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Church & Dwight Co Inc CHD

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Morningstar’s Analysis

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Labor and Raw Material Shortages Take a Toll on Church & Dwight in Q2; Shares Rich

Erin Lash, CFA Sector Director

Analyst Note

| Erin Lash, CFA |

Church & Dwight posted impressive second-quarter sales--4.5% organic growth against 8.4% gains in the frenzied stock-up period a year ago. However, we find the degree to which stepped-up inflation ate into profits (with gross margin falling 340 basis points to 43.4%) combined with management’s repeated references to supply constraints (an inability to source raw materials from its suppliers) troubling. While we don’t deny labor shortages and sourcing are proving to be headwinds for firms across a vast array of industries, we’ve long surmised Church’s muted scale and negotiating leverage could inhibit its competitive position (hence our no-moat rating) relative to the giants it goes to bat against on a daily basis. And given this rhetoric hasn’t been pervasive among industry peers, we think these challenges could reflect Church’s subpar standing with its suppliers (which could be opting to funnel available product to larger household and personal-care operators).

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Company Profile

Business Description

Church & Dwight is the leading producer of baking soda in the world. Beyond baking soda, the products in its portfolio have vast category reach, including laundry products, cat litter, oral care, deodorant, and nasal care--all sold under the Arm & Hammer brand umbrella. Its mix also includes Xtra, Trojan, OxiClean, First Response, Nair, L’il Critters/Vitafusion, Orajel, and Water Pik, which together with Arm & Hammer constitute more than 80% of its annual sales and profits. In early 2019, the firm announced the addition of Flawless, which manufactures electric shaving products for women. The firm acquired Zicam at the end of 2020, a leading brand in the cough/cold shortening category. Church & Dwight derives about 85% of its sales from its home turf.

500 Charles Ewing Boulevard
Ewing, NJ, 08628
T +1 609 806-1200
Sector Consumer Defensive
Industry Household & Personal Products
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2019
Stock Type Aggressive Growth
Employees 5,100