Please ensure Javascript is enabled for purposes of website accessibility

Church & Dwight's Fourth-Quarter Results Sent Shares Higher

By Joseph Solitro - Feb 5, 2014 at 2:03PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Church & Dwight reported earnings and shares rallied higher. Let's take a look at the quarter and decide if this is our time to buy.

Church & Dwight (CHD 0.43%), the personal-products giant, released its fourth-quarter report and its shares responded by moving higher. The results missed Wall Street's estimates, but the company provided more information that caused investors to become bullish and pile in. Let's take a look at the key statistics for Church & Dwight and decide if we should be buying right now or if we should wait for the stock price to come back down a bit.

The king of baking soda
Church & Dwight manufactures and markets personal care, household, and specialty products worldwide. Its most popular brands include Arm & Hammer, Trojan, First Response, Nair, OxiClean, and Orajel. Church & Dwight is also the leading producer of baking soda in the United States, which is sold in retail packaging and also paired with other specialty chemicals for industrial, institutional, medical, and food applications.

Source: Arm & Hammer.

The results
Church & Dwight's fourth-quarter results were released after the market closed on Feb. 3. The results missed expectations:

MetricReportedExpected
Earnings per share $0.65 $0.66
Revenue $822.6 million $823.5 million

Church & Dwight's earnings per share increased 14% and revenue increased 1.6%, driven by strong volume growth of 5.2%. Organic sales increased 2.3%, which was well above the company's expectations of 1.5% to 2%. Gross profit increased 3.7% to $371.7 million as the gross margin expanded 90 basis points to 45.2%. Even though all of these statistics are impressive, the two things that stood out the most in the report were the 11% dividend increase and the share repurchase authorization.

The dividend hike
The most notable occurrence in the quarterly report was the 11% dividend increase. The quarterly dividend was raised to $0.31 from $0.28, resulting in an annual dividend of $1.24, which gives the stock a yield of about 1.9% at current levels. The upcoming payment will mark the 452nd consecutive quarter in which the company paid a dividend, and this also marks the 18th consecutive year that the dividend increased. Few companies have attained such dividend-paying streaks, which puts Church & Dwight in an elite class.

Bring it back, bring it back
In addition to the dividend hike, Church & Dwight also authorized the repurchase of $500 million worth of its common stock. This replaced the previous repurchase program and it will allow the company to reduce the number of shares outstanding, thus driving earnings per share higher and increasing the value of the remaining shares. Currently, there are about 139 million shares outstanding, so $500 million will take a significant amount of those shares out of the market. I am a huge fan of companies that show strong dedication to shareholders, especially when it comes to dividends and repurchasing, and Church & Dwight is very active in this area.

The year ahead
In the report, Church & Dwight gave guidance for fiscal 2014 that points toward a great year of growth. It expects earnings per share to be in the range of $2.96 to $3.07, representing 6% to 10% growth from fiscal 2013; this also came in above analyst expectations, which called for earnings in the range of $2.77 to $2.81 per share. Also, the company's organic sales are expected to grow 3% to 4%, while the gross margin remains flat. If Church & Dwight can deliver on these earnings expectations while repurchasing shares and paying the healthy 1.9% dividend, there is no doubt in my mind that the stock will head higher over the course of the year.

Industrywide strength
Church & Dwight has not been the only company in the industry showing strength; one of its top competitors, Colgate-Palmolive (CL 0.99%), has reported positive growth as well. Colgate is home to some of the world's most popular brands such as Speed Stick, Softsoap, Irish Spring, Protex, and Hill's Pet Nutrition.

Source: Colgate.

Colgate released its latest earnings report on Jan. 30, and it showed growth on both the top and bottom lines. Here's a breakdown:

MetricReportedExpected
Earnings per share $0.75 $0.74
Revenue $4.36 billion $4.40 billion

Earnings per share increased 7.1% and revenue increased 1.8%, driven by global unit volume growth of 6.5%. Organic sales rose 6.5% as well, led by the emerging markets, where organic sales grew a strong 10.5%. The most impressive part of the report came in its updated global market share statistics; Colgate now owns a 44.9% share in the toothpaste market, a 32.8% share in the manual toothbrush market, and a 17% share in the mouthwash market. Even though Church & Dwight and Colgate are competitors, I believe the market is large enough for both companies to continue growing in harmony. 

The Foolish bottom line
Church & Dwight is a great American company which turned an earnings miss into something investors treasured. It missed the estimates but proceeded to raise its dividend and authorize share repurchases, all while providing guidance that was higher than analysts expected. I believe its stock will move to fresh all-time highs in the coming days, so investors should consider initiating a position right now.

Joseph Solitro 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Church & Dwight Co., Inc. Stock Quote
Church & Dwight Co., Inc.
CHD
$87.70 (0.43%) $0.37
Colgate-Palmolive Company Stock Quote
Colgate-Palmolive Company
CL
$80.29 (0.99%) $0.79

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.