EWING, N.J.--(BUSINESS WIRE)--Church & Dwight Co., Inc. (NYSE: CHD) today announced reported third quarter 2019 EPS of $0.62, a 6.9% increase. Adjusted EPS, which excludes the FLAWLESS® earn-out adjustment, grew 13.8% to $0.66.² Both reported and adjusted EPS include a $0.03 EPS benefit from a retroactive tariff exemption. Adjusted EPS of $0.66 exceeded the Company’s $0.60 outlook.
Third quarter net sales grew 5.0% to $1,089.4 million. Organic sales grew 3.6% driven by positive product mix and pricing of 4.3% partially offset by a volume decline of 0.7%.
Matthew Farrell, Chief Executive Officer, commented, “Q3 was another outstanding quarter with sales growth of 5.0%. Organic sales grew 3.6%, exceeding our 3.0% outlook. Our categories continue to grow and our market shares are healthy. 12 of our 15 domestic categories grew during the quarter and more than half have grown at least 8 consecutive quarters. In the domestic business, 9 out of 12 power brands met or exceeded category growth in the third quarter. The international business continues to perform strongly with reported sales growth of 7.1% and organic sales growth of 8.7%.”
Third Quarter Review
Consumer Domestic net sales were $827.6 million, a $42.7 million or 5.4% increase driven by household and personal care sales growth. Organic sales increased 3.3% as price and positive product mix (+5.1%) offset lower volume (-1.8%). Lower volume resulted from lower promotional spending and the impact of price increases. Organic growth was led by ARM & HAMMER® liquid laundry detergent, WATERPIK® oral care products, VITAFUSION® and L’IL CRITTERS® gummy vitamins, BATISTE® dry shampoo, ARM & HAMMER clumping cat litter, and ARM & HAMMER scent booster.
Consumer International net sales were $186.4 million, a $12.3 million or a 7.1% increase driven by growth of the Global Markets Group (formerly called “Export”) business, and broad-based household and personal care sales growth. Organic sales increased 8.7% due to higher volume (+5.4%) and price and product mix (+3.3%). Organic sales were driven primarily by BATISTEand VITAFUSION in the Global Markets Group business, ARM & HAMMER liquid laundry detergent and STERIMAR® in Mexico, and BATISTE dry shampoo in Australia and Germany. WATERPIK and FLAWLESS acquisitions are excellent additions to the international business.
Specialty Products net sales were $75.4 million, a $3.2 million or 4.1% decrease. Organic sales decreased 4.1% due to lower volume (-3.1%) and pricing (-1.0%). Demand for dairy products decreased while non-dairy product demand continued to grow.
Gross margin increased 230 basis points to 46.6% due primarily to acquisition accounting in connection with FLAWLESS (100 bps.) and a retroactive tariff exemption benefit (100 bps.).
Marketing expense was $125.2 million, an increase of $4.7 million or +3.9%. Marketing expense as a percentage of net sales was 11.5%. Full year marketing expectations are unchanged. The Company continues to expect fourth quarter marketing to be higher in dollars and higher as a percent of sales versus a year ago.
Selling, general, and administrative expense (SG&A) was $165.7 million, an increase of $30.3 million, or 15.2% of net sales, a 220 basis point increase. Adjusted SG&A increased 110 basis points primarily due to intangible amortization costs related to acquisitions.²
Income from Operations was $216.8 million or 19.9% of net sales, a 20 basis point increase. Excluding the FLAWLESS earn-out adjustment, income from operations was 21.0% of net sales or a 130 basis point increase.²
Other Expense was $18.3 million, a decrease of $1.1 million, primarily due to lower interest expense.
The effective tax rate was 21.6% compared to 21.9% in 2018, a decrease of 30 basis points. The expected full year effective tax rate is unchanged at approximately 21%.
Operating Cash Flow
For the first nine months of 2019, net cash from operating activities was $617.5 million, a $49.5 million increase from the same period last year as higher cash earnings were partially offset by an increase in net working capital. The Company now expects to generate approximately $815 million of net cash flow from operating activities for the full year. Capital expenditures for the first nine months were $39.7 million, a $9.3 million increase from the prior year. We now expect the Company’s full year outlook for capital expenditures to be approximately $80 million.
At September 30, 2019, cash on hand was $114.7 million, while total debt was $2,183.2 million.
