In 2002, Fool writer Bill Mann nominatedChurch & Dwight (NYSE:CHD) as a potentially "perfect" company. Best known for its Arm & Hammer line of products, the company has a powerful brand, dominant market position, and enviable financial characteristics. A quick look at the company's Q4 and full-year financial results, released this morning, help illustrate Bill's reasoning.
Sales rose only slightly, and were about flat if you take out $25 million in revenues from the Unilever (NYSE:UL) oral-care brands acquired during the year. (Church & Dwight acquired the Mentadent, Aim, and Pepsodent brands from the company.) But net income still rose 20% year over year to $81 million -- or 16% if you exclude gains from its part-owned Armkel affiliate and the reversal of tax reserves from 2002.
Even that lower figure is in line with Church & Dwight's goal of increasing earnings growth an average 12.5% to 15% through 2005. The company is doing that in precisely the manner large companies must, especially those in slow-growing, generally low-margin industries. They're improving gross margins, controlling operating costs, and picking up acquisitions along the way.
All that should continue in 2004. As for acquisitions, the company has an option to acquire the balance of Armkel -- maker of Trojan condoms and other products -- that it doesn't own. With the operation performing well, an exercise of that option wouldn't be a surprise. Since Church & Dwight is projecting earnings growth of at least 8% for the coming year -- using the most conservative numbers available -- more share appreciation wouldn't be a surprise either, further enriching investors who've seen their company handily outpace the S&P 500 over the last 10 years.
Relax with a fresh box of baking soda on our Church & Dwight discussion board.
Dave Marino-Nachison can be reached via email.
