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Church & Dwight (CHD) Down 1.3% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Church & Dwight Co., Inc. (CHD - Free Report) . Shares have lost about 1.3% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is CHD due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Solid Volumes Fuel Church & Dwight Q1 Earnings & Sales

Church & Dwight posted first-quarter 2018 results, wherein quarterly earnings of 63 cents per share surged 21.2% from adjusted earnings of 52 cents reported in the first quarter of 2017. Also, the bottom line topped the Zacks Consensus Estimate of 61 cents.

Quarter in Detail

The company reported sales of $1,006.0 million that advanced 14.7% year over year and exceeded the Zacks Consensus Estimate of $979 million.

Organic sales rose 3.8%, which beat the company’s guidance of 2%. The upside was backed by a 4.2% rise in global consumer products growth. This in turn was fueled by higher volumes (up 4.7%), somewhat negated by unfavorable product mix and pricing.

Adjusted gross margin contracted 80 basis points (bps) to 44.9% due to increased commodity and transportation expenses. Further, marketing costs (as a percentage of sales) escalated 20 bps to 10.5%, excluding buyouts. SG&A costs also rose 30 bps as a percentage of sales to 13.1%, mainly due to buyouts.

Segment Details

Consumer Domestic: Segment net sales were up 13.9% to $751.4 million, courtesy of gains from acquisitions and higher household and personal care sales. Organic sales improved 3.6% benefiting from a 5.3% increase in volume, partly negated by a 1.7% negative impact from price and product mix.

ARM & HAMMER liquid and unit dose laundry detergent, ARM & HAMMER cat litter, OXICLEAN stain fighters, BATISTE dry shampoo, VITAFUSION and L’IL CRITTERS gummy vitamins and TOPPIK and VIVISCAL hair care businesses continued to be the main growth drivers.

Consumer International: Segment net sales soared 26.3% to $180.7 million backed by recent acquisitions, broad-based sales growth for household and personal care products and improvements in export business. Organic sales jumped 6.8% driven by improved volumes (up 1.6%), along with better price and product mix (up 5.2%).

OXICLEAN in the export business; STERIMAR, ARM & HAMMER toothpaste and OXICLEAN in Mexico; and FEMFRESH and BATISTE in Australia provided an impetus to organic sales.

Specialty Products: Sales at this segment dipped 0.7% to $73.9 million. Organic sales slipped 1%, on account of a 3.8% drop in volumes, somewhat cushioned by favorable commodity pass-through pricing (up 2.8%), mainly in the animal productivity business. Management stated that reduced milk prices has been leading to soft demand in the dairy industry. On the contrary, poultry industry demand is on the rise, which has reduced the company’s focus on the dairy industry.

Other Financial Updates

Church & Dwight ended the quarter with cash and cash equivalents of $119.8 million, long-term debt of $1,802.1 million and total shareholders’ equity of $2,143.3 million.

In the first quarter, the company generated cash flow from operations of $155.5 million and incurred capital expenditure of $9.9 million.

The company recently announced a quarterly dividend of 21.75 cents per share, which is payable on Jun 1, 2018 to shareholders of record as on May 15.

Guidance for 2018

Innovations have been a key driver for Church & Dwight. As part of its long-term strategy to boost top and bottom lines, the company announced several new product launches in various categories. Though increased commodity and transportation costs are likely to weigh on gross margin in 2018, management expects solid volume growth and improved market share to offset these hurdles.

The company now expects 2018 reported sales to grow about 9%, in comparison to 8% expected earlier. Organic sales are still anticipated to rise 3% in 2018.

The company reiterated 2018 bottom-line view. Earnings per share is still envisioned in a range of $2.24-$2.28, reflecting adjusted earnings per share growth of 16-18%. However, earnings per share is expected to decline 21-23% on a reported basis.

Q2 Outlook

For the second quarter of 2018, the company expects reported and organic sales growth of 12% and 3%, respectively. It anticipates adjusted earnings per share of 46 cents in the quarter, reflecting year-over-year growth of 12% on an adjusted basis and 59% jump on a reported basis.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to six lower.

VGM Scores

At this time, CHD has an average Growth Score of C, though it is lagging a bit on the momentum front with a D. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, CHD has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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