Why Is Church & Dwight (CHD) Down 4.5% Since Last Earnings Report?

It has been about a month since the last earnings report for Church & Dwight (CHD). Shares have lost about 4.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Church & Dwight due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Church & Dwight Q4 Earnings & Sales Meet Estimates

Church & Dwight reported fourth-quarter 2019 results, with the top line improving year over year. Earnings were in line with the Zacks Consensus Estimate. However, the bottom line declined year over year.

Quarter in Detail

Church & Dwight posted adjusted earnings of 55 cents per share, in line with the Zacks Consensus Estimate. However, the metric declined 3.5% from the year-ago quarter’s level. This downside was caused by increased marketing spending and higher SG&A investment.

Net sales amounted to $1,144.2 million, up 6.5% year over year. The Zacks Consensus Estimate was pegged at $1,142 million. Results were backed by consistent category growth and market share gains. Organic sales rose 4.4% and surpassed management’s 3% growth projection. The uptick was fueled by positive product mix and pricing to the tune of 2%. Moreover, volume improved 2.4%.

Gross margin expanded 170 basis points (bps) to 45.8% on improved pricing, efficiency and benefits from acquisition accounting.

However, marketing expenses increased 28.6% to $162.6 million. As a percentage of sales, the metric expanded 240 bps to 14.2%. SG&A expenses increased 7.6% to $166.2 million. Adjusted SG&A expenses increased 70 bps due to impacts of acquisitions and increased R&D investments among other factors.

Income from operations came in at $195.2 million which rose 0.9%.

Segment Details

Consumer Domestic: Net sales in the segment rose 6.3% to $870.8 million owing to higher household and personal care sales as well as acquisitions. Organic sales rose 3.5%, driven by positive impact of 2.6% from price as well as product mix and higher volume of 0.9%. The primary growth drivers in the segment were ARM & HAMMER liquid laundry detergent, WATERPIK oral care products, VITAFUSION gummy vitamins and OXICLEAN stain fighters.

Consumer International: Net sales in the segment increased10.1% to $196.6 million, backed by broad-based sales growth for household and personal care products and acquisitions along with improvements in Global Markets Group business. Organic sales increased 10.6% on higher volume of 9.9% as well as favorable price and product mix of 0.7%. Organic sales were mainly driven by BATISTE dry shampoo and STERIMAR in the Global Markets Group business, ARM & HAMMER clumping cat litter and liquid laundry detergent in Canada, BATISTE in Germany, ARM & HAMMER liquid laundry detergent in Mexico and WATERPIK in various countries.

Specialty Products: Sales in the segment inched up 0.7% year over year to $76.8 million. Also, organic sales moved up 0.7% owing to higher volumes of 1.5% that was offset by unfavorable pricing in the tune of 0.8%. Further, management stated that demand for dairy products increased. Also, demand for products in poultry industry remained strong.

Other Financial Updates

Church & Dwight ended the quarter with cash and cash equivalents of $155.7 million, long-term debt of $1,810.2 million and total shareholders’ equity of $2,667.8 million. During 2019, the company generated cash flow from operations of $864.5 million and incurred capital expenditure of $73.7 million.

In a separate press release, the company announced quarterly dividend of 24 cents per share, up 5.5% from the dividend of 22.75 cents paid out in the last reported quarter. The dividend will be paid out on Mar 2, 2020 to shareholders on record as of Feb 14.

Other Developments & Outlook

Management is encouraged with the results in 2019. Further, it is on track with product launches and brand investments to bolster market share. It has also announced launches under the household products and personal care portfolio. These are likely to boost revenues in the forthcoming periods.

The company anticipates sales growth of 6.5% for 2020. Organic sales are expected to rise nearly 3.5% in the same period.

For 2020, gross margin is likely to increase 10 bps. Excluding the FLAWLESS acquisition accounting, gross margin is anticipated to increase 50 bps. Marketing expenses are likely to increase 10 bps. The company expects adjusted earnings growth in the range of 7-9% to $2.64-$2.69 per share.

For the first quarter of 2020, management anticipates sales growth of approximately 6.5% on a reported basis and nearly 3% on an organic basis. The company expects improvement in gross margin and higher marketing expense. Adjusted earnings are projected to be 73 cents per share for the first quarter, excluding the FLAWLESS acquisition related adjustment, a 4% year over year improvement.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Church & Dwight has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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.