Will the Baking Soda King Shine in Its Fourth-Quarter Report?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

2013 was a strong year for Church & Dwight (NYSE: CHD  )  and its stock performed accordingly by rising 25.8% with the inclusion of $1.12 in dividends paid. This rally could continue throughout 2014 if the company can deliver in its earnings reports, and it will release the first in just a few days. Let's take a look at what Church & Dwight accomplished in its most recent report and what it expects for the upcoming quarter, and see if this is our time to buy Church & Dwight or if we should sit on the sidelines for now.

The baking soda leader                                                                                                              Church & Dwight manufactures and markets personal care, household, and specialty products worldwide. Its most popular brands include Arm & Hammer, Trojan, First Response, Nair, Oxi Clean, and Orajel. Church & Dwight is also the leading producer of baking soda in the United States, which is sold in retail packaging and also paired with other specialty chemicals for industrial, institutional, medical, and food applications.

Last time out                                                                                                                                On Nov. 1, Church & Dwight released third-quarter results for fiscal 2013. The results were mixed compared to analyst estimates and looked like this:

Metric Reported Expected
Earnings Per Share $0.76 $0.73
Revenue $804.8 million $814.31 million

Earnings per share increased 15.2% and revenue rose 11%, driven by strength in the Arm & Hammer and Trojan brands. Gross profit rose 11.5% to $365.2 million as the gross margin expanded 20 basis points to 45.4%, marking the fifth consecutive quarter of margin improvement. Church & Dwight's CEO, James Craigie, stated:

Our innovative new products have received strong distribution support from retailers and will continue to be supported by increased marketing spending with the expectation to deliver strong organic sales and share growth on both our value-oriented and premium priced products.

I believe Church & Dwight's increased marketing will allow the better-than-expected strength in new products to carry over into the fourth quarter and this will be a key driver in 2014.

Expectations & what to watch for                                                                                              Fourth-quarter results are due out before the market opens on Feb. 4 and the current expectations call for growth on both the top and bottom lines. Here's an overview of those expectations:

Metric Expected Year Ago
Earnings Per Share $0.66 $0.57
Revenue $823.5 million $809.7 million

These estimates call for earnings per share to increase 15.8% and revenue to grow 1.7% from the same period a year ago. The revenue estimate for the third quarter seemed much too high so the miss was warranted, but I believe the estimate for the fourth quarter is much too low. With this said, I believe Church & Dwight could easily meet or beat both estimates, with core brands like Arm & Hammer and Trojan leading the way once again.

Other than the key metrics, it will be important for Church & Dwight to provide an outlook for 2014 that is within or above Wall Street's estimates. Currently, analysts expect Church & Dwight's 2014 earnings to be in the range of $2.77-$2.81 per share on revenue of about $3.2 billion. Also, I would like to see the gross margin expand for the sixth consecutive quarter, reflecting continued success in the productivity programs and lower commodity costs. If the company can deliver on earnings, provide solid outlook, and expand its margin, I believe it could raise its quarterly dividend by 14.3% to $0.32 and continue rising to fresh all-time highs throughout 2014.

Competitors' results due out as well

Colgate-Palmolive (NYSE: CL  ) , one of Church & Dwight's largest competitors in the personal products industry, is also set to report earnings shortly. It is home to some of the world's most popular brands such as Colgate, Palmolive, Speed Stick, Softsoap, Irish Spring, Protex, and Hill's Pet Nutrition. Colgate's fourth-quarter results are due out before the market opens on Jan. 30 and the estimates call for growth on the top and bottom lines. Here's an overview of those estimates:

Metric Expected Year Ago
Earnings Per Share $0.75 $0.705
Revenue $4.41 billion $4.29 billion

These expectations would result in earnings per share increasing 6.4% and revenue growing 2.7% year-over-year. For a company with a 45% global market share in toothpaste, I believe these estimates will easily be met, if not surpassed. Colgate, like Church & Dwight, is trading right around its 52-week high so I would wait for weakness before considering it for an investment. With this said, investors can take their pick of Colgate or Church & Dwight because both have strong upside potential, paired with healthy dividends.

The Foolish bottom line                                                                                                              Church & Dwight is a great American company that has been building wealth since 1846. It is about to report fourth-quarter earnings and I believe the current expectations are attainable, but it will also be important to watch for its 2014 outlook, margin expansion, and the possibility of an increased dividend. Keep an eye on Church & Dwight and its competitor, Colgate-Palmolive, and consider buying either on any significant pullback. 

9 Dividend growers for your portfolio
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it’s true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor’s portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2796299, ~/Articles/ArticleHandler.aspx, 9/1/2015 8:39:58 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Joseph Solitro

A fan of innovation, strong fundamentals, and all things baseball. Follow on Twitter @JoeySolitro. Fool on!

Today's Market

updated 11 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 4:07 PM
CHD $86.28 Down -0.57 -0.66%
Church & Dwight Co… CAPS Rating: ***
CL $62.81 Down -0.54 -0.85%
Colgate-Palmolive CAPS Rating: ****