Unrelenting Competitive and Macro Pressures Could Knock No-Moat Church & Dwight Off Its Course

We’ve long held no-moat Church & Dwight lacks the scale, resources, and negotiating prowess of its larger brethren. We see this as an unenviable position, particularly when juxtaposed with persistent macro and competitive pressures, commodity cost headwinds, and supply chain tension. For one, we expect industry cost inflation (raw materials, distribution, manufacturing, and labor) to remain elevated, as management foresees $120 million in incremental costs in fiscal 2023. But as an offset, Church has raised prices in around 80% of the aisles in which it plays, and we think near-term volumes could remain constrained as consumers opt to trade down or out of the categories in which it plays in response to escalating prices at the shelf. Although Church has emphasized 40% of its mix skews toward value offerings, we're skeptical this will insulate it, especially if it forgoes marketing spending, which amounted to a paltry 10% of sales in fiscal 2022, down from the 12% historically expended. In our view, a lack of investment here inhibits the ability of Church's fare to stand out at the shelf.