Church & Dwight(CHD) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements for Church & Dwight Co., Inc. and its subsidiaries for the quarter ended March 31, 2023, including income, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes ITEM 1: FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for Church & Dwight Co., Inc. and its subsidiaries for the quarter ended March 31, 2023, including statements of income, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining the basis of presentation, accounting policies, and specific financial line items Condensed Consolidated Statements of Income This statement presents the company's revenues, expenses, and net income for the three months ended March 31, 2023 and 2022 | Metric | Three Months Ended March 31, 2023 ($M) | Three Months Ended March 31, 2022 ($M) | |:---|:---|:---| | Net Sales | 1,429.8 | 1,297.2 | | Gross Profit | 622.0 | 552.5 | | Income from Operations | 291.9 | 280.7 | | Net Income | 203.2 | 204.4 | | Net income per share - Basic | 0.83 | 0.84 | | Net income per share - Diluted | 0.82 | 0.83 | | Cash dividends per share | 0.27 | 0.26 | Condensed Consolidated Statements of Comprehensive Income This statement details net income and other comprehensive income components, such as foreign currency adjustments, for the specified periods | Metric | Three Months Ended March 31, 2023 ($M) | Three Months Ended March 31, 2022 ($M) | |:---|:---|:---| | Net Income | 203.2 | 204.4 | | Other comprehensive income (loss) | 3.1 | 15.0 | | Comprehensive income | 206.3 | 219.4 | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at March 31, 2023, and December 31, 2022 | Metric | March 31, 2023 ($M) | December 31, 2022 ($M) | |:---|:---|:---|\ | Total Current Assets | 1,334.9 | 1,395.9 | | Total Assets | 8,266.6 | 8,345.6 | | Total Current Liabilities | 1,126.9 | 1,183.8 | | Total Liabilities | 4,598.9 | 4,855.7 | | Total Stockholders' Equity | 3,667.7 | 3,489.9 | Condensed Consolidated Statements of Cash Flow This statement outlines the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2023 and 2022 | Metric | Three Months Ended March 31, 2023 ($M) | Three Months Ended March 31, 2022 ($M) | |:---|:---|:---|\ | Net Cash Provided By Operating Activities | 273.1 | 152.8 | | Net Cash Used In Investing Activities | (29.6) | (15.7) | | Net Cash Used In Financing Activities | (311.7) | (202.6) | | Net Change In Cash and Cash Equivalents | (67.5) | (66.2) | | Cash and Cash Equivalents at End of Period | 202.8 | 174.4 | Condensed Consolidated Statements of Stockholders' Equity This statement details changes in the company's equity accounts, including net income, dividends, and stock-based compensation, for the specified periods | Metric | March 31, 2023 ($M) | December 31, 2022 ($M) | |:---|:---|:---|\ | Total Stockholders' Equity | 3,667.7 | 3,489.9 | | Net income | 203.2 | 203.2 | | Cash dividends | (66.3) | (66.3) | | Stock based compensation expense and stock option plan transactions | 37.8 | 37.8 | Notes to Condensed Consolidated Financial Statements These notes provide additional information and explanations for the figures presented in the condensed consolidated financial statements 1. Basis of Presentation This note describes the accounting principles and conventions used in preparing the unaudited condensed consolidated financial statements - The condensed consolidated financial statements are unaudited and include only normal recurring adjustments, and should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022[44] - Research and development expenses were $26.7 million in Q1 2023 and $24.5 million in Q1 2022, included in SG&A expenses[31] 2. New Accounting Pronouncements This note discusses recently adopted and upcoming accounting standards and their expected impact on the company's financial reporting - The Company adopted new FASB guidance on supplier finance programs, requiring annual and interim disclosures about program terms and outstanding amounts, which resulted in additional disclosures[45] - No other new accounting pronouncements are expected to have a material impact on the Company's financial position, results of operations, or cash flows[32] 3. Inventories This note provides a breakdown of the company's inventory components, including raw materials, work in process, and finished goods | Inventory Type | March 31, 2023 ($M) | December 31, 2022 ($M) | |:---|:---|:---|\ | Raw materials and supplies | 146.3 | 149.5 | | Work in process | 