2019 Third Quarter
Results
- Organic sales: Domestic +3.3%, International +8.7%
- Gross margin +230 bps. to 46.6%
- EPS growth +6.9%; Adjusted EPS growth +13.8%
2019 Full Year
Outlook
- Sales growth +5%; Organic sales growth maintained +4%
- Gross margin outlook raised to +100 bps.
- Adjusted EPS maintained at $2.47, +9%¹
- Cash from operations raised to approximately $815 million
Church & Dwight Co., Inc. (NYSE: CHD) today announced
reported third quarter 2019 EPS of $0.62, a 6.9% increase. Adjusted
EPS, which excludes the FLAWLESS® earn-out adjustment, grew 13.8%
to $0.66.² Both reported and adjusted EPS include a $0.03 EPS
benefit from a retroactive tariff exemption. Adjusted EPS of $0.66
exceeded the Company’s $0.60 outlook.
Third quarter net sales grew 5.0% to $1,089.4 million. Organic
sales grew 3.6% driven by positive product mix and pricing of 4.3%
partially offset by a volume decline of 0.7%.
Matthew Farrell, Chief Executive Officer, commented, “Q3 was
another outstanding quarter with sales growth of 5.0%. Organic
sales grew 3.6%, exceeding our 3.0% outlook. Our categories
continue to grow and our market shares are healthy. 12 of our 15
domestic categories grew during the quarter and more than half have
grown at least 8 consecutive quarters. In the domestic business, 9
out of 12 power brands met or exceeded category growth in the third
quarter. The international business continues to perform strongly
with reported sales growth of 7.1% and organic sales growth of
8.7%.”
Third Quarter Review
Consumer Domestic net sales were $827.6 million, a $42.7
million or 5.4% increase driven by household and personal care
sales growth. Organic sales increased 3.3% as price and positive
product mix (+5.1%) offset lower volume (-1.8%). Lower volume
resulted from lower promotional spending and the impact of price
increases. Organic growth was led by ARM & HAMMER® liquid
laundry detergent, WATERPIK® oral care products, VITAFUSION® and
L’IL CRITTERS® gummy vitamins, BATISTE® dry shampoo, ARM &
HAMMER clumping cat litter, and ARM & HAMMER scent booster.
Consumer International net sales were $186.4 million, a
$12.3 million or a 7.1% increase driven by growth of the Global
Markets Group (formerly called “Export”) business, and broad-based
household and personal care sales growth. Organic sales increased
8.7% due to higher volume (+5.4%) and price and product mix
(+3.3%). Organic sales were driven primarily by BATISTE and
VITAFUSION in the Global Markets Group business, ARM & HAMMER
liquid laundry detergent and STERIMAR® in Mexico, and BATISTE dry
shampoo in Australia and Germany. WATERPIK and FLAWLESS
acquisitions are excellent additions to the international
business.
Specialty Products net sales were $75.4 million, a $3.2
million or 4.1% decrease. Organic sales decreased 4.1% due to lower
volume (-3.1%) and pricing (-1.0%). Demand for dairy products
decreased while non-dairy product demand continued to grow.
Gross margin increased 230 basis points to 46.6% due
primarily to acquisition accounting in connection with FLAWLESS
(100 bps.) and a retroactive tariff exemption benefit (100
bps.).
Marketing expense was $125.2 million, an increase of $4.7
million or +3.9%. Marketing expense as a percentage of net sales
was 11.5%. Full year marketing expectations are unchanged. The
Company continues to expect fourth quarter marketing to be higher
in dollars and higher as a percent of sales versus a year ago.
Selling, general, and administrative expense (SG&A)
was $165.7 million, an increase of $30.3 million, or 15.2% of net
sales, a 220 basis point increase. Adjusted SG&A increased 110
basis points primarily due to intangible amortization costs related
to acquisitions.²
Income from Operations was $216.8 million or 19.9% of net
sales, a 20 basis point increase. Excluding the FLAWLESS earn-out
adjustment, income from operations was 21.0% of net sales or a 130
basis point increase.²
Other Expense was $18.3 million, a decrease of $1.1
million, primarily due to lower interest expense.
