It has been about a month since the last earnings report for Church & Dwight (CHD - Free Report) . Shares have added about 0.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Church & Dwight due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Church & Dwight Q1 Earnings Beat, Organic Sales Up
Church & Dwight reported first-quarter 2019 results, wherein earnings of 70 cents per share surpassed the Zacks Consensus Estimate of 66 cents and improved 11.1% from the year-ago quarter on higher net sales and margins.
Net sales of $1,044.7 million advanced 3.8% year over year and surpassed the Zacks Consensus Estimate of $1,040 million. Results were backed by continued category growth and healthy market share gains. The company witnessed improvements in 10 of 14 domestic categories.
Organic sales rose 4.5%, surpassing management’s 3.5-4% growth guidance. This, in turn, was fuelled by 2.7% volume growth and improved product mix and pricing to the tune of 2.5%.
Gross margin expanded 20 basis points (bps) to 45.1% on account of favorable pricing and volume, and gains from productivity programs. This was somewhat countered by escalated commodity and production expenses.
Further, marketing expenses fell 1.8% to $98.1 million. As a percentage of sales, it contracted 50 bps to 9.4%. SG&A expenses were $131.9 million. As a percentage of sales, SG&A expenses declined 50 bps to 12.6%.
Income from operations, as a percentage of sales, grew 120 bps to 23.1%.
Consumer Domestic: Net sales at this segment were up 4.5% to $784.9 million, courtesy of higher household and personal care sales. Organic sales improved 4.5%, benefiting from a 1% increase in volume, and 3.5% positive impact from price and product mix. The main growth drivers in this segment were ARM & HAMMER liquid and unit dose laundry detergent, ARM & HAMMER clumping cat litter, TROJAN condoms, XTRA liquid laundry detergent, L’IL CRITTERS gummy vitamins, and BATISTE dry shampoo.
Consumer International: Net sales at the segment grew 3.3% to $186.7 million, backed by broad-based sales growth for household and personal care products and improvement in Global Markets Group business. Organic sales jumped 8.5% on volume growth of 10.2%, partly negated by unfavorable price and product mix of 1.7%. Impetus to organic sales was mainly provided by FEMFRESH, BATISTE, STERIMAR, and ARM & HAMMER liquid laundry detergent in the Global Markets Group business, ARM & HAMMER clumping cat litter and liquid laundry detergent in Canada, BATISTE in Germany, and WATERPIK in several countries.
Specialty Products: Sales at this segment dropped 1.1% to $73.1 million. Organic sales slipped 4.2%, on account of a 4.5% drop in volumes, somewhat cushioned by favorable pricing of 0.3%. Further, management stated that demand for poultry products remained strong. However, reduced milk prices continued to dent demand in the dairy industry.
Other Financial Updates
Church & Dwight ended the quarter under review with cash and cash equivalents of $97.9 million, long-term debt of $1,509.4 million, and total shareholders’ equity of $2,499.3 million.
In the first quarter of 2019, the company generated cash flow from operations of $137.9 million and incurred capital expenditure of $11.7 million.
In a separate press release, the company announced quarterly dividend of 22.75 cents per share, which is payable on Jun 3, 2019.
Other Developments & Outlook
Church & Dwight concluded its previously disclosed buyout of FLAWLESS and FINISHING TOUCH (”FLAWLESS”) from Ideavillage Products Corporation. (Read More: Church & Dwight Buys FLAWLESS and FINISHING TOUCH Brands)
Management is pleased with its quarterly show, wherein organic sales retained growth trend. The company is on track to maintain performance, backed by solid product launches and investments. Also, efficient pricing is likely to have a favorable contribution toward gross margin expansion.
The company now anticipates sales growth of 5-6% in 2019, owing to the acquisition of FLAWLESS. Organic sales are still expected to rise 3.5%. This is likely to be driven by effective product launches across most categories.
Gross margin is likely to increase 50 bps now, compared with 10-bp growth expected earlier. This is likely to be supported by gains from pricing, product mix and productivity programs to the tune of about 30 bps, and contributions from FLAWLESS of nearly 20 bps.
Adjusted SG&A expenses (as a percentage of sales) are now likely to be 13.8%, up from 13.5% guided earlier. This can be accountable to charges related to the buyout of FLAWLESS. Adjusted operating margin growth is expected to be in line with Church & Dwight’s Evergreen model (up 50 bps).
Management continues to expect adjusted earnings per share of $2.43-$2.47. Full-year earnings guidance suggests year-over-year growth of 7-9%, courtesy of continued sturdy business performance.
For the second quarter of 2019, management anticipates sales growth of approximately 4% on a reported basis, and 3.5% on an organic basis. Adjusted earnings are projected to be 52 cents per share, indicating a year-over-year increase of 6%.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
At this time, Church & Dwight has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Church & Dwight has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.