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Church & Dwight Stock's Potential: Can CHD Overcome Recent Hurdles?
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Church & Dwight Co., Inc. (CHD - Free Report) continues to solidify its market position through a strong brand portfolio and adept pricing strategies. Its focus on expanding online sales has aligned with shifting consumer behaviors. However, the company faces challenges, including rising marketing expenses and a slowdown in consumer spending, which affected second-quarter 2024 results. Currency fluctuations pose a risk to the company’s performance.
Shares of the company have risen 7.9% in the past year compared with the industry’s growth of 22.1%.
Image Source: Zacks Investment Research
Factors Driving Church & Dwight’s Success
Church & Dwight’s strong brand equity provides the company with pricing power, allowing it to pass on cost increases to consumers with minimal impact on demand, supporting profitability. Favorable pricing remained an upside to the company’s organic sales in the second quarter of 2024. Organic sales increased 4.7% due to gains from volume to the tune of 3.5% and the favorable product mix and pricing of 1.2%. We expect pricing to be up 1% in 2024.
Online sales are a growing segment for Church & Dwight, now representing 21.2% of global sales (per the second quarter). The company's focus on expanding its direct-to-consumer platforms and optimizing its omnichannel presence ensures it can capture the ongoing shift in consumer purchasing behavior toward online channels.
Church & Dwight benefits from a robust portfolio of trusted consumer brands, such as Arm & Hammer, OxiClean and Trojan, which continue to deliver solid revenue performance across various segments. These brands are household staples, often regarded as essential goods, ensuring stable demand even during periods of economic uncertainty.
Church & Dwight has consistently demonstrated its ability to innovate in premium and niche product categories, such as the Flawless Beauty and Waterpik brands. These higher-margin, faster-growing categories have helped diversify the company's product offering and enhance earnings. Continued innovation and targeted acquisitions in these spaces position the company for growth beyond its traditional categories, providing upside potential for the stock.
Operational Efficiency Boosts CHD’s Gross Margin
Church & Dwight saw significant improvement in profitability, with the adjusted gross margin expanding by 150 basis points to 45.4% in the second quarter of 2024, driven by productivity gains, improved volume and a favorable product mix. Such operational efficiencies are crucial for mitigating inflationary pressures and higher manufacturing costs, demonstrating Church & Dwight’s focus on cost management and strategic pricing. This margin expansion offers strong support for future earnings growth.
The company increased its full-year forecast for adjusted gross margin expansion to approximately 100-110 bps, up from the previously expected 75 bps increase. Management expects higher product pricing, improved mix, increased volume and enhanced productivity to offset the rise in manufacturing costs.
Hurdles on CHD’s Way
Church & Dwight has been witnessing increasing marketing expenses for the past few quarters. The company anticipates marketing, as a percentage of sales, to be nearly 11% in 2024. Adjusted SG&A, as a percentage of sales, is projected to be higher year over year, up from the previous expectation of being flat. This upside reflects additional costs associated with the Graphico acquisition and higher incentive compensation than initially anticipated.
Church & Dwight is facing challenges related to consumer spending in the current environment. Recent trends indicate a slowdown in consumer consumption in June and July, where dollar consumption growth decelerated from 4.5% to approximately 2%. This deceleration is attributed to consumers adjusting their spending habits in response to extended economic pressures and rising prices. The company notes that while its portfolio of value and premium products is well-suited to navigate these shifting consumer patterns, the overall slowdown suggests that future growth may be more modest compared to the first half of the year.
Although the company anticipates its brands to outperform the categories in the second half of the year, it adjusted the organic revenue forecast to about 4% growth, down from the previous range of 4-5% during 2024. Reported sales growth is projected to be slightly lower, around 3.5%, due to the effects of divestitures and adverse currency fluctuations. Adjusted EPS growth is now expected to be at the lower end of the 8-9% range.
How Should Investors Play CHD Stock?
Church & Dwight's strong brand portfolio, pricing power and operational efficiencies have driven solid performance in online sales and higher-margin product categories. However, rising marketing costs, a slowdown in consumer spending and currency headwinds pose challenges that may limit near-term growth. Investors should weigh the company’s solid fundamentals against the potential hurdles in the current macroeconomic environment. For now, maintaining positions in the stock appears prudent. CHD currently carries a Zacks Rank #3 (Hold).
Top 3 Staple Stocks
Here, we have highlighted three better-ranked food stocks — The Chef's Warehouse (CHEF - Free Report) , Ollie's Bargain Outlet (OLLI - Free Report) and Flowers Foods (FLO - Free Report) .
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average.
The Zacks Consensus Estimate for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.7% and 12.7%, respectively, from the year-earlier figures.
Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings each implies growth of around 1% and 4.2%, respectively, from the year-ago reported numbers.
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Church & Dwight Stock's Potential: Can CHD Overcome Recent Hurdles?
