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Church & Dwight's (CHD) Pricing Actions on Track, Cost Woes Stay

Church & Dwight Co., Inc. CHD is benefiting from effective pricing actions and strength in its online business. The provider of personal care, household and specialty products is undertaking prudent acquisitions to fuel growth. Strength in brand portfolio courtesy of innovations is a key driver. Yet, Church & Dwight is not immune to the inflationary environment.

Let’s delve deeper.

Zacks Investment Research
Zacks Investment Research


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Factors Working in Church & Dwight’s Favor

Church & Dwight is resorting to incremental pricing across its portfolio to counter rising costs. A favorable price was an upside to the company’s organic sales in the first quarter of 2022. In its last earnings call, management highlighted that during early 2022, it has already undertaken price increases covering 80% of the global portfolio amid an inflationary environment. The company undertook another round of price increases for its Fabric Care and Litter products, which will likely come into effect in July 2022. Another factor working for Church & Dwight is the e-commerce channel. During the first quarter, the company’s online sales, as a percentage of total sales, came in at 16%, up 2.6% year over year. Management expects online sales for 2022 to be over 15%, as a percentage of total sales.

Church & Dwight has a long history of successful acquisitions. In December 2021, it acquired TheraBreath, a leading brand in the mouthwash category. This marks the company's 14th power brand. In its last earnings call, management highlighted that TheraBreath delivered 37% consumption growth in the first quarter of 2022. We note that the buyout of FLAWLESS and WATERPIK have been prudent additions to Church & Dwight’s portfolio, which has been doing very well.

Church & Dwight boasts power brands, representing most of its consumer sales. In the first quarter, seven of its brands, including ARM & HAMMER Scent Boosters, ARM & HAMMER Baking Soda, ARM & HAMMER Clumping Litter, BATISTE dry shampoo, WATERPIK Water Flossers, ZICAM zinc supplements and THERABREATH mouthwash, witnessed double-digit consumption growth. Its recently-acquired ZICAM and THERABREATH have been performing well, driven by increased market share and distribution.

The Zacks Rank #3 (Hold) company remains focused on product innovation for further growth. The ZICAM brand is on track with launching the first immune supplement gummies for day and night, which comes with the benefit of Zinc + Vitamins C&D. The TROJAN brand is likely to introduce two condoms, TROJAN ULTRAFIT and TROJAN BARESKIN RAW. Other notable launches include Leave-in Hair Mask by BATISTE for moisture and nourishment without any rinsing, FLAWLESS Bikini line in sync with At-Home Beauty and self-care trends and THERABREATH’s Whitening Rinse.

Is All Rosy for Church & Dwight?

Church & Dwight has been witnessing a shrinking gross margin for the past few quarters. During first-quarter 2022, Church & Dwight’s gross margin contracted 190 basis points (bps) to 42.6% due to the adverse impacts of increased manufacturing costs, net of pricing, productivity and favorable mix. In 2022, the company expects to witness additional cost inflation of $85 million related to higher oil and transportation costs compared with the same mentioned in January.

Although Church & Dwight is on track to offset inflation via price increases, laundry concentration and productivity efforts, management expects to face inflation at a greater rate than effective price increases in 2022. For 2022, the gross margin is likely to be down from the 2021 reported level due to inflation, which is anticipated to more than offset pricing and productivity benefits.

The company’s shares have dropped 8.3% in the past six months compared with the industry’s 10.5% decline.

Top 3 Staple Bets

Some better-ranked stocks are Sysco Corporation SYY, United Natural Foods UNFI and Campbell Soup CPB.

Sysco, which markets and distributes various food and related products, sports a Zacks Rank #1 (Strong Buy). SYY has a trailing four-quarter earnings surprise of 9.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Sysco’s current financial year sales and earnings per share (EPS) suggests growth of 32.5% and 124.3%, respectively, from the year-ago reported number.

United Natural Foods distributes natural, organic, specialty, produce and conventional grocery and non-food products. UNFI currently sports a Zacks Rank #1.

The Zacks Consensus Estimate for UNFI’s current financial year sales and EPS suggests growth of 7.2% and 3.6%, respectively, from the year-ago period’s reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 29.9%, on average.

Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank #2 (Buy). Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.

The Zacks Consensus Estimate for CPB’s current financialyear sales suggests growth of 0.5% from the year-ago reported figure.


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