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Will Growth Efforts Aid Church & Dwight (CHD) Amid Inflation?
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Church & Dwight Co. Inc. (CHD - Free Report) has been benefiting from a strong brand portfolio, a solid online show, pricing actions and strategic buyouts.
This led to third-quarter 2022 results, wherein the bottom and top lines beat the Zacks Consensus Estimate. Net sales of $1,317.3 million inched up 0.4% year over year. The company’s U.S. portfolio saw consumption growth in 11 of 17 categories.
Management expects 2022 reported sales growth of 3%, the mid-point of its previous range (2-4%). For the fourth quarter of 2022, the company expects a 2% increase in reported sales.
In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 14.6% compared with the industry's 16.2% growth.
Image Source: Zacks Investment Research
That said, let’s delve deeper into the factors aiding the stock.
Factors Narrating CHD’s Growth Story
The company’s aggressive pricing efforts bode well. Although third-quarter 2022 organic sales fell 0.7%, owing to a volume decline of 8.5%, the metric was somewhat offset by favorable pricing of 7.8%.
The company anticipates 2022 organic sales growth of 1%. Management stated that solid consumption in several businesses in 2022 offset the slowdown across discretionary brands, including Waterpik and Flawless.
Another factor working for Church & Dwight is the online channel. During the third quarter, the company’s online sales, as a percentage of total sales, were 15%. Management expects online sales for 2022 to be more than 15% as a percentage of total sales.
Church & Dwight is on track with its acquisition spree. The company recently completed its buyout of the Hero Mighty Patch brand (or Hero) and other acne treatment products. It also concluded the integration of the Therabreath buyout, which marks the company's 14th power brand.
We note that the buyouts of FLAWLESS and WATERPIK were other prudent additions to Church & Dwight’s portfolio. Another noteworthy acquisition is Batiste.
In December 2020, the company took over Matrixx Initiatives, which owns the ZICAM brand. Zicam is a leading zinc supplement in the United States in the vitamins, minerals, and supplements cough/cold shortening category. In the third quarter of 2022, contributions from Therabreath, Zicam and Hero buyouts aided the top line, with a double-digit consumption increase across all three businesses.
The company is focused on product innovation for further growth. It launched the VITAFUSION brand’s 2-in-1 Bi-Layer Gummies. The ZICAM brand is on track with the launch of the first immune supplement gummies for both day and night, which come with the benefits of Zinc + Vitamins C&D.
The TROJAN brand is likely to introduce two condoms, TROJAN ULTRAFIT and TROJAN BARESKIN RAW. Another notable launch is THERABREATH’s Whitening Rinse. The company also announced a new segment with ARM & HAMMER Baby Hypoallergenic Detergent.
In another development, the company is expanding ARM & HAMMER Forever Fresh Clumping Cat Litter to include the use of Essential Oils to provide long-lasting odor control and freshness.
Headwinds to Overcome
The company has been witnessing increased raw material, manufacturing and distribution expenses, as well as increased promotional spending, which dented margins in the third quarter of 2022. In the quarter, Church & Dwight’s gross margin shrunk 250 basis points (bps) to 41.7%. SG&A expenses, as a percentage of sales, expanded 280 bps to 11.7%. Consequently, earnings of 76 cents per share declined 5% year over year.
For 2022, management expects the reported gross margin to contract year over year, as it envisions inflation to outpace pricing and productivity. The company anticipates adjusted EPS of $2.93-$2.97, down 2-3% from that reported in 2021. Earlier, the company expected an adjusted EPS of $2.97 for 2022.
For the fourth quarter of 2022, CHD expects to witness gross margin contraction due to an unfavorable mix within the portfolio. It expects adjusted EPS of 58-62 cents per share, down 3-9% from the year-ago quarter’s reported figure. The downside can be attributed to a major rise in quarterly tax rates and acquisition-related costs.
The company expects a 2% increase in reported sales. Organic sales are estimated to fall 1%.
Wrapping Up
CHD’s strong brand portfolio, online strength, pricing actions and strategic buyouts are likely to offset the hurdles stemming from cost inflation in the near term. A long-term earnings growth rate of 6.7% raises optimism in the stock.
e.l.f. Beauty currently sports a Zacks Rank of 1 (Strong Buy). ELF has a trailing four-quarter earnings surprise of 77%, on average. The stock has rallied 29% in the past three months.
The Zacks Consensus Estimate for e.l.f. Beauty’s fiscal 2022 sales and earnings suggests growth of 17.6% and 8.3%, respectively, from the prior-year reported numbers. The consensus mark for ELF’s earnings per share has moved up by a penny in the past seven days.
Conagra Brands, a consumer-packaged goods food company, currently carries a Zacks Rank of 2 (Buy). CAG has a trailing four-quarter earnings surprise of 1.8% on average.
The Zacks Consensus Estimate for Conagra Brands’ fiscal 2022 sales and earnings suggests growth of 5.2% and 3.4%, respectively, from the year-ago reported figures.
Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank of 2. CPB has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for Campbell Soup’s fiscal 2022 sales and earnings suggests growth of 8.2% and 4.9%, respectively, from the year-ago reported figures.
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Will Growth Efforts Aid Church & Dwight (CHD) Amid Inflation?
Church & Dwight Co. Inc. (CHD - Free Report) has been benefiting from a strong brand portfolio, a solid online show, pricing actions and strategic buyouts.
