A month has gone by since the last earnings report for Church & Dwight (CHD). Shares have added about 7.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Church & Dwight due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Church & Dwight's Q1 Earnings & Sales Beat Estimates
Church & Dwight reported first-quarter 2020 results, wherein adjusted earnings of 83 cents per share surpassed the Zacks Consensus Estimate of 76 cents and improved 13.7% year over year. The bottom line includes a positive impact of 8 cents related to the buyout of FLAWLESS and 1 cent associated with gains from the sale of the PERL WEISS toothpaste brand.
Net sales of $1,165.2 million advanced 11.5% year over year. Moreover, the top line exceeded the Zacks Consensus Estimate of $1,127 million. Results were backed by solid demand for essential products, such as VITAFUSION gummy vitamins, ARM & HAMMER SIMPLY SALINE and STERIMAR nasal hygiene products, ARM & HAMMER baking soda, ARM & HAMMER and XTRA laundry detergent, ARM & HAMMER cat litter, and KABOOM bathroom cleaner, stemming from the COVID-19 situation in March.
Organic sales rose 9.2% and surpassed management’s roughly 3% growth projection. The uptick was fueled by a positive product mix and pricing, and a rise in volumes to the tune of 2.3% and 6.9%, respectively. Gross margin expanded 60 basis points (bps) to 45.7% on solid efforts, including pricing and productivity, which was somewhat offset by increased manufacturing expenses, costs related to COVID-19 and currency headwinds. Also, marketing expenses fell 1.7% to $96.4 million. As a percentage of sales, it contracted 10 bps to 8.3%. Adjusted SG&A expenses increased 14.5% to $151 million. As a percentage of sales, adjusted SG&A expenses increased 40 bps to 13%. Adjusted income from operations, as a percentage of sales, rose 40 bps to 27%.
Consumer Domestic: Net sales of the segment rose 13.5% to $891 million due to higher household and personal care sales along with gains from acquisitions. Organic sales improved 10.2%, driven by a positive impact of 2.8% from price and product mix as well as 7.4% from higher volumes. The primary growth drivers in the segment were ARM & HAMMER clumping cat litter and baking soda, ARM & HAMMER liquid laundry detergent, VITAFUSION and L’IL CRITTERS gummy vitamins, OXICLEAN stain fighters and BATISTE dry shampoo.
Consumer International: Net sales of the segment rose 6.4% to $198.6 million, backed by broad-based sales growth in household and personal care products as well as gains from acquisitions. Organic sales increased 7.1% on higher volumes of 4.9% as well as favorable price and product mix of 2.2%. Organic sales were mainly driven by BATISTE dry shampoo in Germany, ARM & HAMMER cat litter & liquid laundry detergent in Canada, FEMFRESH feminine hygiene portfolio in Australia, CURASH baby wipes and STERIMAR nasal spray in the U.K.
Specialty Products: Sales in the segment increased 3.4% to $75.6 million. Also, organic sales advanced 3.4% due to higher volumes of 6.7% and unfavorable pricing to the tune of 3.3%. Further, management stated that demand for dairy products declined due to sluggishness in the consumption of milk and cheese stemming from the ongoing COVID-19 situation. However, demand for poultry products remained strong.
Other Financial Updates
Church & Dwight ended the quarter with cash and cash equivalents of $890.9 million, long-term debt of $1,810.8 million and total shareholders’ equity of $2,817.8 million. In the quarter under review, the company generated cash flow from operations of $236.5 million and incurred a capital expenditure of $16.8 million.
Results gained from increased hoarding of essentials by consumers in March. To this end, the company witnessed a 30% rise in the consumption of all brands stemming from a sudden hike in demand. Also, it is struggling to restock inventories and store shelves with higher retailer orders and shipments in April. Further, impressive growth in most of its categories contributed to quarterly results. In this regard, both household and personal care businesses performed well, with consumers’ shifting preference for essential products. Moreover, the specialty products division recorded its second successive quarter of organic sales growth backed by an improvement in the dairy industry.
Management remains focused on providing a continued supply of essentials during the second quarter to meet consumer demand. It projects year-over-year 8% sales growth for the month of April across the United States, backed by increased demand for household products and vitamins. Further, consumption in April is expected to remain positive with the shipment trend likely to reduce in May or June. Going ahead, the company remains well positioned with its broad product portfolio, solid balance sheet and cost-containment actions to overcome this ongoing hurdle.
However, management withdrew its 2020 guidance, given the unprecedented impacts of COVID-19 on consumer demand, global economy, supply-chain operations, foreign-currency translation, commodity expenses and government restrictions.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Church & Dwight has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. It comes with little surprise Church & Dwight has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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