01—Abstract
Summary
Summary of the 10-Q filed April 28, 2022. Cited figures are marked; the original filing is the authoritative source.
Church & Dwight Co., Inc. (CHD) reported net sales of $1,297.2 milliona 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 millionb, 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 millionc available for future repurchases. The balance sheet remains solid, with a decrease in short-term borrowings and manageable long-term debt.
02—Key points
Key Highlights
- Net sales increased by 4.7% to $1,297.2 million, driven by pricing/mix and the TheraBreath acquisition, offsetting a volume decline.
- Diluted EPS decreased to $0.83 from $0.88 year-over-year, impacted by increased costs.
- Gross margin declined by 190 basis points to 42.6% due to significant cost inflation (manufacturing, commodities, transportation).
- SG&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.
- Cash 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.
- The company has $729.7 million remaining under its 2021 share repurchase program, indicating ongoing capital return plans.
- The company's effective tax rate decreased to 23.2% from 24.2%, primarily due to higher stock option exercises.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2022, Church & Dwight Co Inc kept $0.16.
- Revenue$1.30B100.0%
- Cost of revenue−$744.7M57.4%
- Gross profit$552.5M42.6%
- Operating costs−$271.8M21.0%
- Operating income$280.7M21.6%
- Interest, other & tax−$76.3M5.9%
- Net income$204.4M15.8%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2022filed April 28, 2022Financial Statements
Q1 FY2022 against Q1 FY2021
| Line item | Q1 FY2022Q1 FY2021 | Change |
|---|---|---|
| Revenue | $1.30B$1.24B | +4.7% |
| Cost of Revenue | $744.70M$688.00M | +8.2% |
| Gross Profit | $552.50M$550.90M | +0.3% |
| R&D Expenses | $24.50M$24.10M | +1.7% |
| SG&A Expenses | $169.90M$149.60M | +13.6% |
| Operating Income | $280.70M$302.60M | −7.2% |
| Interest Expense | $16.60M$14.00M | +18.6% |
| Net Income | $204.40M$220.70M | −7.4% |
| EPS (Basic) | $0.84$0.90 | −6.7% |
| EPS (Diluted) | $0.83$0.88 | −5.7% |
| Shares Outstanding (Basic) | 242.60M245.20M | −1.1% |
| Shares Outstanding (Diluted) | 246.70M249.80M | −1.2% |
05—Questions
Frequently Asked Questions
What are the primary drivers of the sales increase in the first quarter of 2022?
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%.
Why did net income and EPS decrease despite sales growth?
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.
How is Church & Dwight managing inflationary pressures and supply chain issues?
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.
What is the company's financial health and capital allocation strategy?
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.
06—Continue