40.8 | 46.8 | | Finished goods | 466.2 | 450.3 | | Total | 653.3 | 646.6 | 4. Property, Plant and Equipment, Net ("PP&E") This note details the company's property, plant, and equipment, including gross amounts, accumulated depreciation, and net book value | PP&E Category | March 31, 2023 ($M) | December 31, 2022 ($M) | |:---|:---|:---|\ | Gross PP&E | 1,628.3 | 1,601.2 | | Less accumulated depreciation and amortization | 856.1 | 840.1 | | Net PP&E | 772.2 | 761.1 | | Depreciation expense on PP&E (Q1 2023) | 16.9 | 16.6 | 5. Earnings Per Share ("EPS") This note explains the calculation of basic and diluted earnings per share, including the impact of stock-based awards - Basic EPS is calculated based on income available to common stockholders and weighted average shares outstanding, while diluted EPS includes potential dilution from stock-based compensation plans[67] | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |:---|:---|:---|\ | Weighted average common shares outstanding - basic (Millions) | 243.8 | 242.6 | | Dilutive effect of stock options and other unvested stock-based awards (Millions) | 3.0 | 4.1 | | Weighted average common shares outstanding - diluted (Millions) | 246.8 | 246.7 | | Antidilutive stock options outstanding (Millions) | 3.9 | 0.2 | 6. Stock Based Compensation Plans This note describes the company's various stock-based compensation programs, including stock options, restricted stock units, and performance stock units - In Q1 2023, the Company updated its Long-Term Incentive Program (LTIP) to include stock options, Restricted Stock Units (RSUs), and Performance Share Units (PSUs, for ELT members), accelerating grants to Q1[49] Stock Options This section provides details on the company's stock option grants, exercises, and related compensation expenses | Metric | March 31, 2023 (Millions of Shares) | December 31, 2022 (Millions of Shares) | |:---|:---|:---|\ | Outstanding Options | 12.5 | 11.9 | | Weighted Average Exercise Price | $64.43 | $62.64 | | Exercisable Options | 7.0 | N/A | | Weighted Average Exercise Price (Exercisable) | $51.25 | N/A | | Metric | Three Months Ended March 31, 2023 ($M) | Three Months Ended March 31, 2022 ($M) | |:---|:---|:---|\ | Intrinsic Value of Stock Options Exercised | 10.7 | 16.8 | | Stock Compensation Expense Related to Stock Option Awards | 14.5 | 2.8 | | Issued Stock Options (Millions of Shares) | 1.0 | - | | Weighted Average Fair Value of Stock Options issued (per share) | $23.93 | - | Restricted Stock Units This section outlines the company's restricted stock unit grants, vesting schedules, and associated fair values - In Q1 2023, 88,480 RSUs were granted with a total fair value of $7.4 million (weighted average grant date fair value of $83.13 per RSU), vesting one-third annually over three years[70] - 854,882 shares of restricted stock were issued in October 2022 in connection with the Hero Acquisition, vesting over a three-year period[70] Performance Stock Units This section describes the company's performance stock unit awards, including vesting conditions tied to performance metrics - In Q1 2023, 19,650 PSUs were granted to Executive Leadership Team members, valued at $110.95 per PSU, with vesting based on the Company's Total Shareholder Return (TSR) relative to a peer group over three years, with potential share issuance ranging from 0% to 200%[39] 7. Share Repurchases This note details the company's share repurchase programs, including authorization amounts and remaining availability - The 2021 Share Repurchase Program, authorized on October 28, 2021, allows for repurchases of up to $1,000.0 million in Common Stock and has no expiration date[52] - As of March 31, 2023, $729.7 million of share repurchase availability remained under the 2021 Share Repurchase Program[53] 8. Fair Value Measurements This note provides information on the fair value of financial instruments, categorized by input levels used in their valuation | Financial Instrument | Input Level | March 31, 2023 Carrying Amount ($M) | March 31, 2023 Fair Value ($M) | December 31, 2022 Carrying Amount ($M) | December 31, 2022 Fair Value ($M) | |:---|:---|:---|:---|:---|:---|\ | Cash equivalents | Level 1 | 90.0 | 90.0 | 153.9 | 153.9 | | Short-term borrowings | Level 2 | 18.7 | 18.7 | 74.0 | 74.0 | | Term loan due December 22, 2024 | Level 2 | 200.0 | 200.0 | 400.0 | 400.0 | | 3.15% Senior notes due August 1, 2027 | Level 2 | 424.8 | 406.9 | 424.8 | 397.3 | | 2.3% Senior notes