10-QPeriod: Q2 FY2003

CHURCH & DWIGHT CO INC /DE/ Quarterly Report for Q2 Ended Jun 27, 2003

Filed August 5, 2003For Securities:CHD

Summary

Church & Dwight Co., Inc. (CHD) reported its second-quarter and year-to-date results for fiscal year 2003. For the three months ended June 27, 2003, the company posted net income of $24.6 million, or $0.59 per diluted share, a significant increase from $18.7 million, or $0.45 per diluted share, in the prior year's quarter. This growth was driven by a strong performance in equity in earnings of affiliates, particularly from its Armkel LLC joint venture, which benefited from a litigation settlement. Net sales saw a slight decrease of 0.9% to $256.3 million, mainly due to the discontinuation of certain product lines and a favorable comparison in the prior year. For the six months ended June 27, 2003, net income rose to $45.6 million, or $1.09 per diluted share, up from $33.6 million, or $0.81 per diluted share, in the comparable period of 2002. Net sales for the six months were down 2.1% to $504.6 million. The company highlighted improved gross profit margins, driven by integration benefits from acquisitions and cost reduction programs. The company also managed its debt effectively, with a net debt position of $265.7 million at quarter-end, and initiated a receivables purchase agreement to refinance a portion of its credit facility.

Key Highlights

  • 1Net income for the second quarter of 2003 increased by 32% to $24.6 million, with diluted EPS rising to $0.59 from $0.45 in the prior year.
  • 2The company reported a strong increase in equity in earnings of affiliates, largely due to a significant litigation settlement within its Armkel LLC joint venture.
  • 3Despite a slight year-over-year decrease in net sales (0.9% for the quarter and 2.1% for the six months), gross profit margins improved due to acquisition integration and cost-saving initiatives.
  • 4Marketing expenses increased primarily due to higher advertising spend in personal care products, while Selling, General, and Administrative (SG&A) expenses decreased due to the elimination of transition costs from prior acquisitions.
  • 5The company managed its debt levels, ending the quarter with $54.0 million in cash and $319.7 million in total debt, for a net debt position of $265.7 million.
  • 6A new receivables purchase agreement was implemented to refinance a portion of the company's credit facility, improving financing costs and accessing the commercial paper market.

Frequently Asked Questions

The significant increase in net income was primarily driven by a substantial rise in equity in earnings from affiliates, notably from its Armkel LLC joint venture. This was bolstered by a significant gain from a litigation settlement within Armkel, which more than offset the positive impact from the disproportionate allocation of profits in the prior year's quarter.

Church & Dwight is actively managing its debt. At June 27, 2003, the company had $54.0 million in cash and $319.7 million in total debt, resulting in a net debt position of $265.7 million. They also entered into a receivables purchase agreement to refinance a portion of their credit facility, which is expected to reduce financing costs and provide access to the commercial paper market. Their leverage and interest coverage ratios remain within the limits set by their credit facility.

The company expects continued gross margin improvement for the year, despite anticipating over $10 million in energy and commodity cost increases. This is anticipated through reductions in other raw and packaging material costs, along with improved manufacturing and distribution efficiencies. The current quarter already demonstrated this trend with a 1.7 percentage point increase in gross profit margin year-over-year.

The company is involved in several legal actions. Notably, former shareholders of Carter-Wallace have brought legal action that could result in liability for Armkel up to $12 million and for Church & Dwight up to $2.1 million. Additionally, a class action suit was filed related to condom usage, but plaintiffs voluntarily dismissed it. The company states that any ultimate liability from these and other ordinary course legal actions is not expected to have a material adverse effect on its financial statements.