Church & Dwight Co., Inc. (NYSE:CHD):
2015 Fourth Quarter Results 2015 Full Year Results
- Organic sales growth of 2.6%; reported growth of 0.9%
- Organic sales growth of 3.6%; reported 2.9%
- Gross Margin expansion of 50 basis points
- Gross Margin expansion of 40 basis points
- Operating Margin expansion of 50 basis points
- Adjusted EPS growth of 8.0%; reported 2.0%
- Currency neutral EPS up 8.9%; reported up 5.1%
- Cash from operations of $606MM
Church & Dwight Co., Inc. (NYSE:CHD) today announced that
full year 2015 adjusted EPS increased 8% to $3.25 per share,
exceeding the Company’s outlook. This equates to 12% currency
neutral adjusted EPS growth. Organic sales growth for 2015 was
3.6%, driven by volume growth of 3.1% and 0.5% price and product
mix.
Adjusted full year EPS results exclude a second quarter pension
settlement charge and an impairment charge associated with the
Company’s investment in a joint venture related to the Specialty
Products business. Reported EPS was $3.07 per share, a 2% increase
over the prior year.
Matthew Farrell, Chief Executive Officer, commented, “We are
very pleased with the superior business results we delivered in
2015. We delivered top tier results within the consumer packaged
goods industry including full year organic sales of 3.6%, expanded
gross margin by 40 basis points and delivered adjusted earnings
growth of 8.0%. We increased our marketing spend in 2015 in support
of our brands. For the full year, three out of four mega brands and
seven out of 10 power brands grew share including ARM & HAMMER,
our biggest power brand, and including BATISTE, our newest power
brand. Finally, we exited the year with strong momentum.”
Fourth Quarter Review
Reported EPS in the fourth quarter increased 5.1% to $0.82 per
share, exceeding the Company’s outlook. This equates to 8.9%
currency neutral EPS growth. Organic sales increased 2.6% driven by
strong results in both the Domestic and International segments.
This organic growth was on top of 5.2% organic growth in prior year
fourth quarter of 2014, the largest quarter of organic growth in
2014.
Consumer Domestic net sales were $672.3 million, a $20.1
million or 3.1% increase over the prior year fourth quarter. Fourth
quarter organic sales increased by 2.8%, primarily due to continued
success of the ARM & HAMMER CLUMP & SEAL cat litter
franchise, including the new lightweight variant and higher sales
of ARM & HAMMER liquid laundry detergent, BATISTE dry shampoo
and TROJAN condoms. BATISTE has more than doubled its share in 2015
and has become the #1 dry shampoo in the US. Consumer Domestic
volume growth contributed 3.2% to organic sales, while pricing and
product mix declined 0.4%.
Consumer International net sales were $125.0 million, a
$13.6 million or 9.8% decrease primarily due to negative foreign
exchange effects. Organic sales increased 5.4%, driven largely by
higher sales in Australia, Europe and Mexico. Volume increased
2.7%, while favorable product mix and pricing also contributed
2.7%.
Specialty Products net sales were $76.3 million, a $1.6
million or 2.1% increase driven by the acquisition of the Vi-COR
business. Organic sales decreased by 4.2% with volume declining
3.6% and unfavorable product mix and pricing of 0.6%. The lower
organic sales were driven by the impact of lower milk pricing and
the strong year ago results (+20% organic sales in Q4 2014).
Gross margin increased 50 basis points to 45.5%. The
gross margin benefited from a more normalized pricing environment
in the laundry category, lower commodities, productivity programs
and the impact of higher margin acquired businesses. These factors
were partially offset by foreign exchange, negative product mix and
incremental costs associated with the new vitamin capacity in our
York manufacturing facility.
Marketing expense was $120.1 million, the highest of any
quarter of 2015, representing an increase of $1.0 million or 0.8%
in comparison to the prior year fourth quarter. Marketing expense
as a percentage of net sales was 13.7%, a 10 basis point
decrease.
Selling, general, and administrative expense (SG&A)
was $108.1 million. SG&A as a percentage of net sales was
12.4%, a 10 basis point increase. This was primarily due to
incremental amortization from acquisitions, higher incentive
compensation and legal costs.
Income from Operations was $169.2 million, a $5.4 million
or 3.3% increase (+7.8% on a currency neutral basis). Operating
income as a percentage of net sales was 19.4%, a 50 basis point
increase.
The effective tax rate in the fourth quarter was 33.8%,
compared to 33.4% last year. The full year adjusted effective tax
rate is 34.4%, which excludes previously reported pension and
impairment charges from the second quarter.