The effective tax rate was 21.6% compared to 21.9% in
2018, a decrease of 30 basis points. The expected full year
effective tax rate is unchanged at approximately 21%.
Operating Cash Flow
For the first nine months of 2019, net cash from operating
activities was $617.5 million, a $49.5 million increase from the
same period last year as higher cash earnings were partially offset
by an increase in net working capital. The Company now expects to
generate approximately $815 million of net cash flow from operating
activities for the full year. Capital expenditures for the first
nine months were $39.7 million, a $9.3 million increase from the
prior year. We now expect the Company’s full year outlook for
capital expenditures to be approximately $80 million.
At September 30, 2019, cash on hand was $114.7 million, while
total debt was $2,183.2 million.
2019 New Products
In the household products portfolio, the Company’s ARM &
HAMMER CLUMP & SEAL® CLOUD CONTROL® cat litter has become our
second highest rated litter product online. It is a
first-of-its-kind cat litter that eliminates 100% of dust, keeps
dander in the litter box, has an allergen-free light scent, and
provides a 7-day odor control guarantee. Combining stain fighting
power with clothing protection, ARM & HAMMER plus OXICLEAN®
laundry detergent FADE DEFENSE™ launch is off to a strong start.
OXICLEAN’S DARK PROTECT® laundry booster launch for dark and black
fabrics that incorporates anti-fade technology, cold water
solubility, and OXICLEAN stain fighters continues to build
distribution at leading retailers.
In the personal care portfolio, WATERPIK launched SONIC FUSION®,
the world’s first single device flossing toothbrush and water
flosser is the most successful innovation in the history of
WATERPIK. VITAFUSION Magnesium is the first major branded magnesium
gummy vitamin to market. BATISTE launched a Hair Benefits line with
a hydrating dry shampoo for dry hair, and a volumizing dry shampoo
for fine hair which is currently is the #1 growth item in the
category. The NAIR® launch of LEG MASK™ hair removal, a first for
legs, with natural clay, seaweed, and charcoal has been highly
incremental to the brand delivering record high share in the
depilatory category.
Outlook for 2019
Mr. Farrell stated, “We are closing in on another outstanding
year for Church & Dwight. We now expect approximately 5% full
year 2019 sales growth and continue to expect approximately 4%
organic sales growth. The reported sales outlook now reflects a
November 1, 2019 integration date for the FLAWLESS acquisition.
Full year gross margin is expected to expand 100 basis points or 60
basis points, excluding the FLAWLESS acquisition accounting. Full
year marketing expense dollars are expected to increase and as a
percentage of net sales to be 11.7%, flat to 2018. We continue to
expect $2.47 per share or 9% adjusted EPS growth.¹&²
We intend to make incremental investments in Q4 as a result of
our strong results and tariff relief. As in years past, these
actions help the Company enter the coming year with momentum.
Specifically, we expect significantly higher marketing spending and
investments as we accelerate approximately $10 million of spending
in R&D, predictive analytics, supply chain, and sustainability.
We also intend to accelerate $4 million of investments in our
long-term Asia Pacific relationships. In Q4, we expect reported
sales growth of approximately 6%, organic sales growth of
approximately 3%, gross margin expansion, significantly higher
marketing expense, and higher SG&A associated with the FLAWLESS
acquisition and reinvestment in the business. As a result of these
investments and a higher tax rate, we expect Q4 adjusted EPS to be
$0.54 per share excluding the earn-out adjustment from our
acquisition of the FLAWLESS business¹.”
¹This press release does not provide a forward-looking
reconciliation of adjusted EPS to reported EPS, the most directly
comparable GAAP financial measure, expected for 2019 or for the
fourth quarter of 2019, because we are unable to provide such a
reconciliation without unreasonable effort. We have excluded the
Company’s potential earn-out liability from our acquisition of the
FLAWLESS business from our expected adjusted EPS for these periods.
