Earnings Preview: Church & Dwight

Leading consumer product manufacturer, Church & Dwight Co. Inc. ( CHD - Snapshot Report ) , is slated to release its second-quarter 2012 financial results on Tuesday, August 7, 2012.

The current Zacks Consensus Estimate for the quarter stands at 55 cents per share, indicating an estimated year-over-year decrease of 3.5%. The estimate lies between a low of 54 cents to a high of 58 cents. Revenue, as per the Zacks Consensus Estimate, is pegged at $702 million.

First-Quarter Recap

Church & Dwight posted better-than-expected first-quarter 2012 results with quarterly earnings of 66 cents a share, surpassing the Zacks Consensus Estimate of 61 cents. This also jumped 13.8% from 58 cents earned in the prior-year quarter.

The company’s top line increased 7.5% to $690.6 million in the reported quarter, reflecting an 8.4% rise in organic sales. The increase in organic sales represents a 10.5% growth in volume, partially offset by a negative effect of 2.1% through pricing and product mix.The reported revenue also came ahead of the Zacks Consensus Revenue Estimate of $672 million.

(Read full report on earnings: Strong 1Q for Church & Dwight)

Guidance

The company expects the launch of innovative products to boost organic sales, which is expected to be at the higher end of the projected growth rate of 3% to 4% in fiscal 2012.

Church & Dwight forecasts cost savings programs to offset the increases in commodity prices and expects gross margin to increase at the lower end of its targeted 25–50 basis-point rise in fiscal 2012.

Benefiting from solid organic sales, management stood by its earlier forecast and expects earnings to be in the range of $2.41–$2.43 per share in fiscal 2012, reflecting an increase of 9%–10%, excluding charges of 9 cents related to deferred tax valuation in 2011.

Agreement of Estimate Revision

For the to-be-reported quarter, the estimates remain more or less unchanged with only one estimate going up (out of 13) over the last 30 days, while none of the estimates moved downwards. No revisions were noticed in the last 7 days.

For fiscal 2012, out of 16 estimates it was observed that one estimate was revised upwards as well as one estimate was trimmed over the last 30 days. Again, no revisions in the estimates were made in the last 7 days.

Magnitude of Estimate Revision

For the second quarter 2012, the estimate remains stagnant at 55 cents over the last 7 or 30 days mainly due to absence of any news affecting the estimates directly or indirectly, whereas for the fiscal 2012, the estimate went up by a penny over the last 30 days.

Positive Earnings Surprise History

With respect to earnings surprise, Church & Dwight has topped the Zacks Consensus Estimate over the last four quarters with an average of 3.95%. Looking at the past performance, we expect the company to outperform in the coming quarters as well.

Conclusion

Based on the company’s guidance for profitable growth resulting from its continued emphasis on innovation and marketing investments along with its steady cash flow generation, we remain optimistic about its growth potential.

However, Church & Dwight operates in a highly competitive environment where competitors, such as Clorox Corporation ( CLX - Analyst Report ) , are striving hard to increase their market share through intense promotions. This may weigh upon the company’s profitability going forward.

Currently, the company carries a Zacks #3 Rank, implying short-term Hold rating on the stock for the next 1-3 months and correlates with our long-term ‘Neutral’ recommendation.