Church & Dwight Consumer Products Drive Steady Growth

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If there's a way to keep setting new stock highs every year without much fanfare,Church & Dwight ( CHD ) has figured out how to do it.

Church & Dwight makes and sells a range of consumer products under different brand names.

Its lineup includes everything from Arm & Hammer baking soda and Oxiclean stain remover to First Response pregnancy tests, Trojan condoms and Orange Glo floor cleaners.


Most of the goods are value priced, though Church & Dwight also offers a few premium brands.

The popularity of Church & Dwight's products have helped it build a record of steady sales and earnings gains through the years, no matter the economy.

The company even grew sales and earnings in both 2009 and 2010, when consumers were spooked silly by the Great Recession and financial crisis.

While many consumers are aware of Church & Dwight's brands, they probably have never heard of the company itself. About the only place it does get much notice is on Wall Street, where it has established a reputation for strong dividends and rising value.

Since 2001, the company's stock price has increased every year except 2005, when it basically moved sideways. Shares continue to rise this year, reaching a record high of 60.49 on Tuesday.

"Church & Dwight has one of the most interesting stories (in the consumer products sector), and one of the highest valuations as a result," noted Leigh Ferst, analyst at Wellington Shields.

"Robust Cash Flow"

She says that valuation is "deserved" because of Church & Dwight's "consistent double-digit earnings, robust cash flow and a well-balanced strategy to go for value shoppers without ignoring opportunities for premium positioning in some of its categories."

Church & Dwight operates in three segments: Consumer Domestic, Consumer International and Specialty Products Division (SPD).

The Consumer Domestic unit provides the lion's share of revenue. It offers household products such as laundry detergent, fabric softener and cat litter as well as personal care products like toothpaste, toothbrushes, deodorants and home pregnancy test kits.

The Consumer International segment sells much the same stuff, only to international markets such as Canada, France, Australia, the U.K., Mexico, Brazil and China. International sales accounted for 17% of the total last quarter.

The SPD segment offers specialty chemicals, such as sodium bicarbonate and potassium carbonate, animal nutrition products such as feed-grade sodium bicarbonate, and specialty cleaners for various industrial, institutional, medical and food applications.

Church & Dwight's biggest customer isWal-Mart ( WMT ), which accounts for more than 20% of overall sales.

The company's main competitor isClorox ( CLX ), the maker of well-known brands including its namesake Clorox bleach as well as Pine-Sol cleaners, Brita water filters and Hidden Valley salad dressings.

Church & Dwight also competes in various product lines against a number of other firms, from consumer product behemothsProctor & Gamble ( PG ) andColgate-Palmolive ( CL ) to smallish specialty cleaner makers such asZep (ZEP).

Of those companies, Church & Dwight is the only one to grow annual sales and earnings every year for the past decade.

Last year, it logged revenue of $2.9 billion, up 6% from the prior year. Earnings gained 12% to $2.48 a share .

Fourth-quarter profit came in at 57 cents a share, up 30% from the prior year and above Wall Street estimates. Overall sales gained 11% to $809.7 million, while organic sales climbed 4.4%.

"Organic sales growth for the domestic unit was better than anticipated, and reported gross margin was 10 basis points ahead of our forecast," JPMorgan analyst John Faucher said in a Q4 earnings report.

Consumer Domestic net sales were $609.4 million for the quarter, up 17% from the prior year. That gain made up for a 6% decline in Consumer International sales and a 3.8% dip in Specialty Products sales.

On Jan. 30, the company's board of directors declared a 17% increase in the regular quarterly dividend from 24 cents to 28 cents, equivalent to an annual dividend of $1.12.

Meanwhile, Church & Dwight's gross margin expanded 210 basis points during the fourth quarter, excluding the impact of its $650 million buyout of Avid Health, a maker of gummy vitamins and supplements.

The Avid Health deal was announced in August and closed in early October. The acquisition brought aboard Vitafusion, the No. 1 brand in adult gummy-form vitamins, and Li'l Critters, the top brand in children's gummy-form vitamins.

Avid's Sales

Avid's net sales for the trailing 12 months through June 30 were around $230 million.

"The potential to sustain Avid's high growth is good because of market growth and a successful entry into the large category for adult vitamins," analyst Ferst noted. "Also, the company's sales force can move Avid into the large food and drug store channels."

Church & Dwight said the Avid acquisition will be accretive to earnings this year and should boost the bottom line by 4% to 6%.

The extra cash flow will help Church & Dwight finance certain growth initiatives, analysts say.

"They are guiding for higher marketing spending in 2013," JPMorgan's Faucher said. "We believe the accretion from Avid should provide room for extra investment, which they have sacrificed in recent periods."

Analysts polled by Thomson Reuters expect Church & Dwight to grow EPS 13% this year and 11% in 2014.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: CHD , CL , CLX , PG , WMT

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