01—Abstract
Summary
Summary of the 10-Q filed October 28, 2022. Cited figures are marked; the original filing is the authoritative source.
For the third quarter and nine months ended September 30, 2022, Church & Dwight Co., Inc. (CHD) reported mixed financial results.
While net sales saw modest year-over-year growth, up 0.4%a for the quarter and 3.1% for the nine months, profitability was impacted by rising costs and a shift in consumer spending towards more value-oriented products. Gross profit decreased by 5.1% for the quarter and 2.1% for the nine months, primarily due to increased manufacturing, commodity, and transportation costs, which outpaced favorable pricing and productivity programs. Operating expenses saw a significant increase, particularly SG&A expenses, driven by the absence of a prior year benefit related to business acquisition liability adjustments.
Despite these pressures, the company continued to invest in its brands and supply chain. Importantly, subsequent to the quarter's end, the company completed the acquisition of Hero Cosmetics, Inc. for approximately $630 millionb, expanding its portfolio in the acne treatment market. Management expects ongoing supply chain and inflation challenges to persist but is working to mitigate these impacts through price increases and operational efficiencies.
02—Key points
Key Highlights
- Net sales increased by 0.4% to $1,317.3 million for Q3 2022 and by 3.1% to $3,939.6 million for the nine months ended September 30, 2022.
- Gross profit decreased by 5.1% to $549.7 million for Q3 2022 and by 2.1% to $1,647.5 million for the nine months, with gross margin declining due to higher input costs.
- SG&A expenses increased significantly by 32.7% for Q3 and 25.5% for the nine months, largely due to the absence of a favorable business acquisition liability adjustment in the prior year.
- Diluted EPS decreased to $0.76 for Q3 2022 from $0.92 in Q3 2021, and to $2.35 for the nine months from $2.68.
- The company reported strong operating cash flow of $534.1 million for the nine months ended September 30, 2022.
- Subsequent to the quarter, the company completed the acquisition of Hero Cosmetics for approximately $630 million.
- The company experienced volume declines across all three segments due to reduced consumer spending on discretionary products amidst inflationary pressures.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2022, Church & Dwight Co Inc kept $0.14.
- Revenue$1.32B100.0%
- Cost of revenue−$767.6M58.3%
- Gross profit$549.7M41.7%
- Operating costs−$295.8M22.5%
- Operating income$253.9M19.3%
- Interest, other & tax−$66.8M5.1%
- Net income$187.1M14.2%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2022filed October 28, 2022Financial Statements
Q3 FY2022 against Q3 FY2021
| Line item | Q3 FY2022Q3 FY2021 | Change |
|---|---|---|
| Revenue | $1.32B$1.31B | +0.4% |
| Cost of Revenue | $767.60M$732.20M | +4.8% |
| Gross Profit | $549.70M$579.20M | −5.1% |
| R&D Expenses | $29.20M$27.70M | +5.4% |
| SG&A Expenses | $155.10M$116.90M | +32.7% |
| Operating Income | $253.90M$301.40M | −15.8% |
| Interest Expense | $23.70M$13.40M | +76.9% |
| Net Income | $187.10M$230.40M | −18.8% |
| EPS (Basic) | $0.77$0.94 | −18.1% |
| EPS (Diluted) | $0.76$0.92 | −17.4% |
| Shares Outstanding (Basic) | 242.80M245 | +98980739.8% |
| Shares Outstanding (Diluted) | 246.00M250 | +98478683.0% |
05—Questions
Frequently Asked Questions
How did inflation and supply chain issues impact Church & Dwight's profitability?
Inflationary pressures, particularly for manufacturing, commodities, and transportation, significantly impacted gross profit. These rising costs, combined with challenges in meeting consumer demand and a shift towards value-oriented products, led to a decrease in gross profit and gross margin for both the third quarter and the nine-month period. The company is attempting to offset these pressures through price increases and productivity programs.
What is the significance of the Hero Cosmetics acquisition?
The acquisition of Hero Cosmetics, which closed shortly after the quarter ended on October 13, 2022, for approximately $630 million, is a strategic move to expand Church & Dwight's presence in the rapidly growing acne treatment market with its popular Hero Mighty Patch® brand. This acquisition is expected to contribute to future growth and is financed through existing cash and commercial paper borrowings.
How has consumer behavior shifted, and how is the company responding?
The company noted a decline in consumer spending for its more discretionary brands like Waterpik and Flawless, driven by inflationary and recessionary pressures. Consumers are shifting towards lower-cost alternatives. In response, Church & Dwight is adjusting production schedules, increasing promotional activities, and developing lower-cost alternatives for some products. The company also highlights its portfolio's 40% value product mix as a mitigating factor in a challenging economic environment.
What is the outlook for supply chain and cost pressures?
Management expects supply shortages and input cost inflation to continue at least throughout 2022. While the company has seen improvements in fill rates in the third quarter, ongoing efforts are in place to increase manufacturing and supply chain capacity to meet demand and mitigate disruptions. The company is actively monitoring these conditions and their potential impact on future financial performance.
06—Continue