Prestige Brands vs. Church & Dwight: Where Should You Invest?

In the big business of consumer goods, often smaller growth alternatives are better investments, but which is worth your money?

Apr 24, 2014 at 8:00AM

It is exceedingly rare to stumble across a small company with a large brand presence among consumers. Such companies are unusual since strong brand power usually means an established consumer base and a large global footprint. However, with consumer goods companies Prestige Brands (NYSE:PBH) and Church & Dwight (NYSE:CHD), investors may have two opportunities to invest in small and mid caps with large portfolios of popular over-the-counter health care and household cleaning products.


Source: Church & Dwight 

Small companies, big brands
For a company with a market capitalization of only $1.4 billion, Prestige Brands' product lineup is especially impressive. The company owns popular brands like Luden's throat lozenges, Clear Eyes solutions, and Comet cleaning cleanser.

While Church & Dwight's product lineup, which includes brands like ARM & HAMMER, OxiClean, and Trojan, is more impressive, the company's market capitalization of $9.5 billion is also much larger.

However, both companies are relatively small compared to typical industry behemoths.

New products yet to kick start growth
Prestige Brands has grown over the years through a combination of organic growth and acquisitions. The company's core brands account for approximately 70% of total revenue and are constantly being supported by new product introductions. The company brings three to five significant new products to market on average each year. 

Recently, Prestige Brands announced that it would acquire Australian brand Hydralite, a leader in OTC oral rehydration. The company will become part of Prestige Brands' Care Pharmaceuticals division and will help to double the segment's annual revenue and be accretive to overall fiscal 2015 earnings. 

Despite new products, Prestige Brands has struggled in fiscal 2014. The company is projected to experience an overall 2.9% decline in sales and flat earnings per share performance in the current year. Management has attributed much of the weakness to three unforeseen problems.

Chief executive officer Matthew Mannelly explained, "There were a combination of things that came together that has affected our business in the short term. And those things are, specifically, as I said, the soft retail foot traffic that's led to significant retail inventory reductions that have been publicly stated by a number of the leading retailers, plus the returning competitive pediatric brands, which we have been talking about for several months, plus the weak cough/cold season." 

Fiscal 2015, which begins in a month for Prestige Brands, is expected to be better as the company is expected to grow sales 1.3% and earnings 6%. 

Huge overseas potential
On the other hand, Church & Dwight is doing much better on the growth front. The company is projected to grow revenue 3.2% and EPS 9% in fiscal 2014. Additionally, the company's growth estimates only go up in fiscal 2015, to 3.6% and 10.5% respectively. 

One of the biggest potential drivers of growth for Church & Dwight going forward is the company's methodical expansion overseas. In 2013, only 17% of Church & Dwight's revenue came from international markets. While not a huge number, it does represent a large increase from 2001 when only 2% of revenue was derived outside of the United States. 

Management's strategy is to focus on the company's six most lucrative international markets at the present time. The idea is to build up brand strength and awareness in key markets and then expand organically from there. With much of the world still untapped for Church & Dwight, the company's growth potential appears large. 

Header Ludens

Source: Prestige Brands 

Bottom line
Although Prestige Brands and Church & Dwight both represent small alternatives to the typical large industry conglomerates, only one company needs to be owned by investors.

Despite being much larger, Church & Dwight is growing at more robust levels compared to Prestige Brands. With more powerful brands and a clear strategy for international growth, Church & Dwight is a growth investor's best option in the consumer goods space.

3 stocks to own for the rest of your life, is Church & Dwight one of them?
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Philip Saglimbeni has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information