due December 15, 2031 | Level 2 | 399.3 | 333.3 | 399.3 | 321.3 | | 5.6% Senior notes due November 15, 2032 | Level 2 | 499.1 | 534.5 | 499.1 | 518.9 | | 3.95% Senior notes due August 1, 2047 | Level 2 | 397.6 | 335.6 | 397.6 | 316.7 | | 5.0% Senior notes due June 15, 2052 | Level 2 | 499.8 | 492.2 | 499.7 | 464.7 | - The carrying amounts of Accounts Receivable, and Accounts Payable and Accrued Expenses, approximated estimated fair values as of March 31, 2023 and December 31, 2022[55] 9. Derivative Instruments and Risk Management This note describes the company's use of derivative instruments to manage exposure to market risks, such as interest rate and foreign exchange fluctuations - The Company uses derivative instruments (cash flow and fair value hedges, diesel and commodity hedge contracts, equity derivatives, foreign exchange forward contracts) to manage market risks from interest rates, foreign exchange rates, stock prices, and commodity prices, not for trading or speculative purposes[72] | Derivative Type | Notional Amount March 31, 2023 | Notional Amount December 31, 2022 | |:---|:---|:---|\ | Foreign exchange contracts (hedging) ($M) | 243.2 | 231.5 | | Diesel fuel contracts (hedging) (gallons) | 6.0 | 5.0 | | Commodities contracts (hedging) (pounds) | 19.5 | 26.8 | | Foreign exchange contracts (non-hedging) ($M) | 2.6 | 1.6 | | Equity derivatives (non-hedging) ($M) | 22.8 | 22.5 | 10. Acquisitions This note provides details on recent business acquisitions, including purchase prices, financing, and the nature of the acquired businesses Hero Acquisition This section details the acquisition of Hero Cosmetics, Inc., including the purchase price, financing, and related compensation - On October 13, 2022, the Company acquired Hero Cosmetics, Inc. (HERO® brand, including MIGHTY PATCH®) for $546.8 million cash (net of cash acquired) and deferred an $8.0 million payment for indemnification obligations[75] - The acquisition also involved issuing $61.5 million in restricted stock, recognized as compensation expense over a three-year vesting period[75] - Hero's annual net sales for 2022 were approximately $179.0 million, and the acquisition was financed with cash on hand and commercial paper borrowings[75] TheraBreath Acquisition This section outlines the acquisition of the THERABREATH® brand, including the purchase price and financing arrangements - On December 24, 2021, the Company acquired Dr. Harold Katz, LLC and HK-IP International, Inc. (THERABREATH® brand) for $556.0 million cash (net of cash acquired) and deferred a $14.0 million payment for indemnity obligations[62] - THERABREATH's annual net sales for 2021 were approximately $100.0 million, and the acquisition was financed by a $400.0 million term loan and $400.0 million Senior Notes[62] 11. Goodwill and Other Intangibles, Net This note provides a breakdown of the company's goodwill and other intangible assets, including those with definite and indefinite useful lives - The Company's balance sheet includes substantial intangible assets, categorized as those with a useful life, indefinite-lived trade names, and goodwill[100] Intangible Assets With a Useful Life This section details amortizable intangible assets, including trade names, customer relationships, and patents, along with their amortization expenses | Amortizable Intangible Assets | March 31, 2023 Net ($M) | December 31, 2022 Net ($M) | |:---|:---|:---|\ | Trade Names | 1,041.0 | 1,060.6 | | Customer Relationships | 296.8 | 305.2 | | Patents/Formulas | 101.3 | 104.4 | | Total | 1,439.1 | 1,470.2 | - Intangible amortization expense was $31.1 million in Q1 2023 and $29.5 million in Q1 2022, with estimated annual amortization expense of $124.0 million for 2023 and $123.0 million to $94.0 million over the next five years[80] - A non-cash impairment charge of $411.0 million was recorded in Q4 2022 for FINISHING TOUCH FLAWLESS intangible assets due to product discontinuance at a major retailer and declining consumer demand[63] Indefinite-Lived Intangible Assets This section discusses intangible assets with indefinite useful lives, primarily trade names, and potential impairment risks | Indefinite-Lived Intangible Assets | March 31, 2023 ($M) | December 31, 2022 ($M) | |:---|:---|:---|\ | Trade Names | 1,961.5 | 1,961.4 | - The global WATERPIK business faces potential impairment due to declining customer demand for discretionary products and a shift to value-branded products, eroding the excess