01—Abstract
Summary
Summary of the 10-Q filed October 31, 2019. Cited figures are marked; the original filing is the authoritative source.
Church & Dwight Co., Inc. (CHD) reported solid performance for the nine months ended September 30, 2019, with a notable increase in net sales and net income compared to the prior year.
The company demonstrated growth across its Consumer Domestic and Consumer International segments, driven by product volume, favorable pricing/mix, and the impact of recent acquisitions, particularly the Flawless™ hair removal business. This acquisition, alongside the Passport Food Safety Solutions acquisition, contributed to increased intangible assets and goodwill on the balance sheet. Financially, the company maintained a strong gross margin, benefiting from productivity programs and a favorable USTR ruling on tariffs, despite facing increased commodity and manufacturing costs.
While SG&A expenses rose due to acquisition-related costs and integration efforts, operating income and diluted EPS showed positive year-over-year growth. The company also actively managed its capital structure, amending its credit agreement, taking on a new term loan, and continuing its share repurchase program and dividend payments, indicating a commitment to shareholder returns and strategic growth.
02—Key points
Key Highlights
- Net sales increased by 4.6% to $3,213.5 million for the first nine months of 2019 compared to the same period in 2018.
- Diluted Net Income per Share grew by 10.0% to $1.87 for the first nine months of 2019 compared to $1.70 in the prior year.
- Gross margin improved by 90 basis points to 45.4% for the nine months ended September 30, 2019, driven by favorable price/volume mix, productivity programs, and a favorable USTR tariff ruling.
- The company completed the acquisition of the FLAWLESS™ and FINISHING TOUCH™ hair removal business for $475.0 million, adding to its specialty haircare portfolio.
- Operating income increased by 7.8% to $645.0 million for the first nine months of 2019.
- Cash Flow from Operating Activities increased by $49.5 million to $617.5 million for the first nine months of 2019.
- The company maintained its share repurchase program, buying back $150.0 million in September 2019, and continued to pay dividends.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2019, Church & Dwight Co Inc kept $0.14.
- Revenue$1.09B100.0%
- Cost of revenue−$581.7M53.4%
- Gross profit$507.7M46.6%
- Operating costs−$290.9M26.7%
- Operating income$216.8M19.9%
- Interest, other & tax−$59.5M5.5%
- Net income$157.3M14.4%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2019filed October 31, 2019Financial Statements
Q3 FY2019 against Q3 FY2018
| Line item | Q3 FY2019Q3 FY2018 | Change |
|---|---|---|
| Revenue | $1.09B$1.04B | +5.0% |
| Cost of Revenue | $581.70M$577.50M | +0.7% |
| Gross Profit | $507.70M$460.10M | +10.3% |
| R&D Expenses | $24.50M$23.10M | +6.1% |
| SG&A Expenses | $165.70M$135.40M | +22.4% |
| Operating Income | $216.80M$204.20M | +6.2% |
| Interest Expense | $18.90M$19.40M | −2.6% |
| Net Income | $157.30M$146.30M | +7.5% |
| EPS (Basic) | $0.64$0.60 | +6.7% |
| EPS (Diluted) | $0.62$0.58 | +6.9% |
| Shares Outstanding (Basic) | 246.80M245.70M | +0.4% |
| Shares Outstanding (Diluted) | 252.90M251.10M | +0.7% |
05—Questions
Frequently Asked Questions
What was the impact of the Flawless Acquisition on Church & Dwight's financials?
The Flawless acquisition, completed on May 1, 2019, contributed $475.0 million to net sales and added to the company's intangible assets and goodwill. While it increased SG&A expenses due to integration and earn-out provisions, it also contributed to higher gross profit and revenue, particularly within the Consumer Domestic and Consumer International segments. The acquisition is expected to enhance the company's specialty haircare portfolio.
How did the company manage its debt and liquidity during this period?
Church & Dwight amended its unsecured revolving credit facility to extend its term to March 2024 and entered into a new $300.0 million term loan to fund the Flawless Acquisition. As of September 30, 2019, the company had $114.7 million in cash and cash equivalents and approximately $927.0 million available through its credit facility and commercial paper program, indicating sufficient liquidity to meet its obligations, including capital expenditures, share repurchases, and dividends.
What factors contributed to the improvement in gross margin?
The improvement in gross margin was primarily driven by a favorable price/volume mix (150 bps), productivity programs (130 bps), and the impact of higher margins on acquired businesses (50 bps). Additionally, a favorable ruling by the USTR on tariffs provided a 30 bps benefit for the nine-month period. These were partially offset by manufacturing cost increases and higher commodity costs.
Are there any significant legal proceedings that investors should be aware of?
The company is involved in a breach of contract lawsuit with Scantibodies Laboratory, Inc. The company was granted summary judgment in its favor in September 2018, but the plaintiff has filed an appeal. While the company has reserved an immaterial amount, there is a possibility of an adverse outcome if the summary judgment is reversed. Other legal proceedings are generally routine and not expected to have a material adverse effect.
06—Continue