Driven by successful product innovations, Church & Dwight Co. Inc.’s (CHD) third-quarter 2014 earnings per share of 85 cents increased 11.8% year over year, beating both the Zacks Consensus Estimate of 82 cents and management’s guidance of 80–82 cents.
The top line also climbed 4.6% to $841.8 million and surpassed the Zacks Consensus Estimate of $829 million. Sales benefited from new product launches in all categories as well as three new categories. Organic sales grew 4.7%, driven by 5.2% growth in volumes, partially offset by an adverse impact of 0.5% due to pricing.
Gross profit inched up 0.6% year over year to $367.5 million. However, gross margin contracted 170 basis points (bps) to 43.7%, resulting from higher commodity expenses and greater trade spending.
Selling, general, and administrative expense (SG&A) dipped 4.1% to $93.7 million during the quarter, benefiting from the company’s effective cost management. Further, as a percentage of sales, SG&A fell 110 bps to 11.1%.
Consequently, operating income advanced 5.6% year over year to $177.2 million in the quarter, with operating margin expanding approximately 30 bps to 21.1%.
Segment Details
Consumer Domestic net sales improved by 3.6% year over year to $627.2 million. Organic sales also edged up 3.5% in the quarter due to sales of VITAFUSION vitamins, TROJAN condoms, ARM & HAMMER CLUMP & SEAL cat litter and OXICLEAN liquid laundry detergents. This was, however, partially offset by sluggish sales of ARM & HAMMER unit dose, L’IL CRITTERS vitamins and XTRA laundry detergents.
Increase in sales marked a 4.3% improvement in volume, while product mix and pricing hurt sales by 0.8%.
Sales at the Consumer International segment rose 1.3% to $136.2 million. Organic sales escalated 1.7%, attributable to healthy sales in U.K and Mexico, majorly hurt by weak Canadian sales. Volumes jumped 3.1% whereas unfavorable product mix and pricing adversely impacted sales by 1.4%.
Specialty Products' witnessed a 20.6% jump in sales to $78.4 million while organic sales grew 22.1% in the said quarter. Moreover, the segment witnessed volume growth of 18.2%, attributable to the animal nutrition business, with a 3.9% contribution from favorable product mix and 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 $370.2 million, long-term debt of $649.6 million and shareholders’ equity of $2,087.4 million.
Moreover, the company generated cash from operations of $408.7 million and incurred nearly $36 million in capital expenditures during the first nine months of the year.
Going forward, Church & Dwight continues to anticipate full-year capital expenditure to be around $70 million.
Recent Developments
Management remains impressed with its performance so far as the company has been riding on continuous expansion of product portfolio and cost containment efforts. These have been boosting bottom and top line even amid intense competition.
Further, the company has been undertaking several acquisitions to enhance performance. During the reported quarter, the company purchased various women healthcare brands like REPLENS and REPHRESH from Lil’ Drug Store Products, Inc, which are expected to augment its gross margin. Also, its recent acquisition of the gummy vitamin business has been facilitating sales.
Outlook
Following the momentum, Church & Dwight updated its earnings per share outlook for 2014. The company now expects earnings to grow by roughly 8% for the full year, compared to a range of 7–9% predicted earlier. Earnings per share are now expected to be $3.01. Also, it continues to anticipate organic sales growth of nearly 3% and gross margin to contract 75 bps year over year, while operating margin is expected to improve significantly, resulting from heavy cost cutting.
For the fourth quarter, the company expects organic sales of 3%, an improvement in gross margin, on the expectation of a relatively better promotional environment. Earnings per share are envisioned to be nearly 78 cents for the quarter.
Additionally, following the encouraging statements, management initiated guidance for 2015 and anticipates achieving a high single-digit growth rate in earnings per share in 2015.
At present, Church & Dwight has a Zacks Rank #3 (Hold). Another better-ranked stock in the same sector includes Pilgrim's Pride Corporation (PPC) with a Zacks Rank #1 (Strong Buy).
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