Church & Dwight(CHD) - 2024 Q3 - Quarterly Results

Executive Summary & Q3 Highlights Church & Dwight exceeded Q3 2024 expectations with strong sales growth, gross margin expansion, and increased adjusted EPS, driven by robust consumer demand and strategic investments Q3 2024 Performance Overview Church & Dwight exceeded its Q3 2024 outlook with stronger sales growth, gross margin expansion, and a 6.8% increase in adjusted EPS to $0.79, driven by robust consumer demand Q3 2024 Key Performance Metrics | Metric | Q3 2024 Performance | Outlook/Change | | :----- | :------------------ | :------------- | | Net Sales | +3.8% to $1,510.6M | Exceeded outlook | | Organic Sales | +4.3% | - | | Adjusted Gross Margin | +60 bps | Exceeded outlook | | Reported Loss per Share | -$0.31 | Due to impairment | | Adjusted EPS | $0.79 (+6.8%) | Exceeded outlook of $0.67 | | YTD Cash from Operations | $863.9M | - | CEO Commentary CEO Matthew Farrell attributed strong Q3 results to brand strength, new product success, and execution, with volume driving organic growth and increased marketing boosting consumption and online sales - Volume was the primary driver of organic growth in Q3, a trend expected to continue in Q4[2] - Marketing as a percentage of sales increased 80 basis points, driving consumption and share gains[2] - Global online sales grew to 20.7% of total consumer sales in Q3[2] Third Quarter Detailed Review This section provides a detailed breakdown of the company's financial performance across divisions, gross margin, and operating expenses for the third quarter Consumer Domestic Division Consumer Domestic net sales grew 3.3% to $1,170.8 million, driven by personal care, with organic sales also up 3.3% from volume and price/mix contributions Consumer Domestic Division Q3 2024 Performance | Metric | Q3 2024 Performance | | :----- | :------------------ | | Net Sales | $1,170.8 million | | Net Sales Growth | +3.3% | | Organic Sales Growth | +3.3% | | Volume Contribution | +2.6% | | Price & Product Mix Contribution | +0.7% | - Growth was led by HERO™ acne products, THERABREATH™ mouthwash, ZICAM™ supplements, SPINBRUSH™ toothbrushes, and ARM & HAMMER™ Scent Boosters[4] Consumer International Division Consumer International net sales increased 9.5% to $267.7 million, with organic sales growing 8.1% driven by volume and positive price/mix, led by key brands Consumer International Division Q3 2024 Performance | Metric | Q3 2024 Performance | | :----- | :------------------ | | Net Sales | $267.7 million | | Net Sales Growth | +9.5% | | Organic Sales Growth | +8.1% | | Volume Contribution | +5.3% | | Price & Product Mix Contribution | +2.8% | - Growth was led by HERO, THERABREATH and OXICLEAN™[5] Specialty Products Division Specialty Products net sales decreased 8.0% to $72.1 million due to business exits, yet organic sales grew 7.5% from price/mix and volume, reflecting a profitable growth strategy Specialty Products Division Q3 2024 Performance | Metric | Q3 2024 Performance | | :----- | :------------------ | | Net Sales | $72.1 million | | Net Sales Growth | -8.0% | | Organic Sales Growth | +7.5% | | Price & Product Mix Contribution | +3.9% | | Volume Contribution | +3.6% | - The decrease in net sales reflects the exit of the Megalac business in Q1 and the food safety business in Q2, aligning with a strategy to focus on more profitable growth[3][5] Gross Margin Analysis Reported gross margin increased 80 basis points to 45.2%, with adjusted gross margin expanding 60 basis points to 45.0%, driven by productivity, higher volumes, and favorable mix Gross Margin Performance | Metric | Q3 2024 | Q3 2023 | Change (bps) | | :----- | :------ | :------ | :----------- | | Reported Gross Margin | 45.2% | 44.4% | +80 | | Adjusted Gross Margin | 45.0% | 44.4% | +60 | - Gross margin improvement was due to improved productivity, the