Despite facing a tough competitive environment with soft consumer demand,Church & Dwight Co. Inc.’s (CHD) second-quarter 2014 earnings per share of 65 cents increased 6.6% year over year beating both the Zacks Consensus Estimate and management’s guidance of 61 cents. Earnings primarily benefited from the introduction of new products in all categories.
Top line for Church & Dwight climbed 2.6% to $808.3 million and surpassed the Zacks Consensus Estimate of $805 million. Organic sales grew 3% driven by 3.6% growth in volume, partially offset by an adverse impact of 0.6% due to pricing.
Gross profit inched up 1.5% year over year to $356.4 million. However, gross margin contracted 50 basis points (bps) to 44.1%, resulting from higher commodity expenses, greater trade spending and increased rate of coupon redemption, partly offset by productivity programs.
Selling, general, and administrative expense (SG&A) decreased 1.9% to $104.8 million during the quarter, benefiting from the company’s effective cost management. Further, as a percentage of sales, SG&A fell 60 bps to 13%.
Operating income slipped 1.6% year over year to $138.2 million in the quarter, with operating margin contracting approximately 70 bps to 17.1%, due to investments made for new product launches and a 9.4% rise in marketing expenditure.
Segment Details
Consumer Domestic's net sales marginally improved by 0.7% year over year to $598.9 million, driven by a 1.3% increase in personal care products revenues to $355.2 million and 0.3% growth in household products revenues to $243.7 million.
Organic sales also edged up 0.7% in the quarter due to a rise in sales of VITAFUSION vitamins, ARM & HAMMER CLUMP & SEAL cat litter and ARM & HAMMER and OXICLEAN liquid laundry detergents. This was, however, partially offset by sluggish sales of ARM & HAMMER unit dose and XTRA laundry detergents.
Increase in sales marked a 1.5% improvement in volume, while product mix and pricing hurt sales by 0.8%.
Sales at theConsumer International segment rose 2.9% to $136.6 million. Organic sales advanced 3.9% attributable to healthy sales in U.K and France. Volume jumped 4.7% whereas favorable product mix and pricing impacted sales by 0.8%.
Specialty Products' witnessed a 20.5% jump in sales to $72.8 million while organic sales grew 22.9% in the said quarter. Moreover, the segment witnessed volume growth of 20.9%, attributable to the animal nutrition business, with a 2% contribution from unfavorable product pricing.
Other Financial Details
Church & Dwight, which competes with The Clorox Company (CLX) and Colgate-Palmolive Co. (CL), ended the quarter with cash and cash equivalents of $196.9 million, long-term debt of $649.6 million and shareholders’ equity of $2,019.9 million.
Moreover, the company generated cash from operations of $206.8 million and incurred $17.1 million in capital expenditures during the first half of the year.
Also, during the reported quarter, the company bought back shares worth $175 million through an accelerated share repurchases program.
Outlook
Management remains impressed with its performance so far, in spite of battling competitive headwinds. It further expects its product portfolio, introduction of innovative products and cost containment to boost bottom-line and top-line results. Its recent acquisition of the gummy vitamin business also facilitated sales.
Following the momentum, Church & Dwight reiterated its earnings per share outlook for 2014. The company continues to expect earnings to grow in the range of 7–9% for the full year. Also, it anticipates organic sales growth of nearly 3%. Further, it expects gross margin to contract 75 bps year over year, while operating margin is expected to improve, resulting from heavy cost cutting.
For the third quarter, the company expects organic sales of 3%, a decline of 150 bps in gross margin, owing to greater investments in the laundry category coupled with unfavorable mix. Earnings per share is envisioned in the band of 80 – 82 cents for the quarter. The current Zacks Consensus Estimate stands at 87 cents, subject to a downward revision.
At present, Church & Dwight has a Zacks Rank #3 (Hold). Another better-ranked stock in the same industry includes Reckitt Benckiser Group plc (RBGLY) with a Zacks Rank #2 (Buy).
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