The Arm & Hammer brand can be found in 86% of U.S. households, but I doubt that stock of its parent company Church & Dwight
Church & Dwight is built for recessionary times. Its value-priced laundry detergents, oral care products (think Aim and Orajel), and household cleaners appeal to cash-strapped consumers. And even though management sees private-label competition increasing for the next year or so, that threat should be small, as private-label market share is low across their product categories. Even amid those concerns, the company recently raised its 2009 guidance to reflect organic revenue growth of 3% and earnings per share growth of 15%-17%. That easily bests Proctor & Gamble's
Moreover, Church & Dwight management is shareholder friendly. In a welcome change from the Citigroups
Despite these strengths, Church & Dwight does suffer from weakness in its specialty products division. Revenue in this segment is split roughly 50-50 between animal nutrition and industrial chemicals. In first-quarter 2009, segment sales were down 15% versus the prior year. Part of that decline is due to foreign exchange headwinds and one-time gains in 2008, while fundamental reasons include a decline in milk prices that depressed animal nutrition volumes. In this sense, Church & Dwight is suffering from the broad agriculture slump that has also been a growth killer for fertilizer names PotashCorp
I believe investors can rest assured that any nicks in the company's armor will be offset by ample forward momentum. Free cash flow hit a record $289 million in 2008, and management has delivered on its commitment to steadily expand margins. Additional efficiencies are expected from a new laundry manufacturing and distribution facility that is slated to open at the end of the year. Growth initiatives in its Trojan condom business include a discrete two-condom "go pack" and a new comfort-shape condom called Trojan Ecstasy.
Eight brands are responsible for over 80% of Church & Dwight's revenue and profit. On the chance that one of those names falls out of favor with consumers, it would likely mean a big hit to the bottom line. Stranger things have happened, but I don't see that as a credible threat. For example, the Arm & Hammer brand rocketed from 1% annual growth in 2004 to 11.3% growth in 2008 -- and that span encompasses both the credit-drunk consumer of yore and the breadline fearful of today.
With a consistent track record of delivering earnings and cash flow growth, and trading at a 2009 P/E of roughly 16 against earnings growth expectations of 15%-17%, I'd say that is one of the best buys in the consumer staples sector. Its five-year forward annual growth looks several percentage points better than similarly valued Colgate
Other ways to grow your portfolio through a recession: