Market Overview

Church & Dwight Announces Q2 2018 Results

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Church & Dwight Co., Inc. (NYSE:CHD):

2018 Second Quarter Results     2018 Full Year Outlook Raised
  • Sales growth +14.5%; Organic +4.4%
  • Domestic Sales growth +14.1%; Organic +5.0%
  • International Sales growth +21.4%; Organic +6.8%
  • EPS growth +69.0%; Adjusted +19.5%
  • Reported Sales growth now to exceed 9%
  • Organic Sales growth now to approximately 3.5%
  • 2018 EPS outlook now: $2.26 to $2.28, +17-18% Adjusted
  • Cash from operations now to exceed $690MM
 

Church & Dwight Co., Inc. (NYSE:CHD) today announced Q2 2018 reported
EPS of $0.49, a 69.0% increase, exceeding the Company's outlook.
Adjusted EPS increased 19.5% excluding a prior year $0.12 charge related
to the U.K. pension settlement.

Q2 net sales grew 14.5% to $1,027.9 million. Organic sales grew 4.4%
driven by global consumer products growth of 5.3%. Global consumer
organic sales were driven by volume growth of 6.5%, partially offset by
1.2% unfavorable product mix and pricing, which continues to improve.

Matthew Farrell, Chief Executive Officer, commented, "We were pleased to
deliver strong Q2 results, far exceeding our outlook of approximately 3%
organic sales growth and $0.46 EPS. Our categories are growing and our
market shares are healthy. 11 of our 15 categories grew during the
quarter and 9 have grown for at least 3 consecutive quarters. The
Consumer Domestic business posted strong volume growth in Q2 as 7 out of
11 power brands met or exceeded category growth. The investments in our
international business, particularly export, continue to pay off as we
consistently exceed our 6% organic growth target. Our 2017 acquisition
of Waterpik continues to perform well."

Second Quarter Review

Consumer Domestic net sales were $774.1 million, a $95.9 million
or 14.1% increase driven by recent acquisitions, and household and
personal care sales growth. Organic sales increased 5.0% due to higher
volume (+6.2%) offset by price and product mix (-1.2%). Growth was led
by ARM & HAMMER liquid and unit dose laundry detergent, BATISTE dry
shampoo, VITAFUSION and L'IL CRITTERS gummy vitamins, XTRA laundry
detergent, and VIVISCAL and TOPPIK hair care products.

Consumer International net sales were $176.1 million, a $31.0
million or 21.4% increase driven by recent acquisitions, expansion of
our export business, and broad-based household and personal care growth.
Organic sales increased 6.8% due to higher volume (+8.2%) offset by
price and product mix (-1.4%). Organic sales were driven primarily by
OXICLEAN, BATISTE, and ARM & HAMMER liquid laundry detergent in the
export business, ARM & HAMMER liquid laundry detergent and clumping cat
litter, BATISTE in Canada, and OXICLEAN Ultra Gel and NAIR in Mexico.

Specialty Products net sales were $77.7 million, a $3.0 million
or 4.0% increase. Organic sales decreased -5.1% due to lower volume
(-6.7%) offset by pricing (+1.6% primarily in the bulk sodium
bicarbonate business). Demand in the dairy industry is significantly
reduced due to low milk prices.

Gross margin decreased 140 basis points to 44.3%. The decrease
was impacted by higher commodities and transportation costs. In
addition, reported results include a -70 basis point impact from a
voluntary recall and a FDA mandated withdrawal associated with certain
oral care products.

Marketing expense was $136.4 million, an increase of $5.5 million
or 4.2%. Marketing expense as a percentage of net sales decreased 130
basis points to 13.3% reflecting recent acquisitions which have a lower
spend rate.

Selling, general, and administrative expense (SG&A) was
$144.7 million or 14.1% of net sales, a 330 basis point decrease,
primarily due to the prior year U.K. pension settlement. On an adjusted
basis, excluding the U.K. pension settlement charge, SG&A increased 110
basis points primarily due to acquisitions, including intangible
amortization costs, and IT and R&D investment spending.

Income from Operations was $173.8 million or 16.9% of net sales.

Other Expense was $20.8 million, primarily driven by incremental
interest expense on higher debt levels related to recent acquisitions.

The effective tax rate was 21.7% compared to 37.6% in 2017. This
change was primarily due to the impact of the Q2 2017 U.K. pension
settlement and the Tax Cuts and Jobs Act ("TCJA") enacted in the U.S. in
December 2017.