benefit of higher volumes and mix, net of the impact of higher manufacturing costs[6] Marketing Expense Marketing expense increased by $18.0 million to $185.8 million, representing 12.3% of net sales, an 80 basis point increase reflecting strategic investment in brands Marketing Expense Overview | Metric | Q3 2024 | Q3 2023 | Change | | :----- | :------ | :------ | :----- | | Marketing Expense | $185.8M | $167.8M | +$18.0M | | Marketing % of Net Sales | 12.3% | 11.5% | +80 bps | Selling, General, and Administrative Expense (SG&A) Reported SG&A was $231.7 million, with adjusted SG&A at $226.9 million (15.0% of net sales), a 20 basis point increase driven by investments in International, R&D, and IT SG&A Expense Overview | Metric | Q3 2024 | Q3 2023 | Change (bps) | | :----- | :------ | :------ | :----------- | | Reported SG&A | $231.7M | $222.7M | - | | Adjusted SG&A | $226.9M | $215.4M | - | | Adjusted SG&A % of Net Sales | 15.0% | 14.8% | +20 | - The increase in adjusted SG&A was primarily due to investments in International, R&D, and IT[7] Income from Operations The company reported an Income from Operations loss of $91.5 million due to an impairment charge, while adjusted Income from Operations increased 1.6% to $267.2 million despite higher investments Income from Operations Performance | Metric | Q3 2024 | Q3 2023 | Change | | :----- | :------ | :------ | :----- | | Reported Income from Operations | -$91.5M | $255.8M | - | | Adjusted Income from Operations | $267.2M | $263.1M | +1.6% | - The reported loss was due to the non-cash impairment charge, while adjusted income from operations increased despite higher marketing and SG&A investments[8] Other Expense Other Expense decreased by $11.9 million, with adjusted other expense down $7.3 million, primarily due to lower outstanding debt and higher interest income Other Expense Performance | Metric | Q3 2024 | Q3 2023 | Change | | :----- | :------ | :------ | :----- | | Reported Other Expense, net | -$12.9M | -$23.5M | -$10.6M | | Adjusted Other Expense, net | -$14.5M | -$21.8M | -$7.3M | - The decrease in adjusted other expense was primarily due to lower outstanding debt and higher interest income[8] Tax Rate The company recorded a 25.9% tax benefit in Q3 due to vitamin impairment, resulting in an effective tax rate of 23.8% (excluding impairment), with the full-year adjusted rate now expected at 22.5% Tax Rate Overview | Metric | Q3 2024 | Q3 2023 | | :----- | :------ | :------ | | Reported Tax Benefit | 25.9% | - | | Effective Tax Rate (excl. impairment) | 23.8% | 24.1% | | Full Year Adjusted Effective Tax Rate Outlook | ~22.5% | ~23% (previous) | Operating Cash Flow Cash from operations for the first nine months of 2024 increased by $68.8 million to $863.9 million, with the full-year outlook raised to $1.1 billion, while capital expenditures also increased Operating Cash Flow and Capital Expenditures | Metric | 9 Months Ended Sep 30, 2024 | 9 Months Ended Sep 30, 2023 | Change | | :----- | :-------------------------- | :-------------------------- | :----- | | Cash from Operations | $863.9M | $795.1M | +$68.8M | | Capital Expenditures | $125.2M | $121.5M | +$3.7M | - Full year cash flow from operations is now expected to be approximately $1.1 billion (previously $1.08 billion)[1][10][21] - At September 30, 2024, cash on hand was $752.1 million, while total debt was $2.2 billion[10] Intangible Asset Impairment Church & Dwight recorded a $357.1 million pre-tax non-cash impairment charge in Q3 on assets from its 2012 vitamin business acquisition, reflecting reduced long-term growth expectations Q3 2024 Impairment Charges | Metric | Q3 2024 Impairment | | :----- | :----------------- | | Pre-tax Impairment Charge | $357.1M | | After-tax Impairment Charge | $270.1M | - The impairment charge was due to a reduction in the Company's expectations