Can Consumer International Unit Keep Driving Church & Dwight?

Church & Dwight Co., Inc.’s (NYSE:CHD) continued focus on product innovations and strategic acquisitions has been fueling its performance for quite some time now. While the company gained from broad-based growth in third-quarter 2017, its Consumer International business has been doing exceptionally well. Evidently, consistent strength at this segment has been driving the company’s overall organic sales growth for more than a year now.

In the third quarter, organic sales in the consumer international segment jumped 6.2% thanks to higher volumes. Also, overall consumer international sales surged 21.7% on the back of extensive sales of household and personal care items. Incidentally, sales at this segment received considerable impetus from FEMFRESH, OXICLEAN and STERIMAR in the export business, STERIMAR and ARM & HAMMER baking soda in Mexico, FEMFRESH in Australia as well as ARM & HAMMER cat litter and BATISTE in Canada.

The consumer international business has been a growth driver for the past few years, and exceeded expectations with 11.8% and 7.4% organic growth in the first and second quarters of 2017, respectively. Prior to that, the international business grew 8% in 2015 and 10% in 2016. Further, the company is opening new offices in order to support increase in export business, and it continues to invest in the consumer international business to sustain its strong sales growth.

Notably, continued strength at this business, along with solid growth in Consumer Domestic and Specialty Products businesses, drove Church & Dwight’s results in the third quarter. Both top and bottom lines grew year over year and came ahead of the Zacks Consensus Estimate. Despite bearing the brunt of hurricanes, organic sales advanced 3.2%, thereby retaining its year-over-year growth trend.

While this marked the company’s fourth consecutive quarter of positive earnings surprise, sales have outpaced the consensus mark in 12 out of the last 14 quarters now. Clearly, the company’s investment spending is paying off. However, this Zacks Rank #3 (Hold) company’s shares have lost 8.8% over the past six months, as against the industry’s gain of 3%.



The company has been witnessing high promotional and coupon expenses, which is hurting its gross margin. Evidently, gross margin contracted 10 basis points (bps) and 80 bps in the third and second quarters of 2017, respectively. In third-quarter 2017, gross margin was hurt by high promotional costs, input cost inflation and unfavorable currency movements. SG&A expenses also escalated on account of higher R&D costs, which in turn weighed upon operating margin. Further, the company witnessed higher marketing costs to support innovations and expects similar trends in the fourth quarter.

Nevertheless, Church & Dwight’s stable portfolio of value and premium products, launch of innovative products, and aggressive productivity programs should keep driving its performance. In addition, continued strength in the Consumer International unit, along with growth across other segments, keeps us encouraged.

Looking for More Promising Stocks? Check These Consumer Staple Picks

Conagra Brands, Inc. (NYSE:CAG) , with long-term EPS growth rate of 7%, carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Nomad Foods Limited (NYSE:NOMD) , also with a Zacks Rank #2, has surpassed earnings estimates in the past three quarters.

Flowers Foods, Inc. (NYSE:FLO) , with long-term EPS growth rate of 6.1%, holds the same Zacks Rank as the aforementioned stocks.

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