Yahoo Finance Church & Dwight (CHD) Thrives on Brand Strength Amid Cost Woes
Church & Dwight Co., Inc. CHD is benefiting from its resilience and prowess in the consumer goods market. The stellar consumer demand across its diverse portfolio underscores the effectiveness of its strategic initiatives. Management is committed to bolstering its portfolio via consistent innovation, new product launches and strategic acquisitions.
These upsides, along with efficient pricing and productivity gains, are working for Church & Dwight. Impressively, management expects reported and organic sales growth of 4-5% year over year in 2024. The company projects annual adjusted earnings per share (EPS) growth of 8-9%.
Let’s delve deeper.
Pricing Actions Drive Growth
CHD resorts to incremental pricing across its portfolio to counter rising costs. Favorable pricing remained an upside to its organic sales in first-quarter 2024. Quarterly organic sales increased 5.2% due to gains from a favorable product mix and pricing of 1.5%. The quarterly gross margin expanded 220 basis points (bps) to 45.7% on the back of improved productivity, volume, mix and pricing, net of increased manufacturing expenses.
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Robust Acquisitions Strengthen Portfolio
Church & Dwight has a long history of acquisitions. The company, which started with only one brand, ARM & HAMMER, acquired several top high-margin brands over the years that have been contributing to its top-line growth.
In its first-quarter 2024 earnings call, management highlighted that it had signed an agreement to acquire Graphico, its Japanese distributor, for $35 million, anticipating closure later in the year. The acquisition aims to enhance CHD's presence in Japan and the APAC region by leveraging Graphico's capabilities to introduce more brands to Japanese consumers.
In 2022, Church & Dwight acquired the Hero Mighty Patch brand (or Hero) and other acne treatment products. In December 2021, Church & Dwight concluded the buyout of TheraBreath, a leading brand in the mouthwash category, which marks the company's 14th power brand. THERABREATH mouthwash and the HERO brand delivered impressive performance in first-quarter 2024.
Regular Innovation Boosts Brand Portfolio
Church & Dwight boasts seven power brands, ARM & HAMMER, OXICLEAN, VITAFUSION and L’IL CRITTERS, BATISTE, WATERPIK, THERABREATH and HERO, which generate nearly 70% of its revenues and profits. The company is focused on product innovation to propel growth. Management has been differentiating its brands to consumers through innovative products, packaging and forms.
Recently, the company introduced two innovative products in the detergent category, ARM & HAMMER Deep Clean, positioned as their premium offering in liquid laundry detergent and ARM & HAMMER Power Sheets, the first major brand to launch unit dose detergent sheets in the U.S. Initially launched online in August 2023, Power Sheets have garnered significant consumer traction, prompting its expansion into select brick-and-mortar stores. Both products have shown promising early results in 2024, indicating strong market acceptance and growth potential.
Is All Rosy for Church & Dwight?
Although compensated by pricing, volumes and productivity gains, Church & Dwight’s gross margin was partly hurt by inflation in first-quarter 2024. In its last earnings call, management highlighted that it expects to witness a rise in manufacturing costs, mainly due to capacity-related investments, a rise in third-party manufacturing expenses and moderate commodity inflation.
The company witnessed higher marketing expenses for the past few quarters. During the first quarter, marketing expenses increased by $29.7 million to $152 million. As a percentage of net sales, the figure rose 150 bps to 10.1%. Adjusted SG&A expenses, as a percentage of net sales, escalated 80 bps to 14.8%, mainly due to investments in International and R&D. Management expects a rise in marketing expenditure and an increase in SG&A expenses for the second quarter.
Church & Dwight’s emphasis on the advantages mentioned above is likely to keep it afloat amid such hurdles. The Zacks Rank #3 (Hold) company’s shares have risen 18.5% in the past six months compared with the industry’s 16.7% growth.
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