Q2 Organic Sales Growth of 5.1%
Q2 Adjusted EPS of $0.73 Exceeds Previous
Outlook
Maintains Full Year EPS Outlook, Despite
Incremental F/X Headwinds
Church & Dwight Co., Inc. (NYSE:CHD):
2015 Second Quarter Results 2015
Full Year Outlook -- Organic sales growth of 5.1%, Reported growth
4.8% -- Organic sales growth of approximately 3% -- Gross Margin
contraction of 10 basis points -- Gross Margin expansion of 25 to
35 basis points -- Adjusted EPS up 12%: Reported EPS down 15% --
Adjusted EPS growth of 7-9% -- 20% Increase in YTD Cash from
Operations -- Cash from
operations in excess of $570MM
Church & Dwight Co., Inc. (NYSE:CHD) today announced second
quarter 2015 adjusted EPS of $0.73 or a 12.3% increase over the
prior year, driven by strong organic sales. This equates to 16.9%
currency neutral adjusted EPS growth. Adjusted EPS results exclude
a pension settlement charge ($0.05) and an impairment charge
($0.13) associated with the Company’s investment in Natronx
Technologies, LLC (“Natronx”), a joint venture related to the
Specialty Products business. Reported EPS was $0.55 per share, a
15% decrease over the prior year second quarter.
Second quarter 2015 reported net sales increased $38.8 million
or 4.8% to $847.1 million. Organic sales growth for the second
quarter 2015 was 5.1%. Organic results were driven by volume growth
of 4.5% and 0.6% favorable product mix and pricing.
James Craigie, Chairman and Chief Executive Officer, commented,
“We are extremely pleased with the sales and earnings growth in
both the second quarter and first half of 2015. The strong momentum
we ended 2014 with has continued in the first six months of 2015.
Our strong organic growth was driven by innovative new products
launched in all of our major categories as we believe that
innovation is the key to increasing our market share and reviving
category growth in this challenging economy. The results to date
are promising, as three out of four megabrands achieved share
growth or were flat in the second quarter.”
Second Quarter Review
Consumer Domestic net sales were $638.3 million, a $39.4
million or 6.6% increase over the prior year second quarter sales.
Second quarter organic sales increased by 4.7%, primarily due to
continued success of the ARM & HAMMER CLUMP & SEAL cat
litter franchise, including a new lightweight variant, and higher
sales of ARM & HAMMER and OXICLEAN liquid laundry detergents,
partially offset by lower sales of vitamins as capacity constraints
and startup efforts lasted longer than expected. Volume growth
contributed approximately 4.5% to organic sales, while favorable
product mix and pricing contributed 0.2%.
Consumer International net sales were $130.9 million, a
$5.7 million or 4.2% decrease compared to the prior year second
quarter primarily due to negative foreign exchange impacts. Organic
sales increased 9.6%, driven by higher sales in Europe and Mexico.
Volume increased 7.3%, while favorable product mix and pricing
contributed 2.3%.
Specialty Products net sales were $77.9 million, a $5.1
million or 7.0% increase from the prior year second quarter driven
by the recent acquisition of the Vi-COR business. Second quarter
organic sales decreased by 0.1% as a 0.8% volume decrease was
largely offset by favorable product mix and pricing of 0.7%.
Gross margin decreased 10 basis points to 44.0% in the
second quarter compared to 44.1% in the prior year second quarter.
The gross margin benefited from the higher margin acquired
businesses, productivity programs, lower couponing, and lower
commodities. These factors were more than offset by foreign
exchange, negative product mix, and incremental costs associated
with the new vitamin capacity in our York manufacturing facility as
the startup phase lasted longer than anticipated.
Marketing expense was $115.8 million, a $2.4 million or
2.1% increase compared to the prior year second quarter. Marketing
expense as a percentage of net sales was 13.7%, a 30 basis point
decrease from the prior year second quarter.
Selling, general, and administrative expense (SG&A)
was $115.0 million which includes an $8.9 million pension
settlement charge. Adjusted SG&A as a percentage of net sales
was 12.5%, a 50 basis point decrease from the prior year second
quarter.
Income from Operations was $142.3 million which includes
the pension settlement charge. Adjusted Operating income as a
percentage of net sales was 17.8%, a 70 basis point increase from
the prior year second quarter.
The effective tax rate in the second quarter was 38.3%,
compared to 34.2% in the second quarter of 2014. This rate includes
the impact of the pension charge and the impairment charge related
to the Natronx joint venture, for which no tax benefit was
recognized. Excluding those items, the adjusted second quarter tax
rate was 33.1%. The Company expects the full year effective tax
rate to be approximately 34.5%, excluding the pension and
impairment charges.
