01—Abstract
Summary
Summary of the 10-Q filed November 1, 2018. Cited figures are marked; the original filing is the authoritative source.
Church & Dwight Co., Inc. (CHD) reported solid top-line growth in the third quarter and first nine months of 2018, with net sales increasing by 7.2%a and 12.0%, respectively, year-over-year.
This growth was driven by a combination of volume increases, favorable pricing/product mix, and significant contributions from recent acquisitions, notably Waterpik and Passport. The company also experienced a substantial improvement in its effective tax rate due to the Tax Cuts and Jobs Act of 2017, which lowered the U.S. statutory tax rate. Despite increased costs related to commodities, transportation, and marketing, the company demonstrated improved operating income for the nine-month period, alongside continued investment in SG&A for growth initiatives and acquisitions.
Net income and diluted EPS also saw healthy increases. The company has strengthened its financial position with a new credit facility and maintains sufficient liquidity to fund operations, capital expenditures, and shareholder returns, including an increased quarterly dividend.
02—Key points
Key Highlights
- Net sales increased by 7.2% to $1,037.6 million for the three months ended September 30, 2018, and by 12.0% to $3,071.5 million for the nine months ended September 30, 2018, compared to the prior year periods.
- Diluted EPS rose to $0.58 in Q3 2018 and $1.70 in the first nine months of 2018, up from $0.52 and $1.32 in the respective prior year periods, demonstrating improved profitability.
- The effective tax rate significantly decreased from 28.7% (Q3 2017) and 31.6% (nine months 2017) to 21.9% and 21.6% respectively, due to the Tax Cuts and Jobs Act.
- Operating income increased by 2.8% for the quarter and 15.5% for the nine-month period, indicating operational efficiency gains despite cost pressures.
- The company completed the acquisition of Passport Food Safety Solutions, Inc. for approximately $50.0 million, contributing to growth in the Specialty Products Division.
- Cash flow from operations improved significantly by 34.0% to $568.0 million for the nine months ended September 30, 2018, supporting investment and shareholder returns.
- The company declared a 14% increase in its regular quarterly dividend, reflecting confidence in its financial performance and commitment to returning capital to shareholders.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2018, Church & Dwight Co Inc kept $0.14.
- Revenue$1.04B100.0%
- Cost of revenue−$577.5M55.7%
- Gross profit$460.1M44.3%
- Operating costs−$255.9M24.7%
- Operating income$204.2M19.7%
- Interest, other & tax−$57.9M5.6%
- Net income$146.3M14.1%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2018filed November 1, 2018Financial Statements
Q3 FY2018 against Q3 FY2017
| Line item | Q3 FY2018Q3 FY2017 | Change |
|---|---|---|
| Revenue | $1.04B$967.90M | +7.2% |
| Cost of Revenue | $577.50M$529.40M | +9.1% |
| Gross Profit | $460.10M$438.50M | +4.9% |
| R&D Expenses | $23.10M$18.00M | +28.3% |
| SG&A Expenses | $135.40M$127.90M | +5.9% |
| Operating Income | $204.20M$198.70M | +2.8% |
| Interest Expense | $19.40M$16.40M | +18.3% |
| Net Income | $146.30M$133.40M | +9.7% |
| EPS (Basic) | $0.60$0.53 | +13.2% |
| EPS (Diluted) | $0.58$0.52 | +11.5% |
| Shares Outstanding (Basic) | 245.70M249.70M | −1.6% |
| Shares Outstanding (Diluted) | 251.10M255.30M | −1.6% |
05—Questions
Frequently Asked Questions
What drove the increase in net sales for the quarter and year-to-date?
The increase in net sales was primarily driven by higher product volumes sold across the Consumer Domestic and Consumer International segments, favorable pricing/product mix, and a significant contribution from acquired product lines, including the recent Passport acquisition and the previously acquired Waterpik business.
How has the Tax Cuts and Jobs Act impacted the company's financial results?
The Tax Cuts and Jobs Act of 2017 significantly reduced the company's effective tax rate from approximately 31.6% in the first nine months of 2017 to 21.6% in the first nine months of 2018. This was primarily due to the reduction in the U.S. corporate income tax rate from 35% to 21%.
What is the company's outlook on costs and profitability given the increases in commodity and transportation expenses?
While the company experienced higher commodity and transportation costs, it has been partially offset by productivity programs and favorable price/mix. Management is focusing on leveraging higher sales and managing expenses, as evidenced by the decrease in SG&A as a percentage of net sales and the overall increase in operating income for the nine-month period.
What has been the impact of recent acquisitions on the company's financial performance?
Recent acquisitions, such as Passport and Waterpik, have contributed positively to net sales growth, particularly within the Specialty Products Division and Consumer Domestic segments. The company is integrating these acquisitions and managing associated transition costs while expecting them to drive future growth.
06—Continue