Operating Cash Flow

For the first six months of 2018, net cash from operating activities was
$322.7 million, a $73.4 million increase from the prior year due to
higher cash earnings and a smaller increase in working capital.
Excluding prior year payments totaling $25 million for the U.K. pension
plan settlement and higher than normal deferred compensation payments,
cash from operations would have increased $48 million. Capital
expenditures for the first six months were $19.6 million, a $9.2 million
increase from the prior year.

At June 30, 2018, cash on hand was $89.3 million, while total debt was
$2,212.9 million.

2018 New Products

Mr. Farrell commented, "Innovation continues to be a big driver of our
success. In support of our long-term strategy to drive revenue and
earnings growth, we have launched new products in several categories. We
launched ARM & HAMMER CLUMP & SEAL lightweight unscented cat litter with
guaranteed 7-day odor control building on the success of our innovative
CLUMP & SEAL franchise. We expanded our ODOR BLASTERS laundry platform
leveraging technology that eliminates tough odors and are seeing strong
consumption results. We introduced new VITAFUSION and L'IL CRITTERS
probiotics gummy vitamins supporting digestive health by providing
friendly bacteria in a great tasting gummy. WATERPIK launched a water
flosser to restore whiteness while flossing. TROJAN has launched
NIRVANA, an assortment of sensation condoms celebrating self-expression
in an exclusive package design. BATISTE continues to expand distribution
with three unique fragrances leveraging its #1 U.S. share position."

Outlook for 2018

Mr. Farrell stated, "We now expect full year sales growth to exceed 9%
and organic sales growth to be approximately 3.5%. We now expect full
year gross margin to contract 120 basis points which now reflects higher
logistics costs and the Q2 voluntary recall and FDA mandated withdrawal.
We continue to increase our marketing spend dollars and expect the
percentage of net sales to be approximately 11.5% as recent acquisitions
have lower marketing spend rates. We are raising our 2018 EPS outlook to
$2.26 to $2.28 (previously $2.24 to $2.28) or adjusted EPS growth of 17%
to 18% (reported decline of 21% to 22% due to 2017 tax law changes)
which reflects continued strong business performance. Stronger volume
growth and share gains are expected to offset the incremental gross
margin pressure and currency impact."

For Q3, we expect reported sales growth of approximately 5% and organic
sales growth of approximately 3%. We expect EPS to approximate $0.53 per
share, a 2% reported increase over last year's Q3 EPS and an 8% increase
over last year's adjusted Q3 EPS, both of which reflect the impact of
higher marketing spend."

Church & Dwight Co., Inc. will host a conference call to discuss Q2 2018
results on August 2, 2018 at 10:00 a.m. (ET). To participate, dial
877-322-9846 within the U.S. and Canada, or 631-291-4539
internationally, using access code 9069046. A replay will be available
two hours after the call at 855-859-2056 using the same access code. You
also can participate by visiting the Investor Relations section of the
Company's website at www.churchdwight.com.

Church & Dwight Co., Inc. manufactures and markets a wide range of
personal care, household and specialty products under the ARM & HAMMER
brand name and other well-known trademarks.

This press release contains forward-looking statements, including,
among others, statements relating to net sales and earnings growth;
gross margin changes; trade and marketing spending; marketing expense as
a percentage of net sales; sufficiency of cash flows from operations;
earnings per share; cost savings programs; consumer demand and spending;
the effects of competition; the effect of product mix; volume growth,
including the effects of new product launches into new and existing
categories; the impact of competitive laundry detergent products,
including unit dose laundry detergent; the impact of foreign exchange
and commodity price fluctuations; the impact of acquisitions and
divestitures; capital expenditures; the impact of pension settlement
charges; the impact of U.S. tax reform and the Company's effective tax
rate. These statements represent the intentions, plans, expectations and
beliefs of the Company, and are based on assumptions that the Company
believes are reasonable but may prove to be incorrect.
In
addition, these statements are subject to risks, uncertainties and other
factors, many of which are outside the Company's control and could cause
actual results to differ materially from such forward-looking statements.

