10-QPeriod: Q3 FY2007

CHURCH & DWIGHT CO INC /DE/ Quarterly Report for Q3 Ended Sep 28, 2007

Filed November 6, 2007For Securities:CHD

Summary

Church & Dwight Co., Inc. (CHD) reported a strong third quarter and nine-month performance ending September 28, 2007, characterized by significant net sales growth and improved profitability. Net sales increased by 11.9% in the quarter and 15.6% year-to-date, driven by the successful integration of the Orange Glo International (OGI) acquisition and organic growth across its Consumer Domestic, Consumer International, and Specialty Products segments. The company demonstrated effective cost management, with gross margin improving slightly year-over-year, and a notable increase in operating income. Net income saw a substantial rise of 33.8% for the quarter and 19.4% for the nine months, reflecting both top-line growth and operational efficiencies. The company's financial position remains solid, with increased cash and cash equivalents and a manageable debt level relative to its earnings, supported by strong operating cash flow generation.

Key Highlights

  • 1Net sales increased by 11.9% to $580.4 million for the third quarter and by 15.6% to $1,641.2 million for the first nine months of 2007, largely driven by the OGI acquisition and organic growth.
  • 2Net income grew significantly, up 33.8% to $51.7 million for the third quarter and 19.4% to $137.3 million for the first nine months.
  • 3Gross profit increased by $26.4 million to $229.4 million in the quarter, with gross margin improving by 40 basis points to 39.5%.
  • 4Operating income saw a healthy increase, rising to $88.6 million in the third quarter from $68.9 million in the prior year.
  • 5Cash and cash equivalents increased to $178.5 million as of September 28, 2007, up from $110.5 million at the end of 2006, indicating strong cash generation from operations.
  • 6The company generated $159.3 million in net cash from operating activities for the first nine months of 2007, a significant increase from $109.3 million in the prior year.
  • 7Diluted earnings per share (EPS) improved to $0.75 for the third quarter and $2.00 for the nine-month period, up from $0.57 and $1.71, respectively, in the prior year.

Frequently Asked Questions

The primary drivers of sales growth were the integration of the Orange Glo International (OGI) business acquired in August 2006, which contributed approximately 5% to the third quarter increase and 11% year-to-date (along with the SPINBRUSH acquisition), and organic growth stemming from unit volume increases across all segments and price increases in the Specialty Products Division. Favorable foreign exchange rates also contributed approximately 1% to both periods' growth.

The company demonstrated effective cost management, with gross profit increasing and gross margin improving slightly to 39.5% in the third quarter and 39.4% year-to-date. This improvement was attributed to the OGI business, higher sales volume, foreign exchange rates, and ongoing cost reduction programs, which helped offset higher trade promotion expenses. Selling, general, and administrative (SG&A) expenses decreased slightly in the third quarter due to a gain on the sale of Canadian property, although they increased year-to-date primarily due to higher selling expenses, stock-based compensation, and information system costs.

The company's cash position strengthened, with cash and cash equivalents rising to $178.5 million at the end of the third quarter of 2007, up from $110.5 million at the end of 2006. Net debt decreased to $688.0 million from $822.8 million. The company generated robust operating cash flow, which management anticipates will be sufficient to cover capital expenditures, dividends, and mandatory debt repayments over the next twelve months.

The company is involved in routine legal actions, with management believing that any ultimate liability will not materially affect its financial position. A notable item mentioned is a previous litigation settlement with Andes Trading de Mexico S.A. for $10.4 million. Additionally, the company is monitoring potential FDA guidance on condom labeling regarding nonoxynol-9, which could impact sales but which the company believes it can manage through appropriate labeling and communication.