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Is Church & Dwight (CHD) Poised for a Beat in Q2 Earnings?

Church & Dwight Co., Inc. CHD is slated to report second-quarter 2017 results on Aug 3, before the opening bell. The question lingering in investors’ minds is, whether this leading manufacturer and marketer of personal care, household and specialty products will be able to post a positive earnings surprise again in the to-be-reported quarter. The company’s earnings have outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with in-line earnings in the remaining one, with an average beat of 6.3%. In fact, it has posted positive earnings surprise in 10 out of 13 straight quarters.

Consequently, the solid performance of the company is clearly reflected in its share price movement. We note that over the last three months, shares of this consumer products giant have moved up 8.1%, compared with the industry’s rally of 5.9% and the broader Consumer Staples sector’s growth of 3.8%.

Let us see how things are shaping up for this announcement.

What Does the Zacks Model Unveil?

Our proven model shows that Church & Dwight is likely to beat earnings because it has the right combination of two key ingredients.

Zacks Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.56%. This is because the Most Accurate estimate is at 40 cents, while the Zacks Consensus Estimate is pegged at 39 cents. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Church & Dwight currently carries a Zacks Rank #3 (Hold). Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating estimates. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Church & Dwight’s Zacks Rank #3 and an Earnings ESP of +2.56% makes us very optimistic about a possible earnings beat.

Which Way are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company right before earnings release. The Zacks Consensus Estimate for second-quarter and full year 2017 have improved marginally in the last 30 days. In fact, the current Zacks Consensus Estimate of 39 cents and $1.93 for the second quarter and 2017 reflects a year-over-year decline of 9.0% and a growth of 8.8%, respectively.

Moreover, analysts polled by Zacks expect revenues of $904.2 million for the said quarter, up 3.1% from the year-ago quarter. Also, revenues for 2017 are projected to grow 5.5% to $3.7 billion.

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


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

Factors at Play

Church & Dwight remains optimistic about its future performance on the back of a stable portfolio of value and premium products, launch of new and innovative products, aggressive productivity programs and tight management of overhead expenses, along with robust sales and earnings growth. However, it also expects a competitive environment in 2017 due to new product introductions by competitors and persistent pricing pressure. Moreover, the company’s Specialty Products business has been underperforming of late. Sales at this segment witnessed a year-over-year decline in all the four quarters of 2016. However, the same showed a slight increase in first-quarter 2017 due to lower volumes in the specialty chemical sector of the business. Encouragingly, the animal productivity business improved in both price and volume due to higher demand from the U.S. dairy industry as milk prices and dairy farm profitability seem to have stabilized. Further, management remains on track to revive this division’s performance to boost overall profitability.

Though the company expects rising commodity costs and foreign currency headwinds to prevail in 2017, the recent acquisitions of Agro BioSciences, VIVISCAL business and ANUSOL and RECTINOL brands are expected to add further strength to the company’s sturdy portfolio and improve business.

For the second quarter, the company expects reported and organic sales growth of approximately 1 to 2%. In fact, its sales have outpaced the Zacks Consensus Estimate in 11 of the last 12 quarters, alongside witnessing year-over-year growth for the last five straight quarters. While gross margin for the first half is expected to be flat, adjusted earnings are expected to increase approximately 5%.

Stocks with Favorable Combination

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Clorox Company CLX has an Earnings ESP of +0.67% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nu Skin Enterprises, Inc. NUS has an Earnings ESP of +2.86% and a Zacks Rank #2.

Kellogg Company K has an Earnings ESP of +2.17% and a Zacks Rank #2.

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