Operating Cash Flow
For the full year 2015, net cash from operating activities was
$606 million; a $66 million increase from the prior year primarily
due to higher cash earnings and a reduction in working capital.
Capital expenditures for the full year 2015 were $61.8 million, an
$8.7 million decrease from the prior year. Free cash flow, defined
as net cash from operating activities less capital expenditures,
was 125% as a percentage of adjusted net income in 2015. Free cash
flow as a percentage of net income has averaged 119% over the past
5 years.
At December 31, 2015, cash on hand was $330 million, while total
debt was $1.1 billion. The Company continues to have significant
financial flexibility for acquisitions.
6% Dividend Increase
The Company’s Board of Directors today declared a 6% increase in
the regular quarterly dividend from $0.335 to $0.355 per share,
equivalent to an annual dividend of $1.42 per share. This raises
the dividend payout from $175 million to approximately $185 million
to maintain a 40% targeted payout ratio. The quarterly dividend
will be payable March 1, 2016 to stockholders of record at the
close of business on February 16, 2016. The Company has paid a
regular consecutive quarterly dividend for 115 years. This is the
20th consecutive year in which the Company has increased the
dividend.
Mr. Farrell commented, “This action reflects the Company’s
desire for stockholders to benefit from our continued strong growth
and is an indication of our confidence in the Company’s
performance. Importantly, the Company expects to generate over $1.7
billion in free cash flow over the next three years. Our robust
cash flow enables us to deliver higher value directly to our
stockholders while maintaining significant financial flexibility to
continue to aggressively pursue acquisitions.”
Acquisition of TOPPIK
On January 4, 2016, the Company acquired Spencer Forrest, Inc.,
the maker of TOPPIK, a leading brand of hair building fibers for
people with thinning hair for $175 million. This bolt-on
acquisition meets the Company's previously stated acquisition
criteria: the acquired brand is the leader in a growing category
and is expected to be gross margin accretive to the Company. The
acquired business has annual sales of approximately $30 million and
is expected to be slightly EPS accretive in 2016. The Company has a
long history of growing acquired businesses to meet our well
defined acquisition criteria.
2016 New Products
Mr. Farrell commented, “Innovation continues to be a big driver
of our success. In support of our long term strategy to drive
revenue and earnings growth, we are pleased to announce the launch
of ARM & HAMMER CLUMP & SEAL MicroGuard cat litter, the
only brand that seals and destroys immediate odors and prevents
future bacterial odors. In our ARM & HAMMER and OXICLEAN
laundry franchises, we are launching dual chamber unit dose
technology. We are introducing an entirely new beauty line of adult
vitamins under the VITAFUSION brand, a new GROOVE condom and a new
RIVIERA lubricant under the TROJAN brand and are launching
PREGNANCY PRO under the FIRST RESPONSE brand, the only pregnancy
test kit with bluetooth technology. In addition, we are expanding
offerings and distribution of the BATISTE brand leveraging its
tremendous 2015 growth and #1 US share position.”
Outlook for 2016
Mr. Farrell stated, “We believe that we are positioned to
continue to deliver strong sales and earnings growth with our
balanced portfolio of value and premium products, the launch of
innovative new products, aggressive productivity programs and tight
management of overhead costs. The 2016 business environment will be
extremely challenging with continued competitive pressure and
foreign currency headwinds.”
With regard to 2016, Mr. Farrell said, “We expect organic sales
growth of approximately 3% supported by our new product
introductions on our core business. We expect gross margin to
expand by approximately 40 basis points from lower commodity costs,
productivity programs and the absence of vitamin start-up costs. We
are maintaining marketing spending at approximately 12.3% of sales
consistent with 2015 and prior year investments, which is an
increase in the core business offset by the historically lower
spend rate of the acquired business. SG&A, adjusted for the
pension settlement charge, is forecasted to improve by 10 basis
points as a percentage of sales and we expect to achieve
approximately 50 basis points of operating margin expansion. In
2016, we again expect to deliver greater than 120% free cash flow
compared to net income.”
In conclusion, Mr. Farrell said, “We believe that 2016 will be
an exciting year for Church & Dwight based on our current
growth momentum and category strength, continued focus on
innovation, and confidence in gross margin expansion. We expect to
achieve 7 to 9% adjusted EPS growth. The 2016 outlook midpoint
equates to 10% currency neutral EPS growth excluding an estimated
2% negative impact from foreign exchange. This outlook is top tier
within the consumer packaged goods industry.