about the long-term growth and profit outlook for the VMS business (vitamin business)[11] 2024 New Product Launches Product innovation remains a key driver, with several new launches in 2024 across major brands aimed at meeting consumer demands, expanding market share, and enhancing value - ARM & HAMMER™ Laundry launched Deep Clean™ Liquid and Unit Dose Laundry Detergent, entering the mid-tier category with superior clean[12] - ARM & HAMMER™ Laundry POWER SHEETS™ Laundry Detergent, initially launched online, is now available in select brick & mortar retailers due to online success, offering an effective, convenient, and plastic-bottle-waste-eliminating solution[13] - ARM & HAMMER™ Hardball™ Clumping Litter expanded nationally, a plant-based, lightweight litter designed for no-mess scooping to capture greater share in the lightweight litter category[14] - THERABREATH™ entered the antiseptic segment with Deep Clean Oral Rinse, formulated to kill 99.9% of germs without the burn[15] - BATISTE™ launched Sweat Activated and Touch Activated dry shampoos, offering longer-lasting results with advanced fragrance-release technology[16] - HERO™ continues to drive acne category growth as the 1 patch brand, launching innovative solutions like Dissolve Away Daily Cleansing Balm to broaden offerings for acne-prone skin[17] Full Year 2024 Outlook The company provides its full-year 2024 outlook for sales, gross margin, marketing investments, EPS, and cash flow, along with specific Q4 projections Sales Outlook Despite cautious Q4 consumer growth, Church & Dwight affirms its full-year reported sales growth outlook of approximately 3.5% and organic sales growth of approximately 4% Full Year 2024 Sales Outlook | Metric | Full Year 2024 Outlook | | :----- | :--------------------- | | Reported Sales Growth | ~3.5% | | Organic Sales Growth | ~4.0% | Gross Margin Outlook The company is raising its full-year adjusted gross margin expansion outlook to approximately 110 basis points, driven by pricing, improved mix, higher volume, and productivity, offsetting manufacturing costs Full Year 2024 Gross Margin Outlook | Metric | Full Year 2024 Outlook | Previous Outlook | | :----- | :--------------------- | :--------------- | | Adjusted Gross Margin Expansion | ~110 bps | 100-110 bps | Marketing & SG&A Investment Outlook Church & Dwight plans continued investment in brands, expecting marketing as a percentage of sales to be above 11%, with Q4 investments aimed at driving future growth and 2025 momentum Full Year 2024 Marketing Outlook | Metric | Full Year 2024 Outlook | Previous Outlook | | :----- | :--------------------- | :--------------- | | Marketing as % of Sales | >11% | ~11% | - Q4 investments will focus on driving future growth with higher marketing and SG&A investments to build momentum for 2025[20] EPS Outlook Full-year reported EPS is expected to decline approximately 23% due to impairment, while adjusted EPS growth is anticipated at approximately 8%, with an adjusted tax rate of 22.5% Full Year 2024 EPS Outlook | Metric | Full Year 2024 Outlook | | :----- | :--------------------- | | Reported EPS Growth | ~-23% | | Adjusted EPS Growth | ~+8% | | Adjusted Tax Rate | ~22.5% | Cash Flow & Capital Expenditures Outlook Cash flow from operations is now expected at approximately $1.1 billion, with capital expenditures projected at $180 million for 2024, and a continued focus on accretive acquisitions Full Year 2024 Cash Flow & Capital Expenditures Outlook | Metric | Full Year 2024 Outlook | Previous Outlook | | :----- | :--------------------- | :--------------- | | Cash Flow from Operations | ~$1.1B | ~$1.08B | | Capital Expenditures | ~$180M | - | - Capital spending is expected to return to historical levels (approximately 2% of sales) in 2025[22] - Capital allocation priorities remain unchanged, with an emphasis