Church & Dwight (NYSE: CHD), 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:
| Metric | Reported | Expected |
|---|---|---|
| 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 0.93%), 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:
| Metric | Reported | Expected |
|---|---|---|
| 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.