We are required to review the fair value of the earn-out liability
quarterly based on changes in sales forecasts, discount rates,
volatility assumptions, and other inputs. Our inability to provide
a reconciliation to GAAP EPS for future periods is due to the
uncertainty and inherent difficulty of predicting what these
changes will be on a quarter-by-quarter basis. For the same
reasons, we are unable to address the probable significance of the
unavailable information, which could be material to our future
results.
²Excludes the third quarter $0.04 negative impact from the
FLAWLESS acquisition earn-out adjustment.
Church & Dwight Co., Inc. will host a conference call to
discuss third quarter 2019 earnings results on October 31, 2019 at
10:00 a.m. (ET). To participate, dial 877-322-9846 within the U.S.
and Canada, or 631-291-4539 internationally, using access code
8968447. A replay will be available at 855-859-2056 using the same
access code. You also can participate via webcast by visiting the
Investor Relations section of the Company’s website at
www.churchdwight.com.
Church & Dwight Co., Inc. (NYSE: CHD) founded in 1846, is
the leading U.S. producer of sodium bicarbonate, popularly known as
baking soda. The Company manufactures and markets a wide range of
personal care, household, and specialty products under recognized
brand names such as ARM & HAMMER®, TROJAN®, OXICLEAN®,
SPINBRUSH®, FIRST RESPONSE®, NAIR®, ORAJEL®, XTRA®, L’IL CRITTERS®
and VITAFUSION®, BATISTE®, WATERPIK®, and FLAWLESS®. These twelve
key brands represent approximately 85% of the Company’s products
sales. For more information, visit the Company’s website.
Church & Dwight has a strong heritage of commitment to
people and the planet. In the early 1900’s, we began using recycled
paperboard for all packaging of household products. Today,
virtually all our paperboard packaging is from certified,
sustainable sources. In 1970, the ARM & HAMMER™® brand
introduced the first nationally-distributed, phosphate-free
detergent. That same year, Church & Dwight was honored to be
the sole corporate sponsor of the first annual Earth Day. Church
& Dwight is notably ranked in the 2018 Barron’s 100 Most
Sustainable Companies and on the EPA’s Green Power Partnership Top
100 List of Green Power Users.
For more information, see the Church & Dwight 2018
Sustainability Report at:
https://churchdwight.com/pdf/Sustainability/2018-Sustainability-Report.pdf.
This press release contains forward-looking statements,
including, among others, statements relating to net sales and
earnings growth; gross margin changes; trade, marketing, and
SG&A spending; sufficiency of cash flows from operations;
earnings per share; cost savings programs; consumer demand and
spending; the effects of competition; the effect of product mix;
volume growth, including the effects of new product launches into
new and existing categories; the impact of acquisitions (including
earn-outs); and capital expenditures. These statements represent
the intentions, plans, expectations and beliefs of the Company, and
are based on assumptions that the Company believes are reasonable
but may prove to be incorrect. In addition, these statements are
subject to risks, uncertainties and other factors, many of which
are outside the Company’s control and could cause actual results to
differ materially from such forward-looking statements. Factors
that could cause such differences include a decline in market
growth, retailer distribution and consumer demand (as a result of,
among other things, political, economic and marketplace conditions
and events); unanticipated increases in raw material and energy
prices; delays or other problems in manufacturing or distribution;
increases in transportation costs; adverse developments affecting
the financial condition of major customers and suppliers; changes
in marketing and promotional spending; growth or declines in
various product categories and the impact of customer actions in
response to changes in consumer demand and the economy, including
increasing shelf space of private label products; consumer and
competitor reaction to, and customer acceptance of, new product
introductions and features; the Company’s ability to maintain
product quality and characteristics at a level acceptable to our
customers and consumers; disruptions in the banking system and
financial markets; foreign currency exchange rate fluctuations;
implications of the United Kingdom’s withdrawal from the European
Union; transition to, and shifting economic policies in the United
States; potential changes in export/import and trade laws,
regulations and policies of the United States and other countries,
including any increased trade restrictions or tariffs, including
the actual and potential effect of tariffs on Chinese goods imposed
by the United States; issues relating to the Company’s information
technology and controls; the impact of natural disasters on the
Company and its customers and suppliers, including third party
information technology service providers; the integration of
acquisitions or divestiture of assets; the outcome of
contingencies, including litigation, pending regulatory proceedings
and environmental matters; and changes in the regulatory
environment.
