Why Church & Dwight Fell despite Its Q3 EPS Beat

  • Church & Dwight stock is down today after its third-quarter revenue miss irked investors.
  • The company’s organic sales growth rate moderated.
  • CHD’s third-quarter earnings came in ahead of analysts’ estimate.

Church & Dwight (CHD) stock was trading about 4% lower in morning trading after its third-quarter sales miss irked investors. Its top line sustained momentum on the back of better-than-expected organic sales. However, weakness in its volumes limited its top line growth rate.

CHD’s organic sales increased by 3.6%, better than management’s expectation of 3.0% growth. Higher net pricing and favorable mix supported the company’s organic sales growth. However, CHD’s organic sales growth rate moderated sequentially. Church & Dwight’s organic sales have been growing at more than a 4% rate in the last five quarters. This growth rate dropped to 3.6% in the third quarter.

Nevertheless, CHD continued to post stellar organic sales growth in international markets. CHD’s organic sales increased 8.7% in international markets, reflecting strong volumes (+5.4%) and improved pricing and mix (+3.3%).

CHD’s margins improved in the third quarter. Meanwhile, its adjusted EPS grew at a double-digit rate, reflecting higher revenue and margins. Further, a lower effective tax rate supported its bottom line growth.

Moderation in organic sales growth and CHD’s high valuation compared to its peers’ could limit the upside in its stock.

Church & Dwight: Key third-quarter financials

Church & Dwight posted revenue of $1.09 billion, up about 5% on a YoY basis. However, its sales fell marginally short of analysts’ estimate of $1.10 billion. Its Consumer Domestic organic sales increased 3.3%, reflecting a 5.1% contribution from higher pricing and product mix. However, higher pricing and lower promotions hurt its volumes, which fell 1.8%.

The Consumer International segment’s organic sales rose 8.7% led by balanced growth in volumes and pricing. Moreover, a favorable product mix further supported its sales growth. Organic sales in the Specialty Product segment fell 4.1%, reflecting lower volumes and pricing.

CHD’s gross margin expanded 230 basis points to 46.6%. Meanwhile, its adjusted operating margin expanded 130 basis points to 21.0%.

Church & Dwight posted adjusted EPS of $0.66, which increased 13.8% YoY and came in well ahead of analysts’ expectation of $0.61.

In comparison, Procter & Gamble’s (PG) organic sales soared about 7% during its recently reported quarter. Procter & Gamble crushed Wall Street’s estimates on stellar organic sales and margin expansion. It posted adjusted EPS of $1.37, which increased 22% YoY and beat analysts’ expectation of $1.24 by a considerable margin. PG’s revenue jumped 7%, while its core gross and operating margins expanded 190 and 260 basis points, respectively.

Meanwhile, Kimberly-Clark’s (KMB) organic sales and earnings impressed during the third quarter. However, weak volumes continued to hurt its financials.

Kimberly-Clark’s organic sales increased 4%, reflecting higher pricing and a favorable product mix. Moreover, moderating costs supported its margin growth. KMB’s core gross and operating margins expanded 260 and 110 basis points, respectively, in the third quarter.