This summary is based on the second quarter fiscal 2007 earnings call conducted by Church & Dwight Company, Inc. (CHD) on August 7, 2007.
Chairman and CEO: James R. Craigie
EVP, Finance and CFO: Matthew T. Farrell
Key Investors Issues
- EPS were 59 cents a share compared to 54 cents a share last year.
- Net income rose to $40.5 million from $36.4 million in the year-ago period.
- Revenue was $546.5 million compared to $458.6 million a year ago.
Second Quarter Highlights
Net sales were up 19% to $547 million versus a year ago.
Organic net sales, which exclude the effect of acquisitions and foreign exchange, were up a strong 5% versus a year ago. The organic net sales growth reflects solid gains in all three of reported business units.
- EPS was 59 cents per share as compared with 54 cents last year, a 9% increase.
Marketing expense was about $12 million higher year-over-year, partially driven by the acquisition of Orange Glo International.
- Marketing expense as a percentage of sales was 12.1% in contrast to 11.8% as a percentage of sales in the prior year second quarter.
- Marketing spending was up 30 basis points versus a year ago, and up 320 basis points versus the first quarter to support the launch of new products. The combination of launching the new products, and increased marketing support led to record shares across many of key brands.
- SG&A increased by about 10 million year-over-year, which includes the impact of OGI as well as higher intangible asset amortization costs, higher brokerage fees and higher legal costs in this year''s second quarter. Year-over-year SG&A as a percentage of sales declined from 13.9% last year to 13.5% this year.
- Operating profits of $76.6 million is up 15% over the prior year second quarter.
- The operating margin is 14% compared to 14.5% in the prior quarter. The year-over-year comparison of operating margins is influenced by the high gross margins in the second quarter last year as well as the higher marketing expense this year as a percentage of sales.
- Other income expense increased primarily due to higher debt levels as a result of the OGI acquisition.
- Effective rate is 38.7% compared to 37.6% in 2006. This is explained by an additional $2.1 million valuation reserve that was recorded in the quarter for a tax asset at one of foreign subsidiaries.
- The company generated $32 million of free cash flow compared to $4 million in the year ago quarter. CapEx this year was $14 million. Dividends were at 4.6.
- Accounts receivable are up approximately $30 million versus the year ago, primarily due to recent acquisitions, and also higher sales.
- Inventories increased about $19 million versus a year ago, due to the OGI acquisition. The company is in the process of transitioning the manufacturing of OGI products from co-packers to plants.
- Net debt at quarter end was $768 million. Total debt to EBITDA per bank agreement was approximately 2.5, within long-term target range of two to three times EBITDA.
Gross margins were down 50 basis points versus the high year-ago base that was impacted by lower than normal trade spending following price increases in April of 2006 on several household products.
Gross margins were up 80 basis points versus the first quarter of this year in line with plan, for gross margins to steadily improve every quarter of 2007.
- The domestic business had a strong quarter led by Arm & Hammer and Xtra Liquid Laundry Detergent and cat litter. Trojan, SpinBrush and Arm & Hammer Dental Care were also up year-over-year. Offsetting the quarterly growth were declines in other toothpaste and antiperspirant.
- The international business had a strong quarter led by Canada, Brazil and Australia. The company has big new product introductions, specifically Arm & Hammer Enamel Care in the U.K., Nair new products in many markets, Lineance in France. The company had higher levels of marketing expenditures in international.
- The specialty products business had a good quarter due to strong demand for dairy products and higher volumes and pricing in the specialty chemicals business.
Year-over-year the company had high slotting, coincident with new product launches.
In comparing year-over-year organic growth, last year''s price increases served to strengthen the first quarter 2006 volumes while reducing the second quarter 2006 volumes particularly in liquid laundry. Consequently the company had an easier year-over-year comparison in the second quarter than in the first quarter.
Total net sales in domestic business unit grew 20% over the prior year period, driven largely by the impact of the Orange Glo acquisition.
Organic net sales were strong, driven by sales gains in the liquid laundry detergent, cat litter, baking soda, condoms, Arm & Hammer Toothpaste, SpinBrish and pregnancy kits. These sales gains were partially offset by declines in powdered laundry detergent, antiperspirant, value toothpaste and depilatories.
On the new product front, the company is beginning to see the benefit of a corporate new product team that was created in 2006 to deliver more innovative consumer products with strong consumer appeal.