For a description of additional factors that could cause
actual results to differ materially from the forward-looking
statements, please see Item 1A, “Risk Factors” in the Company’s
annual report on Form 10-K. The Company undertakes no obligation to
publicly update any forward-looking statements, whether as a result
of new information, future events or otherwise, except as required
by the U.S. federal securities laws. You are advised, however, to
consult any further disclosures the Company makes on related
subjects in its filings with the United States Securities and
Exchange Commission.
This press release also contains non-GAAP financial
information. Management uses this information in its internal
analysis of results and believes that this information may be
informative to investors in gauging the quality of the Company’s
financial performance, identifying trends in its results and
providing meaningful period-to-period comparisons. The Company has
included reconciliations of these non-GAAP financial measures to
the most directly comparable financial measure calculated in
accordance with GAAP. See the end of this press release for these
reconciliations. These non-GAAP financial measures should not be
considered in isolation or as a substitute for the comparable GAAP
measures. In addition, these non-GAAP financial measures may not be
the same as similar measures provided by other companies due to
potential differences in methods of calculation and items being
excluded. They should be read in connection with the Company’s
financial statements presented in accordance with GAAP.
CHURCH & DWIGHT CO., INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of
Income (Unaudited)
Three Months Ended
Nine Months Ended
(In millions, except per share data)
September 30, 2019
September 30, 2018
September 30, 2019
September 30, 2018
Net Sales
$
1,089.4
$
1,037.6
$
3,213.5
$
3,071.5
Cost of sales
581.7
577.5
1,753.5
1,705.0
Gross Profit
507.7
460.1
1,460.0
1,366.5
Marketing expenses
125.2
120.5
352.4
356.8
Selling, general and administrative
expenses
165.7
135.4
462.6
411.4
Income from Operations
216.8
204.2
645.0
598.3
Equity in earnings of affiliates
2.1
2.5
5.5
7.0
Other income (expense), net
(18.3
)
(19.4
)
(54.5
)
(61.9
)
Income before Income Taxes
200.6
187.3
596.0
543.4
Income taxes
43.3
41.0
124.5
117.6
Net Income
$
157.3
$
146.3
$
471.5
$
425.8
Net Income per share - Basic
$
0.64
$
0.60
$
1.91
$
1.74
Net Income per share - Diluted
$
0.62
$
0.58
$
1.87
$
1.70
Dividends per share
$
0.23
$
0.22
$
0.68
$
0.65
Weighted average shares outstanding -
Basic
246.8
245.7
246.4
245.2
Weighted average shares outstanding -
Diluted
252.9
251.1
252.5
250.1
CHURCH & DWIGHT CO., INC. AND
SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in millions)
September 30, 2019
December 31, 2018
Assets
Current Assets
Cash and Cash Equivalents
$
114.7
$
316.7
Accounts Receivable
384.4
345.3
Inventories
388.8
382.8
Other Current Assets
20.9
33.4
Total Current Assets
908.8
1,078.2
Property, Plant and Equipment (Net)
553.1
598.2
Equity Investment in Affiliates
10.2
8.5
Trade Names and Other Intangibles
2,777.3
2,274.0
Goodwill
2,079.5
1,992.9
Other Long-Term Assets
281.2
117.4
Total Assets
$
6,610.1
$
6,069.2
Liabilities and Stockholders’
Equity
Short-Term Debt
$
74.0
$
1.8
Current portion of Long-Term debt
299.6
596.5
Other Current Liabilities
768.5
728.0
Total Current Liabilities
1,142.1
1,326.3
Long-Term Debt
1,809.6
1,508.8
