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Church & Dwight (CHD) Q3 Earnings & Revenues Increase Y/Y

Church & Dwight Company, Inc. CHD posted solid third-quarter 2017 results, wherein both top and bottom lines grew year over year and came ahead of the Zacks Consensus Estimate. While this marked the company’s fourth consecutive quarter of positive surprise, sales have outpaced the consensus mark in 12 out of the last 14 quarters now.

Church & Dwight Company, Inc. Price, Consensus and EPS Surprise


Church & Dwight Company, Inc. Price, Consensus and EPS Surprise | Church & Dwight Company, Inc. Quote


Adjusted earnings of 49 cents per share grew 4.3% year over year and beat the Zacks Consensus Estimate of 47 cents. Adjusted earnings also came ahead of management’s guidance.

Quarter in Detail

The company reported sales of $967.9 million that advanced 11.2% year over year and came way ahead of the Zacks Consensus Estimate of $936 million.

Organic sales rose 3.2%, backed by growth in domestic sales, continued international business expansion and solid Specialty Products business growth. Further, organic sales were fueled by higher volumes of 6.9% that was partly offset by 3.7% higher promotional investments. Also, hurricanes hurt organic sales growth by roughly 20 basis points (bps).

Gross margin declined 10 basis points to 45.3% due to higher promotion and coupon investments in the domestic business. This was somewhat compensated by favorable volumes and positive effects of buyouts and divestitures. Adjusted operating margin declined 200 bps to 20.5%, due to higher SG&A ratio and lower gross margin.

Segment Details

Consumer Domestic: Segment net sales increased 9.7% to $729.2 million, while organic sales were up 2.2% as 7.1% higher volume growth overshadowed the 4.9% negative impact from price stemming from higher promotional investments.

ARM & HAMMER liquid laundry detergent, cat litter and baking soda, BATISTE dry shampoo and OXICLEAN stain fighters remained the main growth drivers. Also, sales at non-measured networks continued to improve, with online sales up roughly 70%.

Consumer International: Segment net sales soared 21.7% to $162.8 million on the back of extensive sales of household and personal care items. Organic sales jumped 6.2% driven by 7.1% higher volumes, which was partly negated by negative price effect of 0.9% from higher promotional investments.

FEMFRESH, OXICLEAN and STERIMAR in the export business, STERIMAR and ARM & HAMMER baking soda in Mexico, FEMFRESH in Australia as well as ARM & HAMMER cat litter and BATISTE in Canada provided a major impetus to sales.

Specialty Products: The segment sales showed an increase of 5.3% to $3.8 million. Organic sales advanced 7.5% backed by 4.6% higher volumes and favorable pricing (up 2.9%) in the animal productivity business.

Other Financial Updates

Church & Dwight ended the quarter with cash and cash equivalents of $236.5 million, long-term debt of $2,104.1 million, and total shareholders’ equity of $1,953.1 million.

In the first three quarters of 2017, the company generated cash flow from operations of $424.1 million and incurred capital expenditure of $20.9 million. For 2017, management expects free cash flow to exceed net income. Also, the company expects generating $650 million as cash from operations in 2017.

Concurrently, management announced a quarterly cash dividend of 19 cents per share, payable on Dec 1, 2017 to shareholders of record as on Nov 15. Further, management authorized a new buyback plan, per which shares up to $500 million are available for repurchase. The company also terminated its previously authorized buyback plan, while it continues to have its evergreen repurchase plan. Church & Dwight currently has 250 million shares available for repurchase.

Guidance for 2017

The company remains impressed with its organic sales growth in all three segments, which was backed by continued investments. Also, Church & Dwight’s stable portfolio of value and premium products, launch of new and innovative products, and aggressive productivity programs should keep driving its performance. Management remains committed toward innovations in particular, as it believes that remains the biggest driver for its top and bottom line growth in future.

The company now expects reported sales to grow 7% and organic sales to rise 2.5% in 2017. Earlier, it anticipated reported and organic sales growth of approximately 3%. Management envisions adjusted earnings per share in 2017 to grow by 8.5% to $1.92, which is a notch lower than the current Zacks Consensus Estimate. Including one-time items, the company forecasts adjusted earnings to grow 4% to $1.82 for 2017.

Q4 Outlook

For the fourth quarter, the company expects reported and organic sales growth of 11.2% and 3.2%, respectively. International sales are anticipated to jump 6.2%, whereas sales of Specialty Products are expected to advance 7.5%, both on an organic basis.  Management also expects domestic volumes to gain 7% and lead to market share gains. Management further stated that it is on track with Waterpik’s acquisition. All said, the company expects adjusted earnings of 50 cents in the fourth quarter, reflecting year-over-year growth of 14%. The consensus estimate for the fourth quarter is currently pegged higher at 53 cents.

Church & Dwight currently carries a Zacks Rank #3 (Hold). The stock has gained 5.7% so far this year, while it underperformed the industry’s 16.8% growth.

Looking for More Promising Bets? Check These Trending Picks

Investors interested in the same sector may consider stocks such as McCormick & Company, Inc MKC, Constellation Brands, Inc STZ and Inter Parfums Inc IPAR. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McCormick delivered an average positive earnings surprise of 4.1% in the trailing four quarters. It has a long-term earnings growth rate of 9.4%.

Constellation Brands pulled off an average positive earnings surprise of 13.6% in the trailing four quarters. It has a long-term earnings growth rate of 14.8%.

Inter Parfums delivered an average positive earnings surprise of 18.1% in the trailing four quarters. It has a long-term earnings growth rate of 12.3%.

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