Back to top

Image: Bigstock

Church & Dwight Gains on International Unit, Brand Strength

Read MoreHide Full Article

Church & Dwight Co., Inc. CHD has been benefiting from its strong Consumer International business, yielding buyouts and focus on innovation. Continued gains from these factors were reflected in the fourth-quarter 2019 results, wherein the top line improved year over year as well as beat the Zacks Consensus Estimate. However, Church & Dwight has been grappling with cost challenges. Nevertheless, management has issued an encouraging view for the first quarter and 2020.

Factors Working Well for Church & Dwight

Church & Dwight’s Consumer International business has been consistently contributing to the company’s organic sales growth. In fourth-quarter 2019, net sales in the segment climbed 10.1% to $196.6 million, backed by broad-based sales growth for household and personal care products, along with gains from the Global Markets Group business. Organic sales increased 10.6% on volume growth as well as gains from pricing and product mix. Organic sales were mainly driven by BATISTE dry shampoo and STERIMAR in the Global Markets Group business, ARM & HAMMER clumping cat litter and liquid laundry detergent in Canada, BATISTE in Germany, ARM & HAMMER liquid laundry detergent in Mexico and WATERPIK in various countries.

As the international arena remains a bright spot for the company, it continues to invest in this segment to sustain solid sales growth. Talking of organic sales, Church & Dwight has been witnessing growth for a while now. In the fourth quarter, organic sales grew 4.4%, coming ahead of the company’s guidance of a 3% increase. This uptick was fueled by positive product mix and pricing. The company anticipates organic sales to be up 3.5% in 2020 and nearly 3% in the ongoing quarter.

Notably, Church & Dwight’s focus on innovations and acquisitions have helped enhance its brand portfolio. To this end, the buyout of FLAWLESS has been a prudent addition to Church & Dwight’s portfolio and is likely to become part of its power brands. Some of the previous noteworthy acquisitions of the company include Waterpik, Agro BioSciences, and VIVISCAL business. Markedly, the company’s power brands, including ARM & HAMMER, Trojan, OxiClean, Spinbrush, First Response, Nair, Orajel, Xtra, VMS, Waterpik and Batiste, represent majority of its consumer sales. During the final quarter of 2019, the company registered growth across 10 of its power brands. Further, Church & Dwight looks forward to having 20 power brands in its portfolio over time.

Driven by such upsides, this Zacks Rank #3 (Hold) stock has jumped 9.4% in the past three months compared with the industry’s gain of 3.7%.

Can Church & Dwight Counter Cost Woes?

The company has been grappling with escalating expenses such as SG&A and marketing costs. Notably, marketing expenses flared up 28.6% to $162.6 million in the December-end quarter. As a percentage of sales, the metric expanded 240 basis points (bps) to 14.2%. SG&A expenses escalated 7.6% to $166.2 million. Adjusted SG&A expenses rose 70 bps due to the unfavorable impact of acquisitions and increased R&D investments, among other factors. Management expects marketing expenses to expand 10 bps in 2020.

Nonetheless, the company is focused on further bolstering its market share. This, along with the other growth drivers, led to an optimistic view for the first quarter and 2020. For the current year, the company anticipates sales growth of 6.5% and adjusted earnings growth of 7-9% to $2.64-$2.69 per share. For the first quarter, management anticipates sales growth of approximately 6.5% on a reported basis and nearly 3% on an organic basis. Adjusted earnings are projected to be 73 cents per share, up from the 70 cents reported in the year-ago quarter.

Consumer Staple Stocks Worth Noting

Procter & Gamble PG, with a Zacks Rank #2 (Buy), has an impressive earnings surprise record. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Hershey (HSY - Free Report) , carrying a Zacks Rank of 2, has a long-term earnings growth rate of 7%.

Lamb Weston LW has a long-term earnings growth rate of 8.8% and currently holds a Zacks Rank #2.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Hershey Company The (HSY) - free report >>