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Church & Dwight Will Likely Beat Q2 Estimates

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  • Church & Dwight’s second-quarter earnings are expected on July 31.
  • Church & Dwight will likely beat the estimates due to higher organic sales and margin expansion.
  • Volume growth, pricing, and cost-savings will likely drive the company’s sales and earnings.
  • The high valuation limits the upside in the stock.

Church & Dwight’s (CHD) second-quarter earnings are expected before the markets open on July 31. The company will likely maintain its sales and earnings momentum. Church & Dwight’s strong organic sales are impressive. The organic sales have increased by more than 4% in the last four quarters. The company’s EPS has increased by an average rate of 16.3% in the past six quarters.

In the previous quarter, Church & Dwight’s organic sales rose 4.5%. The EPS has risen 11.1% YoY (year-over-year). Also, the company’s margins expanded, which is impressive considering the pressure from cost headwinds.

Higher net selling prices and cost-savings will likely support household and personal product manufacturers’ margins in the US. Moderation in input costs will likely ease the pressure. Recently, Kimberly-Clark (KMB) posted better-than-expected margins. The company’s margins expanded due to higher net selling prices, a favorable mix, and cost-savings. Higher pricing, a favorable mix, and productivity savings will likely support Procter & Gamble’s (PG) organic sales and gross margins.

We expect higher pricing and volumes to support Church & Dwight’s sales and margins. The company’s earnings will likely benefit from continued strength in the underlying business.

Church & Dwight’s growth drivers 

A balanced portfolio of premium and value products will likely drive Church & Dwight’s volumes in the second quarter. Also, innovation-led new products and higher pricing should support the company’s sales. The expanding exports business will likely support the sales growth. The company’s domestic and international segments generated stellar sales growth. We expect the segments to sustain the momentum in the second quarter.

However, currency rate fluctuations will likely limit net sales growth. Weakness in the specialty products segments could remain a drag.

Analysts expect Church & Dwight to post net sales of $1.07 billion, which implies growth of 4.5% YoY. Management expects 4% net sales growth in the second quarter due to 3.5% growth in organic sales. The company has beaten analysts’ sales estimates in the past several quarters.

The company’s profit margins will likely increase in the second quarter. Higher selling prices and cost-savings will likely offset higher manufacturing and logistics costs.

Increased organic sales and margin expansion will likely drive Church & Dwight’s bottom line. Analysts expect the company to post an adjusted EPS of $0.52, which implies growth of 6.1% YoY. Management expects the adjusted EPS to increase 6% in the second quarter.

Stock underperformed peers 

So far, Church & Dwight stock has risen 13.3% this year due to strong sales and earnings growth. However, the company’s growth lagged its peers and the broader markets. During the same period, Procter & Gamble, Kimberly-Clark, and Colgate-Palmolive stock rose 22.7%, 18.8%, and 20.9%, respectively.

Church & Dwight’s underperformance, despite beating its peers with its sales and EPS growth, was due to its high valuation. The company trades at a forward PE ratio of 29.3x, which about 26% higher than the peer average of 23.3x.

Analysts have a target price of $74.71 on Church & Dwight stock, which is on par with its closing price on Thursday.

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