10-QPeriod: Q2 FY2019

CHURCH & DWIGHT CO INC /DE/ Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 31, 2019For Securities:CHD

Summary

Church & Dwight Co., Inc. (CHD) reported strong results for the second quarter and first half of 2019, demonstrating consistent top-line growth and improved profitability. Net sales increased by 5.0% to $1,079.4 million for the quarter and 4.4% to $2,124.1 million for the first six months, driven by a favorable pricing/product mix and volume growth in key segments, notably Consumer International. The company also saw an improvement in gross margin by 30 basis points year-over-year for the quarter, reaching 44.6%, attributed to favorable mix, productivity programs, and higher margins on acquired businesses, despite increased manufacturing and commodity costs. Financially, CHD completed the significant acquisition of the FLAWLESS™ and FINISHING TOUCH™ hair removal business for $475.0 million, funded by debt, which is expected to expand its specialty haircare portfolio. The company also managed its capital effectively, with a 12.2% increase in diluted EPS to $0.55 for the quarter and a 7.8% increase in operating income to $187.4 million. Despite increased SG&A expenses, partly due to acquisition-related costs and the divestiture of its Brazilian consumer business, the company maintained a healthy operating margin and cash flow from operations, which increased by $28.5 million year-over-year. CHD continues to return capital to shareholders through dividends and share repurchases, reflecting confidence in its financial health and future prospects.

Financial Highlights

55 data points
Beta

Revenue

$1.08B

44.6% Gross Margin

Net Income

$138.50M

12.8% Net Margin

EPS (Diluted)

$0.55

Total Assets

$6.66B

Cash & Equivalents

$97.90M

Free Cash Flow

$201.40M

Financial Statements
Beta
Revenue$1.08B
Cost of Revenue$597.90M
Gross Profit$481.50M
R&D Expenses$22.40M
SG&A Expenses$165.00M
Operating Income$187.40M
Interest Expense$18.90M
Net Income$138.50M
EPS (Basic)$0.56
EPS (Diluted)$0.55
Shares Outstanding (Basic)246.40M
Shares Outstanding (Diluted)252.70M

Key Highlights

  • 1Net sales increased 5.0% to $1,079.4 million in Q2 2019 and 4.4% to $2,124.1 million in the first half of 2019, driven by favorable pricing/product mix and volume growth.
  • 2Gross margin improved by 30 basis points to 44.6% in Q2 2019, reflecting favorable mix, productivity gains, and higher margins from acquired businesses.
  • 3Completed the acquisition of the FLAWLESS™ and FINISHING TOUCH™ hair removal business for $475.0 million, funded by debt, to expand its specialty haircare portfolio.
  • 4Diluted earnings per share (EPS) rose 12.2% to $0.55 in Q2 2019 and 11.6% to $1.25 in the first half of 2019.
  • 5Operating income increased by 7.8% to $187.4 million in Q2 2019, with operating margin improving by 40 basis points to 17.3%.
  • 6Cash flow from operations increased by $28.5 million to $351.2 million in the first six months of 2019, indicating strong operational performance.
  • 7The company returned capital to shareholders through $112.0 million in cash dividends and $100.0 million in share repurchases during the first six months of 2019.

Frequently Asked Questions

The acquisition of the FLAWLESS™ and FINISHING TOUCH™ hair removal business was completed on May 1, 2019, for $475.0 million, funded by debt. While the acquisition contributed to an increase in long-term debt and SG&A expenses (due to acquisition-related costs and an increased contingent liability estimate of $5.0 million), it is expected to enhance the company's specialty haircare portfolio. The immediate financial impact on the second quarter was not presented as material on a pro forma basis, but it is now integrated into the Consumer Domestic and Consumer International segments.

Marketing expenses decreased by 5.4% for the quarter and 3.9% for the first six months compared to the prior year, leading to a decrease in marketing expenses as a percentage of net sales. However, Selling, General & Administrative (SG&A) expenses increased by 14.0% for the quarter and 7.6% for the first six months. This increase was primarily driven by transition and ongoing acquisition-related costs, including the Flawless earnout adjustment, and a charge related to the sale of the Brazilian consumer business. These increases were partially offset by a favorable price/mix and leverage from higher sales.

As of June 30, 2019, Church & Dwight had $97.9 million in cash and cash equivalents. The company also had approximately $886.9 million available through its revolving credit facility and commercial paper program. The primary source of liquidity is cash flow from operations, which increased by $28.5 million year-over-year. The company invests cash primarily in low-risk, short-term instruments. Its cash from operations, combined with its borrowing capacity, is expected to be sufficient for capital expenditures, share repurchases, debt payments, and dividends.

Yes, during the second quarter of 2019, Church & Dwight decided to sell and subsequently sold its Brazilian consumer business. This divestiture resulted in a charge of $7.6 million ($0.03 per diluted share) recorded in SG&A expenses, covering severance, asset write-offs, and other associated costs.