Other Long-Term Liabilities
1,099.1
780.3
Stockholders’ Equity
2,559.3
2,453.8
Total Liabilities and Stockholders’
Equity
$
6,610.1
$
6,069.2
CHURCH & DWIGHT CO., INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of Cash
Flow (Unaudited)
Nine Months Ended
(Dollars in millions)
September 30, 2019
September 30, 2018
Net Income
$
471.5
$
425.8
Depreciation and amortization
129.9
105.4
Deferred income taxes
6.1
4.5
Non-cash compensation
17.7
19.8
Other
5.0
0.9
Subtotal
630.2
556.4
Changes in assets and liabilities:
Accounts receivable
(41.8
)
(17.2
)
Inventories
(7.1
)
(60.5
)
Other current assets
6.5
24.6
Accounts payable and accrued expenses
1.8
43.8
Income taxes payable
14.9
15.2
Other
13.0
5.7
Net cash from operating
activities
617.5
568.0
Capital expenditures
(39.7
)
(30.4
)
Acquisitions
(475.0
)
(49.8
)
Other
(4.3
)
(2.1
)
Net cash (used in) investing
activities
(519.0
)
(82.3
)
Net change in short-term debt
72.4
(269.5
)
Payment of cash dividends
(168.2
)
(159.6
)
Proceeds from stock option exercises
49.8
58.0
Purchase of treasury stock
(250.0
)
(200.0
)
Deferred financing and other
(2.6
)
(3.0
)
Net cash (used in) financing
activities
(298.6
)
(574.1
)
F/X impact on cash
(1.9
)
(2.2
)
Net change in cash and cash
equivalents
$
(202.0
)
$
(90.6
)
2019 and
2018 Product Line Net Sales
Three Months Ended
Percent
9/30/2019
9/30/2018
Change
Household Products
$
463.5
$
448.9
3.3
%
Personal Care Products
364.1
336.0
8.4
%
Consumer Domestic
$
827.6
$
784.9
5.4
%
Consumer International
186.4
174.1
7.1
%
Total Consumer Net Sales
$
1,014.0
$
959.0
5.7
%
Specialty Products Division
75.4
78.6
-4.1
%
Total Net Sales
$
1,089.4
$
1,037.6
5.0
%
Nine Months Ended
Percent
9/30/2019
9/30/2018
Change
Household Products
$
1,371.1
$
1,291.8
6.1
%
Personal Care Products
1,060.7
1,018.6
4.1
%
Consumer Domestic
$
2,431.8
$
2,310.4
5.3
%
Consumer International
559.7
530.9
5.4
%
Total Consumer Net Sales
$
2,991.5
$
2,841.3
5.3
%
Specialty Products Division
222.0
230.2
-3.6
%
Total Net Sales
$
3,213.5
$
3,071.5
4.6
%
Non-GAAP Measures:
The following discussion addresses the non-GAAP measures used in
this press release and reconciliations of these non-GAAP measures
to the most directly comparable GAAP measures. These non-GAAP
financial measures should not be considered in isolation from or as
a substitute for the comparable GAAP measures. The following
non-GAAP measures may not be the same as similar measures provided
by other companies due to differences in methods of calculation and
items and events being excluded.
Organic Sales Growth:
This press release provides information regarding organic sales
growth, namely net sales growth excluding the effect of
acquisitions, divestitures and foreign exchange rate changes.
Management believes that the presentation of organic sales growth
is useful to investors because it enables them to assess, on a
consistent basis, sales trends related to products that were
marketed by the Company during the entirety of relevant periods,
excluding the impact of acquisitions, divestitures, and foreign
exchange rate changes that are out of the control of, and do not
reflect the performance of the Company and management.
Adjusted SG&A Expense:
This press release presents information regarding adjusted
SG&A excluding the adjustment to the FLAWLESS earn-out
estimate. We believe that this metric enhances investors’
understanding of the Company’s year over year expenses by excluding
certain significant one-time items.
