwight Co., Inc. CHD, a leading consumer products giant, has been in troubled waters of late. The company posted mixed results in the second quarter of 2017, wherein while earnings beat the Zacks Consensus Estimate, revenues missed the same. Though acquisition gains aided sales in the quarter, earnings suffered due to higher promotional expenses.
Church & Dwight has also been witnessing pricing pressures, rising commodity costs, stiff competition and weak consumer demand in many markets. The company also remains exposed to unfavorable foreign currency translations, which have been hurting its sales and profits.
These headwinds have also weighed on the shares of Church & Dwight. If we look into the share price performance of Church & Dwight over the past three months, we note that the stock has underperformed the industry as well as the broader Consumer Staples sector. The stock has declined 8.6% in the last three months, while the industry grew about 2.6%. The broader sector on the other hand dipped 1.3% in the same time frame.
Nevertheless, the company is undertaking efforts to offset headwinds and boost profits. Looking into the earnings trend, we note that the company’s earnings have outpaced the Zacks Consensus Estimate in 11 out of the past 14 quarters and posted in-line results in two.
Here we discuss some of the measures that the company has been taking of late to drive growth. Let us also analyze whether the same would help to boost the stock in the near term.
Innovations
Church & Dwight develops, manufactures and markets a broad range of household, personal care and specialty products. On the back of a robust brand portfolio, Church & Dwight makes regular innovations and is well-positioned in the consumer product categories. The company recently announced plans to launch ARM & HAMMER CLUMP & SEAL SLIDE cat litter and ARM & HAMMER unit dose 3-in-1 POWER PAKS laundry detergent.
Church & Dwight is also introducing a new VITAFUSION energy variant that meets the everyday energy needs of people. TROJAN brand is also launching a new XOXO upscale condom targeting both men and women. The company also has plans to expand offerings and distribution of the BATISTE brand.
Strategic Acquisitions
Church & Dwight is on track to expand its market share through strategic acquisitions. The most recent is the acquisition of Water Pik (July 2017), which is a manufacturer of oral hygiene products and shower heads.
The acquisition of Water Pik will thus complement and expand Church & Dwight’s oral care portfolio and help it to secure a leading position in the growing oral care category. Other buyouts of Agro BioSciences, VIVISCAL business and ANUSOL and RECTINOL brands have also provided further strength to the Church & Dwight’s sturdy portfolio and improved business.
Prudent Cost Management
The company has a healthy cost management structure. Besides maintaining tight control on overhead costs, the company has been mitigating the impact of same through cost reduction programs. The company also has a set pricing and pre-buying arrangements with certain suppliers and hedge agreements for diesel fuel to combat higher costs.
Expanding Consumer Business Internationally
The company’s international consumer business has been doing well and has helped it to generate organic sales growth in the first half of 2017. The company is therefore opening new offices to boost export business. The company continues to invest in the international consumer business to sustain strong sales growth. The company now expects the business to grow 7% organically in 2017.
Church & Dwight Company, Inc. Price, Consensus and EPS Surprise
Church & Dwight Company, Inc. Price, Consensus and EPS Surprise | Church & Dwight Company, Inc. Quote
Bottom Line
Stable portfolio of value and premium products, tight management of overhead expenses along with robust sales and earnings growth are expected to aid the stock. However, with margin pressure due to rising costs and competition, we expect to wait and see how the stock will perform in the near term.
Zacks Rank & Key Picks
Church & Dwight currently carries a Zacks Rank #3 (Hold).
Some better-ranked food stocks in the industry are Nomad Foods Ltd. NOMD, Ingredion, Inc. INGR and The Chef’s Warehouse Inc. CHEF.
Nomad has a VGM Score of B and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingredion and Chef’s Warehouse, both carry a Zacks Rank #2 (Buy). While Ingredion have VGM Score of B, Chef’s Warehouse carry a VGM Score of C.
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