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 second quarter net sales grew 9.7% to $1,454.2 million and gross margin expanded by 270 basis points. The Company continues to experience strong consumer demand across its portfolio. Organic sales grew 5.4% driven by positive product mix and pricing of 5.8% while volume was down slightly but exceeded expectations.
Matthew Farrell, Chief Executive Officer, commented, “Our Q2 results reflect the strength of our brands and our continued focus on execution. Consumer demand for our products and improved case fill is resulting in strong revenue growth. Our domestic brands grew consumption in 11 of 17 categories in which we compete. The trade down to value laundry detergent continued as ARM & HAMMER™ liquid detergent experienced strong consumption growth and share gains in Q2. Global online sales continued to grow and as a percentage of total consumer sales were 18% in Q2.
“Our recent acquisitions, THERABREATH™ mouthwash and the HERO™ brand, the maker of MIGHTY PATCH™ acne care products, both experienced high consumption growth and grew market share. Quarterly consumption for THERABREATH doubled and HERO consumption increased 65% compared to the prior year quarter. Both businesses are rapidly gaining new distribution at retail, with THERABREATH more than doubling and the HERO brand tripling distribution since we acquired these businesses.
“Organic revenue growth for the International Division was strong, driven by growth in all of our country subsidiaries and our Global Markets Group. The International Division is once again proving to be a growth engine for the Company after a challenging year in 2022.
“We were especially pleased as gross margin in the quarter expanded with productivity, pricing, and strong contributions from higher margin acquisitions offsetting inflation.
“Second quarter 2023 Reported EPS was $0.89; an increase of 17.1% compared to 2022 Reported EPS. Second quarter Adjusted EPS was $0.92; an increase of 21.1% versus prior year. Second quarter Adjusted EPS exceeded the Company’s outlook of $0.78 driven by higher sales, higher than expected gross margin and a lower tax rate. Finally, strong sales and gross profit growth, margin expansion and working capital management were all key drivers of our strong cash flow generation in the second quarter.”
Second Quarter Review
Consumer Domestic net sales were $1,128.2 million, a $123.5 million or 12.3% increase versus prior year driven by both household and personal care sales growth. Organic sales increased 6.3% due to price and product mix (+6.5%), slightly offset by volume (-0.2%). Growth was led by THERABREATH mouthwash, ARM & HAMMER™ Cat Litter, ARM & HAMMER™ Liquid Detergent, and ARM & HAMMER™ unit dose laundry detergent, partially offset by declines in FLAWLESS™, WATERPIK™ and FIRST RESPONSE™. ARM & HAMMER liquid detergent, ARM & HAMMER Unit Dose and ARM & HAMMER scent boosters all grew dollars and volume once again in Q2. ARM & HAMMER litter consumption grew double digits and outpaced the category.
Consumer International net sales were $241.9 million, an $11.4 million or 4.9% increase versus prior year. Foreign currency exchange rates negatively impacted sales by (-1.2%). Organic sales increased 6.1% due to a combination of higher price and product mix (+5.5%) and higher volume (+0.6%). Q2 organic sales were primarily driven by BATISTE™, STERIMAR™, OXICLEAN™ and WATERPIK™.
Specialty Products net sales were $84.1 million, a $5.8 million or 6.5% decrease versus prior year. Organic sales decreased 6.5% due to lower volume (-4.2%) and lower pricing/mix (-2.3%) driven by the dairy business as low-priced imports returned to the US market.
Gross margin increased 270 basis points to 43.9% due to improved pricing, productivity, and the impact of the HERO acquisition, net of the impact of higher manufacturing costs.
Marketing expense was $132.2 million, which was $29.3 million higher than prior year. Marketing expense as a percentage of net sales increased 130 basis points to 9.1%.
Selling, general, and administrative expense (SG&A) was $213.1 million, including charges related to restricted stock that was issued for the HERO acquisition of $7.3 million. Adjusted SG&A was $205.81 million or 14.2% of net sales, a 60 basis points increase, primarily due to higher incentive compensation which reflects improved business performance.
Income from Operations was $293.6 million. Adjusted Income from Operations was $300.91 million or 20.6% of net sales, up 80 basis points vs prior year.
Other Expense of $24.2 million increased $9.1 million primarily due to higher interest expense resulting from higher average interest rates on outstanding debt.
The effective tax rate decreased to 17.9% compared to 24.1% in 2022. The decrease is driven by a higher tax benefit from stock option exercises.
Operating Cash Flow
For the first six months of 2023, cash from operating activities was $509.2 million, an increase of $198.8 million due to higher cash earnings including the positive impact from recent acquisitions, and improvements in working capital. We now expect full year cash flow from operations to be approximately $1.0 billion (previously $950 million). Capital expenditures for the first six months were $63.2 million, a $24.4 million increase from the prior year as capacity expansion projects proceed as planned.
On June 30, 2023, cash on hand was $396.9 million, while total debt was $2.4 billion.
2023 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 2023. We continue to differentiate our brands to consumers via innovative products, packaging, and forms.
“ARM & HAMMER Litter has launched ARM & HAMMER Hardball™, a transformational plant-based substrate that is lightweight and creates virtually indestructible clumps for no-mess scooping. Over time we expect this new litter will enable the Company to capture a greater share of the lightweight litter category.