Church & Dwight Co., Inc. (CHD - Free Report) continues to solidify its market position through a strong brand portfolio and adept pricing strategies. Its focus on expanding online sales has aligned with shifting consumer behaviors. However, the company faces challenges, including rising marketing expenses and a slowdown in consumer spending, which affected second-quarter 2024 results. Currency fluctuations pose a risk to the company’s performance.
Shares of the company have risen 7.9% in the past year compared with the industry’s growth of 22.1%.
Image Source: Zacks Investment Research
Factors Driving Church & Dwight’s Success
Church & Dwight’s strong brand equity provides the company with pricing power, allowing it to pass on cost increases to consumers with minimal impact on demand, supporting profitability. Favorable pricing remained an upside to the company’s organic sales in the second quarter of 2024. Organic sales increased 4.7% due to gains from volume to the tune of 3.5% and the favorable product mix and pricing of 1.2%. We expect pricing to be up 1% in 2024.
Online sales are a growing segment for Church & Dwight, now representing 21.2% of global sales (per the second quarter). The company's focus on expanding its direct-to-consumer platforms and optimizing its omnichannel presence ensures it can capture the ongoing shift in consumer purchasing behavior toward online channels.
Church & Dwight benefits from a robust portfolio of trusted consumer brands, such as Arm & Hammer, OxiClean and Trojan, which continue to deliver solid revenue performance across various segments. These brands are household staples, often regarded as essential goods, ensuring stable demand even during periods of economic uncertainty.
Church & Dwight has consistently demonstrated its ability to innovate in premium and niche product categories, such as the Flawless Beauty and Waterpik brands. These higher-margin, faster-growing categories have helped diversify the company's product offering and enhance earnings. Continued innovation and targeted acquisitions in these spaces position the company for growth beyond its traditional categories, providing upside potential for the stock.
Operational Efficiency Boosts CHD’s Gross Margin
Church & Dwight saw significant improvement in profitability, with the adjusted gross margin expanding by 150 basis points to 45.4% in the second quarter of 2024, driven by productivity gains, improved volume and a favorable product mix. Such operational efficiencies are crucial for mitigating inflationary pressures and higher manufacturing costs, demonstrating Church & Dwight’s focus on cost management and strategic pricing. This margin expansion offers strong support for future earnings growth.
The company increased its full-year forecast for adjusted gross margin expansion to approximately 100-110 bps, up from the previously expected 75 bps increase. Management expects higher product pricing, improved mix, increased volume and enhanced productivity to offset the rise in manufacturing costs.
Hurdles on CHD’s Way
Church & Dwight has been witnessing increasing marketing expenses for the past few quarters. The company anticipates marketing, as a percentage of sales, to be nearly 11% in 2024. Adjusted SG&A, as a percentage of sales, is projected to be higher year over year, up from the previous expectation of being flat. This upside reflects additional costs associated with the Graphico acquisition and higher incentive compensation than initially anticipated.
Church & Dwight is facing challenges related to consumer spending in the current environment. Recent trends indicate a slowdown in consumer consumption in June and July, where dollar consumption growth decelerated from 4.5% to approximately 2%. This deceleration is attributed to consumers adjusting their spending habits in response to extended economic pressures and rising prices. The company notes that while its portfolio of value and premium products is well-suited to navigate these shifting consumer patterns, the overall slowdown suggests that future growth may be more modest compared to the first half of the year.
Although the company anticipates its brands to outperform the categories in the second half of the year, it adjusted the organic revenue forecast to about 4% growth, down from the previous range of 4-5% during 2024. Reported sales growth is projected to be slightly lower, around 3.5%, due to the effects of divestitures and adverse currency fluctuations. Adjusted EPS growth is now expected to be at the lower end of the 8-9% range.
How Should Investors Play CHD Stock?
Church & Dwight's strong brand portfolio, pricing power and operational efficiencies have driven solid performance in online sales and higher-margin product categories. However, rising marketing costs, a slowdown in consumer spending and currency headwinds pose challenges that may limit near-term growth. Investors should weigh the company’s solid fundamentals against the potential hurdles in the current macroeconomic environment. For now, maintaining positions in the stock appears prudent. CHD currently carries a Zacks Rank #3 (Hold).
Top 3 Staple Stocks
Here, we have highlighted three better-ranked food stocks — The Chef's Warehouse (CHEF - Free Report) , Ollie's Bargain Outlet (OLLI - Free Report) and Flowers Foods (FLO - Free Report) .
The Chef’s Warehouse, which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Ollie's Bargain, the extreme-value retailer of brand-name merchandise, carries a Zacks Rank #2 (Buy). OLLI has a trailing four-quarter earnings surprise of 7.9%, on average.
The Zacks Consensus Estimate for Ollie's Bargain’s current financial-year sales and earnings indicates a rise of around 8.7% and 12.7%, respectively, from the year-earlier figures.
Flowers Foods, one of the largest producers of packaged bakery foods in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings each implies growth of around 1% and 4.2%, respectively, from the year-ago reported numbers.