on pursuing accretive acquisitions of fast-moving consumable products (e.g., ZICAM, THERABREATH, and HERO)[22] Q4 2024 Specific Outlook For Q4 2024, reported sales growth is expected at 1.5-2.5% and organic sales growth at 2-3%, with adjusted EPS projected at $0.76, a 17% increase year-over-year Q4 2024 Outlook | Metric | Q4 2024 Outlook | | :----- | :-------------- | | Reported Sales Growth | 1.5-2.5% | | Organic Sales Growth | 2-3% | | Reported EPS | $0.75 | | Adjusted EPS | $0.76 (+17% YoY) | Company Information & Disclosures This section provides details on the Q3 webcast, company profile, sustainability efforts, and important disclosures regarding forward-looking statements and non-GAAP financial measures Webcast Details Church & Dwight hosted a webcast on November 1, 2024, at 10:00 a.m. (ET) to discuss Q3 2024 results, with a replay available until November 8, 2024 - Webcast for Q3 2024 results was held on November 1, 2024, at 10:00 a.m. (ET) and was available for replay until November 8, 2024[24] Company Profile & Brands Founded in 1846, Church & Dwight Co., Inc. (NYSE: CHD) is a leading U.S. producer of sodium bicarbonate, marketing a wide range of personal care, household, and specialty products under well-known brands - Church & Dwight is the leading U.S. producer of sodium bicarbonate (baking soda)[25] - Key brands include ARM & HAMMER®, TROJAN®, OXICLEAN®, SPINBRUSH®, FIRST RESPONSE®, NAIR®, ORAJEL®, XTRA®, L'IL CRITTERS®, VITAFUSION®, BATISTE®, WATERPIK®, ZICAM®, THERABREATH®, and HERO®[25] Sustainability Initiatives Church & Dwight demonstrates a long-standing commitment to sustainability, evidenced by early recycled packaging and phosphate-free detergents, earning recognition on various environmental and responsibility lists - Company has a heritage of commitment to people and the planet, using recycled paperboard since early 1900s and launching the first nationally distributed, phosphate-free detergent in 1970[26] - Recognized on Newsweek's America's Most Responsible and America's Greenest Companies lists, EPA's Green Power Partnership-Top 100 list, and the FTSE4Good Index Series in 2023[26] Forward-Looking Statements This press release contains forward-looking statements subject to various risks and uncertainties, including market conditions, raw material prices, and regulatory changes, advising investors to consult 10-K and 10-Q filings for detailed risk factors - Forward-looking statements are subject to risks and uncertainties, including market growth, economic conditions, raw material and energy prices, competition, and regulatory changes[27][28] - Investors should consult Item 1A, 'Risk Factors' in the Company's annual report on Form 10-K and quarterly reports on Form 10-Q for additional factors[29] Non-GAAP Financial Measures Explanation The press release includes non-GAAP financial measures, used by management for internal analysis and provided for investor insight, with reconciliations to GAAP measures, but should not be considered in isolation - Non-GAAP measures are used by management for internal analysis and are believed to be informative for investors to gauge financial performance and identify trends[30] - Reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures are included at the end of the release[30] - Non-GAAP measures should not be considered in isolation or as a substitute for GAAP measures and may differ from similar measures provided by other companies[30] Financial Statements & Reconciliations This section presents the condensed consolidated financial statements and reconciliations of non-GAAP measures for the quarter and nine months ended September 30, 2024 Condensed Consolidated Statements of (Loss) Income The condensed consolidated statements of (loss) income show a Q3 2024 net loss of $75.1 million due to a $357.1 million impairment charge, impacting