Reaffirms 2014 Outlook of 7 - 9% EPS
Growth
Church & Dwight Co., Inc.:
2014 Second Quarter Results 2014 Full Year
Outlook
• Organic sales growth of 3.0%
• Organic sales growth of approximately
3%
• Higher marketing spending at 14%
• Continuing to invest to drive new
product launches
• EPS $0.65 exceeded management
outlook
• EPS growth of 7 - 9%
• $175MM accelerated share repurchase
• Record cash from operations, in excess
of $525MM
Church & Dwight Co., Inc. (NYSE:CHD) today announced second
quarter 2014 reported earnings per share of $0.65 per share,
exceeding management’s outlook ($0.61).
Second quarter 2014 reported net sales increased $20.7 million
to $808.3 million. Organic sales growth for second quarter 2014 was
3.0%. These results were driven by volume growth of 3.6%, partially
offset by 0.6% negative price/mix.
James R. Craigie, Chairman and Chief Executive Officer,
commented, “We are pleased with the sales and earnings growth
despite continued weak U.S. consumer demand and fierce competition.
As promised, we launched innovative new products in every one of
our major categories and in three new categories in the first part
of the year. The results to date are very promising, as three of
our four megabrands hit record shares in the second quarter.”
Second Quarter Review
Consumer Domestic net sales were $598.9 million, a $4.4
million or 0.7% increase over the prior year second quarter sales.
Second quarter organic sales also increased by 0.7%, primarily due
to sales of our recently introduced ARM & HAMMER CLUMP &
SEAL cat litter, and OXICLEAN liquid laundry detergent, and higher
sales of ARM & HAMMER liquid laundry detergent and VITAFUSION
vitamins, partially offset by lower sales of XTRA laundry detergent
and ARM & HAMMER unit dose laundry detergent. Volume growth
contributed approximately 1.5% to organic sales, partially offset
by 0.8% unfavorable product mix and pricing.
Consumer International net sales were $136.6 million, a
$3.9 million or 2.9% increase compared to the prior year second
quarter sales. Organic sales increased 3.9%, which primarily
reflects increased sales in the UK and France. Volume increased
4.7%, partially offset by 0.8% unfavorable product mix and
pricing.
Specialty Products net sales were $72.8 million, a $12.4
million or 20.5% increase from the prior year second quarter sales.
Second quarter organic sales increased by 22.9%. The animal
nutrition business drove a 20.9% volume increase, and favorable mix
and pricing contributed 2.0%. The animal nutrition business’s
strong performance is primarily related to the health of the U.S.
dairy industry, which is experiencing record high milk prices.
Gross margin contracted 50 basis points to 44.1% in the
second quarter compared to 44.6% in the prior year second quarter.
The gross margin contraction was driven primarily by increased
coupon redemption, trade spending, and higher commodity costs,
partially offset by our productivity programs.
Marketing expense was $113.4 million in the second
quarter, representing an increase of $9.7 million or 9.4% in
comparison with the prior year second quarter. Marketing expense as
a percentage of net sales was 14.0% in the second quarter, an
increase of 80 basis points from the prior year second quarter.
Selling, general, and administrative expense (SG&A)
was $104.8 million in the second quarter, a $2.0 million decrease
from the prior year second quarter. In line with the Company’s
strong focus on cost management, SG&A as a percentage of net
sales was 13.0%, a 60 basis point decrease from the prior year
second quarter.
Income from Operations was $138.2 million in the second
quarter, a decrease of $2.3 million or 1.6% from the prior year
second quarter. Operating income as a percentage of net sales was
17.1%, a 70 basis point decrease from the prior year second
quarter, which was largely due to the marketing and trade
investments behind new products.
The effective tax rate in the second quarter was 34.2%,
compared to 34.5% in the second quarter of 2013. The Company
expects the full year effective tax rate to be approximately
34%.
Operating Cash Flow
For the first six months of 2014, net cash from operating
activities was $206.8 million, a $45.8 million increase from the
prior year, reflecting improvement in working capital and the
deferral of a $36 million payment relating to December 2012
estimated federal tax paid in the first quarter of 2013 as a result
of Hurricane Sandy relief. Capital expenditures for the first six
months were $17.1 million, a $3.0 million decrease from the prior
year six months. The Company’s full year outlook is now $70 million
for capital expenditures.