Operating Cash Flow
For the first six months of 2015, net cash from operating
activities was $248.4 million, a $41.6 million increase from the
prior year primarily due to a smaller increase in working capital
and higher cash earnings. Capital expenditures for the first six
months were $34.0 million, a $16.9 million increase from the prior
year period. The Company’s full year outlook for capital
expenditures remains at $70 million.
At June 30, 2015, cash on hand was $203 million, while total
debt was $1,074 million. The Company continues to have significant
financial flexibility for acquisitions.
Natronx Impairment and Pension
Settlement Charge
During the second quarter, the Company recorded a $17 million
pre and post- tax impairment charge ($0.13 per share) associated
with its investment in Natronx. The charge is recorded in other
income/expense. Natronx is a joint venture engaged in the marketing
and distribution of sodium-based dry sorbents for air pollution
control in coal-fired electric utility and industrial boiler
operations. This charge is primarily a result of lower than
expected demand for dry sorbents as a result of a shift in the
electric utility industry from the use of coal-fired to natural
gas-supplied power plants and continued delays in the
implementation of updated federal regulations, most recently
impacted by the US Supreme Court ruling against the EPA where the
court stated that the EPA failed to properly consider the costs to
implement the regulations.
As previously disclosed, the Company settled its Canadian
pension plan obligation and recorded an $8.9 million ($0.05 per
share) settlement charge, which is recorded in SG&A
expense.
New Products
Mr. Craigie stated, “2015 is an exciting year for Church &
Dwight as we have launched innovative new products across every one
of our megabrands and continue to support our 2014 new product
launches. Innovation continues to be a key driver of our
success.
“We continue to believe that innovation is the key to driving
both improved category growth and our share results. A recent
example of this is our new ARM & HAMMER CLUMP & SEAL
lightweight cat litter, whose success with consumers has led to a
double digit increase in sales and consumption. Most importantly,
this new product innovation drove category sales up over 9%, the
strongest growth of any of our categories.”
Outlook for 2015
Mr. Craigie said, “2015 is off to a strong start with a solid
first half. We continue to believe that we are positioned to
deliver strong sales and earnings growth with our balanced
portfolio of value and premium products, the launch of innovative
new products, aggressive productivity programs and tight management
of overhead costs. Despite aggressive competition and the
increasing drag of foreign currency, we feel confident in achieving
our 2015 business targets.”
With regard to the full year outlook for 2015, Mr. Craigie said,
“We continue to expect organic sales growth of approximately 3% in
2015 behind new product introductions on our core business. We
expect gross margin to expand by approximately 25 to 35 basis
points. We intend to heavily invest in the OXICLEAN brand as 2015
will mark the second year of our quest to establish it as our next
megabrand across multiple categories. Marketing spending is
expected to be approximately 12.5% of sales, comparable to the 2014
and 2013 rate of investment. To the extent the Company
over-delivers on gross margin expansion, we expect to incrementally
invest in marketing spending behind our mega brands. We continue to
expect to achieve approximately 50 to 60 basis points of operating
margin expansion, excluding the second quarter pension termination
charge, or operating margin expansion of 25 to 35 basis points on a
reported basis.”
In conclusion, Mr. Craigie said, “Based on our focus on
innovation, and confidence in gross margin expansion, we expect to
achieve 7-9% adjusted EPS growth in 2015, despite the F/X
headwinds. This excludes both the pension termination charge and
the Natronx impairment charge. The midpoint of our 7-9% 2015
outlook now equates to 11.5% currency neutral adjusted EPS growth,
excluding an estimated 3.5% EPS negative impact from foreign
exchange. This EPS growth is top tier within the consumer packaged
goods industry. We delivered double digit earnings growth in the
first half of the year behind 4% organic growth. Due to a more
difficult comparative period, we expect approximately 2% organic
sales growth and 5% EPS growth in the second half of the year. This
earnings forecast does not include any benefit from potential
acquisitions, which we continue to aggressively pursue.”
“For the third quarter, we expect organic sales growth of
approximately 2%. Gross margin is expected to expand versus the
prior year despite investing behind OXICLEAN, unfavorable currency
impacts, and incremental costs for our new gummy vitamin
manufacturing facility. We expect third quarter earnings per share
of $0.87-$0.88.”
Church & Dwight Co., Inc. will host a conference call to
discuss second quarter 2015 results on August 4, 2015 at 10:00 a.m.
