EX-99.1 2 exh991.htm EARNINGS RELEASE- MAY 11, 2010 exh991.htm


Exhibit 99.1
 
Church & Dwight Co., Inc.
News Release
 
Contact:
Maureen K. Usifer
Vice President Investor Relations
609-683-5900

CHURCH & DWIGHT REPORTS RECORD FIRST QUARTER EPS OF $1.11
 
PRINCETON, NJ, MAY 11, 2010 – Church & Dwight Co., Inc. (NYSE:CHD) today reported net income for the quarter ended April 2, 2010 of $80.0 million or $1.11 per share, compared to last year’s reported net income of $62.6 million or $0.88 per share.  Earnings per share increased 21%, excluding a plant restructuring charge of $0.04 per share in 2009. This year’s first quarter was six days longer than the comparable period in the prior year for its US businesses due to the Company’s fiscal calendar.

First Quarter Review

Reported net sales for the first quarter increased 9.2% to $634.6 million.  Organic sales increased 7.7% for the total Company and 8.1% for our total domestic and international consumer business, which excludes the impact of foreign exchange rate changes and divestitures.

James R. Craigie, Chairman and Chief Executive Officer, commented, “We are very pleased with our solid first quarter business results in what continues to be a difficult economic and competitive environment.  Consumer appeal for our high-quality premium and value-oriented products continues to be strong.  Both gross margin and operating margin expanded, reflecting the cost savings from our new laundry plant and the continuing benefit of our robust cost reduction programs.”

Consumer Domestic sales were $466.7 million, a $28.6 million increase or 6.5% above the prior year first quarter sales. First quarter organic sales increased by 8.1% as a result of higher sales of ARM & HAMMER liquid laundry detergent, ARM & HAMMER Super Scoop cat litter, NAIR, ORAJEL, TROJAN, AIM toothpaste and KABOOM bathroom cleaner, partially offset by lower sales of XTRA liquid laundry detergent.

Consumer International sales were $102.7 million, a $19.9 million increase or 24.0% above the prior year first quarter sales.  Excluding the16.2% favorable effect of foreign exchange rate changes, organic sales increased by 8.0%, primarily reflecting increased sales in Canada, Brazil, UK and Australia.

Specialty Products sales were $65.2 million, a $5.2 million increase or 8.6% above the prior year first quarter sales.  Excluding the 4% favorable effect of foreign exchange rate changes, organic sales for the first quarter increased by 4.6%, primarily due to growth in sodium bicarbonate sales.
 
 
 


Gross margin increased to 45.0% in the first quarter compared to 42.9% in the same quarter last year.  Excluding the $5.2 million plant restructuring charge in last year’s first quarter, gross margin expanded 120 basis points.  The increase in gross margin reflects the benefits of cost reduction programs, manufacturing at our new laundry facility and favorable product mix.  These benefits were partially offset by higher slotting costs and remaining costs associated with the closing of the North Brunswick plant.

Marketing expense was $68.9 million in the first quarter, a $2.6 million increase over the prior year first quarter.  The marketing spending was focused on the Company’s eight power brands.  Marketing expense as a percentage of net sales decreased 50 basis points to 10.9% in the quarter compared to 11.4% in last year’s first quarter.

Selling, general, and administrative expense (SG&A) was $84.6 million in the first quarter, a $6.3 million increase over the prior year first quarter.  SG&A as a percentage of net sales was 13.3% in the quarter, a decrease of 20 basis points from the prior year first quarter.  The increase in SG&A spending is attributed to foreign exchange rate changes, higher research and development expenses and higher costs associated with our global information systems upgrade.

Operating income increased 26.1% to $132.0 million in the first quarter compared to $104.7 million in the prior year first quarter. Operating margin expanded 280 basis points to 20.8%.  Excluding the plant restructuring charges in the prior year, operating margin expanded 190 basis points.

Equity in earnings of affiliates decreased $1.4 million due to lower income from a joint venture.

The effective tax rate in the first quarter was 36.2% compared to 37.1% in the prior year first quarter.

Net Debt and Free Cash Flow

At quarter end, the Company had net debt of $298 million (total debt of $745 million less cash of $447 million).  The Company repaid $71 million of bank debt in the quarter.

For the quarter, the Company reported $72.0 million of net cash from operations compared to $92.0 million in the prior year.  The decrease in net cash from operations is primarily related to higher inventories related to new product launches, higher receivables and higher cash tax payments.  For the first quarter, the Company generated $ 62.7 million in free cash flow compared to $70.7 million in the prior period.   Free cash flow is defined as net cash from operations less capital expenditures.

Capital expenditures in the first quarter were $9.2 million compared to $21.3 million in the prior year first quarter.   Last year’s first quarter included approximately $15 million of capital expenditures related to the new manufacturing facility in York County, Pennsylvania.

Acquisitions/Divestitures

In the first quarter, the Company completed the divestitures of two of its non-core brands, BRILLO and LAMBERT KAY pet products.

