10-QPeriod: Q1 FY2022

CHURCH & DWIGHT CO INC /DE/ Quarterly Report for Q1 Ended Mar 31, 2022

Filed April 28, 2022For Securities:CHD

Summary

Church & Dwight Co., Inc. (CHD) reported net sales of $1,297.2 million for the first quarter of 2022, an increase of 4.7% compared to the prior year, driven by favorable pricing and mix, and the contribution from the TheraBreath acquisition. However, net income decreased by 7.4% to $204.4 million, or $0.83 per diluted share, down from $0.88 per diluted share in the same period last year. This decline in profitability was primarily attributed to increased cost of goods sold, including higher manufacturing, commodity, and transportation costs, which led to a 190 basis point decrease in gross margin. The company is navigating inflationary pressures and supply chain challenges, exacerbated by global events. Despite these headwinds, CHD is implementing price increases and taking steps to enhance manufacturing and raw material capacity. The company also demonstrated a commitment to returning capital to shareholders, with cash dividends per share increasing slightly and continued activity under its share repurchase program, leaving $729.7 million available for future repurchases. The balance sheet remains solid, with a decrease in short-term borrowings and manageable long-term debt.

Financial Highlights

52 data points
Beta

Revenue

$1.30B

42.6% Gross Margin

Net Income

$204.40M

15.8% Net Margin

EPS (Diluted)

$0.83

Total Assets

$7.94B

Cash & Equivalents

$174.40M

Free Cash Flow

$137.20M

Financial Statements
Beta
Revenue$1.30B
Cost of Revenue$744.70M
Gross Profit$552.50M
R&D Expenses$24.50M
SG&A Expenses$169.90M
Operating Income$280.70M
Interest Expense$16.60M
Net Income$204.40M
EPS (Basic)$0.84
EPS (Diluted)$0.83
Shares Outstanding (Basic)242.60M
Shares Outstanding (Diluted)246.70M

Key Highlights

  • 1Net sales increased by 4.7% to $1,297.2 million, driven by pricing/mix and the TheraBreath acquisition, offsetting a volume decline.
  • 2Diluted EPS decreased to $0.83 from $0.88 year-over-year, impacted by increased costs.
  • 3Gross margin declined by 190 basis points to 42.6% due to significant cost inflation (manufacturing, commodities, transportation).
  • 4SG&A expenses as a percentage of net sales increased by 100 basis points to 13.1%, partly due to the prior year's favorable business acquisition liability adjustment.
  • 5Cash flow from operations improved significantly to $152.8 million from $100.2 million, aided by effective working capital management and a lower cash conversion cycle.
  • 6The company has $729.7 million remaining under its 2021 share repurchase program, indicating ongoing capital return plans.
  • 7The company's effective tax rate decreased to 23.2% from 24.2%, primarily due to higher stock option exercises.

Frequently Asked Questions

The primary drivers for the 4.7% net sales increase were favorable pricing and product mix, which contributed 7.8% to the increase, and the inclusion of acquired product lines (specifically the TheraBreath acquisition), which added 2.3%. These positives helped to offset a decrease in product volumes sold, which negatively impacted sales by 5.1%.

Net income and diluted EPS decreased because of significant cost inflation impacting gross margin. Higher manufacturing costs (labor, commodities) and transportation costs led to a 190 basis point reduction in gross margin. Additionally, SG&A expenses as a percentage of net sales increased, partly due to the absence of a favorable business acquisition liability adjustment that occurred in the prior year.

The company is addressing inflationary pressures by enacting and evaluating price increases. To combat supply chain challenges and meet demand, CHD is increasing short-term manufacturing capacity, expanding raw material and packaging capacity, and working closely with suppliers and partners. They are also investing in long-term capacity and seeking additional suppliers.

Church & Dwight maintains a solid financial position, with $174.4 million in cash and significant availability under its revolving credit facility. The company is returning capital to shareholders through regular cash dividends, which were increased slightly for 2022, and an active share repurchase program, with $729.7 million available under its current authorization. The company anticipates that operating cash flow, combined with borrowing capacity, will be sufficient to fund capital expenditures, debt obligations, dividends, and share repurchases.