(ET). To participate, dial in at 877-322-9846, access code:
71079383 (International: 631-291-4539, same access code:
71079383). A replay will be available two hours after the
call at 855-859-2056 or 404-537-3406 (same access code:
71079383). You also can participate via webcast 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 release contains forward-looking statements, including,
among others, statements relating to expected future financial and
operating results, including earnings per share, reported net sales
growth and organic sales growth, volume growth, including the
effects of new product launches into new and existing categories,
gross margin, operating margin and net cash from operating
activities; category trends; the effect of product mix; impairments
and other charges, including the Natronx impairment charge;
consumer demand and spending, including consumer response to new
product launches; the effects of competition; earnings per share;
gross margin changes; trade and marketing spending; marketing
expense as a percentage of net sales; cost savings programs; the
impact of foreign exchange and commodity price fluctuations; the
impact of a pension settlement charge; the impact of acquisitions;
capital expenditures; the effective tax rate; the effect of the
credit environment on the Company’s liquidity and capital
expenditures; the Company’s fixed rate debt; sufficiency of cash
flows from operations; payment of dividends; and category
trends. 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 might 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; adverse developments affecting the financial
condition of major customers and suppliers; competition, including
The Procter & Gamble Company’s participation in the value
laundry detergent category; 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;
disruptions in the banking system and financial markets; foreign
currency exchange rate fluctuations; 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.
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, 2015
June 30, 2014
June 30,
2015 June 30, 2014
Net Sales
$ 847.1 $ 808.3
$
1,659.4 $ 1,590.3 Cost of sales
474.0 451.9
930.8
894.5
Gross Profit 373.1 356.4
728.6 695.8 Marketing expenses
115.8 113.4
204.6 201.2 Selling, general and administrative expenses
115.0 104.8
209.6
194.4
Income from Operations
142.3 138.2
314.4 300.2 Equity in earnings (losses)
of affiliates
(13.8 ) 2.9
(11.5 ) 4.5
Other income (expense), net
(9.0 )
(6.1 )
(18.1 ) (13.0 ) Income
before Income Taxes
119.5 135.0
284.8 291.7 Income
taxes
45.8
46.2
103.9
100.3
Net Income $
73.7 $ 88.8
$ 180.9 $ 191.4
Net Income per share - Basic $ 0.56 $ 0.66
$ 1.38 $ 1.40
Net Income per share - Diluted
$ 0.55 $ 0.65
$ 1.35
$ 1.38 Dividends per share
$ 0.335 $
0.31
$ 0.67 $ 0.62 Weighted average shares
outstanding - Basic
130.9 134.8
131.4 136.4 Weighted
average shares outstanding - Diluted
133.4
137.3
134.0 138.9
CHURCH & DWIGHT CO., INC. AND
SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in millions)
June 30,
2015 Dec. 31, 2014
Assets
Current Assets
Cash and Cash Equivalents
$ 203.2 $ 423.0 Accounts Receivable
340.4
322.9 Inventories
270.8 245.9 Other Current Assets
33.7 40.7
Total Current
Assets 848.1 1,032.5
Property, Plant and Equipment (Net)
615.5 616.2 Equity
Investment in Affiliates
8.8 24.8 Trade names and Other
Intangibles
1,290.7 1,272.4 Goodwill
1,354.4 1,325.0
Other Long-Term Assets
110.7
110.4
Total Assets $ 4,228.2
$ 4,381.3
Liabilities and Stockholders’ Equity
Short-Term Debt
$ 123.6 $ 146.7 Current portion of Long-Term debt
250.0 249.9 Other Current Liabilities
511.9 508.7
Total Current
Liabilities 885.5
905.3 Long-Term Debt
700.1 698.6 Other Long-Term Liabilities
671.0 675.5 Stockholders’ Equity
1,971.6 2,101.9
Total Liabilities
and Stockholders’ Equity $ 4,228.2
$ 4,381.3
CHURCH & DWIGHT CO., INC. AND
SUBSIDIARIES
Condensed Consolidated Statements of
Cash Flow (Unaudited)
Six Months Ended (Dollars in millions)
June 30, 2015 June 30, 2014
Net Income $ 180.9 $ 191.4 Depreciation
and amortization
51.4 45.7 Deferred income taxes
10.6
8.9 Non cash compensation
12.4 12.8 Asset impairment charge
and other asset write-offs
17.4 5.5 Pension Charge
8.4 - Other
0.7 (0.4 ) Changes in assets and
liabilities: Accounts receivable
(22.9 ) (10.2 )
Inventories
(27.6 ) (18.8 ) Other current assets
0.8 (13.8 ) Accounts payable and accrued expenses
12.6 (11.1 ) Income taxes payable