fair value over carrying value of its trade name[82] - The global TROJAN® business (condom category) is susceptible to impairment due to lack of growth, increased competition, and negative impacts from inflation and supply shortages, which have reduced expected future cash flows[103] Goodwill This section presents the company's goodwill by segment and discusses the results of impairment tests | Segment | Balance at December 31, 2022 ($M) | Hero working capital adjustment ($M) | Balance at March 31, 2023 ($M) | |:---|:---|:---|:---|\ | Consumer Domestic | 2,056.4 | 3.5 | 2,059.9 | | Consumer International | 234.4 | 0.0 | 234.4 | | Specialty Products | 136.0 | 0.0 | 136.0 | | Total | 2,426.8 | 3.5 | 2,430.3 | - The annual goodwill impairment test in Q2 2022 determined that the estimated fair value substantially exceeded the carrying values of all reporting units[66] 12. Leases This note provides information on the company's operating leases, including right-of-use assets, lease liabilities, and lease costs - The Company leases manufacturing facilities, warehouses, office space, railcars, and equipment, with all recorded leases classified as operating leases[105] | Metric | March 31, 2023 ($M) | December 31, 2022 ($M) | |:---|:---|:---|\ | Right of use assets | 158.0 | 162.6 | | Current lease liabilities | 21.9 | 21.9 | | Long-term lease liabilities | 148.8 | 151.9 | | Total lease liabilities | 170.7 | 173.8 | | Weighted-average remaining lease term (years) | 8.8 | 8.9 | | Weighted-average discount rate | 4.5% | 4.4% | | Lease cost (Q1 2023) ($M) | 7.7 | 7.9 | 13. Accounts Payable and Accrued Expenses This note details the components of accounts payable and accrued expenses, including trade payables and marketing costs | Category | March 31, 2023 ($M) | December 31, 2022 ($M) | |:---|:---|:---|\ | Trade accounts payable | 651.5 | 666.7 | | Accrued marketing and promotion costs | 211.8 | 234.4 | | Accrued wages and related benefit costs | 47.4 | 66.8 | | Other accrued current liabilities | 139.1 | 134.9 | | Total | 1,049.8 | 1,102.8 | - The Company operates a Supply Chain Finance (SCF) program, allowing suppliers to sell receivables for early payment, with $88.3 million in obligations outstanding under the SCF program as of March 31, 2023, recorded within Accounts Payable[87][109] 14. Short-Term Borrowings and Long-Term Debt This note outlines the company's short-term borrowings and long-term debt obligations, including commercial paper and senior notes | Category | March 31, 2023 ($M) | December 31, 2022 ($M) | |:---|:---|:---|\ | Short-term borrowings: | | | | Commercial paper issuances | 15.0 | 70.6 | | Various debt due to international banks | 3.7 | 3.4 | | Total short-term borrowings | 18.7 | 74.0 | | Long-term debt (net): | | | | Term loan due December 22, 2024 | 200.0 | 400.0 | | 3.15% Senior notes due August 1, 2027 | 425.0 | 425.0 | | 2.3% Senior notes due December 15, 2031 | 400.0 | 400.0 | | 5.6% Senior notes due November 15, 2032 | 500.0 | 500.0 | | 3.95% Senior notes due August 1, 2047 | 400.0 | 400.0 | | 5.0% Senior notes due June 15, 2052 | 500.0 | 500.0 | | Net long-term debt | 2,400.1 | 2,599.5 | 15. Accumulated Other Comprehensive Income (Loss) This note provides a breakdown of the components of accumulated other comprehensive income (loss), including foreign currency adjustments and derivative agreements | Component | Balance at December 31, 2022 ($M) | Other comprehensive income (loss) before reclassifications ($M) | Amounts reclassified to consolidated statement of income ($M) | Tax benefit (expense) ($M) | Other comprehensive income (loss) ($M) | Balance at March 31, 2023 ($M) | |:---|:---|:---|:---|:---|:---|:---|\ | Foreign Currency Adjustments | (46.4) | 2.4 | 0.0 | 0.0 | 2.4 | (44.0) | | Defined Benefit Plans | 1.7 | 2.0 | 0.0 | (0.5) | 1.5 | 3.2 | | Derivative Agreements | 15.4 | (0.2) | (0.9) | 0.3 | (0.8) | 14.6 | | Total Accumulated Other Comprehensive (Loss) | (29.3) | 4.2 | (0.9) | (0.2) | 3.1 | (26.2) | 16. Commitments, Contingencies and Guarantees This note discloses the company's various commitments, contingencies, and guarantees, including purchase obligations and legal proceedings Commitments This section details the company's contractual obligations, such as raw material purchase agreements and deferred acquisition payments - The Company has an annual commitment to purchase 240,000 tons of sodium-based raw materials from a partnership at prevailing market prices[90] - As