At June 30 2014, cash on hand was $197 million, while total debt
was $803 million. The Company executed an accelerated share
repurchase program totaling $175 million in the quarter. The
Company does not anticipate making additional share purchases in
2014.
New Products
Mr. Craigie stated, “2014 is an exciting year for Church &
Dwight as we have launched innovative new products on all of our
major brands. In our core laundry additive category, OXICLEAN
achieved a record 45.5% share in the second quarter of 2014, which
is larger than the next four brands combined. In addition, we have
extended the OXICLEAN brand into three additional categories:
premium laundry detergent, dishwashing detergent and the bleach
section. These new products helped to drive a 35% increase in
consumption for the total OXICLEAN brand in the second quarter over
the same period last year.
“We have also launched innovative new products across our other
core businesses, including a new premium ARM & HAMMER CLUMP
& SEAL cat litter, a new premium ARM & HAMMER TRULY RADIANT
toothpaste, a new FIRST RESPONSE diagnostic kit business with “six
days sooner” industry-leading technology, a new vitamin-plus line
for our VITAFUSION brand, and new condoms, vibrators and lubricants
under the TROJAN brand.
“We are pleased with the initial consumer acceptance of our
innovative new products and the positive impact that they are
having on both category growth and our share growth. For example,
our new ARM & HAMMER CLUMP & SEAL cat litter has been a
major success with consumers showing a double digit increase in
sales and consumption that drove the total brand’s share up 2.5pts.
to 19.3% in the second quarter to become the number two brand in
the category. Most importantly, the new innovation drove category
sales up over 7%, the strongest growth of any of our categories.
This exemplifies our belief that innovation is the key antidote in
reviving consumer demand in this challenging economy.”
Outlook for 2014
With regard to the outlook for the full year, Mr. Craigie said,
“Despite continued weak U.S. consumer demand and fierce
competition, we believe that we are positioned to deliver strong
sales and earnings growth with our balanced portfolio of value and
premium products, the launch of innovative new products across
every one of our major categories and three new categories,
aggressive productivity programs and tight management of overhead
costs.
Mr. Craigie continued, “We are also pleased with the continued
growth of our most recent acquisition, the gummy vitamin business.
We achieved double digit consumption growth in the quarter and our
sales growth outlook for the full year is approximately 10%, driven
by significant distribution gains and adults switching from hard
pills to our delicious tasting gummy vitamins.”
With regard to the Company’s 2014 outlook, Mr. Craigie said, “We
are reaffirming our 2014 EPS range of 7 to 9% growth, despite
unprecedented price competition in the laundry category. We
continue to expect organic sales growth to be approximately 3%.
Gross margin is expected to be approximately 75 bps lower than last
year (the high-end of our previous 50 to 75 bps outlook) due to
higher trade promotions to address the price competition and to
support the launch of our new products. We continue to expect
operating margin expansion from rigorous control of SG&A. We
expect the second half of the year to drive the majority of our
earnings growth, as the first half included a significant increase
in slotting, couponing, trade promotions, and incremental marketing
support for our new product launches. Specifically, we expect the
fourth quarter will be a significant contributor to full year
earnings growth behind SG&A leverage and strong organic growth.
This earnings outlook does not include the benefit from any
potential acquisitions, which we continue to aggressively
pursue.”
Mr. Craigie concluded, “With regard to the third quarter, we
expect organic sales growth of approximately 3% behind a
strengthening consumer business. Gross margin is expected to
contract by approximately 150 bps behind higher trade spending,
coupon redemptions on our new products and more competitive pricing
in the laundry category, as well as negative business mix. The
Company expects earnings per share of approximately $0.80 –
$0.82.”
Church & Dwight Co., Inc. will host a conference call to
discuss second quarter 2014 results on August 1, 2014 at 10:00 a.m.
(ET). To participate, dial in at 877-322-9846, access code:
68115477 (International: 631-291-4539, same access code: 68115477).
A replay will be available two hours after the call at 855-859-2056
or 404-537-3406 (same access code: 68115477). You also can
participate via webcast by visiting the Investor Relations section
of the Company’s website at www.churchdwight.com.
Church & Dwight Co., Inc. manufactures and markets a wide
range of personal care, household and specialty products under the
ARM & HAMMER brand name and other well-known
trademarks.
