Church & Dwight Up 9.2% In 6 Months, Strong Brands Add Gleam

Church & Dwight Co., Inc. (NYSE:CHD) is benefitting from robust market share gains, supported by strong brands across different business categories. This is boosting the company’s organic sales. Such upsides have made this Zacks Rank #3 (Hold) company a profitable investment pick. Evidently, the stock has gained 9.2% in the past six months compared with the industry’s rise of 6.6%.

However, weakness in Specialty Products and rising input costs are hurdles in its path. Let’s take a look at both sides of the story.

Efforts to Boost Brand Strength Bode Well

Church & Dwight boasts a portfolio of well-known brands in the household and personal care space. Continued brand growth is bolstering the company’s market share. Markedly, during second-quarter 2019, the company witnessed improvements in 13 of 15 domestic categories. This supported the top-line growth. In fact, the company’s second-quarter results marked its eighth consecutive quarter of sales surprise.

Markedly, acquisitions have been an important strategy for the company to augment portfolio. It recently concluded the buyouts of FLAWLESS and FINISHING TOUCH (”FLAWLESS”), which is a significant inclusion to the specialty haircare category. FLAWLESS sales are expected to increase nearly 15% on an annual basis as well as contribute to the company’s domestic and international long-term growth. Some of the previous noteworthy acquisitions of the company are Waterpik, Agro BioSciences and the VIVISCAL business, among others. Additionally, the company’s regular innovation improves brand positions and market share in the consumer categories.

Strong Organic Sales

Prudent efforts to strengthen portfolio have been a catalyst to organic sales. Evidently, organic sales grew 4.9% in the second quarter of fiscal 2019. Moreover, rise in global consumer products, volumes growth, improved product mix and positive impact from pricing supported organic sales during the quarter. The company’s consumer international business has been consistently contributing to organic sales. As the international arena is full of opportunities for the company, it continues to invest in the segment.

Headwinds in the path

Church & Dwight is struggling with soft organic sales in the Specialty Products unit for quite some time, due to weak volumes stemming from sluggish demand in the dairy industry. This compelled the company to lower dependence on the dairy space and increase focus on other businesses like poultry. Apart from this, Church & Dwight’s gross margin is under pressure by escalated costs stemming from increased commodity, production and transportation expenses.

Nevertheless, we expect Church & Dwight to overcome the cost-related hurdles on the back of well-chalked pricing efforts. Moreover, the company’s brand investments are encouraging and are likely to keep driving revenues, as indicated by management’s favorable top-line view for 2019.

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