A month has gone by since the last earnings report for Church & Dwight (CHD). Shares have added about 5.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Church & Dwight due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Church & Dwight Q2 Earnings & Sales Beat Estimates
Church & Dwight reported robust second-quarter 2020 results, with the top and bottom lines improving year over year. Also, sales and earnings grew year over year. Results gained from the robust household and personal care businesses on consumers’ shifted preference for essential products amid the coronavirus outbreak. Moreover, management is encouraged with its results so far in 2020. Incidentally, the company is raising its sales and earnings guidance for 2020.
Church & Dwight posted adjusted earnings of 77 cents per share that surpassed the Zacks Consensus Estimate of 63 cents and improved 35.1% from the year-ago quarter’s level.
Net sales of $1,194.3 million advanced 10.6% year over year. Moreover, the top line surpassed the Zacks Consensus Estimate of $1,150.8 million. Results were backed by solid demand for various products stemming from the coronavirus outbreak.
Organic sales rose 8.4% on the back of increased consumption, reduced couponing and retail inventory restocking. The uptick was fueled by a positive product mix and pricing, and a rise in volumes of 3.5% and 4.9%, respectively.
Gross margin expanded 220 basis points (bps) to 46.8% on improved pricing, lower promotional costs and couponing. Also, enhanced productivity was a reason. These were somewhat offset by increased manufacturing expenses, costs related to the COVID-19 outbreak and currency headwinds. Also, marketing expenses fell 5.3% to $122.3 million. As a percentage of sales, it contracted 180 bps to 10.2%.SG&A expenses increased 13.1% to $186.6 million. As a percentage of sales, SG&A expenses increased 30 bps to 15.6%.
Consumer Domestic: Net sales of the segment rose 13.6% to $931.1 million due to higher household and personal care sales along with gains from acquisitions. Organic sales improved 10.7%, driven by a positive impact of 4.4% from price and product mix as well as 6.3% from higher volumes. The primary growth drivers in the segment were VITAFUSION and L’IL CRITTERS gummy vitamins, ARM & HAMMER liquid laundry detergent, OXICLEAN stain fighters, ARM & HAMMER laundry detergent scent boosters, FLAWLESS women’s hair removal, ARM & HAMMER clumping cat litter, and baking soda.
Consumer International: Net sales of the segment inched up 0.5% to $187.5 million. Organic sales improved 0.6% on favorable price and product mix of 1.3%. However, volumes edged down 0.7%. Organic sales gained from the strength in Global Markets Group, which was somewhat offset by a decline in Mexico and Europe.
Specialty Products: Sales in the segment increased 3% to $75.7 million. Also, organic sales advanced 3% owing to higher volumes of 3.3%, while unfavorable pricing of 0.3% was a drag. Further, management stated that demand for dairy products is anticipated to improve during the second half of the year. Also, demand for prebiotic and probiotic products remained strong.
Other Financial Updates
Church & Dwight ended the quarter with cash and cash equivalents of $451.7 million, long-term debt of $1,811.4 million, and total shareholders’ equity of $2,998.8 million.
For the six months ended Jun 30, 2020, cash flow from operating activities was $598.6 million and the company incurred a capital expenditure of $30.9 million.
It recently launched ARM & HAMMER laundry detergent called CLEAN & SIMPLE, which is touted to be at par with its bestselling product, namely ARM & HAMMER with OXICLEAN. Further, its BATISTE brand, belonging to the personal care unit, launched a line of waterless cleansing foam for normal, dry and curly hair. Apart from this, the company introduced NU RAZOR by FLAWLESS, which is a waterless whole-body hair removal product for women. The company also floated the WATERPIK WATER FOR WELLNESS showerhead product in the quarter under review. Moreover, its VITAFUSION gummy vitamins launched various items like Apple Cider Vinegar, Triple Immune Power, Organic Prenatal Multi and IRRESISTIBLE SKIN.
The company now anticipates sales growth of 9-10% compared with 6.5% growth mentioned earlier. Organic sales are now expected to increase 7-8%. Earlier, management guided 3.5% growth in organic sales. For 2020, adjusted earnings per share are expected to grow 13%, higher than the previously mentioned 7-9% increase.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -6.13% due to these changes.
At this time, Church & Dwight has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Church & Dwight has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.