This release contains forward-looking statements relating to,
among other things, the effect of product mix; the impact of
acquisitions; earnings per share; reported net sales growth and
organic sales growth; volume growth, including the effects of new
products; gross margin; operating margin; marketing spending;
commodity price increases; consumer spending; cost savings
programs; marketing support; effective tax rate; share repurchases;
net cash from operating activities; capital expenditures;
competition; and customer response to new products. These
statements represent the intentions, plans, expectations and
beliefs of the Company, and are subject to risks, uncertainties and
other factors, many of which are outside the Company’s control and
could cause actual results to differ materially from such
forward-looking statements. The uncertainties include
assumptions as to market growth and consumer demand (including the
effect of political and economic events on consumer demand),
retailer actions in response to changes in consumer demand and the
economy, raw material and energy prices, the financial condition of
major customers and suppliers, interest rate and foreign currency
exchange rate fluctuations, and changes in marketing and
promotional spending. With regard to the new product
introductions referred to in this release, there is particular
uncertainty relating to trade, competitive and consumer reactions
and retailer distribution. Other factors that could
materially affect actual results include the outcome of
contingencies, including litigation, pending regulatory
proceedings, environmental matters and the acquisition or
divestiture of assets. For a description of additional
factors that could cause actual results to differ materially from
the forward looking statements, please see the Company’s quarterly
and annual reports filed with the SEC, including information in the
Company’s annual report on Form 10-K in Item 1A, “Risk
Factors”.
CHURCH & DWIGHT CO., INC. AND
SUBSIDIARIESCondensed Consolidated Statements of Income
(Unaudited)
Three Months Ended
Six Months Ended (In millions, except per share data)
June 30, 2014 June 30,
2013
June 30, 2014 June
30, 2013
Net Sales $
808.3 $ 787.6
$
1,590.3 $ 1,566.9 Cost of sales
451.9 436.6
894.5 865.8
Gross profit 356.4 351.0
695.8 701.1
Marketing expenses
113.4 103.7
201.2 182.6 Selling,
general and administrative expenses
104.8 106.8
194.4 208.7
Income from Operations 138.2 140.5
300.2 309.8
Equity in earnings of affiliates
2.9 (1.1 )
4.5 (0.5
) Other income (expense), net
(6.1 ) (7.2 )
(13.0 ) (13.9 ) Income
before income taxes
135.0 132.2
291.7 295.4 Income
taxes
46.2
45.6
100.3
101.1
Net Income
$ 88.8 $ 86.6
$ 191.4 $ 194.3
Net Income per share - Basic $ 0.66 $ 0.62
$ 1.40 $ 1.40
Net Income per share - Diluted
$ 0.65 $
0.61
$ 1.38
$ 1.38 Dividends per share
$ 0.31 $ 0.28
$ 0.62 $ 0.56 Weighted average shares outstanding -
Basic
134.8 138.5
136.4 138.4 Weighted average shares
outstanding - Diluted
137.3
141.1
138.9 141.0
CHURCH & DWIGHT CO., INC. AND
SUBSIDIARIESCondensed Consolidated Balance Sheets
(Unaudited)
(Dollars in millions)
June 30,
2014 Dec. 31, 2013
Assets
Current
Assets
Cash and Cash Equivalents
$
196.9 $ 496.9 Accounts Receivable
342.8
330.2 Inventories
271.0 250.5 Other Current Assets
53.7 38.2
Total
Current Assets 864.4
1,115.8 Property, Plant and Equipment (Net)
585.7 594.1 Equity Investment in Affiliates
25.1 24.5
Tradenames and Other Intangibles
1,184.4 1,204.3 Goodwill
1,222.2 1,222.2 Other Long-Term Assets
106.3 98.8
Total Assets
$ 3,988.1 $
4,259.7
Liabilities and Stockholders’ Equity
Short-Term Debt
$ 153.1 $ 153.8 Other Current Liabilities
492.3 497.4
Total Current Liabilities
645.4 651.2 Long-Term Debt
649.6