For the first quarter, we expect organic sales growth of
approximately 2-3%, margin expansion and earnings per share of
$0.83. This includes a $0.02 negative timing impact of stock
compensation expense related to management transition which
historically is recognized in the second quarter. On an adjusted
basis, EPS is expected to be $0.85 or a 6% increase versus prior
year. We expect EPS to be slightly more weighted to the second half
in 2016.
Church & Dwight Co., Inc. will host a conference call to
discuss 2015 results and 2016 outlook on February 2, 2016 at 12:30
p.m. (ET). To participate, dial (877) 322-9846, access code:
17310251 (International: 631-291-4539, same access code: 17310251).
A replay will be available two hours after the call at 855-859-2056
or 404-537-3406, access code: 17310251. You also can participate
via webcast by visiting the Investor Relations section of the
Company’s website at www.churchdwight.com.
Church & Dwight Co., Inc. manufactures and markets a wide
range of personal care, household and specialty products under the
ARM & HAMMER brand name and other well-known trademarks.
This release contains forward-looking statements, including,
among others, statements relating to expected future financial and
operating results, including earnings per share, reported net sales
growth and organic sales growth, volume growth, including the
effects of new product launches into new and existing categories,
gross margin, operating margin and net cash from operating
activities; category trends; the effect of product mix; impairments
and other charges, including the Natronx impairment charge and
pension settlement charge; consumer demand and spending, including
consumer response to new product launches; the effects of
competition; the level of trade and marketing spending including as
a percentage of net sales; cost savings programs; the impact of
foreign exchange and commodity price fluctuations; the impact of
acquisitions; capital expenditures; the effective tax rate; the
effect of the credit environment on the Company’s liquidity and
capital expenditures; the Company’s debt levels; payment of
dividends and repurchases of stock; and the ability to manage and
maintain key customer relationships. These statements
represent the intentions, plans, expectations and beliefs of the
Company, and are based on assumptions that the Company believes are
reasonable but may prove to be incorrect. In addition, these
statements are subject to risks, uncertainties and other factors,
many of which are outside the Company’s control and could cause
actual results to differ materially from such forward-looking
statements. Factors that could cause such differences
include a decline in market growth, retailer distribution and
consumer demand ( as a result of, among other things, political,
economic and marketplace conditions and events ); unanticipated
increases in raw material and energy prices; delays or other
problems in manufacturing or distribution; adverse developments
affecting the financial condition of major customers and suppliers;
competition, including The Procter & Gamble Company’s
participation in the value laundry detergent category; changes in
marketing and promotional spending; growth or declines in various
product categories and changes in consumer demand , including
increasing shelf space of private label products; consumer and
competitor reaction to, and customer acceptance of, new product
introductions and features; the Company’s ability to maintain
product quality at a level acceptable to our consumers; disruptions
in the banking system and financial markets; foreign currency
exchange rate fluctuations; issues related to the Company’s
information technology and controls; the Company’s ability to enter
into and grow in international markets; the impact of natural
disasters on the Company and its customers and suppliers, including
third party information technology service providers; the
acquisition or divestiture of assets; the company’s ability to
retain and attract key personnel; the outcome of contingencies,
including litigation, pending regulatory proceedings and
environmental matters; and changes in the regulatory
environment.
For a description of additional factors that could cause
actual results to differ materially from the forward looking
statements, please see Item 1A, “Risk Factors” in the Company’s
annual report on Form 10-K.
