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Church & Dwight Reports Fourth Quarter And 2012 Results

Stocks in this article: CHD

Church & Dwight Co., Inc. (NYSE:CHD) today announced that full year 2012 reported earnings per share increased 15.6% to $2.45 per share compared to $2.12 per share in the prior year. Excluding a deferred tax valuation allowance charge of $0.09 per share incurred in the fourth quarter of 2011, 2012 earnings per share increased 10.9%. Full year 2012 net sales increased 6.3% to $2,922 million from $2,749 million in 2011. Organic sales growth for 2012 was 5.2%, driven by volume growth of 6.3% and partially offset by the 1.1% negative effect of price.

James R. Craigie, Chairman and Chief Executive Officer, commented, “We are proud of the business results we accomplished in 2012. Despite continuing weak category consumption in the U.S., we delivered 5.2% organic sales growth and 10.9% adjusted EPS growth; we increased market share on six of our eight power brands and we significantly increased our dividend to return value to shareholders. In October 2012, we also acquired Avid Health, Inc., the leader in gummy form vitamins and supplements. The acquisition of Avid’s gummy vitamins business represents a great addition to our existing portfolio and brings to our Company a new growth platform in one of the fastest-growing segments of the attractive vitamin / mineral / supplement category.”

Fourth Quarter Review

Reported earnings per share in the fourth quarter increased 30% to $0.57 per share compared to $0.44 per share for the same period in the prior year. Excluding the tax valuation allowance in 2011, earnings per share increased 8%, from $0.53 per share to $0.57 per share. The Avid acquisition was earnings neutral. Reported net sales for the fourth quarter increased 10.8% to $809.7 million. Organic sales increased 4.4%, driven by volume growth of 4.3% and the 0.1% positive effect of price. The business exited 2012 with strong momentum as quarterly share gains were achieved on seven of our eight power brands.

Consumer Domestic net sales were $609.4 million, an $89.8 million or 17.3% increase over the prior year fourth quarter sales. Fourth quarter organic sales increased by 5.5%, primarily due to higher sales of ARM & HAMMER liquid laundry detergent, ARM & HAMMER cat litter, ARM & HAMMER SPINBRUSH battery-operated toothbrushes, TOOTHTUNES toothbrushes, TROJAN products and ARM & HAMMER CRYSTAL BURST unit dose laundry detergent. These increases were partially offset by lower sales of ARM & HAMMER powdered laundry detergent, ANSWER diagnostic kits and ARM & HAMMER dental care toothpaste. Volume growth contributed approximately 5.8% to organic sales, partially offset by 0.3% unfavorable product mix and pricing.

Consumer International net sales were $136.3 million, an $8.7 million or 6.0% decrease from the prior year fourth quarter sales, largely due a change in fiscal calendar for certain subsidiaries in the fourth quarter of 2011. Organic sales increased by 2.7%, primarily due to increased sales in Canada, Australia, Mexico and Brazil. Volume growth contributed approximately 3.5% to organic sales, partially offset by 0.8% unfavorable product mix and pricing.

Specialty Products net sales were $64.0 million, an $2.5 million or 3.8% decrease from the prior year fourth quarter sales. Fourth quarter organic sales decreased by 0.3%. Lower animal nutrition volumes accounted for 5.8% of the decrease, partially offset by favorable pricing which contributed 5.5% and was primarily due to a pass-through of raw material increases to customers.

Gross margin for the total company, including the impact of the Avid acquisition, expanded 100 basis points to 44.3% in the fourth quarter compared to 43.3% in the prior year fourth quarter. Excluding the impact of the Avid acquisition, gross margin expanded 210 basis points. The improvement is due primarily to a cat litter price increase, sales growth of our higher margin personal care business, in-house production of unit dose detergent, the new Victorville, California facility and a reduction in trade spending. The Company delivered full year gross margin expansion of 30 basis points, excluding the impact of the Avid acquisition.

Marketing expense was $108.7 million in the fourth quarter, the highest spending of the year, representing an increase of $3.1 million or 2.9% in comparison with the prior year fourth quarter. Marketing expense as a percentage of net sales was 13.4% in the fourth quarter, a decrease of 100 basis points from the prior year fourth quarter, reflecting Avid’s lower marketing expense as a percentage of sales. The marketing spending in the fourth quarter was effective in driving share gains on seven of our eight power brands.

Selling, general, and administrative expense (SG&A) was $115.1 million in the fourth quarter, a $21.6 million increase over the prior year fourth quarter, primarily due to the inclusion of the Avid business, acquisition transaction costs, and higher incentive compensation. SG&A as a percentage of net sales was 14.2%, a 140 basis point increase from the prior year fourth quarter.

Income from Operations was $134.6 million in the fourth quarter, an increase of $17.2 million or 14.7% over the prior year fourth quarter. Operating income as a percentage of net sales was 16.6%, a 50 basis point increase over the prior year fourth quarter.

Other expense increased by $4.9 million in the fourth quarter, primarily due to higher net interest expense of $3.2 million in the fourth quarter of 2012 related to the debt financing in connection with the Avid acquisition.

The effective tax rate in the fourth quarter was 37.9%, compared to 45.9% in the fourth quarter of 2011. Excluding the deferred tax valuation allowance of approximately $13 million, the tax rate was 35.1% in the fourth quarter of 2011. The full year 2012 effective tax rate is 35.5%.

Operating Cash Flow

For the full year 2012, reported net cash from operating activities was $523.6 million, an increase of $85.8 million or 19.6% over the prior year. The fourth quarter estimated Federal tax payment was deferred from December 2012 to January 2013 as a result of Hurricane Sandy relief, which increased 2012 net cash from operating activities by $36 million. The increase in net cash from operating activities is also a result of improvements in working capital and higher net income. Capital expenditures for the full year 2012 were $74.5 million, a $2.1 million decrease from the prior year.

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