10-QPeriod: Q2 FY2006

CHURCH & DWIGHT CO INC /DE/ Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 8, 2006For Securities:CHD

Summary

Church & Dwight Co., Inc. reported solid performance for the second quarter and first half of 2006, demonstrating revenue growth driven by acquisitions and price increases. Net sales for the quarter rose 3.8% to $458.6 million, and 4.5% for the six months to $901.0 million. The company successfully integrated the SPINBRUSH business and a small skin care business acquired in late 2005, contributing significantly to sales. Profitability saw improvement, with gross margin expanding due to price increases and the favorable margin of acquired businesses, partially offsetting rising commodity costs. The company also highlighted the adoption of SFAS No. 123R for stock-based compensation, which impacted earnings per share, and provided an update on the significant acquisition of Orange Glo International, Inc. subsequent to the quarter's end.

Key Highlights

  • 1Net sales increased by 3.8% to $458.6 million for the quarter ended June 30, 2006, and by 4.5% to $901.0 million for the six-month period, driven by acquisitions and price increases.
  • 2Gross profit margin improved to 40.3% for the quarter and 39.3% for the six months, indicating effective pricing strategies and favorable product mix from recent acquisitions.
  • 3The adoption of SFAS No. 123R (Share-Based Payment) resulted in $4.8 million in pre-tax charges for the first half of 2006, negatively impacting EPS by $0.04.
  • 4The company recognized $19.7 million in net sales from the SPINBRUSH and a small skin care business acquired in Q4 2005 during the second quarter of 2006.
  • 5A significant event subsequent to the quarter was the August 7, 2006 acquisition of Orange Glo International, Inc. for approximately $326.0 million.
  • 6The effective tax rate for the first six months of 2006 increased to 38.7% from 34.5% in the prior year, partly due to the expiration of the R&D tax credit.
  • 7The company resolved a legal dispute with Andes Trading De Mexico S.A., recording a reserve of $9.8 million, and is appealing the verdict.

Frequently Asked Questions

The acquisitions of the SPINBRUSH toothbrush business and a small skin care business in late 2005 contributed positively to net sales, adding $19.7 million in the second quarter of 2006. These acquired businesses also have a higher average gross margin, which helped to improve the overall gross profit margin of the company.

The adoption of SFAS No. 123R starting January 1, 2006, requires the expensing of stock options. For the first six months of 2006, this resulted in a pre-tax charge of $4.8 million, reducing basic and diluted EPS by $0.04. This is a new expense that was not recognized in prior periods under the previous accounting method.

The company has been actively integrating acquisitions, notably the SPINBRUSH business. Furthermore, a significant event subsequent to the quarter's end, on August 7, 2006, was the completion of the acquisition of Orange Glo International, Inc. for approximately $326.0 million, which is expected to significantly impact future results.

The company recorded a reserve of $9.8 million related to a jury verdict in a breach of contract case with Andes Trading De Mexico S.A., although an appeal has been filed. Additionally, potential FDA labeling changes for condoms containing nonoxynol-9 are noted as a risk, though the company believes its current labeling is compliant and has implemented interim measures.