We like to have a little fun here at the Motley Fool, and today is no exception. Mathew Emmert, one of my favorite writers and the editor of the Motley Fool Income Investor, made an interesting Mother's Day choice in 2003 -- the stock of Arm & Hammer's parent Church & Dwight (NYSE:CHD).
There was a lot to like. The company has been in business since 1846, and, besides its famous baking soda, it sells a variety of familiar consumer brands such as Arrid and Brillo. Mathew claimed the company was not sexy (his word, not mine!) unless you count the 50% owned Armkel unit -- the maker of Trojan condoms and First Response home pregnancy and ovulation test kits. Read the feature; it's a laugh riot!
Fast-forward to today, and Mathew's Mother's Day recommendation has sprouted from a split-adjusted $21.03 a share to $31 and change -- a nifty and quite sexy 48% gain. While the 0.8% dividend will not qualify the company for Mathew's newsletter, it does show that it's not afraid to reward its shareholders.
The company's third-quarter earnings numbers are downright fantastic. Armkel, now a 100% owned unit, help contribute to the 35% gain in per-share net income. Aiding that jump was an 8% increase in the third quarter's gross profit margin -- thanks to the higher margins at Armkel and the oral care unit the company acquired from Unilever (NYSE:UN). While the company's margins still fall over 13% short of those at competitor Procter & Gamble (NYSE:PG), they are still extremely healthy at 38.2%.
The strong performance allowed the company to increase its research and development (R&D) and marketing budgets and increase full-year guidance by two cents (up to $1.43 a share). While the company reiterated its intention to grow earnings 12.5% to 15% a year, analysts are expecting a 20% increase next year -- giving the stock a forward price-to-earnings ratio of 18 times.
While recommending a condom-producing company for Mother's Day is certainly a hoot, the earnings growth at Church & Dwight is downright serious business. While the increase in debt because of acquisition will worry some, the wise investor will note the strong cash flow and sleep well at night.
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.