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIESCondensed
Consolidated Statements of Income (Unaudited)
Three Months Ended Twelve Months
Ended
December 31,
December 31,
December 31, December 31, (In
millions, except per share data)
2015 2014
2015 2014
Net Sales $ 873.6 $ 865.5
$
3,394.8 $ 3,297.6 Cost of sales
476.2
475.9
1,883.0 1,844.7
Gross Profit
397.4 389.6
1,511.8 1,452.9 Marketing expenses
120.1 119.1
417.5 416.9 Selling, general and
administrative expenses
108.1 106.7
420.1 394.8
Income from Operations
169.2 163.8
674.2 641.2 Equity in earnings (losses)
of affiliates
2.6 3.7
(5.8 ) 11.6 Other income
(expense), net
(6.9 ) (7.5 )
(33.0 ) (27.9 ) Income before Income Taxes
164.9 160.0
635.4 624.9 Income taxes
55.8 53.4
225.0 211.0
Net
Income $ 109.1 $ 106.6
$ 410.4 $
413.9
Net Income per share - Basic $ 0.84 $
0.80
$ 3.13 $ 3.06
Net Income per share -
Diluted $ 0.82 $ 0.78
$ 3.07 $ 3.01
Dividends per share
$ 0.335 $ 0.31
$
1.34 $ 1.24 Weighted average shares outstanding - Basic
130.6 133.9
131.1 135.1 Weighted average shares
outstanding - Diluted
133.1 136.3
133.6 137.5
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIESCondensed
Consolidated Balance Sheets (Unaudited)
(Dollars in millions)
Dec. 31, 2015
Dec. 31, 2014
Assets
Current Assets Cash and Cash
Equivalents
$ 330.0 $ 423.0 Accounts Receivable
276.2 322.9 Inventories
274.0 245.9 Other Current
Assets
25.8 26.3
Total Current Assets
906.0 1,018.1 Property, Plant and Equipment
(Net)
609.6 616.2 Equity Investment in Affiliates
8.4
24.8 Trade names and Other Intangibles
1,269.5 1,272.4
Goodwill
1,354.9 1,325.0 Other Long-Term Assets
108.5 102.7
Total Assets $
4,256.9 $ 4,359.2
Liabilities and Stockholders’
Equity Short-Term Debt
$
357.2 $ 146.7 Current portion of Long-Term debt
-
249.9 Other Current Liabilities
515.5 508.7
Total Current Liabilities 872.7 905.3
Long-Term Debt
692.8 690.0 Other Long-Term Liabilities
668.2 662.0 Stockholders’ Equity
2,023.2
2,101.9
Total Liabilities and Stockholders’ Equity
$ 4,256.9 $ 4,359.2
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIESCondensed
Consolidated Statements of Cash Flow (Unaudited)
Twelve Months Ended
December 31, December 31, (Dollars in
millions)
2015 2014
Net
Income $ 410.4 $ 413.9 Depreciation and
amortization
101.0 91.2 Deferred income taxes
24.0
12.7 Non cash compensation
16.1 17.0 Asset impairment charge
and other asset write-offs
19.2 6.4 Pension Charge
8.4 - Other
6.1 4.1 Changes in assets and
liabilities: Accounts receivable
33.5 (1.8 ) Inventories
(38.5 ) 1.8 Other current assets
(2.0 )
(0.6 ) Accounts payable and accrued expenses
21.8 2.4 Income
taxes payable
29.7 17.5 Excess tax benefit on stock options
exercised
(15.8 ) (18.5 ) Other
(7.8 ) (5.8 )
Net cash from operating
activities 606.1 540.3 Capital expenditures
(61.8 ) (70.5 ) Acquisition
(74.9 )
(215.7 ) Other
(4.5 )
(2.2 )
Net cash (used in) investing activities (141.2
) (288.4 ) Net change in long-term debt
(250.0
) 299.8 Net change in short-term debt
211.7 (6.7 )
Payment of cash dividends
(175.3 ) (167.5 ) Stock
option related
44.3 51.2 Purchase of treasury stock
(363.1 ) (478.8 ) Other
(2.6 ) (4.6 )
Net cash (used in) financing
activities (535.0 ) (306.6 )
F/X impact
on cash (22.9 ) (19.2
)
Net change in cash and cash equivalents
$ (93.0 ) $ (73.9 )
2015 and 2014
Product Line Net Sales
Three Months Ended Percent 12/31/2015
12/31/2014 Change
Household Products $ 395.7 $
379.0 4.4 %
Personal Care Products 276.6
273.2 1.2 %
Consumer Domestic $ 672.3 $
652.2 3.1 % Consumer International
125.0 138.6
-9.8 % Total Consumer Net Sales
$ 797.3 $ 790.8 0.8 %
Specialty Products Division 76.3
74.7 2.1 %
Total Net Sales $ 873.6 $
865.5 0.9 %
Twelve Months Ended Percent 12/31/2015
12/31/2014 Change Household Products $
1,544.3 $ 1,466.2 5.3 %
Personal Care Products 1,037.3
1,005.4 3.2 %
Consumer Domestic $ 2,581.6 $
2,471.6 4.5 % Consumer International
501.0 535.2
-6.4 % Total Consumer Net Sales
$ 3,082.6 $ 3,006.8 2.5 %
Specialty Products Division 312.2
290.8 7.3 %
Total Net Sales $ 3,394.8 $
3,297.6 2.9 %
The following discussion addresses the
non-GAAP measures used in this press release and reconciliations of
non-GAAP measures to the most directly comparable GAAP
measures:
The following non-GAAP measures may not be
the same as similar measures provided by other companies due to
differences in methods of calculation and items and events being
excluded.