20.1 14.4 Excess
tax benefit on stock options exercised
(10.7 ) (12.4
) Other
(5.7 ) (5.2 )
Net cash from operating activities 248.4 206.8
Capital expenditures
(34.0 ) (17.1 ) Acquisition
(74.9 ) - Other
(2.0 )
(0.9 )
Net cash (used in) investing activities
(110.9 ) (18.0 ) Net change in short-term debt
(23.0 ) (0.9 ) Payment of cash dividends
(87.5
) (84.6 ) Stock option related
26.4 30.3 Purchase of
treasury stock
(263.1 ) (435.0 ) Other
(0.7 ) (0.1 )
Net cash (used in)
financing activities (347.9 ) (490.3 )
F/X impact on cash (9.4 )
1.5
Net change in cash and cash equivalents
$ (219.8 ) $ (300.0 )
2015 and 2014
Product Line Net Sales
Three Months Ended
Percent 6/30/2015 6/30/2014
Change Household Products
$ 390.9 $ 355.2
10.1 % Personal Care Products
247.4 243.7
1.5 % Consumer Domestic $ 638.3
$ 598.9 6.6 % Consumer
International 130.9
136.6 -4.2 % Total
Consumer Net Sales $ 769.2 $ 735.5
4.6 % Specialty Products Division
77.9 72.8
7.0 % Total Net Sales $ 847.1
$ 808.3 4.8
% Six Months Ended Percent
6/30/2015 6/30/2014
Change Household Products $
757.4 $ 707.7 7.0 % Personal
Care Products 495.5
484.5 2.3 % Consumer
Domestic $ 1,252.9 $ 1,192.2
5.1 % Consumer International
251.3 260.4
-3.5 % Total Consumer Net Sales $
1,504.2 $ 1,452.6 3.6 %
Specialty Products Division 155.2
137.7 12.7
% Total Net Sales $ 1,659.4
$ 1,590.3 4.3
%
The following discussion addresses the
non-GAAP measures used in this press release and reconciliations of
non-GAAP measures to the most directly 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 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 and foreign exchange rate changes that are out of the
control of, and do not reflect the performance of, the Company and
management.
Reported EPS excluding the pension
termination charge and the Natronx impairment charge (Adjusted EPS)
and currency neutral adjusted EPS:
This press release also presents reported EPS excluding a
pension termination charge and the Natronx impairment charge,
namely, earnings per share calculated in accordance with GAAP
adjusted to exclude significant one-time items that is not
indicative of the Company’s period to period performance. We
believe that this metric provides investors a more meaningful
perspective of underlying business trends and results and provides
a more comparable measure of year over year earnings per share
growth.
Currency neutral adjusted EPS is a measure of the Company's
adjusted EPS, further adjusted to exclude the impact of foreign
exchange. We believe that this metric further enhances investors’
understanding of the Company’s year over year earnings per share
growth.
CHURCH & DWIGHT CO., INC.
Organic Sales
Three Months Ended 6/30/2015
Total Worldwide Consumer
Consumer Specialty Company Consumer
Domestic International Products Reported
Sales Growth 4.8 % 4.6 % 6.6
% -4.2 % 7.0 % Less:
Acquisitions 2.4 % 1.6 %
1.7 % 1.5 % 10.1 %
Add: FX / Other 2.7 %
2.6 % -0.2 % 15.3
% 3.0 % Organic Sales
Growth 5.1 % 5.6 %
4.7 % 9.6 %
-0.1 % Six Months Ended 6/30/2015
Total Worldwide Consumer
Consumer Specialty Company Consumer
Domestic International Products Reported
Sales Growth 4.3 % 3.6 % 5.1
% -3.5 % 12.7 % Less:
Acquisitions 2.4 % 1.7 %
1.8 % 1.4 % 10.2 %
Add: FX / Other 2.5 %
2.4 % -0.2 % 14.5
% 2.4 % Organic Sales
Growth 4.4 % 4.3 %
3.1 % 9.6 %
4.9 %
Church & Dwight Co., Inc and
Subsidiaries
Reported vs. Adjusted Condensed
Statement of Income
(Amounts in Millions Except Per Share
Amounts)
Three Months ended June 30, 2015
Three Months ended June 30, 2014 Reported
Adjusted Vs. PY Reported Net
Sales $ 847.1 $ 847.1 $
808.3 Gross Profit 373.1 373.1
356.4 % of Sales 44.0 % 44.0
% 44.1 % Marketing Expenses
115.8 115.8 113.4 Selling, General
and Administrative Expenses 115.0
106.1 (1) 104.8 Operating
Profit 142.3 151.2 138.2 % of Sales
16.8 % 17.8 % 17.1 %
Other Income/(Expense) (22.8 )
(5.8 ) (2) (3.2 )
Income Before Taxes 119.5 145.4
135.0 Income Taxes 45.8 48.1
46.2 Tax Rate 38.3 %
33.1 % 34.2 % Net
Income $ 73.7 $ 97.3 $
88.8 Diluted EPS $ 0.55 $
0.73 +12.3% $ 0.65 Currency
Impact to EPS $ 0.03 Currency Neutral
Adjusted EPS $ 0.76 +16.9% (1)
Excludes Pension Settlement Charge (2) Excludes Natronx
Impairment Charge
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150804005876/en/
Church & Dwight Co., Inc.Rick Dierker,
609-806-1900VP, Corporate Finance
Church and Dwight (NYSE:CHD)
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