nine-month net income which fell to $396.1 million Condensed Consolidated Statements of (Loss) Income (Unaudited) | Metric (in millions) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Sales | $1,510.6 | $1,455.9 | $4,525.1 | $4,339.9 | | Gross Profit | $683.1 | $646.3 | $2,082.2 | $1,907.2 | | Tradename and other asset impairments | $357.1 | $0.0 | $357.1 | $0.0 | | (Loss) Income from Operations | $(91.5) | $255.8 | $550.4 | $841.3 | | Net (Loss) Income | $(75.1) | $177.5 | $396.1 | $601.9 | | Net (Loss) Income per share - Diluted | $(0.31) | $0.71 | $1.61 | $2.43 | | Dividends per share | $0.28 | $0.27 | $0.85 | $0.82 | Condensed Consolidated Balance Sheets As of September 30, 2024, total assets increased to $8,666.2 million from $8,569.2 million at year-end 2023, primarily due to a rise in cash, offset by a decrease in intangibles from impairment Condensed Consolidated Balance Sheets (Unaudited) | Metric (in millions) | Sep 30, 2024 | Dec 31, 2023 | | :------------------- | :----------- | :----------- | | Cash and Cash Equivalents | $752.1 | $344.5 | | Total Current Assets | $2,016.7 | $1,529.7 | | Trade Names and Other Intangibles | $2,919.7 | $3,302.3 | | Total Assets | $8,666.2 | $8,569.2 | | Total Current Liabilities | $1,246.6 | $1,422.0 | | Long-Term Debt | $2,208.2 | $2,202.2 | | Stockholders' Equity | $4,193.7 | $3,855.4 | | Total Liabilities and Stockholders' Equity | $8,666.2 | $8,569.2 | Condensed Consolidated Statements of Cash Flow For the nine months ended September 30, 2024, net cash from operating activities increased to $863.9 million, with net cash used in investing and financing activities leading to a $407.6 million net change in cash Condensed Consolidated Statements of Cash Flow (Unaudited) | Metric (in millions) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------- | :----------------------------- | :----------------------------- | | Net Income | $396.1 | $601.9 | | Tradename and other asset impairments | $357.1 | $0.0 | | Net cash from operating activities | $863.9 | $795.1 | | Net cash (used in) investing activities | $(138.1) | $(128.4) | | Net cash (used in) financing activities | $(318.3) | $(363.0) | | Net change in cash and cash equivalents | $407.6 | $303.0 | Product Line Net Sales For Q3 2024, total net sales grew 3.8% to $1,510.6 million, driven by Consumer Domestic and International growth, while nine-month total net sales increased 4.3% to $4,525.1 million 2024 and 2023 Product Line Net Sales (in millions) | Product Line | Q3 2024 Net Sales (M) | Q3 2023 Net Sales (M) | Q3 Change (%) | 9M 2024 Net Sales (M) | 9M 2023 Net Sales (M) | 9M Change (%) | | :----------- | :-------------------- | :-------------------- | :------------ | :-------------------- | :-------------------- | :------------ | | Household Products | $637.4 | $636.2 | 0.2% | $1,929.5 | $1,857.0 | 3.9% | | Personal Care Products | $533.4 | $496.9 | 7.3% | $1,577.1 | $1,521.2 | 3.7% | | Consumer Domestic | $1,170.8 | $1,133.1 | 3.3% | $3,506.6 | $3,378.2 | 3.8% | | Consumer International | $267.7 | $244.4 | 9.5% | $786.4 | $716.9 | 9.7% | | Total Consumer Net Sales | $1,438.5 | $1,377.5 | 4.4% | $4,293.0 | $4,095.1 | 4.8% | | Specialty Products Division | $72.1 | $78.4 | -8.0% | $232.1 | $244.8 | -5.2% | | Total Net Sales | $1,510.6 | $1,455.9 | 3.8% | $4,525.1 | $4,339.9 | 4.3% | Organic Sales Reconciliation Organic sales growth for Q3 2024 was 4.3% for the total company, with Consumer International leading at 8.1%, while nine-month total company organic sales growth reached 4.7% Organic Sales Growth Reconciliation | Segment | 9 Months Ended Sep 30, 2024 Organic Sales Growth | 3 Months Ended Sep 30, 2024 Organic Sales Growth | | :------ | :----------------------------------------------- | :----------------------------------------------- | | Total Company | 4.7% | 4.3% | | Worldwide