This led to third-quarter 2022 results, wherein the bottom and top lines beat the Zacks Consensus Estimate. Net sales of $1,317.3 million inched up 0.4% year over year. The company’s U.S. portfolio saw consumption growth in 11 of 17 categories.
Management expects 2022 reported sales growth of 3%, the mid-point of its previous range (2-4%). For the fourth quarter of 2022, the company expects a 2% increase in reported sales.
In the past three months, shares of this Zacks Rank #3 (Hold) company have gained 14.6% compared with the industry's 16.2% growth.
Image Source: Zacks Investment Research
That said, let’s delve deeper into the factors aiding the stock.
Factors Narrating CHD’s Growth Story
The company’s aggressive pricing efforts bode well. Although third-quarter 2022 organic sales fell 0.7%, owing to a volume decline of 8.5%, the metric was somewhat offset by favorable pricing of 7.8%.
The company anticipates 2022 organic sales growth of 1%. Management stated that solid consumption in several businesses in 2022 offset the slowdown across discretionary brands, including Waterpik and Flawless.
Another factor working for Church & Dwight is the online channel. During the third quarter, the company’s online sales, as a percentage of total sales, were 15%. Management expects online sales for 2022 to be more than 15% as a percentage of total sales.
Church & Dwight is on track with its acquisition spree. The company recently completed its buyout of the Hero Mighty Patch brand (or Hero) and other acne treatment products. It also concluded the integration of the Therabreath buyout, which marks the company's 14th power brand.
We note that the buyouts of FLAWLESS and WATERPIK were other prudent additions to Church & Dwight’s portfolio. Another noteworthy acquisition is Batiste.
In December 2020, the company took over Matrixx Initiatives, which owns the ZICAM brand. Zicam is a leading zinc supplement in the United States in the vitamins, minerals, and supplements cough/cold shortening category. In the third quarter of 2022, contributions from Therabreath, Zicam and Hero buyouts aided the top line, with a double-digit consumption increase across all three businesses.
The company is focused on product innovation for further growth. It launched the VITAFUSION brand’s 2-in-1 Bi-Layer Gummies. The ZICAM brand is on track with the launch of the first immune supplement gummies for both day and night, which come with the benefits of Zinc + Vitamins C&D.
The TROJAN brand is likely to introduce two condoms, TROJAN ULTRAFIT and TROJAN BARESKIN RAW. Another notable launch is THERABREATH’s Whitening Rinse. The company also announced a new segment with ARM & HAMMER Baby Hypoallergenic Detergent.
In another development, the company is expanding ARM & HAMMER Forever Fresh Clumping Cat Litter to include the use of Essential Oils to provide long-lasting odor control and freshness.
Headwinds to Overcome
The company has been witnessing increased raw material, manufacturing and distribution expenses, as well as increased promotional spending, which dented margins in the third quarter of 2022. In the quarter, Church & Dwight’s gross margin shrunk 250 basis points (bps) to 41.7%. SG&A expenses, as a percentage of sales, expanded 280 bps to 11.7%. Consequently, earnings of 76 cents per share declined 5% year over year.
For 2022, management expects the reported gross margin to contract year over year, as it envisions inflation to outpace pricing and productivity. The company anticipates adjusted EPS of $2.93-$2.97, down 2-3% from that reported in 2021. Earlier, the company expected an adjusted EPS of $2.97 for 2022.
For the fourth quarter of 2022, CHD expects to witness gross margin contraction due to an unfavorable mix within the portfolio. It expects adjusted EPS of 58-62 cents per share, down 3-9% from the year-ago quarter’s reported figure. The downside can be attributed to a major rise in quarterly tax rates and acquisition-related costs.
The company expects a 2% increase in reported sales. Organic sales are estimated to fall 1%.
Wrapping Up
CHD’s strong brand portfolio, online strength, pricing actions and strategic buyouts are likely to offset the hurdles stemming from cost inflation in the near term. A long-term earnings growth rate of 6.7% raises optimism in the stock.
Stocks to Consider
Here are some better-ranked stocks from the broader Consumer Staples space, namely e.l.f. Beauty (ELF - Free Report) , Conagra Brands (CAG - Free Report) and Campbell Soup (CPB - Free Report)
e.l.f. Beauty currently sports a Zacks Rank of 1 (Strong Buy). ELF has a trailing four-quarter earnings surprise of 77%, on average. The stock has rallied 29% in the past three months.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for e.l.f. Beauty’s fiscal 2022 sales and earnings suggests growth of 17.6% and 8.3%, respectively, from the prior-year reported numbers. The consensus mark for ELF’s earnings per share has moved up by a penny in the past seven days.
Conagra Brands, a consumer-packaged goods food company, currently carries a Zacks Rank of 2 (Buy). CAG has a trailing four-quarter earnings surprise of 1.8% on average.
The Zacks Consensus Estimate for Conagra Brands’ fiscal 2022 sales and earnings suggests growth of 5.2% and 3.4%, respectively, from the year-ago reported figures.
Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank of 2. CPB has a trailing four-quarter earnings surprise of 8.7%, on average.
The Zacks Consensus Estimate for Campbell Soup’s fiscal 2022 sales and earnings suggests growth of 8.2% and 4.9%, respectively, from the year-ago reported figures.