Yesterday, Church & Dwight
So why couldn't the better-than-expected earnings prevent the sell-off? I'm going to guess it had a lot to do with the reaction to trade spending. In the earnings reports from other consumer staple companies -- whether we're talking Colgate, P&G, or Clorox
If you're not familiar with trade spending, it refers to spending used to get retailers such as Wal-Mart
In the earnings press release, the company's CEO said, "Our second quarter gross margin and organic sales were negatively affected by increased trade spending in response to aggressive competitive pricing actions." For investors, that's about as exciting as a few tablespoons of salt in their coffee.
Of course it's not just Church & Dwight doing this. With skittish consumers now in the majority, a trade spending arms race shouldn't be all that surprising, and we may see more of the same across the sector until consumers start breathing easier again.
This spending increase helped shave 70 basis points from Church & Dwight's adjusted gross margin, and that wins it a prime spot on the "Things Church & Dwight Investors Better Keep an Eye On" list. However, it hardly seems like enough of a reason to freak out yet. After all, there were still plenty of positives in the second quarter: 3.7% growth in organic sales, a higher operating margin, a 27% jump in earnings per share, and a boost to the dividend compared to last year.
After the sell-off, I see Church & Dwight shares as slightly undervalued. It's not enough to get value mavens really excited, but for a company as stable as Church & Dwight, it may be tough to ever find a really steep discount. And though the stock doesn't offer the same kind of current dividend yield as competitors P&G, Colgate, or Clorox, the company has used free cash flow to aggressively pay down debt and has maintained a very low payout ratio, potentially giving more room for future dividend growth.
Not impressed with the dividend at Church & Dwight? My fellow Fool Jordan DiPietro has identified another stock that he thinks could be the best dividend stock.
Wal-Mart is a Motley Fool Inside Value selection. Clorox and Procter & Gamble are Income Investor recommendations. The Fool owns shares of and has written covered calls on P&G. Try any of our Foolish newsletters today, free for 30 days.
Fool contributor Matt Koppenheffer owns shares of Wal-Mart but does not own shares of any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.