of March 31, 2023, the Company had commitments of approximately $396.7 million for raw materials, packaging supplies, services, licensing, and promotion agreements[112] - Deferred cash payments related to indemnity obligations from the TheraBreath Acquisition ($14.0 million) and Hero Acquisition ($8.0 million) are payable in installments or after five years, respectively[92][114] Legal proceedings This section discusses ongoing or threatened legal, regulatory, and governmental actions affecting the company - The Company is subject to various pending or threatened legal, regulatory, or governmental actions in the ordinary course of business, including intellectual property, product liability, and consumer class actions[95][191] - Outcomes of these proceedings are uncertain and could result in material adverse impacts on the Company's business, financial condition, results of operations, or cash flows[95][191] 17. Related Party Transactions This note describes transactions with entities in which the company holds a significant ownership interest - The Company holds a 50% ownership interest in Armand Products Company and ArmaKleen Company[96][97] | Transaction Type | Armand (Q1 2023) ($M) | Armand (Q1 2022) ($M) | ArmaKleen (Q1 2023) ($M) | ArmaKleen (Q1 2022) ($M) | |:---|:---|:---|:---|:---|\ | Purchases by Company | 3.7 | 3.0 | 0.0 | 0.0 | | Sales by Company | 0.0 | 0.0 | 0.0 | 0.1 | | Outstanding Accounts Receivable | 0.6 | 0.4 | 1.6 | 0.6 | | Outstanding Accounts Payable | 1.2 | 1.6 | 0.0 | 0.0 | | Administration & Management Oversight Services | 0.6 | 0.6 | 0.5 | 0.5 | 18. Segments This note provides financial information by reportable segment, including net sales and income before income taxes - The Company operates three reportable segments: Consumer Domestic (household and personal care products), Consumer International (primarily personal care products), and Specialty Products Division (SPD, specialty chemical products), plus a Corporate segment[96][118][128] Segment Net Sales and Income before Income Taxes This section presents net sales and income before income taxes for the Consumer Domestic, Consumer International, and Specialty Products segments | Segment | Net Sales Q1 2023 ($M) | Net Sales Q1 2022 ($M) | Income before Income Taxes Q1 2023 ($M) | Income before Income Taxes Q1 2022 ($M) | |:---|:---|:---|:---|:---|\ | Consumer Domestic | 1,116.9 | 995.1 | 228.7 | 222.7 | | Consumer International | 230.6 | 214.6 | 28.9 | 29.6 | | SPD | 82.3 | 87.5 | 6.8 | 11.5 | | Corporate | 0.0 | 0.0 | 4.4 | 2.4 | | Total | 1,429.8 | 1,297.2 | 268.8 | 266.2 | - The Corporate segment's income consists of equity in earnings from affiliates (Armand and ArmaKleen), totaling $4.4 million in Q1 2023 and $2.4 million in Q1 2022[97][98] Product Line Revenues This section breaks down net sales by major product lines within the Consumer Domestic segment and other segments | Product Line | Three Months Ended March 31, 2023 ($M) | Three Months Ended March 31, 2022 ($M) | |:---|:---|:---|\ | Household Products | 601.6 | 520.5 | | Personal Care Products | 515.3 | 474.6 | | Total Consumer Domestic | 1,116.9 | 995.1 | | Total Consumer International | 230.6 | 214.6 | | Total SPD | 82.3 | 87.5 | | Total Consolidated Net Sales | 1,429.8 | 1,297.2 | - Household Products include laundry, deodorizing, and cleaning products, while Personal Care Products include condoms, pregnancy kits, oral care, skin care, hair care, cold/remedy products, and gummy dietary supplements[130][160] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides an analysis of the Company's financial condition and results of operations for the quarter ended March 31, 2023, discussing recent developments, consolidated and segment-level performance, and liquidity and capital resources Recent Developments This section highlights key operational and economic factors impacting the company, including supply chain issues and inflation - The Company continues to face adverse supply chain impacts, including raw material and labor shortages, affecting its ability to meet consumer demand for vitamins and STERIMAR nasal congestion relief products[122] - Significant broad-based cost inflation and higher interest rates have impacted input costs and consumer behavior, though conditions are improving, and pricing/productivity are expected to offset inflation in the near term[122] - The Specialty Products business is negatively impacted by new foreign competition in the