Organic Sales Growth: This press
release provides information regarding organic sales growth, namely
net sales growth excluding the effect of acquisitions and foreign
exchange rate changes. Management believes that the presentation of
organic sales growth is useful to investors because it enables them
to assess, on a consistent basis, sales trends related to products
that were marketed by the Company during the entirety of relevant
periods and foreign exchange rate changes that are out of the
control of, and do not reflect the performance of, the Company and
management.
Reported EPS excluding the pension
termination charge and the Natronx impairment charge (Adjusted
EPS”) and currency neutral adjusted EPS:
This press release also presents reported EPS excluding a
pension termination charge and the Natronx impairment charge,
namely, earnings per share calculated in accordance with GAAP
adjusted to exclude significant one-time items that is not
indicative of the Company’s period to period performance. We
believe that this metric provides investors a more meaningful
perspective of underlying business trends and results and provides
a more comparable measure of year over year earnings per share
growth.
Currency neutral adjusted EPS is a measure of the Company's
adjusted EPS, further adjusted to exclude the impact of foreign
exchange. We believe that this metric further enhances investors’
understanding of the Company’s year over year earnings per share
growth.
Free Cash Flow
Free cash flow is defined as cash from operating activities less
capital expenditures. Management views free cash flow as an
important measure because it is one factor in determining the
amount of cash available for dividends and discretionary
investment.
Free Cash Flow as Percent of Adjusted Net
Income
Free cash flow as percent of adjusted net income is defined as
the ratio of free cash flow to net income excluding the pension
charge and the Natronx impairment charge (“Adjusted Net Income”).
Management views this as a measure of how effective the Company
manages its cash flow relating to working capital and capital
expenditures.
CHURCH & DWIGHT CO., INC. Organic
Sales Three Months Ended 12/31/2015
Total
Worldwide Consumer Consumer Specialty
Company Consumer Domestic International
Products Reported Sales Growth 0.9%
0.8% 3.1% -9.8% 2.1% Less:
Acquisitions 0.9% 10.3% Add: FX /
Other 2.6% 2.5% -0.3% 15.2%
4.0% Organic Sales Growth 2.6%
3.3% 2.8% 5.4% -4.2% Twelve
Months Ended 12/31/2015 Total Worldwide
Consumer Consumer Specialty Company
Consumer Domestic International
Products Reported Sales Growth 2.9%
2.5% 4.5% -6.4% 7.3% Less:
Acquisitions 2.0% 1.2% 1.3% 0.9%
10.0% Add: FX / Other 2.7% 2.6%
-0.2% 15.5% 3.4% Organic Sales
Growth 3.6% 3.9% 3.0% 8.1%
0.7%
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIESReported
vs. Adjusted Condensed Statement of Income(Amounts in Millions
Except Per Share Amounts)
Twelve Months ended
Twelve Months ended
December 31, 2015
December 31, 2014
Reported Adjusted Vs. PY
Reported Net Sales $ 3,394.8
$ 3,394.8 $ 3,297.6 Gross
Profit 1,511.8 1,511.8 1,452.9 % of
Sales 44.5 % 44.5 % 44.1
% Marketing Expenses 417.5 417.5
416.9 Selling, General and Administrative
Expenses 420.1 411.2 (1)
394.8 Operating Profit
674.2 683.1 641.2 % of Sales
19.9 % 20.1 % 19.4 %
Other Income/(Expense) (38.8 )
(21.8 ) (2) (16.3
) Income Before Taxes 635.4
661.3 624.9 Income Taxes 225.0
227.3 211.0 Tax Rate 35.4
% 34.4 % 33.8 %
Net Income $ 410.4 $
434.0 $ 413.9 Diluted EPS
$ 3.07 $ 3.25 +8.0% $
3.01 Currency Impact to EPS $
0.13 Currency Neutral Adjusted EPS $
3.38 +12.3%
(1) Excludes Pension Settlement Charge
of $8.9 million
($0.05 per share)
(2) Excludes Natronx Impairment Charge
of $17.0 million
($0.13 per share)
2015 Free Cash Flow as Percentage of Adjusted Net
Income Cash From Operations $ 606.1
Less Capital Expenditures (61.8 )
Free Cash Flow $ 544.3
Adjusted Net Income $ 434.0 Free
Cash Flow as Percentage of Adjusted Net Income 125
%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160202005670/en/
Church & Dwight Co., Inc.Rick Dierker, 609-806-1900Chief
Financial Officer
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