Church & Dwight(CHD) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents the company's financial statements, management's discussion and analysis, and disclosures on market risk and internal controls Financial Statements The company reported strong Q2 and H1 2024 financial growth, with increased net sales, gross profit, and diluted EPS, supported by a robust balance sheet Q2 & H1 2024 Key Financial Performance (in millions, except per share data) | Metric | Q2 2024 | Q2 2023 | % Change | H1 2024 | H1 2023 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,511.2 | $1,454.2 | 3.9% | $3,014.5 | $2,884.0 | 4.5% | | Gross Profit | $712.1 | $638.9 | 11.5% | $1,399.1 | $1,260.9 | 11.0% | | Income from Operations | $336.9 | $293.6 | 14.7% | $641.9 | $585.5 | 9.6% | | Net Income | $243.5 | $221.2 | 10.1% | $471.2 | $424.4 | 11.0% | | Diluted EPS | $0.99 | $0.89 | 11.2% | $1.91 | $1.72 | 11.0% | Balance Sheet Summary (in millions) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $1,755.2 | $1,529.7 | | Total Assets | $8,762.1 | $8,569.2 | | Total Current Liabilities | $1,149.7 | $1,422.0 | | Total Liabilities | $4,456.6 | $4,713.8 | | Total Stockholders' Equity | $4,305.5 | $3,855.4 | Cash Flow Summary - Six Months Ended June 30 (in millions) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash Provided By Operating Activities | $499.9 | $509.2 | | Net Cash Used In Investing Activities | $(91.5) | $(69.2) | | Net Cash Provided By (Used In) Financing Activities | $(257.4) | $(315.4) | | Net Change In Cash and Cash Equivalents | $147.2 | $126.6 | Notes to Condensed Consolidated Financial Statements The notes detail key accounting policies, including the Graphico, Inc. acquisition, potential impairment risks for VITAFUSION/LIL' CRITTERS and WATERPIK, and segment performance - On June 3, 2024, the Company acquired Graphico, Inc., a Japan-based distributor, for $19.9 million net of cash[34] - The VITAFUSION and LIL' CRITTERS trade name, with a carrying value of $281.3 million, is susceptible to future impairment risk due to continued market share decline, significant competition, and reduced shelf space[42][44][45] - The global WATERPIK business has experienced a significant decline in customer demand due to lower discretionary spending and a shift to value-branded products, eroding the excess fair value over its carrying value of $644.7 million and making it susceptible to impairment[46][47] Segment Net Sales & Income Before Taxes - H1 2024 vs H1 2023 (in millions) | Segment | H1 2024 Net Sales | H1 2023 Net Sales | H1 2024 Income | H1 2023 Income | | :--- | :--- | :--- | :--- | :--- | | Consumer Domestic | $2,335.8 | $2,245.1 | $512.4 | $459.4 | | Consumer International | $518.7 | $472.5 | $65.9 | $56.4 | | SPD | $160.0 | $166.4 | $22.1 | $16.0 | | Corporate | $0.0 | $0.0 | $4.2 | $6.4 | | Total | $3,014.5 | $2,884.0 | $604.6 | $538.2 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 net sales growth to volume and price/mix, with gross margin expanding significantly due to a tariff ruling and productivity, while maintaining strong liquidity and executing strategic transactions Consolidated Results Summary - Q2 2024 vs Q2 2023 | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,511.2M | $1,454.2M | +3.9% | | Gross Margin | 47.1% | 43.9% | +320 bps | | Operating Margin | 22.3% | 20.2% | +210 bps | | Diluted EPS | $0.99 | $0.89 | +11.2% | - A favorable tariff ruling from the U.S. government related to certain products imported from China resulted in a $26.1 million reduction in Cost of Goods Sold during the second quarter of 2024, contributing 180 basis points to the gross margin increase[70][76] - The company completed several strategic transactions in 2024: acquired Graphico, Inc. to expand in the APAC region, exited the MEGALAC supplement portion of its Animal Nutrition business, and sold its Passport food safety business[69] - As of June 30, 2024, the company had strong liquidity with $491.7 million in cash and approximately $1.495 billion available through its Revolving Credit Facility and commercial paper program[92] Results of Operations Consolidated Q2 2024 net sales increased 3.9% driven by volume and price/mix, with gross margin expanding significantly due to a tariff ruling and productivity, alongside