This summary is based on the third quarter fiscal 2007 earnings call conducted by Church & Dwight Co Inc. (CHD) on November 6, 2007.
Chairman and CEO: James R. Craigie
EVP, Finance and CFO: Matthew T. Farrell
Key Investors Issues
- Earnings per share rose to $75 cents from 57 cents in the prior year quarter.
- Quarterly revenue rose 11.9% over the previous year to $580.4 million.
- The company ended the quarter with $179 million of cash on the balance sheet.
- The company has declared a quarterly dividend of 8 cents per share.
Third Quarter Fiscal 2007 Financial Highlights
For the third quarter, EPS was 75 cents per share compared to 57 cents in 2006.
It''s also noteworthy that results include approximately 4 cents of earnings from a property sale in Canada and 2 cents of tax benefits, which lowered the effective tax rate below 36%.
Revenues were up 12%, of which 1% was due to foreign currency changes, 5% due to the OGI acquisition done in August of 2006, and a 6% organic growth.
Now about 1% of organic growth may be attributed to the initial shipments of concentrated liquid laundry detergent in September, but all things considered, this was a very healthy quarter for organic growth.
The domestic business had a strong quarter led by Arm & Hammer liquid laundry, cat litter and SpinBrush. Trojan, Arm & Hammer, carpet deodorizer, and Arm & Hammer dental care were also up year-over-year. However, offsetting the quarterly growth were declines in other toothpastes and antiperspirants.
International performed well, led by Canada, France, and Brazil. The specialty products business had a solid quarter due to strong demand coupled with the price increase for the dairy nutrition product and also higher volumes and pricing in the specialty chemical business.
The third quarter gross margin was 39.5%.
That''s a 40 basis point expansion versus last year. Cost reduction programs and pricing contributed to margin expansion despite higher costs for material inputs such as resin, corrugated paper, and diesel. In Q4, the firm expects year-over-year gross margin to expand as it realizes the OGI manufacturing benefits.
The marketing spend was 12% of revenues, that''s comparable to the prior year spend rate of 12.1%.
The marketing expense was up about $7 million over the year ago, partially driven by the OGI acquisition. Now a portion of the firm’s planned marketing spend has shifted from Q3 to Q4. This is in part to match the advertising with the expanding distribution of new products. The third quarter spend was about $70 million and the firm expects to easily exceed that level of spend in the fourth quarter.
SG&A was down year-over-year due to a $3.3 million gain on the sale of property in Canada.
Excluding that gain, the SG&A as a percentage of sales, declined 100 basis point to 12.8% and this reflects continued cross control and leverage from the OGI acquisition. The firm’s SG&A for the past two quarters has been about $74 million to $75 million per quarter. That excludes the Canadian gain from Q3. The fourth quarter, however, will be much higher due to the charge related to a reorganization of the firm’s Canadian business and also several R&D projects that require heavier spending in the fourth quarter.
The operating margin for the quarter expanded 140 basis point to 14.7%, excluding the gain on the property sale.
The operating margin expansion is driven by higher gross margins and SG&A leverage.
The other income expense decreased primarily due to translation gains caused by the decline in the dollar during the quarter. The weakening US dollar also contributed to earnings in Q3.
