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Church & Dwight (CHD) Gains on Demand, Pricing Amid Cost Woes

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Church & Dwight Co., Inc. (CHD - Free Report) appears to be in good shape, with its shares up 15.2% in the past six months against the industry’s decline of 0.7%. The company has been benefiting from robust consumption and demand trends, which were well-reflected in its fourth-quarter 2021 results. In the quarter, the top and bottom lines increased year over year and beat the Zacks Consensus Estimate. The company also issued a favorable view for the first quarter and full-year 2022.

Church & Dwight saw consumption gains in 12 out of 16 domestic categories and is largely gaining on the strength of its brands due to constant innovation and prudent acquisitions like TheraBreath. Also, certain categories have been performing well due to elevated at-home consumption due to the pandemic. Apart from this, efficient pricing efforts have been aiding the household, personal care and specialty products company amid cost inflation. Let’s delve deeper.

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Church & Dwight is on track to undertake impressive product launches in 2022. Management expects 2022 reported sales growth in the range of 5-8% year over year, while organic sales are likely to rise 3-6%. The company expects various categories to remain at escalated consumption levels like laundry, gummy vitamins, laundry additives, hair growth supplements and cat litter in 2022. The company is likely to keep benefiting from consumers’ elevated focus on maintaining cleaner homes and self-care routines. Also, the return to pre-pandemic social activities bodes well.

For the first quarter of 2022, CHD expects a 3-4% increase in reported sales and organic sales are estimated to rise 1-2%. For 2022, the operating profit margin is likely to expand by the 60-70 basis points band compared with the adjusted operating margin reported in the year-ago period. Management anticipates earnings per share (EPS) between $3.14 and $3.26, up 4-8% compared with year-ago adjusted EPS. The metric is expected to be driven by the operating income growth, offset by a major rise in the effective tax rate.

Church & Dwight Co., Inc. Price, Consensus and EPS Surprise

Church & Dwight Co., Inc. Price, Consensus and EPS Surprise

Church & Dwight Co., Inc. price-consensus-eps-surprise-chart | Church & Dwight Co., Inc. Quote

Key Growth Drivers

Church & Dwight has a long history of acquisitions.  In December 2021, Church & Dwight concluded the buyout of TheraBreath, a leading brand in the mouthwash category, which marks the company's 14th power brand. The buyouts of FLAWLESS and WATERPIK have been prudent additions to Church & Dwight’s portfolio and have been doing very well recently. Another noteworthy acquisition of the company includes Batiste. Also, in December 2020, the company took over Matrixx Initiatives, which owns the ZICAM brand.

Additionally, the company’s regular innovation helps in improving brand positions and market share in consumer categories. In the Health and Wellbeing category, the VITAFUSION brand rolled out 2 in 1 BI-LAYER GUMMIES and an Ashwagandha gummy line. The ZICAM brand is rolling out the first immune supplement gummies with Zinc + Vitamins C & D. In the Specialty Haircare category, the BATISTE brand is launching a Leave-in Hair Mask. The company’s personal care portfolio will be adding SPINBRUSH CLEAR AND CLEAN TM.

Will Pricing Aid Amid Cost Headwinds?

The company has been encountering major challenges related to inflation, commodities, distribution and labor. In 2021, Church & Dwight’s cost of goods sold (COGS) inflation increased by $250 million or 9% year over year. Management expects greater input costs as well as transportation costs in 2022. It also anticipates U.S. labor shortages in the full year, which aggravated due to the Omicron variant. In 2022, the gross margin is expected to contract, with the COGS inflation expected at 5-6%.

However, Church & Dwight has resorted to incremental pricing across its portfolio to counter rising costs.  A favorable price was an upside to the company’s organic sales in the fourth quarter of 2021. CHD anticipates having raised prices for nearly 80% of its product portfolio as of February 2022 and intends to make more increases in 2022. This Zacks Rank #3 (Hold) company continues to analyze additional pricing actions that can be implemented to further fend off the expected rise in costs.

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