During the second quarter, the Company entered into a definitive asset purchase agreement to acquire the SIMPLY SALINE brand of products from Blairex Laboratories, Inc.  The proposed acquisition is subject to customary conditions to closing.  The transaction is expected to be completed during the second quarter of 2010.
 
 
 

 

The proposed acquisition meets the Company’s previously stated acquisition criteria: the brand holds the #1 position in the nasal saline solution category, has high growth potential, and is expected to be gross margin accretive to the Company.  Annual sales of Simply Saline are approximately $20 million.  In addition, the acquisition will complement the Company’s existing STERIMAR brand nasal saline solution business in Europe and other parts of the world.

The acquisitions and divestitures are expected to be neutral to earnings per share in 2010 and accretive to earnings per share in 2011.

Outlook for 2010

With regard to 2010, Mr. Craigie said, “We are launching our best new product line-up ever in 2010 and the customer response has been excellent with distribution gains across almost every key category.  We expect to deliver organic sales growth of approximately 4-5% in 2010 based on our strong pipeline of innovative new products supported by effective marketing programs.  We remain confident in our previously announced earnings per share estimate of $3.93 to $4.00 in 2010, which is an increase of 13% to15%, excluding plant restructuring charges of $0.24 per share and the favorable litigation settlement of $0.17 per share in 2009.”

“We expect second quarter earnings per share of $0.93-$0.95, up 8%-10% excluding the prior period plant restructuring charge of $0.05 per share.  First half earnings per share is expected to increase approximately 15% excluding plant restructuring charges in 2009 of $0.09 per share.”
 
 
Church & Dwight will host a conference call to discuss first quarter 2010 results on May 11, 2010 at 10:00 a.m.  (ET).  To participate, dial in at 877-616-8505, access code: 73121484, (international:  706-643-6278, same access code:  73121484).  A replay will be available two hours after the call at 800-642-1687 or 706-645-9291 (same access code:  73121484).  Also, you 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 relating, among others, to new product introductions and pipeline, contribution to revenue growth and gross margin expansion from use of the new laundry detergent manufacturing plant and warehouse facility, forecasted organic sales growth, earnings per share growth, satisfaction of the conditions to completing the acquisition of the Simply Saline brand, the effect of the Simply Saline proposed acquisition and the divestitures of the Brillo and Lambert Kay brands on 2010 and 2011 earnings and the impact of marketing programs.  These statements represent the intentions, plans, expectations and beliefs of the Company, and 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.  The uncertainties include assumptions as to market growth and consumer demand (including the effect of political and economic events on consumer demand), retailer actions in response to changes in consumer demand and the economy, raw material and energy prices, the financial condition of major customers and suppliers, interest rate and foreign currency exchange rate fluctuations and changes in marketing and promotional spending.  With regard to the new product introductions referred to generally in this release, there is particular uncertainty relating to trade, competitive and consumer reactions.  Other factors that could materially affect actual results include the outcome of contingencies, including litigation, pending regulatory proceedings, environmental matters and the acquisition or divestiture of assets.  For a description of additional factors that could cause actual results to differ materially from the forward looking statements, please see the Company’s quarterly and annual reports filed with the SEC, including information in the Company’s annual report on Form 10-K in Item 1A, “Risk Factors.”
 
 
 

 
 
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Unaudited)

    Three Months Ended  
(In thousands, except per share data)  
Apr. 2, 2010
     
Mar. 27, 2009
 
Net Sales
  $ 634,553       $ 580,867  
Cost of sales
    349,058         331,509  
Gross profit
    285,495         249,358  
Marketing expenses
    68,939         66,373  
Selling, general and administrative expenses
    84,602         78,325  
Income from Operations
    131,954         104,660  
Equity in earnings of affiliates
    1,262         2,705  
Other income (expense), net
    (7,867 )       (7,873 )
Income before non-controlling interest and taxes
    125,349         99,492  
Income taxes
    45,376         36,916  
Net Income of Non-Controlling Interest
    2         7  
Net Income attributable to Church & Dwight
  $ 79,971       $ 62,569  
Net Income per share - Basic
  $ 1.13       $ 0.89  
Net Income per share - Diluted
  $ 1.11       $ 0.88  
Dividend per share
  $ 0.14       $ 0.09  
Weighted average shares outstanding - Basic
    70,773         70,234  
Weighted average shares outstanding - Diluted
    72,007         71,312  

 
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in thousands)   Apr. 2, 2010     Dec. 31, 2009  
Assets            
Current Assets
           
Cash, equivalents and securities
  $ 446,607     $ 447,143  
Accounts receivable
    241,677       222,158  
Inventories
    227,957       216,870  
Other current assets
    38,097       42,094  
Total Current Assets
    954,338       928,265  
Property, Plant and Equipment (Net)
    452,158       455,636  
Equity Investment in Affiliates
    11,689       12,815  
Tradenames and Other Intangibles
    786,825       794,891  
Goodwill
    838,222       838,078  
Other Long-Term Assets
    89,881       88,761  
Total Assets
  $ 3,133,113     $ 3,118,446  
Liabilities and Stockholders' Equity
               
