The Baking Soda King is Ready to Shine

With the government back in business, debt issues pushed down the road, and earnings season in full blast, finding the next big earnings beat could propel your portfolio higher. Church & Dwight (CHD +0.07%) is set to report third quarter earnings in a few days and the estimates seem very obtainable. Let's take a deeper look and see if this is a buying opportunity, or if we should avoid it for now.

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

Last time out
On August 2, Church & Dwight released second quarter results. It was a mixed quarter, with a beat on earnings per share but a miss on revenue expectations. Here is an overview of the report:

Earnings per share grew 8.93% and revenues rose 13.1% compared to the same period in 2012. Gross margin expanded by 110 basis points to 44.6%, which is a very important metric to watch in future reports. Also in the report, management affirmed its full-year outlook of $2.79 per share which represents 14% growth from 2012. Overall, it was a great quarter for Church & Dwight and I believe its unique portfolio of brands will continue to drive growth.

Upcoming expectations
Third quarter results are due out on November 1 and analysts project growth on both the top and bottom lines year-over-year. Here are the current consensus estimates:

In the last report, management's outlook for the third quarter called for $0.73 earnings per share and revenue growth of approximately 11-12%; this is right about in-line with the analysts. Other than watching these key statistics, investors should pay attention to updates on the gummy vitamin segment and the new product launches in the last year.

The gummy vitamin segment was projected to grow at double digits in 2013 and for the next few years, so it is important that the company meets those expectations. As for the new product launches, it is important to see whether they have driven sales higher or if they are struggling and requiring additional marketing campaigns. Overall, I believe it will be a strong quarter for Church & Dwight due to its cash-cow brands and the recent acquisitions and innovation. 

Update on the competition
On September 11, we took a deep look at Church & Dwight and two of its competitors, Ecolab (ECL 0.86%) and Stepan Company (SCL 1.13%). We concluded that Church & Dwight and Ecolab were worthy of investments, but Stepan did not command a large enough market share for consideration. Let's take a look at how the companies have performed since:

(Source: Yahoo! Finance. Performance as of October 20, 2013)

As you can see, all three companies have risen and largely outperformed the S&P 500's 2.95% increase. All have favorable forward estimates, good dividends, and momentum over the last month, meaning there is strength in all aspects of this industry right now. Each company is just a few percent below 52-week highs, so waiting for a pullback would be the best way to go about an investment. However, if an investor is looking to make a decision now, Church & Dwight or Ecolab are the "best of breed" to go with.

The Foolish bottom line
Church & Dwight is a great American company that has been growing its presence since 1846. It is undervalued based on forward earnings estimates and pays a healthy 1.8% dividend, making it a great play in today's market. It is set to report third quarter earnings in a few days and strong results could propel the stock to fresh 52-week highs. Take a look and see if your portfolio could use the baking soda king Church & Dwight.