649.5 Other Long-Term Liabilities
673.2 659.0 Stockholders’
Equity
2,019.9
2,300.0
Total Liabilities and Stockholders’ Equity
$ 3,988.1 $
4,259.7
CHURCH & DWIGHT CO., INC. AND
SUBSIDIARIESCondensed Consolidated Statements of Cash Flow
(Unaudited)
Six Months Ended (Dollars
in millions)
June 30, 2014
June 30, 2013
Net
Income $ 191.4 $ 194.3 Depreciation and
amortization
45.7 46.3 Deferred income taxes
8.9 5.6
Non cash compensation
12.8 12.3 Asset impairment charge and
other asset write-offs
5.5 0.5 Other
(0.4 )
5.8 Changes in assets and liabilities: Accounts receivable
(10.2 ) (30.7 ) Inventories
(18.8 )
(13.6 ) Other current assets
(13.8 ) (19.2 ) Accounts
payable and accrued expenses
(11.1 ) (4.7 ) Income
taxes payable
14.4 (27.6 ) Excess tax benefit on stock
options exercised
(12.4 ) (8.2 ) Other
(5.2 ) 0.2
Net cash from operating activities 206.8 161.0
Capital expenditures
(17.1 ) (20.1 ) Investment in
joint venture
(0.4 ) (4.5 ) Other
(0.5 ) (1.1 )
Net cash (used in) investing activities (18.0
) (25.7 ) Net change in debt
(0.9 )
(98.6 ) Payment of cash dividends
(84.6 ) (77.5 )
Stock option related
30.3 20.9 Purchase of treasury stock
(435.0 ) (50.0 ) Lease incentive proceeds
─
10.9 Lease principal payments
(0.6 ) (0.5 ) Other
0.5
(0.3 )
Net cash (used in) financing activities (490.3
) (195.1 )
F/X impact on cash
1.5 (9.1 )
Net change in cash and cash equivalents
$ (300.0 ) $ (68.9 )
2014 and 2013
Product Line Net Sales
Three Months Ended
Percent 6/30/2014 6/30/2013
Change Household Products
$ 355.2 $ 354.0 0.3 %
Personal Care Products 243.7
240.5 1.3 % Consumer
Domestic $ 598.9 $ 594.5 0.7
% Consumer International 136.6
132.7 2.9 %
Total Consumer Net Sales $ 735.5 $
727.2 1.1 % Specialty Products Division
72.8 60.4
20.5 % Total Net Sales $ 808.3
$ 787.6 2.6
% Six Months Ended Percent
6/30/2014 6/30/2013
Change Household Products $
707.7 $ 712.8 -0.7 % Personal
Care Products 484.5
472.7 2.5 % Consumer
Domestic $ 1,192.2 $ 1,185.5
0.6 % Consumer International
260.4 262.0
-0.6 % Total Consumer Net Sales $
1,452.6 $ 1,447.5 0.4 %
Specialty Products Division 137.7
119.4 15.3 %
Total Net Sales $ 1,590.3
$ 1,566.9 1.5 %
The following discussion addresses the
non-GAAP measures used in this press release and reconciliations of
non-GAAP measures to the most directly comparable GAAP
measures:
The following non-GAAP measures may not be
the same as similar measures provided by other companies due to
differences in methods of calculation and items and events being
excluded.
Organic Sales Growth
The press release provides information regarding organic sales
growth, namely net sales growth excluding the effect of
divestitures and foreign exchange rate changes. Management believes
that the presentation of organic sales growth is useful to
investors because it enables them to assess, on a consistent basis,
sales trends related to products that were marketed by the Company
during the entirety of relevant periods and foreign exchange rate
changes that are out of the control of, and do not reflect the
performance of, management.
Three Months Ended 6/30/2014
Total Worldwide
Consumer Consumer Specialty Company
Consumer Domestic International
Products Reported Sales Growth 2.6%
1.1% 0.7% 2.9% 20.5% Add:
FX 0.2% 0.1% - 0.4% 1.0%
Divestitures/Other 0.2% 0.1% -
0.6% 1.4% Organic Sales Growth
3.0% 1.3% 0.7% 3.9% 22.9%
Six Months Ended 6/30/2014 Total
Worldwide Consumer Consumer Specialty
Company Consumer Domestic International
Products Reported Sales Growth 1.5%
0.3% 0.6% -0.6% 15.3% Add:
FX 0.5% 0.4% - 2.0% 1.6%
Divestitures/Other 0.1% 0.1% -
0.5% 0.9% Organic Sales Growth
2.1% 0.8% 0.6% 1.9% 17.8%
Church & Dwight Co., Inc.Rick Dierker, 609-806-1900VP,
Corporate Finance
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