10-QPeriod: Q3 FY2020

CHURCH & DWIGHT CO INC /DE/ Quarterly Report for Q3 Ended Sep 30, 2020

Filed October 29, 2020For Securities:CHD

Summary

For the third quarter and first nine months of 2020, Church & Dwight Co., Inc. (CHD) demonstrated robust top-line growth, driven by strong volume increases across its consumer segments. Net sales increased by 13.9% in Q3 and 12.0% year-to-date, reflecting robust consumer demand, particularly for household and personal care products, which saw significant uplift due to COVID-19 related trends. The company effectively managed its expenses, with Selling, General & Administrative (SG&A) expenses decreasing significantly due to a favorable adjustment in contingent acquisition liabilities. This operational efficiency, combined with increased sales volumes, led to a substantial rise in operating income and diluted earnings per share (EPS). Operating income grew by 26.3% in Q3 and 30.1% year-to-date, and diluted EPS rose to $0.85 in Q3 and $2.52 year-to-date, up from $0.62 and $1.87 in the prior year periods, respectively. Despite pressures on gross margins from increased manufacturing costs related to the pandemic and other factors, the company's overall financial performance remained strong. The balance sheet shows a healthy increase in cash and cash equivalents, driven by strong operating cash flow, which more than offset investing and financing activities. Management's proactive approach in managing liquidity, including drawing and repaying a significant amount from its revolving credit facility during the early stages of the pandemic, highlights its focus on financial resilience. The company reiterated its commitment to shareholder returns through dividends and maintained its share repurchase authorization, although no shares were repurchased during the period.

Financial Highlights

55 data points
Beta

Revenue

$1.24B

45.5% Gross Margin

Net Income

$216.20M

17.4% Net Margin

EPS (Diluted)

$0.85

Total Assets

$7.08B

Cash & Equivalents

$549.10M

Free Cash Flow

$175.90M

Financial Statements
Beta
Revenue$1.24B
Cost of Revenue$675.80M
Gross Profit$565.20M
R&D Expenses$27.00M
SG&A Expenses$120.50M
Operating Income$273.80M
Interest Expense$13.90M
Net Income$216.20M
EPS (Basic)$0.87
EPS (Diluted)$0.85
Shares Outstanding (Basic)247.70M
Shares Outstanding (Diluted)253.30M

Key Highlights

  • 1Net sales increased by 13.9% to $1,241.0 million in Q3 2020 and by 12.0% to $3,600.5 million for the first nine months of 2020, driven by strong volume growth.
  • 2Diluted EPS increased significantly to $0.85 in Q3 2020 (vs. $0.62 in Q3 2019) and $2.52 for the first nine months of 2020 (vs. $1.87 in 2019), indicating improved profitability.
  • 3Operating income saw robust growth, up 26.3% to $273.8 million in Q3 and 30.1% to $839.1 million year-to-date, reflecting effective cost management and sales leverage.
  • 4SG&A expenses decreased by 27.3% in Q3 and 7.5% year-to-date, largely due to a favorable adjustment in contingent acquisition liabilities related to the Flawless Acquisition.
  • 5Cash flow from operations was strong, increasing by $180.7 million to $798.2 million for the first nine months of 2020, supporting liquidity and financial flexibility.
  • 6The company maintained a strong liquidity position with $549.1 million in cash and cash equivalents and significant availability under its revolving credit facility.
  • 7Despite a 110 basis point decrease in Q3 gross margin, the year-to-date gross margin improved by 60 basis points, demonstrating resilience in managing cost pressures.

Frequently Asked Questions

The substantial increase in net sales, up 13.9% in the third quarter and 12.0% year-to-date, was primarily driven by strong product volume growth. This was particularly evident in the Consumer Domestic and Consumer International segments, fueled by increased consumer demand for household and personal care products, which saw a positive impact from COVID-19 related trends such as increased demand for cleaning products and vitamins.

Church & Dwight effectively managed its expenses. Notably, Selling, General & Administrative (SG&A) expenses decreased significantly by 27.3% in Q3 and 7.5% year-to-date. This reduction was largely due to a favorable adjustment in contingent acquisition liabilities related to the Flawless Acquisition, which reduced expenses. This, combined with increased sales volume, led to a significant rise in operating income by 26.3% in Q3 and 30.1% year-to-date, and a corresponding increase in diluted earnings per share (EPS).

The company's liquidity position remains strong, with $549.1 million in cash and cash equivalents as of September 30, 2020. They also had approximately $997.0 million in availability through their revolving credit facility and commercial paper program. While the COVID-19 pandemic has created volatility, the company's proactive measures, including drawing and repaying from its credit facility, and its efficient business model position it to manage through the crisis. They anticipate sufficient cash flow and borrowing capacity to meet financial obligations, including capital expenditures, debt payments, dividends, and potential acquisitions.

The company noted potential impairment risks for certain indefinite-lived intangible assets, specifically the TROJAN tradename, due to declining sales and increased competition in the condom category, exacerbated by social distancing measures. They also mentioned potential impairment for assets related to the Passport Food Safety business due to COVID-19 impacts. While management is implementing strategies to mitigate these risks, future impairment charges remain a possibility if operating plans or cash flows are significantly impacted.