“TROJAN™ is building on the success of the Raw™ franchise by offering the new TROJAN Raw Non-Latex condom which is America’s Thinnest Condom. The Raw innovation platform has been a driving force to improving TROJAN market share.
“The THERABREATH brand, the fastest-growing brand in the mouthwash category, is expanding into the kids segment with the launch of three new fluoride mouthwashes. These products are dentist-formulated, free of dyes, and have certified organic flavor.
“NAIR™ has launched Prep & Smooth, a one-step solution that preps the face for makeup application in a No-Touch, No-Mess format.
“HERO continues to innovate in the acne treatment category. Building on the success of its MIGHTY PATCH products, HERO is launching MICROPOINT FOR BLEMISHES™ XL patches. The HERO Rescue skin care line will also be expanding with the launch of Rescue Retinol Nighttime Renewing Cream. These new products help to provide gentle and effective solutions for issue-prone skin.
“BATISTE, a leader in the dry shampoo category, has launched Overnight and Texturizing dry shampoos. Both products are designed to tap into new usage occasions.”
Outlook for 2023
Mr. Farrell stated, “We have driven strong sales growth and gross margin expansion through the first six months of the year, and we expect to continue this trend in the second half. Accordingly, the Company is raising the full year outlook for Sales, Gross Margin, EPS, and Cash Flow, while funding significant incremental investments in marketing and SG&A. This outlook reflects strong operating fundamentals as full year adjusted operating profit is expected to increase approximately 8% (previously 6-8%). We now expect Reported EPS to be $3.03 and Adjusted EPS to be $3.15 or a 6% increase (previously 2-4%).
“We now expect full year 2023 reported sales growth to be approximately 8% (previously 6-7%) and organic sales growth to be approximately 5% (previously 3-4%). We expect 2nd half reported sales growth of approximately 6%. We now expect volume to be positive in both the second half and full year. Our brand investments, new product innovation, and successful execution are all reasons that we expect up to 50% of organic growth to be volume driven in the second half. This is impactful as 100% of organic growth has been largely price driven over the last 24 months.”
Mr. Farrell continued, “We now expect full year gross margin to expand approximately 200 basis points (previously 120 bps). Compared to our previous outlook, we see commodity cost favorability, higher productivity, and faster growth from our higher margin recent acquisitions. Full year gross margin is also benefitting from pricing, pack size changes and laundry concentration. This is an encouraging trend as we are moving closer to restoring gross margins to pre-COVID levels. We now expect a double-digit percentage increase in gross profit in full year 2023.
“We are raising our full year EPS outlook, inclusive of significant incremental investments in marketing and SG&A. We intend to increase marketing as a percentage of net sales to 11.0% (previous outlook 10.5%; 2022 was 10%) This represents an incremental $30 million expense compared to our previous outlook. In addition, SG&A is also increasing by an incremental $30 million compared to our previous forecast due to higher full year incentive compensation and investments we are making for the long term. As in past years, when we have strong business performance, we invest for the future. In the back half of the year our investments will focus in two areas. First is growth, with higher marketing investment, R&D investment around new products and accelerating product registrations in International markets. Second would be driving efficiency, including investments in automation and technology. Consequently, we expect second half EPS growth to be flat, resulting in a full year outlook of 6% Adjusted EPS growth.
“Other expense for 2023 is now expected to be approximately $100 million (previous outlook $110 million) and we now expect our tax rate to approximate 22% (previously 23%).
“Cash flow from operations is now expected to be approximately $1.0 billion (previously $950 million), an increase of 13% compared to 2022. We continue to expect 2023 capital expenditures of approximately $250 million as we make capacity investments for the future. We expect annual Capex spending to return to historical levels (approximately 2% of sales) in 2025. We continue to 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 Q3, we expect reported sales growth of approximately 8%, organic sales growth of approximately 4% and gross margin expansion driving double digit gross profit growth, which reflects a continuation of the strong performance we have seen through the first six months of the year. We expect a significant increase in marketing spending and higher SG&A from higher incentive compensation and investments for the future, as well as a higher tax rate. As a result, we expect Reported EPS of $0.63 and Adjusted EPS of $0.66 per share, a 13% decrease from last year’s Adjusted Q3 EPS as investment spending is weighted more to Q3.”
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®. These fourteen key brands represent approximately 85% of the Company’s products sales. For more information, visit the Company’s website.
Church & Dwight has a strong heritage of commitment to people and the planet. In the early 1900’s, we began using recycled paperboard for all packaging of household products. Today, virtually all our paperboard packaging is from certified, sustainable sources. In 1970, the ARM & HAMMER brand introduced the first nationally distributed, phosphate-free detergent. That same year, Church & Dwight was honored to be the sole corporate sponsor of the first annual Earth Day. In 2022 our continued progress earned public recognition, including the Newsweek Magazine’s Americas Most Responsible Companies list, the EPA’s Green Power Partnership-Top 100 list, the 2022/2023 Forbes Magazine: Americas Best Midsize Employer Award and the FTSE4Good Index Series, amongst others.
