Church & Dwight (CHD 1.14%), the leading producer of baking soda in the United States and the company behind brands such as Arm & Hammer, OxiClean, and Trojan, has just released its first-quarter earnings and the stock has reacted by making a slight move lower. Let's break down the results and the company's outlook on the rest of the year to determine if we should buy in right now or if we should go with one of its largest competitors instead, like Colgate-Palmolive (CL 1.04%).
Source: Wikipedia
The results are in
Church & Dwight released its first-quarter report before the market opened on May 1 and the results were mixed in comparison with expectations; here's a breakdown:
| Metric | Reported | Expected |
|---|---|---|
| Earnings Per Share | $0.73 | $0.73 |
| Revenue | $782.00 million | $783.34 million |
Source: Estimize
Church & Dwight's earnings per share decreased 3.9% and revenue increased 0.3% year-over-year, as organic sales and volume grew 1.2% and 4.4%, respectively; here's a breakdown of sales growth by segment:
| Segment | 1Q 2014 Revs. | 1Q 2013 Revs. | Growth |
|---|---|---|---|
| Consumer Domestic | $593.3 million | $591.0 million | 0.4% |
| Consumer International | $123.8 million | $129.3 million | (4.2%) |
| Household Products | $352.5 million | $358.7 million | (1.7%) |
| Personal Care Products | $240.8 million | $232.3 million | 3.7% |
| Specialty Products | $64.9 million | $59.0 million | 10% |
| Total Revenues | $782.0 million | $779.3 million | 0.3% |
Source: Church & Dwight
Church & Dwight's gross profit decreased 3.1% to $442.6 million and the gross margin took a hit, contracting 150 basis points to 43.4%. These "weak" results stemmed from increased marketing, slotting, and couponing expenses, as the company brought numerous new products to market during the quarter. James Craigie, Church & Dwight President and CEO, added that the product launches have been an "initial success" and it looks like they will quickly grab market share.
Source: OxiClean's Facebook
In addition, the company repurchased $260 million worth of its common stock and paid $42.5 million in dividends during the quarter. The company said it expects to make additional share repurchases throughout 2014 and it is safe to say that it will continue to pay dividends, as its upcoming payment on June 2 will be the 453rd consecutive quarterly dividend payment.
Overall, it was a great quarter for Church & Dwight and its new products provide excitement for investors going forward. The stock reacted to the results by falling 1.36% in the next trading session, but before we decide if this is a buying opportunity, let's take a look at what the company projects for the remaining three quarters...
Should investors expect more of the same?
In the report, Church & Dwight gave its guidance for the second quarter and narrowed its guidance for the full year; here's a summary:
Source: Church & Dwight's Facebook
Second Quarter
- Earnings per share of $0.61, which would match the results from the second quarter of 2013
- Organic sales growth of 3%
- Gross margin contraction of 100 basis points
- Earnings per share growth of 7%-9%
- Organic sales growth of 3%-4%
- Gross margin contraction of 50-75 basis points
Both sets of guidance factor in additional spending by the company to drive growth in its new products, as well as an increasingly competitive retail environment and weakness in the laundry category due to price competition. The company added that the second half will hold the majority of its earnings growth for the year, as it will not be spending nearly as much on marketing as it will in the first half.
With the guidance factored in, I reiterate my belief that the company had a great quarter and I think that Church & Dwight's stock will quickly rebound and head much higher in the coming weeks. I believe the company's new products will drive growth for the rest of the year, especially in the second half, and they will set it up for continued success in the future. Foolish investors should use this short-term weakness to initiate long-term positions.
A glance at the competition
Colgate-Palmolive, the company behind competing brands such as Colgate, Speed Stick, and Suavitel, released its first-quarter report on April 25 and the results satisfied analysts' expectations; here's an overview of the quarter:
| Metric | Reported | Expected |
|---|---|---|
| Earnings Per Share | $0.68 | $0.68 |
| Revenue | $4.33 billion | $4.32 billion |
Source: Benzinga
Colgate's earnings per share increased 3% and revenue increased 0.2% year-over-year, as global volume rose 5%. Organic sales increased 6.5% during the quarter, driven by an incredible 11% growth in Latin America, 10% growth in Africa and Eurasia, and 3.5% growth in North America.
Source: Colgate
Gross profit increased 0.4% to $2.52 billion and the gross margin remained strong, expanding 10 basis points to 58.4%. These results and the company's $820 million in net cash provided by operations allowed it to repurchase approximately $453 million of its common stock and pay dividends totaling $316 million.
Overall, Colgate had an outstanding quarter and its outlook on the rest of the year calls for continued growth in earnings per share and revenue along with margin expansion. Colgate represents a great investment opportunity today, so investors who are not sold on Church & Dwight should take a deeper look at it and its juicy 2.1% dividend.
The Foolish bottom line
Church & Dwight just released great first-quarter results, in which it sacrificed earnings growth to drive the sales of its many new products. These new products will fuel its long-term growth so investors should welcome this move with open arms, but the market has reacted by sending the company's shares lower. Foolish investors should use this weakness as an opportunity to buy and then let price appreciation and Church & Dwight's healthy 1.8% dividend provide significant returns over the next several years.
