Church & Dwight Q3 Conference Call Highlights
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Church & Dwight (NYSE: CHD), the manufacturer of such brands as Arm & Hammer, Trojan, and OxiClean, released its third quarter earnings report on Monday. Chairman and CEO Jim Craigie along with CFO Matt Farrell led the conference call from the company’s headquarters in Princeton, NJ. Here are some of the highlights.
Fix the Six
Craigie outlined what he believes are the six most important business measures for the company. Improvement in these numbers is a sign of current and future success. Here’s a quick summary of how the company fared in the most recent quarter.
1. Organic Revenue Growth. Organic revenue grew 4.6% from Q3 2011.
2. Gross Margin. Gross margin was up 100 basis points over Q3 a year ago.
3. Increased Market Share. Church & Dwight grew share on its four biggest brands in the third quarter.
4. Overhead. The company lowered its overhead costs by 70 basis points from last year.
5. Operating Margin. Operating margin improved to 20% compared to 18% in Q3 2011.
6. Earnings Per Share. Earnings improved 22% year-over-year to $0.66 per share.
For a more in-depth analysis of Jim Craigie’s six key metrics, click here.
Avid Health Acquisition
Church & Dwight closed on its acquisition of Avid, the maker of gummy vitamins for both children and adults, on October 1. The purchase price was approximately $650 million financed by $400 million of senior notes and commercial paper.
The vitamin, mineral, and supplement category is over $5 billion in size, and one of the fastest growing categories in consumer packaged goods with a historical growth rate of 5% to 6%. Avid is a market leader in gummy vitamins and holds a two-to-one market share advantage over its closest competitor.
Church & Dwight expected the acquisition of Avid to have a dilutive effect of $0.02 per share on 2012 earnings. However, the company now believes, with improved visibility, that the purchase will be earnings neutral for 2012.
Meanwhile, one of Church & Dwight's top competitors, Procter & Gamble (NYSE: PG), announced its acquisition of vitamin maker New Chapter. The brand is significantly smaller than Avid Health, but with P&G behind it, it could make the push to become a chief competitor for Church & Dwight's newest acquisition.
Church & Dwight is confident that the marketing it puts behind Avid will grow its market share and defend it from new competition like P&G's New Chapter.
For a more in-depth analysis of Church & Dwight’s Avid Health acquisition, click here.
Why Church & Dwight Is Positioned For Success
Craigie went over seven factors why no other consumer packaged goods company is in a better position than Church & Dwight to deliver exceptional performance in tough economic times.
1. Unique Product Portfolio. Church & Dwight provide consumers with a mix of both premium and value brands, which puts them in a position to thrive in any type of economy.
2. Eight ‘Power Brands’. Eight of Church & Dwight’s 80 plus brands generate 80% of the company’s revenue. It refers to these eight as ‘power brands.’ Five of the eight brands saw increased market share in each of the first, second, and third quarters of this year.
3. Good Defense. The company has a proven history of aggressively defending its brands. This is particularly true of its eight ‘power brands.’
4. International Growth. International sales currently represent about 20% of total revenues. However, international business has delivered high single-digit sales growth and double-digit operating profit growth over the last five years.
5. Gross Margins. Church & Dwight have a long history of expanding margins through class optimization programs, supply chain restructuring, acquisition synergies, and launching new higher margin products.
6. Overhead. The company currently has the highest revenue per employee in the consumer packaged goods industry.
7. Free Cash Flow Conversion. Free cash flow conversion over the past five years was 128% of net income – best in the CPG industry. The company expects to exceed 100% free cash flow conversion again in 2012.
For a more in-depth analysis of these seven factors, click here.
The company expects fourth quarter EPS of $0.55 a 25% increase over the earnings the company reported for Q4 2011. That number included a $0.09 deferred tax valuation. With good fourth quarter expectations, the company raised its 2012 earnings per share goal to $2.43, a 15% increase over last year’s reported $2.12.
In 2013, the company expects EPS growth of 13% to 15% driven by 9% to 10% growth from its eight power brands and accretion from the recent acquisition of Avid Health. The company also expects to increase marketing expenditures for Avid and its power brands. This should maintain each of those brands positions in the market.
Despite a sluggish economy and weak consumer demand, Church & Dwight are quite optimistic for the company’s growth prospects for the fourth quarter and into the next year.
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