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5 Reasons Why Church & Dwight (CHD) Has More Room to Run


Church & Dwight Co., Inc. CHD has all those things it takes to be able to witness growth – robust international presence, impressive organic sales trend and much more. In fact, courtesy of these factors, the Zacks Rank #2 (Buy) stock has managed to return 3.8% in the past six months, even when the industry was down 9.4%.

Though escalated costs remain a threat to margins, we expect the Church & Dwight’s strategic growth efforts to help offset these hurdles and fuel further growth at the company, which possesses a long-term earnings per share growth rate of 10.5%. On that note, let’s delve deeper into these catalysts.

Focus on Acquisitions Strengthens Portfolio

Church & Dwight, which started with only one brand (ARM & HAMMER) has acquired a number of premium brands over time. These businesses boosted the company’s revenues from $1.5 billion in 2004, which is expected to reach $4 billion in 2018. Progressing on these lines, Church & Dwight concluded the buyout of Waterpik in the third quarter and is on track with its integration. The company's other recent acquisitions include Agro BioSciences in May 2017 and VIVISCAL business in January 2017. Prior to that, the acquisitions of ANUSOL and RECTINOL brands from Johnson & Johnson in December 2016 helped the company boost its business internationally.

International Consumer Business: A Major Growth Avenue

The company’s international consumer business has been consistently contributing to organic sales growth of the company. In fourth-quarter 2017, organic sales in the international segment jumped 5.8% courtesy of higher volumes. Further, overall international sales surged 33.3%, receiving considerable impetus from STERIMAR and OXICLEAN in the export business; STERIMAR, ARM & HAMMER toothpaste and OXICLEAN in Mexico; and ARM & HAMMER cat litter and BATISTE in Canada. Well, ARM & HAMMER remains the company’s biggest international brand, which is well placed to grow further in emerging markets. Notably, the international consumer business has been a growth driver over the past few years and exceeded expectations with 11.8%, 7.4% and 6.2% organic growth in the first, second and third-quarter 2017, respectively. In fact, the international business grew 8% in 2015, 10% in 2016 and 18.3% in 2017.

The company is also opening new offices in order to support increase in export business and expects this business to remain strong. Further, it is making considerable investments in Southeast Asia and China, which is likely to be a major growth driver in future. This is well-evident from the company’s recent tie-up with DKSH, to make the latter Church & Diwght’s leading distributor in Southeast Asia. The company continues to invest in the international consumer business to sustain its strong sales growth.

Organic Sales Trend Bodes Well

Church & Dwight has been witnessing organic sales growth for quite some time now, backed by its solid focus on product innovations. Evidently, organic sales jumped 2.3%, 1.8%, 3.2% and 3.4% in the first, second, third and fourth-quarter 2017, respectively. In the fourth quarter, organic sales growth came ahead of the company’s guidance of 2.5% and was driven by higher volumes and better-than-expected sales at all the three segments. Organic sales rose 2.7%, 5.8% and 5.1% in the Consumer Domestic, International and Specialty Products segments, respectively. In 2018, management expects organic sales to grow 3%, which is also its evergreen annual growth target.

Q4 Retains Earnings Surprise Trend, View Looks Encouraging

Buoyed by these factors, Church & Dwight marked its fifth consecutive positive earnings surprise, when it came out with fourth-quarter 2018 – wherein both top and bottom lines grew year over year. Further, Church & Dwight’s stable portfolio of value and premium products, launch of new and innovative products, and aggressive productivity programs are expected to keep driving its performance. Also, management remains impressed with the broad-based growth and expects gains from tax reforms to benefit the bottom line. The effective tax rate in 2018 is expected to be about 24-25% compared with 32% in 2017. Consequently, the company estimates earnings per share of $2.24-$2.28, reflecting 16-18% growth in 2018.

Shareholder-Friendly Moves Instill Optimism

Apart from this, the consumer goods behemoth has a consistent track record of returning cash to shareholders in the form of dividend payments and share repurchases. In fact, management recently raised its quarterly dividend by 14%, which marked the company’s 22nd straight year of dividend increase. Notably, the company has regularly paid dividend for 117 years. Also, in the last quarter management authorized a new buyback plan of shares up to $500 million.

Clearly, these factors reflect Church & Dwight’s robust ongoing prospects, which should drive further cheerfulness among investors.

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