Factors that could cause such differences include a decline in market
growth, retailer distribution and consumer demand (as a result of, among
other things, political, economic and marketplace conditions and
events); unanticipated increases in raw material and energy prices;
delays or other problems in manufacturing or distribution; increases in
transportation costs; adverse developments affecting the financial
condition of major customers and suppliers; changes in marketing and
promotional spending; growth or declines in various product categories
and the impact of customer actions in response to changes in consumer
demand and the economy, including increasing shelf space of private
label products; consumer and competitor reaction to, and customer
acceptance of, new product introductions and features; the Company's
ability to maintain product quality and characteristics at a level
acceptable to our customers and consumers; disruptions in the banking
system and financial markets; foreign currency exchange rate
fluctuations; implications of the United Kingdom's withdrawal from the
European Union; issues relating to the Company's information technology
and controls; the impact of natural disasters on the Company and its
customers and suppliers, including third party information technology
service providers; the acquisition or divestiture of assets; the outcome
of contingencies, including litigation, pending regulatory proceedings
and environmental matters; and changes in the regulatory environment.

For a description of additional factors that could cause actual
results to differ materially from the forward-looking statements, please
see Item 1A, "Risk Factors" in the Company's annual report on Form 10-K.

The Company undertakes no obligation to publicly update any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by the U.S. federal
securities laws.
You are advised, however, to consult any further
disclosures the Company makes on related subjects in its filings with
the United States Securities and Exchange Commission.

This press release also contains non-GAAP financial information. Management
uses this information in its internal analysis of results and believes
that this information may be informative to investors in gauging the
quality of the Company's financial performance, identifying trends in
its results and providing meaningful period-to-period comparisons. The
Company has included reconciliations of these non-GAAP financial
measures to the most directly comparable financial measure calculated in
accordance with GAAP. See the end of this press release for these
reconciliations. These non-GAAP financial measures should not be
considered in isolation or as a substitute for the comparable GAAP
measures. In addition, these non-GAAP financial measures may not be the
same as similar measures provided by other companies due to potential
differences in methods of calculation and items being excluded. They
should be read in connection with the Company's financial statements
presented in accordance with GAAP.

 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Income (Unaudited)

 
    Three Months Ended   Six Months Ended
(In millions, except per share data)   June 30, 2018   June 30, 2017   June 30, 2018   June 30, 2017
Net Sales   $ 1,027.9   $ 898.0   $ 2,033.9   $ 1,775.2
Cost of sales     573.0     487.6     1,127.5     965.5
Gross Profit 454.9 410.4 906.4 809.7
Marketing expenses 136.4 130.9 236.3 221.7
Selling, general and administrative expenses     144.7     156.3     276.0     268.7
Income from Operations 173.8 123.2 394.1 319.3
Equity in earnings of affiliates 2.4 3.1 4.5 5.2
Other income (expense), net     (20.8 )     (9.5 )     (42.5 )     (17.5 )
Income before Income Taxes 155.4 116.8 356.1 307.0
Income taxes     33.7     43.9     76.6     102.6
Net Income   $ 121.7   $ 72.9   $ 279.5   $ 204.4
Net Income per share - Basic $ 0.50 $ 0.29 $ 1.14 $ 0.81
Net Income per share - Diluted   $ 0.49   $ 0.29   $ 1.12   $ 0.79
Dividends per share $ 0.22 $ 0.19 $ 0.43 $ 0.38
Weighted average shares outstanding - Basic 244.8 249.8 244.9 252.0
Weighted average shares outstanding - Diluted     249.3     255.6     249.7     257.7
 
 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets (Unaudited)

 
(Dollars in millions)   June 30, 2018     December 31, 2017
Assets            
Current Assets            
Cash and Cash Equivalents   $ 89.3   $ 278.9
Accounts Receivable 348.6 345.9
Inventories 369.2 330.7
Other Current Assets     63.3     44.7
Total Current Assets     870.4     1,000.2
Property, Plant and Equipment (Net) 593.1 607.7
Equity Investment in Affiliates 9.4 9.3
Trade Names and Other Intangibles 2,311.9 2,320.5
Goodwill 1,992.9 1,958.9
Other Long-Term Assets     121.7     118.2
Total Assets   $ 5,899.4   $ 6,014.8
Liabilities and Stockholders' Equity            
Short-Term Debt $ 110.8 $ 270.9
Current portion of Long-Term debt 299.5 -
Other Current Liabilities     690.5     664.1
Total Current Liabilities     1,100.8     935.0
Long-Term Debt 1,802.6 2,103.4
Other Long-Term Liabilities 774.9 758.4
Stockholders' Equity     2,221.1     2,218.0
Total Liabilities and Stockholders' Equity   $ 5,899.4   $ 6,014.8
 

CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flow (Unaudited)