U.S. dairy market, with expectations of continued low-priced imports[123] Results of Operations This section analyzes the company's consolidated and segment-level financial performance for the quarter Consolidated results This section provides an overview of the company's overall financial performance, including net sales, gross profit, and operating income | Metric | March 31, 2023 ($M) | YoY Change | March 31, 2022 ($M) | |:---|:---|:---|:---|\ | Net Sales | 1,429.8 | 10.2% | 1,297.2 | | Gross Profit | 622.0 | 12.6% | 552.5 | | Gross Margin | 43.5% | +90 bps | 42.6% | | Marketing Expenses | 122.3 | 20.0% | 101.9 | | Marketing Expenses % of Net Sales | 8.6% | +70 bps | 7.9% | | Selling, General & Administrative Expenses | 207.8 | 22.3% | 169.9 | | SG&A % of Net Sales | 14.5% | +140 bps | 13.1% | | Income from Operations | 291.9 | 4.0% | 280.7 | | Operating Margin | 20.4% | -120 bps | 21.6% | | Net income per share - Diluted | 0.82 | -1.2% | 0.83 | Net Sales This section analyzes the drivers of changes in consolidated net sales, including volume, pricing, foreign exchange, and acquisitions - Consolidated net sales increased by $132.6 million or 10.2% to $1,429.8 million for the three months ended March 31, 2023, compared to the same period in 2022[138] | Component of Net Sales Increase | Three Months Ended March 31, 2023 | |:---|:---|\ | Product volumes sold | (—%) | | Pricing/Product mix | 5.7% | | Foreign exchange rate fluctuations | (0.7%) | | Acquired product lines | 5.2% | | Net Sales increase | 10.2% | - Volume change reflects increased product unit sales in Consumer International, offset by decreases in Consumer Domestic and SPD segments, while price/mix was favorable across all three segments[138] Gross Profit / Gross Margin This section discusses the factors influencing changes in gross profit and gross margin, such as pricing, productivity, and manufacturing costs - Gross profit increased by $69.5 million, and gross margin increased by 90 basis points to 43.5% in Q1 2023 compared to Q1 2022[125][136] - Gross margin improvement was driven by favorable price/mix/volume (+160 bps), productivity programs (+160 bps), business acquisition mix benefits (+120 bps), lower transportation costs (+70 bps), and favorable foreign exchange (+10 bps)[125] - These gains were partially offset by higher manufacturing costs, including labor (-360 bps), and higher commodities (-70 bps)[125] Operating Expenses This section examines changes in marketing, selling, general, and administrative expenses, and interest expense - Marketing expenses increased by $20.4 million (20.0%) to $122.3 million in Q1 2023, rising to 8.6% of net sales (+70 bps) due to increased marketing spend as fill rates improved[156] - SG&A expenses increased by $37.9 million (22.3%) to $207.8 million in Q1 2023, reaching 14.5% of net sales (+140 bps), primarily due to expenses related to the Hero Acquisition[156] - Interest expense increased by $12.2 million to $28.8 million in Q1 2023, mainly due to higher interest rates[156] Income Taxes This section explains the effective tax rate and the factors contributing to its change - The effective tax rate increased to 24.4% in Q1 2023 from 23.2% in Q1 2022, primarily due to lower stock option exercises and non-deductible compensation expense from the Hero Acquisition[140] Segment results This section provides a detailed analysis of the financial performance for each of the company's operating segments Consumer Domestic This section analyzes the net sales and income before income taxes for the company's domestic consumer products segment | Component of Net Sales Change | Three Months Ended March 31, 2023 | |:---|:---|\ | Product volumes sold | (0.9%) | | Pricing/Product mix | 6.4% | | Acquired product lines | 6.7% | | Net Sales increase | 12.2% | - Net sales increased by $121.8 million or 12.2% to $1,116.9 million in Q1 2023, driven by the Hero Acquisition, ARM & HAMMER® Liquid Detergent, Cat Litter, THERABREATH® mouthwash, and XTRA® Liquid Detergent[144] - Income before income taxes increased by $6.0 million to $228.7 million, primarily due to favorable price/mix and higher sales volumes, partially offset by increased SG&A, marketing, manufacturing, distribution, and interest expenses[162] Consumer International This section analyzes the net sales and income before income taxes for the company's international consumer products segment | Component of Net Sales Change | Three Months Ended March 31, 2023 | |:---|:---|\ | Product volumes sold | 6.8% | | Pricing/Product mix | 4.8% | | Foreign exchange rate fluctuations | (4.1%) | | Net Sales increase | 7.5% | - Net sales increased by $16.0 million or 7.5% to $230.6 million in Q1 2023, with sales growth (excluding foreign exchange) driven by BATISTE, VITAFUSION® and L'IL CRITTERS® gummy vitamins, FEMFRESH, GRAVOL, ARM & HAMMER® Liquid Detergent, and STERIMAR[163] - Income before income taxes decreased by $0.7 million to $28.9 million, impacted by higher manufacturing/commodity costs, SG&A, unfavorable foreign exchange, marketing, and interest expenses, partially offset by favorable price/mix and higher sales volumes[164] Specialty Products ("SPD") This section analyzes the net sales and income before income taxes for the Specialty Products Division | Component of Net Sales Change | Three Months Ended March 31, 2023 | |:---|:---|:---|\ | Product volumes sold | (7.5%) | | Pricing/Product mix | 1.6% | | Net Sales decrease | (5.9%) | - Net sales decreased by $5.2 million or 5.9% to $82.3 million in Q1 2023, primarily due to competitive imports within the domestic dairy segment[165] - Income before income taxes decreased by $4.7 million to $6.8 million, due to higher SG&A, lower sales volumes, unfavorable manufacturing costs, and higher marketing expenses, partially offset by favorable price/product mix[147] Corporate This section details the financial performance of the corporate segment, primarily consisting of equity in earnings from affiliates - Corporate segment income before income taxes was $4.4 million in Q1 2023, up from $2.4 million in Q1 2022, primarily from equity in earnings of affiliates (Armand and ArmaKleen)[148] Liquidity and Capital Resources This section discusses the company's cash position, borrowing capacity, and expected funding for operations and strategic initiatives - As of March 31, 2023, the Company had $202.8 million in cash and cash equivalents and approximately $1,480.0 million available through its Revolving Credit Facility and commercial paper program[149] - The Company expects cash from operations and current borrowing capacity to be sufficient to fund share repurchases, debt payments, dividends, and capital expenditures, including approximately $250.0 million for manufacturing capacity investments in 2023[184] - On February 1, 2023, the Board declared a 4% increase in the regular quarterly dividend to $0.2725 per share, raising the annual payout from $255.0 million to approximately $265.0 million[151] Cash Flow Analysis This section provides a detailed analysis of cash flows from operating, investing, and financing activities | Cash Flow Activity | March 31, 2023 ($M) | March 31, 2022 ($M) | |:---|:---|:---|\ | Net cash provided by operating activities | 273.1 | 152.8 | | Net cash used in investing activities | (29.6) | (15.7) | | Net cash used in financing activities | (311.7) | (202.6) | - Net cash provided by operating activities increased by $120.3 million to $273.1 million in Q1 2023, driven by improved working capital and increased cash earnings[170] | Cash Conversion Cycle Metric | March 31, 2023 | March 31, 2022 | Change | |:---|:---|:---|:---|\ | Days of sales outstanding in accounts receivable ("DSO") | 27 | 28 | (1) | | Days of inventory outstanding ("DIO") | 72 | 69 | 3 | | Days of accounts payable outstanding ("DPO") | 73 | 80 | 7 | | Cash conversion cycle | 26 | 17 | 9 | - Net cash used in investing activities was $29.6 million in Q1 2023, primarily for property, plant, and equipment additions ($25.0 million)[187] - Net cash used in financing activities was $311.7 million in Q1 2023, reflecting $255.6 million in net debt payments and $66.3 million in cash dividend payments, partially offset by $10.2 million from stock option exercises[172] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK This section refers to the Company's Annual Report on Form 10-K for detailed quantitative and qualitative disclosures regarding market risks, including those related to interest rates, foreign exchange rates, and commodity prices - For detailed quantitative and qualitative disclosures about market risk, refer to Item 7A of Part II in the Company's Annual Report on Form 10-K[173] ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of the Company's disclosure controls and procedures and reports on any changes in internal control over financial reporting during the quarter a) Evaluation of Disclosure Controls and