EWING, N.J.–(BUSINESS WIRE)–Church & Dwight Co., Inc. (NYSE: CHD) today announced the Company exceeded its outlook with stronger than expected sales growth and gross margin expansion. In the first quarter, net sales grew 5.1% to $1,503.3 million, gross margin expanded by 220 basis points, and reported EPS grew 13.4%. The Company continues to drive strong consumer demand across its portfolio. Organic sales grew 5.2% driven by volume of 3.7% and positive product mix and pricing of 1.5%.
First quarter 2024 Reported EPS was $0.93; an increase of 13.4% compared to 2023 reported EPS. First quarter Adjusted EPS was $0.96; an increase of 12.9%. First quarter Adjusted EPS exceeded the Company’s outlook of $0.85 driven by higher-than-expected sales growth and gross margin expansion, and a lower tax rate.
Matthew Farrell, Chief Executive Officer, commented, “The Company is performing extremely well with all three divisions delivering strong growth. I want to thank our global employees for their great efforts each and every day. Our outstanding Q1 results reflect the strength of our brands, the early success of our new products, and our perennial focus on execution. Volume was the primary driver of organic growth, and we expect volume growth to continue for the rest of the year. Marketing as a percent of sales increased 150 bps driving strong consumption and share gains. Global online sales grew to 20.5% of total consumer sales in Q1, a dollar increase of 14.9% compared to Q1 2023. Finally, the combination of strong sales, margin expansion, and efficient working capital management resulted in strong cash flow generation in the first quarter, leading to over $1 billion of cash from operations expected in the full year outlook.
“Organic revenue growth was broad-based as all three businesses posted exceptional results. The Domestic Division grew 4.3% organically while growing share in five of our seven power brands. The International Division grew 8.8% organically, driven by growth in all of our country subsidiaries and our Global Markets Group. Our Specialty Products Division grew organic revenue 7.2% led by global expansion of the non-dairy portfolio.
“In March, we signed a definitive agreement to acquire Graphico, our Japan based distributor, for approximately $35 million including transaction costs. We expect the acquisition to close later this year. Since 2008, Graphico has partnered with Church & Dwight and driven Oxiclean to be the #1 powder prewash additive in Japan. The acquisition is expected to contribute to greater expansion of our business in Japan and the greater APAC region as we leverage the capabilities of Graphico in bringing the larger portfolio of Church & Dwight brands to Japanese consumers.
First Quarter Review
Consumer Domestic net sales were $1,165.2 million, a $48.3 million or 4.3% increase driven by both household and personal care sales growth. Organic sales increased 4.3% due to volume (+3.3%) and price and product mix (+1.0%). Growth was led by THERABREATH™ mouthwash, HERO™ acne products, ARM & HAMMER™ Cat Litter, ARM & HAMMER™ Baking Soda, XTRA™ Liquid Detergent, and BATISTE™ dry shampoo, partially offset by declines in the vitamin business and WATERPIK™.
Consumer International net sales were $255.0 million, a $24.4 million or 10.6% increase. Organic sales increased 8.8% due to a combination of higher volume (+5.4%) and price and product mix (+3.4%). Growth was led by STERIMAR™, HERO and THERABREATH.
Specialty Products net sales were $83.1 million, a $0.8 million or 1.0% increase including the impact of winding down the Megalac business. Organic sales increased 7.2% due to higher price and product mix (+4.2%) and volume (+3.0%).
Gross margin increased 220 basis points to 45.7% due to improved productivity, volume, mix and pricing, net of the impact of higher manufacturing costs.
Marketing expense was $152.0 million, a $29.7 million increase. Marketing expense as a percentage of net sales increased 150 basis points to 10.1%.
Selling, general, and administrative expense (SG&A) was $230.0 million, including $7.3 million of charges related to restricted stock that was issued for the HERO acquisition. Adjusted SG&A was $222.71 million or 14.8% of net sales, an 80 basis points increase primarily due to investments in International and R&D.
Income from Operations was $305.0 million. Adjusted Income from Operations was $312.31 million, an increase of 4.4% inclusive of higher marketing and SG&A investments.
Other Expense decreased $2.2 million primarily due to lower outstanding debt and higher interest income.
The effective tax rate was 19.9% compared to 24.4% in 2023. The rate was lower due to a high level of stock option exercises in Q1 2024. The expected effective tax rate for the full year is unchanged at approximately 23%.
Operating Cash Flow
For the first three months of 2024, cash from operations was $263.0 million, a decrease of $10.1 million as higher cash earnings were offset by higher working capital. We now expect full year cash flow from operations to be approximately $1.05 billion (previously $1.0 billion). Capital expenditures for the first three months were $46.3 million, a $21.3 million increase from the prior year as capacity expansion projects proceed as planned.
At March 31, 2024, cash on hand was $349.7 million, while total debt was $2.2 billion.
2024 New Products
Mr. Farrell commented, “Product innovation continues to be a big driver of our success and we are excited about our new product launches. In 2024, we expect accelerated growth from new product launches as we lead with innovation in a number of key categories. Through the first few months of the year, we are encouraged by consumer enthusiasm for several of our new product introductions.
