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Church & Dwight (CHD) Q3 Earnings Meet; Stock Down 6.6%

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Shares of Church & Dwight Co. Inc. (CHD - Free Report) declined nearly 6.6% yesterday after the company reported lower-than-expected top-line results for third-quarter 2016. However, the company posted earnings per share of 47 cents, which were in line with the Zacks Consensus Estimate.

Further, the bottom line increased 4.4% year over year. This improvement was backed by a 1.2% rise in organic sales along with gross margin expansion.

Net sales came in at $870.7 million, reflecting a rise of 1% from the year-ago quarter, primarily due to growth in Consumer Global net sales. The top line, however, missed the Zacks Consensus Estimate of $884 million. Organic sales growth of 1.2% was supported by an increase of 1.7% in volumes, partly offset by 0.5% negative product mix and pricing.

Gross profit rose 2.5% year over year to $395.6 million. Gross margin expanded 60 basis points (bps) to 45.4%, driven by lower commodities, absence of vitamin start-up costs at the York manufacturing facility, productivity programs as well as the positive impact from higher margin acquired businesses, partly negated by a rise in trade promotional support.

Selling, general, and administrative (SG&A) expenses dropped 1% to $101.4 million. SG&A expenses, as a percentage of sales, contracted 30 bps to 11.6%, benefiting from the favorable timing of R&D expenditure, coupled with reduced litigation charges.

On the other hand, operating profit rose 2.8% year over year to $196.0 million in the quarter, while operating margin increased approximately 40 bps to 22.5%.

Segment Details

Net sales for Consumer Domestic inched up 1.3% year over year to $664.8 million. Organic sales also improved 0.8% in the quarter due to the timing of promotions and higher couponing. Also, the rise was attributable to 2.1% growth in volumes, partly compensated by a 1.3% fall in product mix and pricing.

Brand growth was mainly backed by ARM & HAMMER and OXICLEAN laundry detergent, OXICLEAN additives and BATISTE dry shampoo, partly offset by a decrease in FIRST RESPONSE pregnancy test kits and XTRA laundry detergent. The ARM & HAMMER division dose laundry detergent’s increase rate roughly doubled the unit dose category growth rate, leading to a gain in its share. The ARM & HAMMER division also remained strong emerging as the category to witness the highest quarterly growth. Further, product sales via online retailers continued to be robust, with online vitamin and litter sales witnessing significant year-over-year growth.

Sales at the Consumer International segment rose 7.3% to $133.8 million. Organic sales advanced 12.1%, mainly on the back of healthy sales in broad based household and personal care categories, Europe, Canada and Mexico. Volumes jumped 8.3% and favorable product mix and pricing contributed 3.8% to sales. Notably, the ARM & HAMMER, OXICLEAN BATISTE and TROJAN brands also remained strong in the quarter.

Specialty Products witnessed a 10.7% decrease in sales to $72.1 million. Moreover, the segment recorded an 11.3% fall in organic sales, primarily owing to a decline in volumes of animal nutrition business, which was hampered by low milk prices that in turn bore the brunt of soft exports and excessive supply of milk internationally.

Other Financial Details

Church & Dwight ended the quarter with cash and cash equivalents of $232.1 million, total debt of $929.7 million, and shareholders’ equity of $2,120.0 million.

As of Sep 30, 2016, the company generated cash from operations of $495.0 million and incurred nearly $28.1 million in capital expenditures.

Also, the company announced a new share repurchase program of $500 million of its common stock in order to lower the number of outstanding shares. Further, it concluded the previously announced share repurchase program. Alongside, it has a distinct repurchase program to compensate for the dilution related to the exercise of stock options issued. Currently, Church & Dwight has shares worth roughly 258 million outstanding under its standing authorization.


Church & Dwight remains optimistic about its future performance on the back of a stable portfolio of value and premium products, the launch of new and innovative products, aggressive productivity programs, and tight management of overhead expenses, along with robust sales and earnings growth.

However, management adjusted its earnings and sales outlook to the lower end of its previously announced range. Evidently, the company now expects reported and organic sales growth for 2016 on the lower end of 3%–4% growth projected earlier. This represents nearly 4% increase in reported and organic sales growth for global Consumer Products, somewhat compensated by a substantial decline in Specialty Products revenues.

The company still anticipates gross margin expansion of 110 bps year over year, owing to higher distribution efficiencies, coupled with a persistent fall in commodity prices. Also, operating margin is estimated to improve nearly 60 bps, on adjustment for pension settlement cost in 2015.

Considering all factors, management now envisions adjusted earnings per share in 2016 to grow by roughly 8%, compared with 8%–9% guided earlier. The company expects reported earnings per share to increase nearly 14%, compared with the earlier estimate of 14%–15% growth.

Q4 Outlook

For the fourth quarter of 2016, the company expects 1%–2% increase in its reported and organic sales. For the global Consumer Products, it anticipates reported and organic sales growth of 2.5%. Also, the company stated that Consumer organic growth is likely to be somewhat offset by the persistent headwinds in the Specialty Products category.

For the fourth quarter, the company envisions earnings to jump 2% to 42 cents per share.

For 2017, the company remains confident of attaining high single-digit earnings per share growth, buoyed by its present growth momentum, innovative strategies and gross margin improvement.

CHURCH & DWIGHT Price, Consensus and EPS Surprise

CHURCH & DWIGHT Price, Consensus and EPS Surprise | CHURCH & DWIGHT Quote

Zacks Rank

Currently, Church & Dwight has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry include Blue Buffalo Pet Products, Inc. (BUFF - Free Report) , Energizer Holdings, Inc. (ENR - Free Report) and Ollie's Bargain Outlet Holdings, Inc. (OLLI - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Blue Buffalo Pet Products, with a long-term earnings growth rate of 16%, has gained roughly 29.5% year to date.

Energizer Holdings, with a long-term earnings growth rate of 7.8%, has surged nearly 35.1% year to date.

Ollie's Bargain Outlet, with a long-term earnings growth rate of 20.2%, has jumped nearly 56% in the past one year.

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