2019 New Products
In the household products portfolio, the Company’s ARM & HAMMER CLUMP & SEAL® CLOUD CONTROL® cat litter has become our second highest rated litter product online. It is a first-of-its-kind cat litter that eliminates 100% of dust, keeps dander in the litter box, has an allergen-free light scent, and provides a 7-day odor control guarantee. Combining stain fighting power with clothing protection, ARM & HAMMER plus OXICLEAN® laundry detergent FADE DEFENSE™ launch is off to a strong start. OXICLEAN’S DARK PROTECT® laundry booster launch for dark and black fabrics that incorporates anti-fade technology, cold water solubility, and OXICLEAN stain fighters continues to build distribution at leading retailers.
In the personal care portfolio, WATERPIK launched SONIC FUSION®, the world’s first single device flossing toothbrush and water flosser is the most successful innovation in the history of WATERPIK. VITAFUSIONMagnesium is the first major branded magnesium gummy vitamin to market. BATISTE launched a Hair Benefits line with a hydrating dry shampoo for dry hair, and a volumizing dry shampoo for fine hair which is currently is the #1 growth item in the category. The NAIR® launch of LEG MASK™ hair removal, a first for legs, with natural clay, seaweed, and charcoal has been highly incremental to the brand delivering record high share in the depilatory category.
Outlook for 2019
Mr. Farrell stated, “We are closing in on another outstanding year for Church & Dwight. We now expect approximately 5% full year 2019 sales growth and continue to expect approximately 4% organic sales growth. The reported sales outlook now reflects a November 1, 2019 integration date for the FLAWLESS acquisition. Full year gross margin is expected to expand 100 basis points or 60 basis points, excluding the FLAWLESSacquisition accounting. Full year marketing expense dollars are expected to increase and as a percentage of net sales to be 11.7%, flat to 2018. We continue to expect $2.47 per share or 9% adjusted EPS growth.¹&²
We intend to make incremental investments in Q4 as a result of our strong results and tariff relief. As in years past, these actions help the Company enter the coming year with momentum. Specifically, we expect significantly higher marketing spending and investments as we accelerate approximately $10 million of spending in R&D, predictive analytics, supply chain, and sustainability. We also intend to accelerate $4 million of investments in our long-term Asia Pacific relationships. In Q4, we expect reported sales growth of approximately 6%, organic sales growth of approximately 3%, gross margin expansion, significantly higher marketing expense, and higher SG&A associated with the FLAWLESS acquisition and reinvestment in the business. As a result of these investments and a higher tax rate, we expect Q4 adjusted EPS to be $0.54 per share excluding the earn-out adjustment from our acquisition of the FLAWLESS business¹.”
¹This press release does not provide a forward-looking reconciliation of adjusted EPS to reported EPS, the most directly comparable GAAP financial measure, expected for 2019 or for the fourth quarter of 2019, because we are unable to provide such a reconciliation without unreasonable effort. We have excluded the Company’s potential earn-out liability from our acquisition of the FLAWLESS business from our expected adjusted EPS for these periods. We are required to review the fair value of the earn-out liability quarterly based on changes in sales forecasts, discount rates, volatility assumptions, and other inputs. Our inability to provide a reconciliation to GAAP EPS for future periods is due to the uncertainty and inherent difficulty of predicting what these changes will be on a quarter-by-quarter basis. For the same reasons, we are unable to address the probable significance of the unavailable information, which could be material to our future results.
²Excludes the third quarter $0.04 negative impact from the FLAWLESS acquisition earn-out adjustment.
Church & Dwight Co., Inc. (NYSE: CHD) founded in 1846, is the leading U.S. producer of sodium bicarbonate, popularly known as baking soda. The Company manufactures and markets a wide range of personal care, household, and specialty products under recognized brand names such as ARM & HAMMER®, TROJAN®, OXICLEAN®, SPINBRUSH®, FIRST RESPONSE®, NAIR®, ORAJEL®, XTRA®, L’IL CRITTERS® and VITAFUSION®, BATISTE®, WATERPIK®, and FLAWLESS®. These twelve key brands represent approximately 85% of the Company’s products sales. For more information, visit the Company’s website.
Church & Dwight has a strong heritage of commitment to people and the planet. In the early 1900’s, we began using recycled paperboard for all packaging of household products. Today, virtually all our paperboard packaging is from certified, sustainable sources. In 1970, the ARM & HAMMER™® brand introduced the first nationally-distributed, phosphate-free detergent. That same year, Church & Dwight was honored to be the sole corporate sponsor of the first annual Earth Day. Church & Dwight is notably ranked in the 2018 Barron’s 100 Most Sustainable Companies and on the EPA’s Green Power Partnership Top 100 List of Green Power Users.
