Church & Dwight Beats Q3 Estimates, but Outlook Could Hurt Stock



Key takeaways

Church & Dwight (CHD) sustained its strong sales and earnings growth momentum and reported better-than-expected results for the third quarter. Acquisitions, innovation, and continued strength in the underlying business drove the company’s top-line growth. Church & Dwight’s organic sales increased 4.7% thanks to improved volumes and higher pricing of global consumer products.

Church & Dwight’s top-line growth rate decelerated sequentially, as can be seen in the graph below. Plus, this growth is expected to slow down further during the fourth quarter, which likely won’t sit well with investors.

Despite improved volumes and pricing, Church & Dwight’s gross margin fell 100 basis points, reflecting higher commodities and transportation costs. Gross margins are expected to remain low in 2018, reflecting higher costs.

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Church & Dwight’s adjusted EPS marked double-digit growth and handily surpassed analysts’ estimate driven by higher sales and a considerable decline in the effective tax rate. However, the company’s bottom-line growth rate is also projected to slow down during the fourth quarter, reflecting cost headwinds and increased marketing spending.

Key financials

Church & Dwight reported net sales of $1.04 billion, which exceeded analysts’ estimate of $1.02 billion and increased 7.2% on a YoY basis. Adjusted EPS came in at $0.58, up 18.4% on a YoY basis. Analysts expected the company to report adjusted earnings of $0.54 per share.

Church & Dwight’s fourth-quarter net and organic sales are expected to grow 3%, a steep deceleration from the previous three quarters. Meanwhile, adjusted EPS, which has grown at an average rate of ~20% in the first three quarters of 2018, is also expected to witness a sequential slowdown and see 10% growth during the fourth quarter.


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