Church & Dwight Co., Inc. CHD is scheduled to release second-quarter 2018 results on Aug 2. We expect the company to continue gaining from strength in its international business and benefits from acquisitions, which should help it overcome cost hurdles. Notably, this provider of personal care products has a robust earnings surprise history, with an average beat of 4.2% in the trailing four quarters.
Church & Dwight Co., Inc. Price and EPS Surprise
Church & Dwight Co., Inc. Price and EPS Surprise | Church & Dwight Co., Inc. Quote
Let’s delve deep and see if the company can sustain its strong record this time around.
Consumer International Unit, Buyouts to Boost Sales
Church & Dwight has long been gaining from strength at its Consumer International unit. In first-quarter 2018, sales at this segment surged 26.3%, driven by recent acquisitions, broad-based sales growth for household and personal care products, and improvements in export business. Notably, the segment received considerable impetus from OXICLEAN in the export business — STERIMAR, ARM & HAMMER toothpaste and OXICLEAN in Mexico, and FEMFRESH and BATISTE in Australia. Well, ARM & HAMMER remains the company’s biggest international brand, which is well positioned to grow further in emerging markets.
The consumer international business has been consistently contributing to organic sales growth of the company. Evidently, organic sales grew 3.8% in the first quarter of 2018. Further, organic sales jumped 2.3%, 1.8%, 3.2% and 3.4% in first, second, third and fourth-quarter 2017, respectively. Notably, the company is opening new offices in order to support increase in export business and expects this business to remain strong. Also, it is making considerable investments in Southeast Asia and China, which is likely to be a major growth driver in the future. The Zacks Consensus Estimate for sales at the Consumer International segment is pegged at $176 million compared to $145 million recorded in the year-ago period. In fact, the Consumer Domestic segment has also been delivering a strong performance, thanks to gains from buyouts as well as Church & Dwight’s focus on innovations. The consensus mark for sales at this segment stands at $755 million, up from $678 million reported in the year-ago period.
Talking of buyouts, the company (which started with only one brand, i.e. ARM & HAMMER) has acquired a number of premium high-margin brands over time. These businesses have been boosting the company’s revenues, which are expected to reach $4 billion in 2018 from $1.5 billion in 2004. In this regard, Church & Dwight recently acquired Waterpik, which contributed significantly to its sales in the first quarter. Management expects sales from Waterpik to rise high-single digits in 2018, which should reflect in second-quarter 2018 results as well. The company's other acquisitions include Agro BioSciences in May and VIVISCAL business in January 2017. Prior to that, the acquisitions of ANUSOL and RECTINOL brands from Johnson & Johnson in December 2016 helped the company boost its business internationally.
Will Commodity & Transport Costs Impede Growth?
Church & Dwight expects gross margin to decline 80 basis points (bps) year over year in 2018, as it expects increased pressure from higher commodity and transportation expenses, alongside expecting unfavorable brand mix. This may hurt the bottom line in the quarter to be reported. In fact, higher commodity and transportation costs also marred Church & Dwight’s first-quarter gross margin that contracted 80 bps. Prior to this, gross margin expanded 10 bps in the fourth quarter, while the same contracted 10 bps and 80 bps in the third and second quarters of 2017, respectively. Nevertheless, we expect the aforementioned growth drivers to help Church & Dwight fight these cost hurdles and retain its solid growth record.
Expectations in Numbers
The Zacks Consensus Estimate for Church & Dwight’s earnings has trended upward over the past 30 days to 47 cents per share, which shows a 14.6% increase from the year-ago period figure. Further, the Zacks Consensus Estimate for sales of $1,004 million indicates year-over-year growth of close to 12%.
What Does the Zacks Model Unveil?
To top it, our proven model shows thatChurch & Dwightcan beat bottom-line estimates this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Church & Dwight’s Zacks Rank #3 (Hold) and Earnings ESP of +0.06% make us reasonably confident of an earnings beat.
Other Stocks Poised to Beat Earnings Estimates
Here are some other companies you may want to consider, as our model shows that these have the right combination of elements to post earnings beat:
Dean Foods DF, a Zacks #3 Ranked company, has an Earnings ESP of +11.63%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Estee Lauder EL has an Earnings ESP of +1.31% and a Zacks Rank of 3.
Molson Coors TAP has an Earnings ESP of +0.29% and a Zacks Rank of 3.
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