10-QPeriod: Q3 FY2008

CHURCH & DWIGHT CO INC /DE/ Quarterly Report for Q3 Ended Sep 26, 2008

Filed November 4, 2008For Securities:CHD

Summary

Church & Dwight Co., Inc. (CHD) reported a solid third quarter and nine-month performance for 2008, demonstrating revenue growth driven by the strategic acquisition of Orajel and positive organic contributions. Despite economic headwinds and increased marketing investments, the company managed to improve gross margins and maintain operational efficiency. Financially, CHD saw an increase in net sales and net income for both the quarter and year-to-date periods. The acquisition of Del Pharmaceuticals (Orajel) significantly boosted reported sales, though it also increased debt levels. The company successfully managed its debt structure by converting a substantial portion of its convertible debentures into equity, strengthening its balance sheet. Management expressed confidence in its liquidity and ability to meet financial obligations and capital expenditure plans.

Key Highlights

  • 1Net sales increased by approximately 9% to $630.7 million for the third quarter of 2008 compared to the prior year, driven by the Orajel acquisition and organic growth.
  • 2Net income for the third quarter of 2008 was $49.0 million, a slight decrease from $51.7 million in the prior year, impacted by increased marketing expenses and acquisition-related costs.
  • 3Gross margin improved by 30 basis points to 39.8% in Q3 2008, reflecting price increases, cost reduction programs, and synergies from prior acquisitions.
  • 4The company completed the acquisition of Del Pharmaceuticals (Orajel) for $383.2 million, adding significant brands to its portfolio, funded by new debt and existing cash.
  • 5Total debt increased to $881.7 million from $856.0 million, but net debt was $706.0 million due to lower cash balances.
  • 6A significant portion of convertible debentures ($99.9 million) were converted into common stock, reducing outstanding debt.
  • 7The company is planning a new manufacturing facility in York County, Pennsylvania, while closing its North Brunswick, New Jersey facility, involving significant capital expenditures and restructuring costs.

Frequently Asked Questions

The Orajel acquisition significantly contributed to the 9% increase in net sales for the third quarter of 2008. It added $24.6 million in current assets and $184 million in tradenames and other intangibles, alongside $182.4 million in goodwill. However, it also led to an increase in long-term debt and associated interest expenses, and higher SG&A costs related to integration.

The company maintains a strong liquidity position with $175.7 million in cash and significant availability under its accounts receivable securitization and revolving credit facilities. While total debt increased due to the Orajel acquisition, the company managed its debt profile by converting convertible debentures into equity and has healthy leverage and interest coverage ratios, suggesting confidence in its ability to meet financial obligations.

Marketing expenses increased due to higher spending supporting the Orajel acquired brands, as well as increased investments in key existing products like ARM & HAMMER Essentials, OXICLEAN, and TROJAN condoms. SG&A expenses rose due to operating costs from the Orajel acquisition, foreign exchange impacts, costs related to a subsidiary sale, higher legal costs (especially concerning the Abbott Laboratories litigation), increased R&D, and higher stock option expenses.

The company announced plans to close its inefficient North Brunswick, New Jersey facility in 2009 and build a new, integrated manufacturing plant and distribution center in York County, Pennsylvania, expected to be operational by the end of 2009. This initiative involves approximately $150 million in capital expenditures for the new plant and cash and non-cash costs for the closure, including severance and accelerated depreciation, which are impacting current financial results.