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Church & Dwight (CHD) Up More Than 20% in 6 Months: Here's Why

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Church & Dwight Co., Inc. (CHD - Free Report) has been benefiting from its brand strength due to innovations and strategic acquisitions. The company has been gaining on robust consumption and demand trends as evident in the company’s fourth-quarter 2021 results. Church & Dwight also issued a favorable view for the first quarter and the full year of 2022. We note that certain categories have been performing well due to elevated at-home consumption due to the pandemic.

While cost inflation is a concern, CHD has been undertaking efficient pricing efforts to counter such headwinds. The household, personal care and specialty products company has seen its shares surge 22.6% in the past six months compared with the industry’s rise of 4.3%. Let’s take a closer look.

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

Solid Q4 Performance & View

In the fourth quarter of 2021, the top and bottom lines increased year over year and surpassed the Zacks Consensus Estimate. Net sales of $1,368.7 million moved up 5.7% year over year and surpassed the Zacks Consensus Estimate of $1,348.8 million. Results were backed by the solid consumption of the company’s brands. Organic sales rose 4.3%, with a favorable price and product mix of 6%. The company saw consumption gains in 12 out of 16 domestic categories. Adjusted earnings per share (EPS) rose 20.8% year over year, mainly driven by greater-than-anticipated revenues from the company’s consumer domestic business and a reduced tax rate.

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, this Zacks Rank #3 (Hold) company expects a 3-4% increase in reported sales and organic sales are estimated to rise 1% to 2%. For 2022, the operating profit margin is likely to expand in the band of 60-70 basis points (bps) compared with the adjusted operating margin reported in the year-ago period. Management anticipates 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.

Focus on Buyouts & Innovation

Church & Dwight has a long history of acquisitions. The company started with only one brand – ARM & HAMMER and since then, it has acquired several brands, which are generally number-one or number-two brands, with a high margin and have been contributing significantly to the top line. 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. We note that the buyouts of FLAWLESS and WATERPIK have been prudent additions to CHD’s portfolio and have been doing well recently.

Additionally, the company’s regular innovation helps in improving brand positions and the market share in consumer categories. Church & Dwight is on track to undertake impressive product launches in 2022. 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.

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Can Cost Hurdles be Offset?

In the fourth quarter of 2021, Church & Dwight’s gross margin shrunk 50 bps to 42.5% due to the adverse impact of increased manufacturing costs. The company encountered 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 and transportation costs in 2022. It also anticipates U.S. labor shortages in the full year, which have aggravated due to the Omicron variant. In 2022, the gross margin is expected to contract, with COGS inflation expected to be 5% to 6%.

However, Church & Dwight has resorted to incremental pricing actions 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.  On its fourth-quarter earnings call, the company stated that it anticipated having raised prices for nearly 80% of its product portfolio as of February 2022 and intended to make more increases in 2022. Management continues to analyze additional pricing actions that can be implemented to further fend off the expected rise in costs.

A Renowned Consumer Staple Stock

A popular pick from the broader Zacks Consumer Staples sector is Altria Group, Inc. (MO), which has also been benefiting from its strong pricing power and a focus on oral tobacco products, such as on!. For 2022, Altria envisions 4% to 7% growth in the bottom line, which is likely to be more weighted toward the second half.  This tobacco giant currently carries a Zacks Rank #3. Shares of MO have increased 17.5% in the past six months. The Zacks Consensus Estimate for the company’s current financial-year EPS suggests growth of around 5% from the year-ago reported figure.

Looking for Consumer Staple Stocks? Check These

Some better-ranked stocks are Tyson Foods (TSN - Free Report) and Flowers Foods (FLO - Free Report) .

Tyson Foods, a renowned meat products company, sports a Zacks Rank #1 (Strong Buy) at present. Shares of Tyson Foods have jumped 15.9% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tyson Foods’ current financial-year sales and EPS suggests growth of 9.5% and 5.6%, respectively, from the year-ago reported number. TSN has a trailing four-quarter earnings surprise of 32.2%, on average.

Flowers Foods, the producer and marketer of packaged bakery products, currently carries a Zacks Rank #2 (Buy). Shares of Flowers Foods have risen 6.7% in the past six months.

The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and EPS suggests growth of 7.2% and roughly 4%, respectively, from the year-ago reported figure. FLO has a trailing four-quarter earnings surprise of around 9%, on average.


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