“ARM & HAMMER™ Laundry launched Deep Clean™ Liquid and Deep Clean Unit Dose Laundry Detergent. Arm & Hammer Deep Clean is our most premium Arm & Hammer laundry detergent, entering the mid-tier of the category and delivering a superior clean at a price consumers can afford.
“ARM & HAMMER™ launched Power Sheets™ Laundry Detergent online in August 2023. This innovative laundry solution is effective, convenient, and eliminates plastic bottle waste. ARM & HAMMER™ is the first major brand to offer a detergent sheet in the U.S. Due to its online success, Power Sheets™ is now available in select brick & mortar retailers.
“ARM & HAMMER™ Hardball™ Clumping Litter has expanded nationally after successful in-market testing in 2023. This transformational plant-based substrate is lightweight and creates virtually indestructible clumps for no-mess scooping. We expect this new litter to help ARM & HAMMER capture a greater share of the lightweight litter category.
“THERABREATH™, the #1 alcohol-free mouthwash brand, has entered the antiseptic segment of the category with the launch of TheraBreath™ Deep Clean Oral Rinse. Antiseptic mouthwashes account for 30% of the category. This product is formulated to kill 99.9% of germs that cause bad breath, plaque & gingivitis without the burn.
“BATISTE™, the global leader in dry shampoo, is meeting consumers’ desire for longer-lasting results with new BATISTE Sweat Activated and BATISTE Touch Activated dry shampoos. These breakthrough products are formulated with advanced technology and release a burst of fragrance whenever you sweat or touch your hair.
“HERO™ continues to drive the majority of growth in the acne category as the #1 patch brand in the U.S. In 2024, Hero will continue to launch innovative solutions in patches combined with adjacent products, such as Dissolve Away Daily Cleansing Balm, which will broaden our offerings of gentle and effective solutions for acne-prone skin.”
Outlook for 2024
Mr. Farrell stated, “We started the year with an exceptional quarter, delivering strong sales growth, gross margin expansion, and strong earnings growth. We remain confident about 2024 and will continue to focus on offering high quality products to consumers at the right value. We are thrilled with the early success of our new product launches.
“We continue to expect full year 2024 reported and organic sales growth to be approximately 4 to 5%.1
“We now expect full year gross margin to expand approximately 75 basis points versus 2023 (previously 50 to 75 basis points). We continue to expect an increase in manufacturing costs primarily due to capacity-related investments, third party manufacturing cost increases, and moderate commodity inflation. We continue to expect to more than offset these cost increases through carryover product pricing, mix, higher volume and productivity.
“We continue to invest behind our brands and are targeting marketing as a percentage of sales to be approximately 11%. SG&A is now expected to be flat as a percent of sales compared to 2023 (previously expected leverage) reflecting incremental infrastructure investments in International and ecommerce, and costs related to the Graphico acquisition.”
“Our full year reported EPS growth is expected to be approximately +9.5-10.5% and our Adjusted EPS growth expectation is now 8-9%1 (previously 7-9%), inclusive of a slightly dilutive EPS impact from the Graphico acquisition. We continue to expect our tax rate to be approximately 23%.
“Cash flow from operations is now expected to be approximately $1.05 billion (previously $1.0 billion), which would be an all-time high for the Company.
“This outlook reflects strong growth across all key measures, including reported and organic sales, volume, gross margin expansion, operating income growth and cash flow.
“We expect 2024 capital expenditures of approximately $180 million as we complete the major capacity investments that were initiated in 2023. We expect capital spending to return to historical levels (approximately 2% of sales) in 2025. Our capital allocation priorities remain unchanged and we will pursue accretive acquisitions that meet our strict criteria, with an emphasis on fast-moving consumable products, similar to our last 3 acquisitions (ZICAM, THERABREATH, and HERO).
“For Q2, we expect reported sales growth of approximately 3.5% and organic sales growth of approximately 4.0%¹ reflecting higher couponing in support of our new products. We expect moderate gross margin expansion, increased marketing spending to support our innovation pipeline, higher SG&A expense and a significantly higher tax rate (24%) compared to the prior year (17.9%) when our tax rate benefitted from a high level of stock option exercises. As a result, we expect reported EPS of $0.81 and Adjusted EPS of $0.83 per share, down 10% versus last year’s adjusted Q2 EPS.”¹
¹ Organic Sales, Adjusted SG&A, Adjusted Income from Operations and Adjusted EPS are non-GAAP measures. See non-GAAP reconciliations included at the end of this release.
Church & Dwight Co., Inc. (NYSE: CHD) founded in 1846, is the leading U.S. producer of sodium bicarbonate, popularly known as baking soda. The Company manufactures and markets a wide range of personal care, household, and specialty products under recognized brand names such as ARM & HAMMER®, TROJAN®, OXICLEAN®, SPINBRUSH®, FIRST RESPONSE®, NAIR®, ORAJEL®, XTRA®, L’IL CRITTERS® and VITAFUSION®, BATISTE®, WATERPIK®, ZICAM®, THERABREATH® and HERO®. For more information, visit the Company’s website.