Procedures%20Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on management's assessment of the effectiveness of the company's disclosure controls and procedures - The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[174] b) Change in Internal Control over Financial Reporting%20Change%20in%20Internal%20Control%20over%20Financial%20Reporting) This section discloses any material changes in the company's internal control over financial reporting during the quarter - There were no changes in the Company's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[188] CAUTIONARY NOTE ON FORWARD-LOOKING INFORMATION This section provides a cautionary statement regarding forward-looking statements made in the report, highlighting that such statements are based on assumptions that may prove incorrect and are subject to various risks and uncertainties - Forward-looking statements are based on reasonable assumptions but may be incorrect due to risks, uncertainties, and other factors outside the Company's control[176][189] - Key risk factors include market growth decline, impacts of the COVID-19 pandemic, regulatory changes, the Russia/Ukraine war, potential recessionary conditions, shifts in consumer behavior, raw material and energy price increases, supply chain disruptions, and higher interest rates[176][189] - The Company undertakes no obligation to publicly update any forward-looking statements, except as required by federal securities laws[176] PART II – OTHER INFORMATION This section includes additional information not covered in Part I, such as risk factors, equity sales, and exhibits ITEM 1A. RISK FACTORS This section directs readers to the comprehensive discussion of risk factors in Item 1A of the Company's Annual Report on Form 10-K, which could materially affect the Company's business, financial condition, or future results - Readers should carefully consider the risk factors discussed in Item 1A, 'Risk Factors' in the Form 10-K, as they could materially affect the Company's business, financial condition, or future results[192] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section outlines the Company's share repurchase programs, including the 2021 Share Repurchase Program, and details the remaining availability under these programs - The 2021 Share Repurchase Program, authorized on October 28, 2021, allows for repurchases of up to $1,000.0 million in Common Stock and has no expiration[178] - This program did not modify the evergreen share repurchase program, authorized on January 29, 2014, for reducing dilution from incentive plan issuances[178] - As of March 31, 2023, $729.7 million of share repurchase availability remained under the 2021 Share Repurchase Program[194] ITEM 6. EXHIBITS This section provides a comprehensive list of exhibits filed with the Form 10-Q, including corporate governance documents, compensation plans, certifications, and XBRL-related files | Exhibit Number | Description | |:---|:---|\ | (3.1) | Amended and Restated Certificate of Incorporation | | (3.2) | Amendment to the Company's Amended and Restated Certificate of Incorporation | | (3.3) | By-laws of the Company, amended and restated as of December 23, 2022 | | (10.1) | Form of Restricted Stock Unit Agreement | | (10.2) | Form of Performance Stock Unit Agreement | | (10.4) | Amended and Restated Compensation Plan for Directors, dated February 1, 2023 | | (31.1) | Certification of the Chief Executive Officer | | (31.2) | Certification of the Chief Financial Officer | | (32.1) | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | | (32.2) | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | | (101.INS) | Inline XBRL Instance Document | | (101.SCH) | Inline XBRL Taxonomy Extension Schema Document | | (101.CAL) | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | (101.DEF) | Inline XBRL Taxonomy Extension Definition Linkbase Document | | (101.LAB) | Inline XBRL Taxonomy Extension Label Linkbase Document | | (101.PRE) | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | (104) | Cover Page Interactive Data File | SIGNATURES This section contains the required signatures for the Form 10-Q report, certifying its submission on behalf of Church & Dwight Co., Inc. by its Executive Vice President and Chief Financial Officer, and Vice President and Controller - The report was signed on April 27, 2023, by Richard A. Dierker, Executive Vice President and Chief Financial Officer, and Joseph J. Longo, Vice President and Controller[182][197]