 
    Six Months Ended
(Dollars in millions)   June 30, 2018   June 30, 2017
   
Net Income $ 279.5 $ 204.4
 
Depreciation and amortization 69.9 59.2
Deferred income taxes 1.2 11.3
Non-cash compensation 15.9 12.3
Non-cash pension settlement charge - 31.7
Other   (1.4 )   (1.3 )
Subtotal 365.1 317.6
 
Changes in assets and liabilities:
Accounts receivable (4.8 ) (6.8 )
Inventories (39.1 ) (30.1 )
Other current assets (5.5 ) (10.4 )
Accounts payable and accrued expenses 13.9 (14.2 )
Income taxes payable (8.1 ) (10.7 )
Other     1.2     3.9
Net cash from operating activities 322.7 249.3
 
Capital expenditures (19.6 ) (10.4 )
Acquisitions (49.8 ) (235.3 )
Other     (1.8 )     3.4
Net cash (used in) investing activities (71.2 ) (242.3 )
 
Net change in long-term debt - 200.0
Net change in short-term debt (159.8 ) 202.6
Payment of cash dividends (106.2 ) (95.7 )
Proceeds from stock option exercises 28.9 27.3
Purchase of treasury stock (200.0 ) (300.0 )
Deferred financing and other     (2.4 )     (1.0 )
Net cash (used in) provided by financing activities (439.5 ) 33.2
 
F/X impact on cash     (1.6 )     9.6
 
Net change in cash and cash equivalents   $ (189.6 )   $ 49.8
 
 

2018 and 2017 Product Line Net Sales

 
  Three Months Ended     Percent
6/30/2018     6/30/2017   Change
Household Products $ 429.9   $ 410.8   4.6 %
Personal Care Products   344.2     267.4     28.7 %
Consumer Domestic $ 774.1 $ 678.2 14.1 %
Consumer International   176.1     145.1     21.4 %
Total Consumer Net Sales $ 950.2 $ 823.3 15.4 %
Specialty Products Division   77.7     74.7     4.0 %
Total Net Sales $ 1,027.9   $ 898.0     14.5 %
 
Six Months Ended Percent
6/30/2018   6/30/2017   Change
Household Products $ 842.9 $ 805.3 4.7 %
Personal Care Products   682.6     532.6     28.2 %
Consumer Domestic $ 1,525.5 $ 1,337.9 14.0 %
Consumer International   356.8     288.2     23.8 %
Total Consumer Net Sales $ 1,882.3 $ 1,626.1 15.8 %
Specialty Products Division   151.6     149.1     1.7 %
Total Net Sales $ 2,033.9   $ 1,775.2     14.6 %
 

Non-GAAP Measures:

The following discussion addresses the non-GAAP measures used in this
press release and reconciliations of these non-GAAP measures to the most
directly comparable GAAP measures. These non-GAAP financial measures
should not be considered in isolation from or as a substitute for the
comparable GAAP measures. The following non-GAAP measures may not be the
same as similar measures provided by other companies due to differences
in methods of calculation and items and events being excluded.

Organic Sales Growth:

This press release provides information regarding organic sales growth,
namely net sales growth excluding the effect of acquisitions,
divestitures and foreign exchange rate changes. Management believes that
the presentation of organic sales growth is useful to investors because
it enables them to assess, on a consistent basis, sales trends related
to products that were marketed by the Company during the entirety of
relevant periods, excluding the impact of acquisitions and excluding
foreign exchange rate changes that are out of the control of, and do not
reflect the performance of the Company and management.

Adjusted SG&A Expense:

This press release presents information regarding adjusted SG&A, namely
selling, general and administrative expenses excluding the 2017 charge
related to our U.K. pension settlement. We believe that this metric
enhances investors' understanding of the Company's year over year
expenses by excluding certain significant one-time items.

Adjusted EPS:

This press release also presents adjusted earnings per share, namely,
EPS calculated in accordance with GAAP, as adjusted to exclude
significant one-time items that are not indicative of the Company's
period-to-period performance. We believe that this metric provides
investors a useful perspective of underlying business trends and results
and provides useful supplemental information regarding our
year-over-year EPS growth. Adjusted 2017 EPS excludes a charge related
to the Brazil Specialty Products business, a settlement charge related
to the U.K. pension termination, a tax benefit from a joint venture
impairment, and a one-time tax benefit to adjust deferred tax accounts
and reflect deemed repatriation of foreign subsidiary earnings as a
result of the Tax Cuts and Jobs Act (TCJA).