Short-Term Debt
  $ 176,066     $ 218,949  
Other Current Liabilities
    348,467       348,083  
Total Current Liabilities
    524,533       567,032  
Long-Term Debt
    568,970       597,347  
Other Long-Term Liabilities
    363,074       352,295  
Stockholders' Equity
    1,676,536       1,601,772  
Total Liabilities and Stockholders' Equity
  $ 3,133,113     $ 3,118,446  
 
 
 
 

 
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flow (Unaudited)
 
   
Three Months Ended
 
(Dollars in Thousands)  
Apr. 2, 2010
   
Mar. 27, 2009
 
Net Income
  $ 79,973     $ 62,576  
Depreciation and amortization
    18,185       21,670  
Deferred income taxes
    4,031       10,106  
Gain on sale of assets
    (1,031 )  
 
Asset impairment charges and other asset write-offs
    229    
 
Non cash compensation
    1,805       2,707  
Other
    (508 )     (139 )
                 
Changes in assets and liabilities:
               
Accounts receivable
    (24,247 )     (7,980 )
Inventories
    (13,072 )     (2,348 )
Prepaid expenses and other current assets
    (3,710 )     (1,466 )
Accounts payable and accrued expenses
    (17,293 )     (11,780 )
Income taxes payable
    25,610       20,413  
Excess tax benefits on stock options exercised
    (3,025 )     (936 )
Other liabilities
    5,039       (842 )
Net cash from operating activities
    71,986       91,981  
                 
Capital expenditures
    (9,246 )     (21,281 )
Proceeds from sale of assets
    8,215    
 
Other
    1,958       666  
Net cash provided by (used in) investing activities
    927       (20,615 )
                 
Net change in debt
    (71,200 )     15,016  
Payment of cash dividends
    (9,902 )     (6,309 )
Stock option related
    8,426       3,007  
Purchase of treasury stock
    (78 )  
 
Net cash (used in) provided by financing activities
    (72,754 )     11,714  
                 
F/X impact on cash
    (695 )     (838 )
                 
Net change in cash and investments
  $ (536 )   $ 82,242  
                 
Free cash flow (net cash from operating activities less capital expenditures)
  $ 62,740     $ 70,700  
York plant capital expenditures
 
      14,700  
                 
Free cash flow excluding York capital expenditures
  $ 62,740     $ 85,400  
 
 
 

Product Line Net Sales

   
Three Months Ended
   
Percent
 
   
4/2/2010
   
3/27/2009
   
Change
 
Household Products
  $ 303.2     $ 284.1       6.8 %
Personal Care Products
    163.5       154.0       6.1 %
Consumer Domestic
    466.7       438.1       6.5 %
Consumer International
    102.7       82.8       24.0 %
Total Consumer Net Sales
    569.4       520.9       9.3 %
Specialty Products Division
    65.2       60.0       8.6 %
Total Net Sales
  $ 634.6     $ 580.9       9.2 %
 
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:
 
Adjusted Net Income per Share, Adjusted Gross Margin and Adjusted Operating Profit Margin
 
The press release provides information regarding the Company’s net income per share, gross margin and operating profit margin adjusted to exclude restructuring charges related to plant closing expenses. Management believes that the presentation of adjusted net income per share, gross margin and operating profit margin (including reconciliation information in the press release) is useful to investors because it enables them to assess the Company’s historical performance exclusive of extraordinary events that do not reflect the Company’s day-to-day operations.
 
Organic Sales Growth
 
The press release provides information regarding organic sales growth, namely net sales growth excluding the effect of acquisitions, divestitures and foreign exchange rate changes from year-over-year comparisons. 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, without the effect of foreign exchange rate changes that are out of the control of, and do not reflect the performance of, management.
 
 
 

 
   
Three Months Ended 4/2/2010
 
   
Total
   
Worldwide
   
Consumer
   
Consumer
   
Specialty
 
   
Company
   
Consumer
   
Domestic
   
International
   
Products
 
Reported Growth
    9.2 %     9.3 %     6.5 %     24.0 %     8.6 %
Add:
                                       
  Divest.
    1.2 %     1.4 %     1.6 %     0.2 %     -  
Less:
                                       
  FX
    2.7 %     2.6 %     -       16.2 %     4.0 %
Organic Growth
    7.7 %     8.1 %     8.1 %     8.0 %     4.6 %

 
Free Cash Flow
 
Free cash flow is net cash from operating activities less capital expenditures.  Free cash flow is used by the Company's management, and management believes it is useful to investors, to help assess funds available for investing activities, such as acquisitions and financing activities, including debt payments, dividend payments and share repurchases.  Free cash flow also is one of the measures used in determining management's annual incentive award.  Free cash flow does not represent cash available only for discretionary expenditures, since the Company has mandatory debt service requirements and other contractual and non-discretionary expenditures.  Free cash flow excluding the capital expenditures for the new Pennsylvania facility is used by management, and management believes it is useful to investors, to assess funds available for investing activities, such as acquisitions and financing activities, including debt payments, dividend payments and share repurchases exclusive of extraordinary events that do not reflect the Company's day-to-day operations.  Please refer to the condensed cash flow statement for details.