Church & Dwight (CHD) Benefits From Robust Pricing & Brands

Zacks Equity Research
·4-min read

Church & Dwight Co., Inc. CHD is capitalizing on strong consumer demand for its brands. The consumer product behemoth is also seeing success on the back of a strong brand presence, effective pricing strategies and increased productivity. Consistent innovation, continuous product introductions and strategic acquisitions have enabled it to build a robust portfolio. However, the stock is not immune to a rising cost environment.

Let’s delve deeper.

What’s Working Well for Church & Dwight?

The Zacks Rank #3 (Hold) company has been resorting to incremental pricing across its portfolio to counter rising costs. Favorable pricing remained an upside to the company’s organic sales in first-quarter 2024. Quarterly organic sales increased 5.2% due to gains from a favorable product mix and pricing of 1.5%.

The company has a long history of acquisitions. Church & Dwight, which started with only one brand, ARM & HAMMER, acquired several top high-margin brands over the years that have been contributing to its top-line growth.

In its first-quarter 2024 earnings call, management highlighted that it signed an agreement to acquire Graphico, its Japanese distributor, for $35 million, anticipating closure later in the year. The acquisition aims to enhance CHD's presence in Japan and the APAC region by leveraging Graphico's capabilities to introduce more brands to Japanese consumers.

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Church & Dwight boasts seven power brands, ARM & HAMMER, OXICLEAN, VITAFUSION and L’IL CRITTERS, BATISTE, WATERPIK, THERABREATH and HERO, which generate nearly 70% of its revenues and profits. The company is focused on product innovation to propel growth. Management has been differentiating its brands to consumers through innovative products, packaging and forms.

Recently, the company introduced two innovative products in the detergent category, ARM & HAMMER Deep Clean, positioned as their premium offering in liquid laundry detergent and ARM & HAMMER Power Sheets, the first major brand to launch unit dose detergent sheets in the United States. Initially launched online in August 2023, Power Sheets has garnered significant consumer traction, prompting its expansion into select brick-and-mortar stores. Both products have shown promising early results in 2024, indicating strong market acceptance and growth potential.

Is All Rosy for Church & Dwight?

Church & Dwight has been witnessing higher marketing expenses in the past few quarters. During the first quarter of 2024, marketing expenses increased by $29.7 million to $152 million. Adjusted SG&A expenses, as a percentage of net sales, escalated 80 bps (basis points) to 14.8%, mainly due to investments in International and R&D. Management expects a rise in marketing expenditures and an increase in SG&A expenses for the second quarter.

Although compensated by pricing, volumes and productivity gains, Church & Dwight’s gross margin was partly hurt by inflation in the first quarter. In its last earnings call, management highlighted that it expects to witness a rise in manufacturing costs, mainly due to capacity-related investments, a rise in third-party manufacturing expenses and moderate commodity inflation.

Church & Dwight's focus on the mentioned advantages is expected to help it remain resilient despite these challenges. CHD’s shares have risen 11.7% in the past six months compared with the industry’s 12.6% growth.

Key Staple Picks

Vital Farms Inc. VITL offers a range of produced pasture-raised foods. It currently sports a Zacks Rank #1 (Strong Buy). VITL has a trailing four-quarter average earnings surprise of 102.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings indicates growth of 22.6% and 62.7%, respectively, from year-ago reported numbers.

Freshpet, Inc. FRPT, a pet food company, has a trailing four-quarter earnings surprise of 118.2%, on average. FRPT currently sports a Zacks Rank #1.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings indicates growth of 24.8% and 177.1%, respectively, from the prior-year reported level.

Utz Brands Inc. UTZ, which manufactures a diverse range of salty snacks, currently carries a Zacks Rank #2 (Buy). UTZ has a trailing four-quarter earnings surprise of 2%, on average.

The consensus estimate for Utz Brands’ current financial-year earnings indicates growth of 26.3% from year-ago reported numbers.

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Church & Dwight Co., Inc. (CHD) : Free Stock Analysis Report

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