Adjusted Operating Cash Flow:

This press release also presents adjusted operating cash flow, namely,
operating cash flow calculated in accordance with GAAP, as adjusted to
exclude significant one-time items that are not indicative of the
Company's period-to-period performance. We believe that this metric
provides investors a useful perspective of underlying business trends
and provides useful supplemental information regarding our year over
year cash flow. Adjusted 2017 cash flow excludes cash payments for the
U.K. pension plan settlement and higher than normal deferred
compensation payments.

 

CHURCH & DWIGHT CO., INC.
Organic Sales

 
  Three Months Ended 6/30/2018
                       
Total Worldwide Consumer Consumer Specialty
Company Consumer Domestic International Products
Reported Sales Growth 14.5% 15.4% 14.1% 21.4% 4.0%
Less:
Acquisitions 9.6% 9.6% 9.1% 11.8% 9.1%
Add:
FX / Other -0.5% -0.5% 0.0% -2.8% 0.0%
Divestitures 0.0% 0.0% 0.0% 0.0% 0.0%
 
Organic Sales Growth 4.4% 5.3% 5.0% 6.8% -5.1%
 
Six Months Ended 6/30/2018
 
Total Worldwide Consumer Consumer Specialty
Company Consumer Domestic International Products
Reported Sales Growth 14.6% 15.8% 14.0% 23.8% 1.7%
Less:
Acquisitions 9.9% 10.3% 9.7% 11.8% 8.4%
Add:
FX / Other -0.9% -0.9% 0.0% -5.2% 0.0%
Divestitures 0.3% 0.0% 0.0% 0.0% 3.6%
 
Organic Sales Growth 4.1% 4.6% 4.3% 6.8% -3.1%
 
 

CHURCH & DWIGHT CO., INC.
Reconciliation of
GAAP Measures to Non-GAAP Measures (Unaudited)

 
(Dollars in millions, except per share data)
  For the quarter ended

June 30, 2018

  For the quarter ended

June 30, 2017

  Change

Adjusted SG&A Reconciliation

           
SG&A - Reported $ 144.7 14.1 % $ 156.3 17.4 % (330 ) bps
U.K. Pension Settlement $ -   0.0 % $ (39.2 )   -4.4 %   440 bps
SG&A - Adjusted (non-GAAP) $ 144.7   14.1 % $ 117.1   13.0 %   110 bps
 

Adjusted Diluted Earnings Per Share
Reconciliation

Diluted Earnings Per Share - Reported $ 0.49 $ 0.29 69.0 %
U.K. Pension Settlement $ - $ 0.12    
Diluted Earnings Per Share - Adjusted (non-GAAP) $ 0.49 $ 0.41   19.5 %
 
  For the six months ended    
June 30,

2018

    June 30,

2017

Change

Adjusted Cash From Operating Activities

 
Net Cash From Operating Activities - Reported $ 322.7 $ 249.3 $ 73.4
U.K. Pension Settlement & Deferred Compensation $ - $ 25.0 $ (25.0 )
Net Cash From Operating Activities - Adjusted (non-GAAP) $ 322.7 $ 274.3 $ 48.4
 
 

CHURCH & DWIGHT CO., INC.
Reconciliation of
GAAP Measures to Non-GAAP Measures (Unaudited)

 

Reported and Organic Forecasted Sales
Reconciliation

     
For the Quarter For the Year
Ended Ended
September 30, 2018 December 31, 2018
Reported Sales Growth 5% 9%
Less:
Acquisitions 2% 5.5%
 
Organic Sales Growth 3% 3.5%
 
  For the quarter ended  
Sept. 30,

2018

    Sept. 30,

2017

Change

Forecasted Adjusted Diluted Earnings Per
Share Reconciliation

 
Diluted Earnings Per Share - Reported $ 0.53 $ 0.52 1.9 %
Joint Venture Impairment Tax Benefit $ - $ (0.03 )  
Diluted Earnings Per Share - Adjusted (non-GAAP) $ 0.53 $ 0.49 8.2 %
 
 

Forecasted Adjusted Diluted Earnings Per
Share Reconciliation

         
For the Year Ended December 31,
  2018 2017 % Change
 
Diluted Earnings Per Share - Reported $ 2.26 - 2.28 $ 2.90 -21% to -22%
 
Brazil Charge $ - $ 0.01
 
U.K. Pension Settlement Charge $ - $ 0.12
 
Joint Venture Impairment Tax Benefit $ - $ (0.03 )
 
U.S. TCJA Tax Reform $   - $ (1.06 )  
 
Diluted Earnings Per Share - Adjusted (non-GAAP) $ 2.26 - 2.28 $ 1.94 17% to 18%
 

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