Consumer | 4.7% | 4.2% | | Consumer Domestic | 3.8% | 3.3% | | Consumer International | 8.7% | 8.1% | | Specialty Products | 6.1% | 7.5% | Adjusted Gross Margin Reconciliation For Q3 2024, reported gross margin was 45.2%, with adjusted gross margin at 45.0%, representing a 60 basis point increase from Q3 2023 after a tariff ruling adjustment Adjusted Gross Margin Reconciliation | Metric | Q3 2024 | Q3 2023 | Change (bps) | | :----- | :------ | :------ | :----------- | | Gross Margin - Reported | 45.2% | 44.4% | +80 | | Tariff Ruling Adjustment | -0.2% | 0.0% | -20 | | Gross Margin - Adjusted (non-GAAP) | 45.0% | 44.4% | +60 | Adjusted SG&A Reconciliation For Q3 2024, reported SG&A was 15.3% of net sales, with adjusted SG&A at 15.0%, a 20 basis point increase from Q3 2023 after Hero Restricted Stock adjustments Adjusted Selling, General, and Administrative Expense (SG&A) Reconciliation | Metric | Q3 2024 | Q3 2023 | Change (bps) | | :----- | :------ | :------ | :----------- | | SG&A - Reported % of NS | 15.3% | 15.3% | 0 | | Hero Restricted Stock Adjustment % of NS | -0.3% | -0.5% | +20 | | SG&A - Adjusted (non-GAAP) % of NS | 15.0% | 14.8% | +20 | Adjusted Income From Operations Reconciliation For Q3 2024, reported Income from Operations was a loss of $91.5 million (-6.1% of net sales), while adjusted Income from Operations was $267.2 million (17.7% of net sales), a 40 basis point decrease from Q3 2023 Adjusted Income from Operations Reconciliation | Metric | Q3 2024 % of NS | Q3 2023 % of NS | Change (bps) | | :----- | :-------------- | :-------------- | :----------- | | (Loss) Income From Operations - Reported | -6.1% | 17.6% | -2370 | | Hero Restricted Stock Adjustment | 0.3% | 0.5% | -20 | | Tradename and other asset impairments Adjustment | 23.7% | 0.0% | +2370 | | Tariff Ruling Adjustment | -0.2% | 0.0% | -20 | | Income From Operations - Adjusted (non-GAAP) | 17.7% | 18.1% | -40 | Adjusted Other Income (expense) Reconciliation For Q3 2024, reported other income (expense), net, was $(9.9) million (-0.7% of net sales), with adjusted other income (expense), net, at $(14.5) million (-1.0% of net sales), a 50 basis point improvement from Q3 2023 Adjusted Other Income (expense) Reconciliation | Metric | Q3 2024 % of NS | Q3 2023 % of NS | Change (bps) | | :----- | :-------------- | :-------------- | :----------- | | Other income (expense), net - Reported | -0.7% | -1.5% | +80 | | Tariff Ruling Adjustment | -0.3% | 0.0% | -30 | | Other income (expense) - Adjusted (non-GAAP) | -1.0% | -1.5% | +50 | Adjusted Diluted Earnings Per Share Reconciliation For Q3 2024, reported diluted EPS was $(0.31), while adjusted diluted EPS was $0.79, a 6.8% increase from Q3 2023 after various adjustments Adjusted Diluted Earnings Per Share Reconciliation | Metric | Q3 2024 | Q3 2023 | Change (%) | | :----- | :------ | :------ | :--------- | | Diluted (Loss) Earnings Per Share - Reported | $(0.31) | $0.71 | -143.7% | | Hero Restricted Stock Adjustment | $0.02 | $0.03 | - | | Tradename and other asset impairments Adjustment | $1.10 | $0.00 | - | | Tariff Ruling Adjustment | $(0.02) | $0.00 | - | | Diluted Earnings Per Share - Adjusted (non-GAAP) | $0.79 | $0.74 | +6.8% | Forecasted Sales and EPS Reconciliation For Q4 2024, reported sales growth is forecasted at 1.5-2.5% and organic sales growth at 2-3%, with full-year adjusted diluted EPS projected at $3.43, an 8% increase from 2023 Forecasted Sales and EPS Reconciliation | Metric | Q4 2024 Forecast | Full Year 2024 Forecast | Full Year 2023 | Change (FY) | | :----- | :--------------- | :---------------------- | :------------- | :---------- | | Reported Sales Growth | 1.5-2.5% | 3.5% | - | - | | Organic Sales Growth | 2-3% | 4.0% | - | - | | Reported EPS (Diluted) | $0.75 | $2.35 | $3.05 | -23% | | Adjusted EPS (Diluted) | $0.76 (+17% YoY) | $3.43 | $3.17 | +8% |