increased marketing and SG&A expenses Components of Net Sales Increase - Q2 2024 | Component | Contribution | | :--- | :--- | | Product volumes sold | 3.5% | | Pricing/Product mix | 1.2% | | Foreign exchange rate fluctuations | (0.1%) | | Exit of product lines (net of acquisition) | (0.7%) | | Net Sales increase | 3.9% | - Q2 2024 gross margin increased by 320 basis points, driven by a favorable tariff ruling (180 bps), productivity programs (120 bps), and favorable price/mix/volume (80 bps), partially offset by higher manufacturing costs (50 bps)[76] - Marketing expenses increased by 15.3% to $152.4 million in Q2 2024, primarily to support new product introductions[77] Segment Results Q2 2024 saw Consumer Domestic and International sales growth, while Specialty Products (SPD) sales decreased due to divestitures, though showing growth excluding these impacts - Consumer Domestic Q2 net sales increased 3.8%, driven by strong performance from THERABREATH®, HERO® acne products, and ARM & HAMMER® Cat Litter, partially offset by declines in VITAFUSION® supplements and WATERPIK® Shower Heads[83] - Consumer International Q2 net sales grew 9.0%, with a 4.6% increase in volume and 4.7% from price/mix[85][86] - SPD Q2 net sales decreased 8.6%, primarily due to a 12.5% negative impact from exiting the MEGALAC and Passport businesses[89][90] Liquidity and Capital Resources The company maintains strong liquidity with substantial cash and credit facility availability, repaid a term loan, increased its quarterly dividend, and expects operating cash flow to fund future needs - The company has a $1.5 billion unsecured revolving credit facility and a corresponding commercial paper program, with approximately $1.495 billion available as of June 30, 2024[92] - No stock was repurchased under the 2021 Share Repurchase Program in 2024, leaving $658.9 million available for repurchase[94] - The Board declared a 4% increase in the quarterly dividend to $0.28375 per share, effective in Q1 2024[95] Quantitative and Qualitative Disclosures about Market Risk This section refers to the company's Annual Report on Form 10-K for detailed quantitative and qualitative disclosures regarding market risk - For information regarding market risk, the company directs investors to Item 7A of Part II in its Form 10-K[99] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2024 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[100] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls[101] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other disclosures, and a list of exhibits Legal Proceedings The company is involved in various legal actions and government proceedings in the ordinary course of business, with uncertain outcomes - The Company is subject to various pending or threatened legal actions and proceedings in the ordinary course of business, the outcomes of which are subject to many uncertainties[104] Risk Factors This section refers to the risk factors discussed in Item 1A of the company's Annual Report on Form 10-K, which could materially affect the company's business - The report directs readers to the 'Risk Factors' section in the company's Form 10-K for a detailed discussion of factors that could materially affect the business[105] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2024, the company did not repurchase any shares of its Common Stock, leaving $658.9 million available under the 2021 Share Repurchase Program - No shares of Common Stock were repurchased during Q2 2024 as part of the company's publicly announced plans[106][107] - As of June 30, 2024, the company has $658.9 million remaining under its 2021 Share Repurchase Program authorization[106] Other Information During the three months ended June 30, 2024, none of the company's directors or executive officers adopted or terminated a Rule 10b5-1 trading plan - No directors or executive officers adopted or terminated any Rule 10b5-1 securities trading plans during the second quarter of 2024[108] Exhibits This section provides an index of the exhibits filed with the Form 10-Q, including corporate governance documents and certifications - The Exhibit Index lists all documents filed with the report, such as the Certificate of Incorporation, By-laws, and CEO/CFO certifications[109]