Church & Dwight Delivers 5% Net Growth Despite Slumps For Major Brands, International Sales
Executive Summary
Sales in most categories in US portfolio grew, led by Zicam, Therabreath and Hero. But slumps continued for Waterpik water flossers, the Flawless feminine hair-removal, skin and nail care line and the vitafusion and L’il Critter gummies and other vitamin, mineral and supplement products.
Church & Dwight Co. Inc.’s net sales grew 4.9% in the fourth quarter to $1.44bn despite a 4% drag from continued slumps for three of its key categories and a 1% loss to foreign currency exchange.
The consumer health, personal and household care products manufacturer and marketer also announced on 3 February that organic sales, excluding loss to foreign exchange, were flat, up 0.4%. Domestic sales likewise were flat, up 0.4%, while international sales grew 1.3%.
The results, which exceeded the Ewing, NJ-based firm’s forecast for organic results to drop 1%, were driven by 4.2% positive price and product mix offset by 3.8% lower volume. Domestic sales grew 7.6% to offset a 4.4% drop internationally.
It reported an earnings per share loss of 67 cents, though an adjusted EPS of 62 cents, for the quarter. Net sales for the year grew 3.6%, organic up 1.4%, while with earnings per share fell 1.7% to $1.68.
Sales of C&D’s US portfolio to consumers grew in 13 of its 17 categories in the quarter. Cold remedy Zicam, mouthwash Therabreath and the firm’s most recent acquisition, Hero acne treatment products, showed double-digit growth in consumption, sales to consumers at retail, and in market-share gains in the quarter.
But lower consumption continued for Waterpik water flossers, the Flawless feminine hair-removal, skin and nail care line and the vitafusion and L’il Critter gummies and other vitamin, mineral and supplement products. Sale of those lines, which combined account for around 20% of company revenue, created a 4% headwind to overall organic results in the fourth quarter.
“As far as the portfolio goes, 80% of our portfolio did exceedingly well. We had 20% of the portfolio went backwards, and some of it is self-inflicted, and that is with respect to vitamins and our ability to supply,” said president and CEO Matthew Farrell during a same-day briefing.
Farrell acknowledged, as C&D and other firms across consumer product industries previously have, that transit and production shutdowns caused by the COVID-19 pandemic have caused an unprecedented supply chain disruption.
“I think less than 15% of our raw materials had redundancy. Our target right now is to have 50% redundancy. We've come a long way over the last couple of years and that's why …. we're focused on – be ready for the next black swan event,” he said.
With its third-quarter results in October, C&D announced a a hold on expanding its gummy vitamin and dietary supplement production capacity as consumer demand slows after soaring in response to the novel coronavirus. Sales of its Waterpik devices and Flawless lines combined with its vitamin business combined for a 6% drag on C&D’s net sales. (Also see "Church & Dwight Delays Expanding VMS Production Capacity As Pandemic-Driven Sales Growth Slows" - HBW Insight, 28 Oct, 2022.)
‘Normalized Inflation’ Would Help
Inflation, meanwhile, is affecting supply chain costs as well as prices firms set for their products, noted chief financial officer Richard Dierker.
“If you look back at our history, we normally have about $50 million of inflation. We haven't had $50 million inflation it feels like for a decade. It's only been three or four years, but it feels like so long, $290 million of inflation in 2021, $250 million in 2022, we're calling $125 million in 2023,” Dierker said.
“That is not normal. We're going to return to the days of normalized inflation.”
Hero continues to expand in the acne treatment category. The brand, which C&D added by acquiring Hero Cosmetics Inc. in September, is introducing Micropoint for Blemishes XL patches and a Rescue Retinol Nighttime Renewing Cream. (Also see "C&D Powers Into Acne Market Acquiring Hero Cosmetics, Maker Of Top-Selling Mighty Patch" - HBW Insight, 7 Sep, 2022.)
The Therabreath brand, acquired by C&D in late 2021, is expanding into the children’s mouthwash segment with three dentist-formulated line extensions free of dyes and with organic flavor. (Also see "Distribution Drives C&D’s TheraBreath Growth Plan" - HBW Insight, 29 Jan, 2022.)
C&D also is extending the Nair line with Prep & Smooth, a one-step, no-touch solution which preps the face for makeup application, and the Batiste dry shampoo line with Overnight and Texturizing versions.
“Although uncertainty remains regarding inflation, commodities, interest rates, currency movements, China, and consumer confidence, we are cautiously optimistic about 2023 and remain focused on offering high quality products to consumers at the right value,” Farrell said.
Long-Term Growth Anchors: International And Acquisitions
Longer-term, C&D looks internationally to drive sales growth.
“A very long runway of growth for international, very strong portfolio of brands. It's really a matter of continuing to extend our portfolio into new geographies. We'll continue to leverage our acquisitions. … Most of our growth will continue to come from our global markets group and within our emerging markets, and we're going to continue to invest in key capabilities and resources as we continue to grow,” Farrell said.
Acquiring additional brands also is a key long-term growth driver.
“We want to do the Hero deal, we want to do the TheraBreath deal again and again and again. Those businesses are great, those are the fast-moving consumer goods that we're focused on,” Dierker said.
While the firm limits its acquisitions to brands at number 1 or 2 in market share and with limited capital costs, C&D considers it has a broad target area.
“Because we're able to make so many different products, we're in so many different categories, we can put liquid in a bottle, we can put powder in a box, we put anything in a tube, we know how to make lots of things. Consequently, we can throw a pretty wide net as far as things that we might be able to take on as a company,” Farrell said.