Adjusted Operating Income and Margin:
This press release provides information regarding adjusted
operating income and margin excluding the adjustment to the
FLAWLESS earn-out estimate. We believe that excluding this charge
from operating income and margin provides a useful measure of the
Company’s ongoing operating performance and a more effective
comparison to prior periods by excluding certain significant
one-time items.
Adjusted EPS:
This press release also presents adjusted earnings per share,
namely, EPS calculated in accordance with GAAP, as adjusted to
exclude significant one-time items that are not indicative of the
Company’s period-to-period performance. We believe that this metric
provides investors a useful perspective of underlying business
trends and results and provides useful supplemental information
regarding our year over year EPS growth. Adjusted 2019 EPS excludes
the earn-out reversal from the Passport acquisition, the FLAWLESS
earn-out adjustments, and the loss on the sale of the consumer
Brazil business.
CHURCH & DWIGHT CO.,
INC.
Organic Sales
Three Months Ended
09/30/2019
Total
Worldwide
Consumer
Consumer
Specialty
Company
Consumer
Domestic
International
Products
Reported Sales Growth
5.0%
5.7%
5.4%
7.1%
-4.1%
Less:
Acquisitions
2.0%
2.0%
2.1%
1.7%
0.0%
Add:
FX / Other
0.6%
0.6%
0.0%
3.3%
0.0%
Organic Sales Growth
3.6%
4.3%
3.3%
8.7%
-4.1%
Nine Months Ended
09/30/2019
Total
Worldwide
Consumer
Consumer
Specialty
Company
Consumer
Domestic
International
Products
Reported Sales Growth
4.6%
5.3%
5.3%
5.4%
-3.6%
Less:
Acquisitions
0.9%
0.9%
1.1%
0.7%
1.0%
Add:
FX / Other
0.7%
0.7%
0.0%
4.1%
0.0%
Organic Sales Growth
4.4%
5.1%
4.2%
8.8%
-4.6%
CHURCH & DWIGHT CO.,
INC.
Reconciliation of GAAP
Measures to Non-GAAP Measures (Unaudited)
(Dollars in millions, except per share
data)
For the quarter ended
September 30, 2019
For the quarter ended
September 30, 2018
Change
% of NS
% of NS
Adjusted SG&A
Reconciliation
SG&A - Reported
$
165.7
15.2
%
$
135.4
13.0
%
220
bps
Flawless Earn-Out Adjustment
$
(12.0
)
-1.1
%
(110
)
bps
SG&A - Adjusted (non-GAAP)
$
153.7
14.1
%
$
135.4
13.0
%
110
bps
For the quarter ended
September 30, 2019
For the quarter ended
September 30, 2018
Change
Adjusted Operating Profit
Reconciliation
% of NS
% of NS
Operating Profit and Margin -
Reported
$
216.8
19.9
%
$
204.2
19.7
%
20
bps
Flawless Earn-Out Adjustment
$
12.0
1.1
%
110
bps
Operating Profit and Margin - Adjusted
(non-GAAP)
$
228.8
21.0
%
$
204.2
19.7
%
130
bps
For the quarter ended
September 30, 2019
For the quarter ended
September 30, 2018
Change
Adjusted Diluted Earnings Per Share
Reconciliation
Diluted Earnings Per Share -
Reported
$
0.62
$
0.58
6.9
%
Flawless Earn-Out Adjustment
$
0.04
6.9
%
Diluted Earnings Per Share - Adjusted
(non-GAAP)
$
0.66
$
0.58
13.8
%
Reported and Organic Forecasted Sales
Reconciliation
For the Quarter
For the Year
Ended
Ended
December 31, 2019
December 31, 2019
Reported Sales Growth
6.0%
5.0%
Less: Acquisition
-3.0%
-1.6%
Add: FX / Other
0.0%
+0.6%
Organic Sales Growth
3.0%
4.0%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191031005321/en/
Rick Dierker Chief Financial Officer 609-806-1200
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